What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-02-23 compared with 2022-02-24 · 605 added, 501 removed, 1770 unchanged (38% of the section changed)

7 unchanged sentences

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

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).

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S.

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

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.

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.

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.

Goodwill impairment of North America Business reporting unit

As discussed in Note 3 to the consolidated financial statements, the goodwill balance at December 31, 2022 was $12.7 billion.

The Company assesses goodwill for impairment at least annually, or more frequently, if events or circumstances indicate the carrying value of a reporting unit likely exceeds its fair 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 annual impairment test determined the carrying value of the North America Business reporting unit exceeded its estimated fair value.

As a result, the Company recorded a non-cash impairment charge of $3.2 billion to reduce the carrying value of goodwill for the North America Business reporting unit.

We identified the assessment of the Company’s annual impairment testing related to the carrying value of goodwill of the North America Business reporting unit as a critical audit matter.

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

Those assumptions included:

projected cash flows, the discount rate, and the earnings before interest, taxes, depreciation, and amortization ("EBITDA") market multiple.

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

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

Specialized skills and knowledge were required in the assessment of the discount rate and the EBITDA market multiple.

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 annual impairment testing of goodwill.

This included controls related to the Company’s development of projected cash flows, and the determination of the discount rate and the EBITDA market multiple.

We performed a sensitivity analysis over the projected cash flow assumptions to assess the impact on the Company’s estimate of the fair value of the North America Business reporting unit.

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

We also evaluated the Company’s North America Business reporting unit’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 valuation professionals with specialized skills and knowledge, who assisted in:

• evaluating the discount rate by independently developing a discount rate range using publicly available market data for comparable entities

• evaluating the EBITDA market multiple by comparing to EBITDA market multiple range developed using publicly available market data for comparable entities

• performing sensitivity analyses that considered a range of discount rates and a range of EBITDA market multiples.

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

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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, 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.

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, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 23, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Selling, general and administrative 3,078 2,895 3,464

Gain on sale of businesses ( 773 ) — —

Loss on disposal groups held for sale 700 — —

Depreciation and amortization 3,239 4,019 4,710

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Total operating expenses 17,383 15,402 19,750

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

OPERATING INCOME 95 4,285 962

OTHER EXPENSE

Interest expense ( 1,332 ) ( 1,522 ) ( 1,668 )

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

Other income (expense), net 246 ( 62 ) ( 76 )

Total other expense, net ( 1,086 ) ( 1,584 ) ( 1,744 )

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

(LOSS) INCOME BEFORE INCOME TAXES ( 991 ) 2,701 ( 782 )

Income tax expense 557 668 450

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

NET (LOSS) INCOME $ ( 1,548 ) 2,033 ( 1,232 )

BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

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LUMEN TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Years Ended December 31,

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(Dollars in millions)

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

NET (LOSS) INCOME $ ( 1,548 ) 2,033 ( 1,232 )

OTHER COMPREHENSIVE INCOME (LOSS):

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631 424 ( 92 )

Reclassification of net actuarial loss to gain on the sale of business, net of $( 142 ), $ — and $ — tax

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

Change in net prior service cost, net of $( 9 ), $( 5 ) and $( 12 ) tax

Reclassification of prior service credit to gain on the sale of business, net of $ 6 , $ — and $ — tax

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

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

Reclassification of realized loss on interest rate swaps to net (loss) income, net of $( 5 ), $( 20 ) and $( 16 ) tax

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

— ( 1 ) ( 86 )

Reclassification of realized loss on foreign currency translation to gain on the sale of business, net of $ — , $ — and $ — tax

Foreign currency translation adjustment, net of $ 58 , $ 30 and $( 43 ) tax

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Other comprehensive income (loss) 1,059 655 ( 133 )

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

COMPREHENSIVE (LOSS) INCOME $ ( 489 ) 2,688 ( 1,365 )

See accompanying notes to consolidated financial statements.

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OPERATING ACTIVITIES

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

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

Net (loss) income $ ( 1,548 ) 2,033 ( 1,232 )

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

Depreciation and amortization 3,239 4,019 4,710

Gain on sale of businesses ( 773 ) — —

Loss on disposal groups held for sale 700 — —

Goodwill impairment 3,271 — 2,642

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Net (gain) loss on early retirement and modification of debt ( 214 ) ( 8 ) 105

Unrealized loss (gain) on investments 191 ( 138 ) —

Stock-based compensation 98 120 175

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Capital expenditures ( 3,016 ) ( 2,900 ) ( 3,729 )

Proceeds from sale of businesses 8,369 — —

Proceeds from sale of property, plant and equipment and other assets 120 135 153

Other, net 3 53 12

Net cash used in investing activities ( 2,712 ) ( 3,564 ) ( 3,570 )

Net cash provided by (used in) investing activities 5,476 ( 2,712 ) ( 3,564 )

FINANCING ACTIVITIES

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Payments of long-term debt ( 8,093 ) ( 3,598 ) ( 7,315 )

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

Net (payments of) proceeds from revolving line of credit ( 200 ) 50 ( 100 )

Dividends paid ( 780 ) ( 1,087 ) ( 1,109 )

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Net cash used in financing activities ( 9,313 ) ( 3,807 ) ( 4,250 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 18 ) ( 1,290 ) 1,199

Net increase (decrease) in cash, cash equivalents and restricted cash 898 ( 18 ) ( 1,290 )

Cash, cash equivalents and restricted cash at beginning of period 409 427 1,717

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Cash and cash equivalents $ 1,251 354 406

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

Cash and cash equivalents and restricted cash included in Assets held for sale 44 40 —

Restricted cash included in Other current assets — 2 3

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

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

Net (loss) income ( 1,548 ) 2,033 ( 1,232 )

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

Balance at end of period ( 7,546 ) ( 5,998 ) ( 8,031 )

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Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated.

In connection with our acquisition of Level 3 in 2017, we acquired its deconsolidated Venezuela subsidiary and due to exchange restrictions and other conditions have assigned no value to this subsidiary's assets.

Additionally, we have excluded this subsidiary from our consolidated financial statements.

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 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.

(i) income attributable to noncontrolling interests in other income (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 recategorization of our Mass Markets revenue by product category in our segment reporting for 2022, 2021 and 2020.

See Note 17—Segment Information for additional information.

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

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

Operating Expenses

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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.

Unless otherwise specified, the amounts and information presented in the notes do not include assets and liabilities that have been classified as held for sale as of December 31, 2022.

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

Revenue Recognition

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These advance payments may 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 to five years depending on the service.

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 typically ranges from one to five years depending on the service.

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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The revenue associated with each performance obligation is then recognized as earned.

We periodically sell optical capacity on our network.

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.

We periodically sell transmission capacity on our network.

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

Cash consideration received on transfers of dark fiber is accounted for as non-ASC 606 lease revenue, which we also recognize ratably over the term of the agreement.

We do not recognize revenue on any contemporaneous exchanges of our optical capacity assets for other non-owned optical capacity assets.

We do not recognize revenue on any contemporaneous exchanges of our transmission capacity assets for other non-owned transmission capacity assets.

In connection with offering products and services provided to the end user by third-party vendors, we review the relationship between us, the vendor and the end user to assess whether revenue should be reported on a gross or net basis.

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

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.

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Expenditures for maintenance and repairs are expensed as incurred.

Interest is capitalized during the construction phase of network and other internal-use capital projects.

Employee-related costs for construction of network and other internal use assets are also capitalized during the construction phase.

During the construction phase of network and other internal-use capital projects, we capitalize related employee and interest costs.

Property, plant and equipment supplies used internally are carried at average cost, except for significant individual items which are carried at actual cost.

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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.

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

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

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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 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.

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

We are required to write-down the value of goodwill of our reporting units in periods in which the recorded carrying value of any such unit exceeds its fair value of equity.

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

Therefore, the equity carrying value and future cash flows are assessed each time a goodwill impairment assessment is performed on a reporting unit.

To do so, we assign our assets, liabilities and cash flows to reporting units using reasonable and consistent allocation methodologies, which entail various estimates, judgments and assumptions.

To do so, we assign our assets, liabilities and cash flows to reporting units using allocation methodologies which we believe are reasonable and consistent.

This process entails various estimates, judgments and assumptions.

We are required to reassign goodwill to reporting units whenever reorganizations of our internal reporting structure changes the composition of our reporting units.

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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 approximation of the fair value of the operations being reorganized.

When fair value is not available, we utilize an alternative allocation methodology that we believe 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 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.

As of December 31, 2022, we held no swap agreements since all of our variable-to-fixed interest rate swap agreements in place at the beginning of the year expired during the first half of 2022.

While we held these agreements, we evaluated the effectiveness as 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 was reflected in accumulated other comprehensive loss and subsequently reclassified into earnings in the period the hedged transaction affects earnings, by virtue of qualifying as effective cash flow hedges.

For more information see Note 15—Derivative Financial Instruments.

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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.

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

Pension and post-retirement benefit expenses are recognized over the period in which the employee renders service and becomes eligible to receive benefits.

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Foreign Currency

Local currencies of our 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 prior to the August 1, 2022 sale of our Latin American business.

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

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dollars at period-end exchange rates, and revenue, expenses and cash flows are translated using average monthly exchange rates.

A significant portion of our non-United States subsidiaries use either the British pound, the Euro or the Brazilian Real as their functional currency, each of which experienced significant fluctuations against the U.S.

A significant portion of our non-United States subsidiaries use either the British pound or the Euro, or used, prior to the August 1, 2022 sale of our Latin American business, the Brazilian Real, as their functional currency, each of which experienced significant fluctuations against the U.S.

dollar during the years ended December 31, 2022, 2021 and 2020.

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.

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) income in accordance with accounting guidance for foreign currency translation.

Prior to the announcement of our divestitures as discussed in Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business, 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 income (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.

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Under the plan, one preferred stock purchase right was distributed for each share of our outstanding common stock as of the close of business on February 25, 2019, and those rights currently trade in tandem with the common stock until they expire or detach under the plan.

This plan was designed to deter trading that would result in a change of control (as defined in Code Section 382), and therefore protect our ability to use our historical federal net operating losses in the future.

This plan was designed to deter trading that would result in a change of control (as defined in Code Section 382), and therefore protect our ability to use our historical federal NOLs in the future.

The plan is scheduled to lapse in late 2023.

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

On November 2, 2022, we announced that our Board had terminated our quarterly cash dividend program.

Under this revised capital allocation policy, the company plans to continue to invest in growth initiatives.

Recently Adopted Accounting Pronouncements

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

During 2022, we adopted Accounting Standards Update ("ASU") 2021-10, " Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance ” (“ASU 2021-10”) and ASU 2021-05, “ Leases (Topic 842):

Lessors—Certain Leases with Variable Lease Payments ” (“ASU 2021-05”).

During 2021, we adopted 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.

Government Assistance

On January 1, 2022, we adopted ASU 2021-10.

This ASU requires business entities to disclose information about certain types of government assistance they receive.

Please refer to Note 4—Revenue Recognition for more information.

On January 1, 2022, we adopted ASU 2021-05.

This ASU (i) amends the lease classification requirements for lessors to align them with practice under ASC Topic 840, (ii) provides criteria for lessors to 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;

and (iii) provides guidance with respect to net investments by lessors under operating leases and other related topics.

The adoption of ASU 2021-05 did not have a material impact to our consolidated financial statements.

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

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

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

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

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

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

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

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

As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply.

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.

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

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 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.

In December 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-06, “ Reference Rate Reform (Topic 848) – Deferral of the Sunset Date of Topic 848 " ("ASU 2022-06").

These amendments extend the period of time preparers can utilize the reference rate reform relief guidance in Topic 848, which defers the sunset date from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

ASU 2022-06 is effective upon issuance.

Based on our review of our key material contracts through December 31, 2022, ASU 2022-06 does not have a material impact to our consolidated financial statements.

In September 2022, the FASB issued ASU 2022-04, “Liabilities-Supplier Finance Program (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations ” (“ASU 2022-04”).

These amendments require that a company that uses a supplier finance program in connection with the purchase of goods or services disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, program activity during the period, changes from period to period and potential magnitude of program transactions.

ASU 2022-04 will become effective for us in the first quarter of fiscal 2023.

As of December 31, 2022, we are reviewing our supplier finance agreements to determine the impact to disclosures in our consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, “ Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ” (“ASU 2022-03”).

These amendments clarify that a contractual restriction on the sales of an investment in equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

ASU 2022-03 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 2021-10 in the first quarter of fiscal 2022 will have a material impact to our consolidated financial statements.

As of December 31, 2022, we do not expect ASU 2022-03 to have an impact to our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, “ Financial Instruments-Credit Losses (Topic 326):

Troubled Debt Restructurings (“TDR”) and Vintage Disclosures ” (“ASU 2022-02”).

These amendments eliminate the TDR recognition and measurement guidance, enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

ASU 2022-02 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted.

As of December 31, 2022, we do not expect ASU 2022-02 to have an impact to our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, “ Derivatives and Hedging (Topic 815):

Fair Value Hedging-Portfolio Layer Method ” ("ASU 2022-01").

The ASU expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method.

ASU 2022-01 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted.

As of December 31, 2022, we do not expect ASU 2022-01 to have an impact to our consolidated financial statements.

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

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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.

As of December 31, 2022, we do not expect ASU 2021-08 to have an impact to our consolidated financial statements.

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

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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.

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.

These amendments 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 optional expedients 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, 2022, ASU 2021-01 will not have a material impact to our consolidated financial statements.

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

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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.

Based on our review of our key material contracts through December 31, 2022, we do not expect ASU 2020-04 to have a material impact on the consolidated financial statements.

(2) Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business

Latin American Business

On August 1, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., sold Lumen’s Latin American business pursuant to a definitive agreement dated July 25, 2021, for pre-tax cash proceeds of approximately $ 2.7 billion.

For the year ended December 31, 2022, we recorded a $ 597 million net pre-tax gain on disposal associated with the sale of our Latin American business.

This gain is reflected as operating income within the consolidated statements of operations.

In connection with the sale, we entered into a transition services agreement under which we provide the purchaser various support services.

In addition, Lumen and the purchaser entered into commercial agreements whereby they provide each other various network and other commercial services.

In addition, we agreed to indemnify the purchaser for certain matters for which future cash payments by Lumen could be required.

Lumen has estimated the fair value of these indemnifications to be $ 86 million, which is included in other long-term liabilities in our consolidated balance sheet and has reduced our gain on the sale accordingly.

The Latin American business was included in our continuing operations and classified as assets and liabilities held for sale on our consolidated balance sheets through the closing of the transaction on August 1, 2022.

As a result of closing the transaction, we derecognized net assets of $ 1.9 billion, primarily made up of (i) property, plant and equipment, net of accumulated depreciation, of $ 1.7 billion, (ii) goodwill of $ 245 million, (iii) other intangible assets, net of accumulated amortization, of $ 140 million, and (iv) deferred income tax liabilities, net, of $ 154 million.

In addition, we reclassified $ 112 million of realized loss on foreign currency translation, net of tax, to partially offset the gain on sale of our Latin American business.

ILEC Business

On October 3, 2022, we and certain of our affiliates sold the portion of our incumbent local exchange ("ILEC") business primarily conducted within 20 Midwestern and Southeastern states to affiliates of funds advised by Apollo Global Management, Inc.

In exchange, we received $ 7.5 billion of consideration, which was reduced by approximately $ 0.4 billion of closing adjustments and partially paid through purchaser's assumption of approximately $ 1.5 billion of our long-term consolidated indebtedness, resulting in pre-tax cash proceeds of approximately $ 5.6 billion, subject to certain post-closing adjustments and indemnities.

For the year ended December 31, 2022, we recorded a $ 176 million net pre-tax gain on disposal associated with the sale of our ILEC business.

This gain is reflected as operating income within the consolidated statements of operations.

In connection with the sale, we have entered into a transition services agreement under which we provide the purchaser various support services.

In addition, Lumen and the purchaser entered into commercial agreements whereby they provide each other various network and other commercial services.

Under these agreements, we have committed to ordering services of approximately $ 373 million from the purchaser over a period of three years and the purchaser has committed to ordering services of approximately $ 67 million from us over a period of three years .

We also agreed to indemnify the purchaser for certain matters for which future cash payments by Lumen are expected.

Lumen has estimated the fair value of these indemnifications to be $ 89 million, which is included in other current liabilities in our consolidated balance sheet and has increased our income tax expense accordingly.

The ILEC business was included in our continuing operations and classified as assets and liabilities held for sale on our consolidated balance sheets through the closing of the transaction on October 3, 2022.

As a result of closing the transaction, we derecognized net assets of $ 4.8 billion, primarily made up of (i) property, plant and equipment, net of accumulated depreciation, of $ 3.6 billion, (ii) goodwill of $ 2.6 billion and (iii) long-term debt, net of discounts, of $ 1.4 billion.

In addition, we reclassified $ 403 million of net actuarial loss and prior service credit related to the Lumen Pension Plan, net of tax, conveyed to the purchaser to partially offset the gain on the sale of our ILEC business.

EMEA Business

On November 2, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., granted an option to Colt Technology Services Group Limited, a portfolio company of Fidelity Investments, to purchase certain of their operations in Europe, the Middle East and Africa (the "EMEA business"), in exchange for $ 1.8 billion in cash, subject to certain working capital and other purchase price adjustments.

Following the completion of a French consultative process, Colt exercised its option and on February 8, 2023, the parties entered into a definitive purchase agreement, which contains various customary covenants for transactions of this type including various indemnities.

Level 3 Parent, LLC expects to close the transaction as early as late 2023, following receipt of all requisite regulatory approvals in the U.S.

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

The actual amount of our net after-tax proceeds from this divestiture could vary substantially from the amounts we currently estimate, particularly if we experience delays in completing the transaction 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.

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:

Therefore, neither of the divested businesses discussed above, nor the planned divestiture of the EMEA business meet the criteria to be classified as discontinued operations.

As a result, we continued to report our operating results for the Latin American and ILEC businesses in our consolidated operating results through their respective disposal dates of August 1, 2022 and October 3, 2022, and we will continue to report our operating results for the EMEA business (the "disposal group") in our consolidated operating results until the transaction is closed.

As of December 31, 2022 in the accompanying consolidated balance sheet, the assets and liabilities of our EMEA business are classified as held for sale and measured at the lower of (i) the carrying value when we classified the disposal group as held for sale and (ii) the fair value of the disposal group, less costs to sell.

Effective with the designation of the disposal group as held for sale on November 2, 2022, 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 $ 51 million of depreciation, intangible amortization, and amortization of right-of-use assets for the year ended December 31, 2022 if the EMEA business did not meet the held for sale criteria.

The classification of the EMEA business as held for sale was considered an event or change in circumstance which required an assessment of our goodwill for impairment.

We performed a pre-classification and post-classification goodwill impairment test as described further in Note 3—Goodwill, Customer Relationships and Other Intangible Assets.

As a result of our impairment tests, we determined the EMEA business disposal group was impaired resulting in a non-cash, non-tax-deductible goodwill impairment charge of $ 43 million.

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 recorded an estimated loss on disposal of $ 660 million during the year ended December 31, 2022 in the consolidated statement of operations and a valuation allowance included in assets held for sale on the consolidated balance sheet.

We will perform this evaluation each reporting period until disposal and, based on subsequent remeasurements, we will adjust the valuation allowance in assets held for sale (including any gain, limited to the original value).

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

December 31, 2022

Latin American Business ILEC Business Total

EMEA Business

(Dollars in millions)

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Cash and cash equivalents $ 43

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

Accounts receivable, less allowance of $ 5

Other current assets 59

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

Property, plant and equipment, net accumulated depreciation of $ 1,033

Customer relationships and other intangibles, net 100

Operating lease assets 156

Valuation allowance on assets held for sale (2)

Deferred tax assets 138

Other non-current assets 38

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Salaries and benefits 23

Income and other taxes 27 24 51

Interest — 10 10

Current portion of deferred revenue 28

Current operating lease liabilities 33

Other current liabilities 28

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

Deferred income taxes 38

Asset retirement obligations 30

Deferred revenue, non-current 85

Operating lease liabilities, non-current 103

Total liabilities held for sale $ 446

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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.

(1) The assignment of goodwill was based on the relative fair value of the applicable reporting unit prior to being classified as held for sale.

Prior to classification as held for sale, the goodwill was fully impaired as described in Note 3—Goodwill, Customer Relationships and Other Intangible Assets.

(2) Includes the impact of $ 365 million, primarily related to loss on foreign currency translation, expected to be reclassified out of accumulated other comprehensive loss upon close of the sale.

(3) Goodwill, Customer Relationships and Other Intangible Assets

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Total other intangible assets, net $ 6,166 6,970

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(1) These values exclude assets classified as held for sale.

(2) Certain customer relationships with a gross carrying value of $ 8.7 billion became fully amortized during 2021 and were retired during the first quarter of 2022.

As of December 31, 2022, the gross carrying amount of goodwill, customer relationships, indefinite-lived and other intangible assets was $ 26.5 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.

We are required to 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.

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

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.

We report our results within two segments:

Business and Mass Markets.

See Note 17—Segment Information for more information on these segments and the underlying sales channels.

As of December 31, 2022, we had three reporting units for goodwill impairment testing, which are (i) Mass Markets, (ii) North America Business ("NA Business") and (iii) Asia Pacific ("APAC") region.

Prior to the planned divestiture of the EMEA business, the EMEA region was also a reporting unit and was tested for impairment in the pre-classification test as of October 31, 2022 discussed below.

Prior to its August 1, 2022 divestiture, the Latin American ("LATAM") region was also a reporting unit.

At October 31, 2020 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 a non-cash impairment equal to the excess amount.

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

2022 Goodwill Impairment Analyses

As of October 31, 2022, we estimated the fair value of our four above-mentioned reporting units by considering both a market approach and a discounted cash flow method.

We discounted the projected cash flows for our Mass Markets, NA Business, EMEA and APAC reporting units using a rate that represented their weighted average cost of capital as of the assessment date, which comprised an after-tax cost of debt and a cost of equity, as disclosed in the table below.

We utilized company comparisons and analyst reports within the telecommunications industry which at the time of assessment supported a range of fair values derived from annualized revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples between 1.8 x and 4.6 x and 4.7 x and 10.8 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 2.5 x and 5.5 x, respectively.

We also reconciled the estimated fair values of the reporting units to our market capitalization as of October 31, 2022 and concluded that the indicated control premium of approximately 59 % was reasonable based on recent market transactions, including our divestitures, and our depressed stock price.

Due to the depressed trading price of our stock at October 31, 2022, and our assessment performed with respect to the reporting units described above, we concluded that the estimated fair value of our NA Business reporting unit was less than our carrying value of equity for that reporting unit, resulting in a non-cash, non-tax-deductible goodwill impairment charge of approximately $ 3.2 billion.

See the goodwill rollforward by segment table below for the impairment charges by segment.

As of October 31, 2022, the estimated fair value of equity exceeded the carrying value of equity for our Mass Markets, EMEA and APAC reporting units by 97 %, 171 % and 101 %, respectively.

Based on our assessments performed, we concluded that the goodwill assigned to our Mass Markets, EMEA and APAC reporting units was no t impaired at October 31, 2022.

As of October 31, 2022

Reporting Units

Mass Markets NA Business EMEA APAC

Weighted average cost of capital 9.4 % 9.4 % 9.8 % 11.3 %

After-tax cost of debt 4.7 % 4.7 % 5.1 % 6.3 %

Cost of equity 14.0 % 14.0 % 14.4 % 16.2 %

The classification of held for sale related to the EMEA business as described in Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of October 31, 2022.

We performed a pre-announcement goodwill impairment test described above to determine whether there was an impairment prior to the classification of these assets as held for sale and to determine the November 2, 2022, fair values to be utilized for goodwill allocation regarding the disposal group to be classified as assets held for sale.

We also performed a post-announcement goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to evaluate whether the fair value of our NA Business, Mass Markets and APAC reporting units that will remain following the divestiture exceeds the carrying value of the equity of such reporting units after classification of assets held for sale.

We concluded no impairment existed of our reporting units that remain following the divestiture.

Separate from the annual, pre-announcement and post-announcement goodwill assessments discussed above, we performed an assessment of our EMEA business disposal group for impairment using the purchase price compared to the carrying value of the EMEA business net assets.

As a result, the EMEA business disposal group was impaired, resulting in a non-cash, non-tax-deductible goodwill impairment charge of $ 43 million.

See Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business for additional information regarding the purchase price, carrying value, and impairment for goodwill of the EMEA business.

See the goodwill rollforward by segment table below for the impairment charges by segment.

2021 Goodwill Impairment Analyses

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.

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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.

Our classification of held for sale assets related to the divestitures of the Latin American and ILEC businesses on August 1, 2022 and October 3, 2022, respectively, as described in Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business, 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-classification goodwill impairment test to determine whether there was an impairment prior to the classification 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 classified 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.

We also performed a post-classification 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 would remain following the divestitures exceeded the carrying value of the equity of such reporting units after classification 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.

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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.

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

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

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

2020 Goodwill Impairment Analyses

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).

We utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values derived from annualized revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples between 2.0 x and 5.5 x and 4.8 x and 12.5 x, respectively.

We discounted the projected cash flows for our consumer, enterprise, wholesale, small and medium business, NA GAM, EMEA, LATAM and APAC reporting units using a rate that represented their weighted average cost of capital as of the assessment date, which comprised an after-tax cost of debt and a cost of equity, as disclosed in the table below.

We utilized company comparisons and analyst reports within the telecommunications industry which at the time of assessment supported a range of fair values derived from annualized revenue and EBITDA multiples between 2.0 x and 5.5 x and 4.8 x and 12.5 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 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.

See the table below for the impairment charges by segment.

Due to the depressed trading price of our stock 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 approximately $ 2.6 billion.

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

Based on our assessments performed, we concluded that the goodwill 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 (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.

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

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

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

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

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

We reconciled the estimated fair values of the reporting units to our market capitalization as of the date of each of our impairment tests during the first quarter of 2019 and concluded that the indicated control premium of approximately 4.5 % and 4.1 % was reasonable based on recent market transactions.

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

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

See the table below for the impairment charges by segment.

As of October 31, 2020

Reporting Units

Consumer, Enterprise, Wholesale, Small and medium business, and NA GAM EMEA LATAM APAC

Weighted average cost of capital 7.6 % 8.0 % 14.3 % 10.1 %

After-tax cost of debt 2.5 % 2.9 % 6.9 % 3.9 %

Cost of equity 10.7 % 11.2 % 18.8 % 14.0 %

The following table shows the rollforward of goodwill assigned to our reportable segments (including the January 2021 reorganization discussed above) from December 31, 2020 through December 31, 2022.

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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 —

Classified as held for sale — — — — — ( 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)

$ — — — — — 11,235 4,751 15,986

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

Reclassified as held for sale (2)

Business Mass Markets Total

(Dollars in millions)

As of December 31, 2021 (1)

$ 11,235 4,751 15,986

Effect of foreign currency exchange rate change and other ( 58 ) — ( 58 )

Impairment ( 3,271 ) — ( 3,271 )

As of December 31, 2022 (1)

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(1) Goodwill at December 31, 2022, December 31, 2021 and December 31, 2020 is net of accumulated impairment losses of $ 11.0 billion, $ 7.7 billion and $ 12.9 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.

The change in accumulated impairment losses at December 31, 2021 is the result of amounts classified as held for sale related to the divestitures of our Latin American and ILEC business on August 1, 2022 and October 3, 2022, respectively.

The change in accumulated impairment losses at December 31, 2022 is the result of the impairments discussed above.

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

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.

As of December 31, 2022, the weighted average remaining useful lives of our finite-lived intangible assets were approximately 7 years in total, approximately 8 years for customer relationships and 4 years for capitalized software.

Total amortization expense for finite-lived intangible assets for the years ended December 31, 2022, 2021 and 2020 was $ 1.1 billion, $ 1.3 billion and $ 1.7 billion, respectively.

We estimate that total amortization expense for finite-lived intangible assets for the years ending December 31, 2023 through 2027 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.

As a result of classifying our EMEA business as being held for sale on our December 31, 2022 consolidated balance sheet, the amounts presented below do not include future amortization expense for intangible assets of the business to be divested.

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

(Dollars in millions)

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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:

We categorize 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;

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• 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.

We categorize our products and services revenue among the following categories for the Mass Markets segment:

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

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

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

Reconciliation of Total Revenue to Revenue from Contracts with Customers

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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.

The amounts in the tables below include the Latin American and ILEC businesses revenues prior to their sales on August 1, 2022 and October 3, 2022, respectively:

Year Ended December 31, 2022

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Mass Markets Segment by Product Category

Consumer Broadband 2,875 ( 211 ) 2,664

SBG Broadband 156 ( 16 ) 140

Fiber Broadband 604 ( 18 ) 586

Other Broadband 2,163 ( 200 ) 1,963

Voice and Other 1,672 ( 134 ) 1,538

CAF II 490 ( 490 ) —

Total Mass Markets Revenue 4,439 ( 352 ) 4,087

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Mass Markets Segment by Product Category

Consumer Broadband 2,909 ( 221 ) 2,688

SBG Broadband 153 ( 15 ) 138

Fiber Broadband 524 — 524

Other Broadband 2,507 ( 227 ) 2,280

Voice and Other 2,537 ( 570 ) 1,967

CAF II 492 ( 492 ) —

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

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Mass Markets Segment by Product Category

Consumer Broadband 2,876 ( 215 ) 2,661

SBG Broadband 163 ( 4 ) 159

Fiber Broadband 427 — 427

Other Broadband 2,639 ( 236 ) 2,403

Voice and Other 2,838 ( 601 ) 2,237

CAF II 492 ( 492 ) —

Total Mass Markets Revenue 5,904 ( 837 ) 5,067

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Customer Receivables and Contract Balances

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:

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts classified as held for sale, as of December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

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(1) Reflects gross customer receivables of $ 1.5 billion and $ 1.6 billion, net of allowance for credit losses of $ 73 million and $ 102 million, at December 31, 2022 and December 31, 2021, 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.

These amounts exclude customer receivables, net, classified as held for sale of $ 76 million at December 31, 2022 (related to the EMEA business) and $ 288 million at December 31, 2021 (related to both the Latin American business and the ILEC business).

(2) These amounts exclude contract assets classified as held for sale of $ 16 million at December 31, 2022 (related to the EMEA business) and $ 9 million at December 31, 2021 (related to both the Latin American business and the ILEC business).

(3) These amounts exclude contract liabilities classified as held for sale of $ 59 million at December 31, 2022 (related to the EMEA business) and $ 161 million at December 31, 2021 (related to both the Latin American business and the ILEC business).

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 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.

During the years ended December 31, 2022 and December 31, 2021, we recognized $ 539 million and $ 605 million, respectively, of revenue that was included in contract liabilities of $ 841 million and $ 950 million as of January 1, 2022 and 2021, respectively, including contract liabilities that were classified as held for sale.

Performance Obligations

As of December 31, 2021, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $ 6.2 billion.

As of December 31, 2022, we expect to recognize approximately $ 7.4 billion of revenue in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied.

We expect to recognize approximately 75 % of this revenue through 2025, 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), (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.

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 or government assistance that are not subject to ASC 606 and (iii) the value of unsatisfied performance obligations for contracts which relate to our planned divestiture of the EMEA business.

Contract Costs

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

December 31, 2021

Year Ended December 31, 2022

Acquisition Costs Fulfillment Costs

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Amortization ( 192 ) ( 149 )

Reclassified as held for sale (1)

( 34 ) ( 32 )

Classified as held for sale (1)

End of period balance $ 202 192

December 31, 2020

Year Ended December 31, 2021

Acquisition Costs Fulfillment Costs

3 unchanged sentences

Amortization ( 209 ) ( 149 )

Classified as held for sale (2)

( 34 ) ( 32 )

End of period balance $ 222 $ 186

______________________________________________________________________

(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.

(1) Represents changes in amounts classified as held for sale related to the divestitures of our Latin American and ILEC businesses on August 1, 2022 and October 3, 2022, respectively, and $ 6 million acquisition costs and no fulfillment costs classified as held for sale as of December 31, 2022 related to the planned divestiture of the EMEA business.

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

(2) Represents the amounts classified as held for sale related to the divestitures of our Latin American and ILEC businesses on August 1, 2022 and October 3, 2022, respectively.

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

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.

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

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average contract life of approximately 32 months for mass markets customers and 30 months for business customers.

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The amount of deferred costs expected to be amortized beyond the next twelve months is included in other non-current assets on our consolidated balance sheets.

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

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

Deferred acquisition and fulfillment costs are assessed for impairment on a quarterly basis.

Governmental Funding

Lumen participates in various U.S.

federal and state programs under which government support payments are received to offset costs associated with providing services in targeted locations such as unserved or underserved high-cost or rural areas, or for certain types of customers, including non-profit organizations, educational institutions and local governmental bodies.

Support payments may be conditioned on specified infrastructure buildouts by milestone deadlines or provision of services at specified locations and speed requirements.

Commitments may be made annually, on a multi-year basis ranging from one to ten years or be on-going subject to periodic change or termination.

Consistent with customary practice and as referenced in ASC 832 Government Assistance , Lumen applies a grant model of accounting by which it accounts for these transactions as non-ASC 606 revenue over the periods in which the costs for which the funding is intended to compensate are incurred.

This non-ASC 606 revenue is included in operating revenue in our consolidated statements of operations.

Corresponding receivables are recorded when services have been provided to the customers and costs incurred, but the cash has not been received.

These amounts are included in our accounts receivable, less allowance in our consolidated balance sheets.

Certain programs are subject to audits of compliance with program commitments and, subject to the outcomes of those assessments, Lumen may be required to reimburse the government entity for cash previously received, or, in some cases, pay a penalty.

Lumen evaluates each program and establishes a liability under the principles of ASC 450 if it is probable support payments will be recaptured or a penalty will be imposed.

For the year ended December 31, 2022, Lumen recorded non-customer revenue of $ 190 million under government assistance programs, of which 31 % was associated with state universal service fund support programs.

Between 2015 and 2021, we received approximately $ 500 million annually through the FCC's Connect America Fund II ("CAF II"), a federal multi-year recurring subsidy program for more extensive broadband deployment in price-cap ILEC territories.

For this program, which ended on December 31, 2021, we were required to meet certain specified infrastructure buildout requirements in 33 states by the end of 2021, which required substantial capital expenditures.

In the first quarter of 2022, we recognized $ 59 million of previously deferred revenue related to the conclusion of the CAF II program based upon our final buildout and filing submissions.

The government has the right to audit our compliance with the CAF II program and the ultimate outcome of any remaining examinations is unknown, but could result in a liability to us in excess of our reserve accruals established for these matters.

In early 2020, the FCC created the Rural Digital Opportunity Fund (the “RDOF”), which is a federal support program designed to replace the CAF II program.

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

We won bids to receive approximately $ 26 million of annual RDOF Phase I support payments approximately 36 % of which is attributable to the ILEC business we divested on October 3, 2022.

Our support payments under the RDOF Phase I program commenced during the second quarter of 2022.

Lumen participates in multiple state sponsored programs for broadband deployment in unserved and underserved areas for which the states have state universal service funds sourced from fees levied on telecommunications providers and passed on to consumers.

During the year ending December 31, 2022, Lumen participated in these types of programs primarily in the states of Arkansas, California, Colorado, Maine, Nebraska, New Mexico, Oregon, Utah, Vermont, and Wisconsin.

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

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

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The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Our lease agreements do not generally contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:

Years Ended December 31,

2022 2021 2020

(Dollars in millions)

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Total lease cost $ 503 588 777

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.

We primarily lease from third parties various equipment, office facilities, retail outlets, switching facilities and other network sites or components.

These leases, with few exceptions, provide for renewal options and rent 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.

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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.

We did not further rationalize our lease footprint or incur material accelerated lease costs during the year ended December 31, 2022.

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

For the years ended December 31, 2022, 2021 and 2020, our gross rental expense, including the accelerated lease costs discussed above, was $ 503 million, $ 588 million and $ 777 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.

We also received sublease rental income of $ 25 million for each of the years ended December 31, 2022, 2021 and 2020.

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

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Finance leases 4.96 % 4.89 %

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.

At December 31, 2022, we classified certain operating and finance lease assets and liabilities related to the EMEA business as held for sale and discontinued recording amortization on the related right-of-use assets upon this classification.

These operating and finance lease assets and liabilities held for sale are not reflected in the above or throughout the disclosures within this note.

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

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

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Long-term portion $ 1,088 234

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

As of December 31, 2022, we had no material operating or finance leases that had not yet commenced.

Operating Lease Income

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

See "Revenue Recognition" in Note 1—Background and Summary of Significant Accounting Policies.

For the years ended December 31, 2022, 2021 and 2020, our gross rental income was $ 1.2 billion, $ 1.2 billion and $ 1.3 billion, respectively, which represents 7 %, 6 % and 6 % respectively, of our operating revenue for the years ended December 31, 2022, 2021 and 2020.

(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.

To assess our expected credit losses on financial instruments, we aggregate financial assets with similar risk characteristics to monitor their credit quality or deterioration over the life of such assets.

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.

We separately evaluate financial assets that do not share risk characteristics with other financial assets.

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

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

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

If there is an unexpected deterioration of a customer's financial condition or an unexpected change in economic conditions, including 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.

Alternative interpretations of these factors could have resulted in different conclusions regarding the allowance for credit losses.

Alternative interpretations of these factors could have resulted in different conclusions regarding our allowance for credit losses.

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, 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:

The following table presents the activity of our allowance for credit losses by accounts receivable portfolio for the years ended December 31, 2022 and December 31, 2021:

Business Mass Markets Total

(Dollars in millions)

Beginning balance at January 1, 2021 (1)

Balance at January 1, 2021 (1)

Provision for expected losses 50 55 105

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Recoveries collected 13 6 19

Reclassified as held for sale (2)

Classified as assets held for sale (2)

( 8 ) ( 16 ) ( 24 )

Ending balance at December 31, 2021

Business Consumer Total

(Dollars in millions)

Beginning balance at January 1, 2020 (3)

Balance at December 31, 2021 $ 88 26 114

Provision for expected losses 25 108 133

1 unchanged sentence

Recoveries collected 10 6 16

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

Change in allowance in assets held for sale (3)

( 5 ) 2 ( 3 )

Balance at December 31, 2022

______________________________________________________________________

(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.

(1) We completed an internal reorganization in January 2021.

As a result of this change, the 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 classified as held for sale related to the divestitures of our Latin American and ILEC businesses on August 1, 2022 and October 3, 2022, respectively.

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

(3) Represents changes in amounts classified as held for sale related to the divestitures of our Latin American and ILEC businesses on August 1, 2022 and October 3, 2022, respectively, and the inclusion of a $ 5 million allowance for credit losses classified as held for sale as of December 31, 2022 related to the planned divestiture of the EMEA business.

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

For the year ended December 31, 2022, we decreased our allowance for credit losses for our business and mass markets accounts receivable portfolios primarily due to releasing COVID-19 related reserves during 2022.

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, Inc.

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 table 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:

As of December 31,

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Lumen Technologies, Inc.

Revolving Credit Facility LIBOR + 2.00 %

2025 $ 200 150

Revolving Credit Facility (3)

LIBOR + 2.00 %

Term Loan A (4)

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Embarq Corporation subsidiaries

First mortgage bonds 7.125 % - 8.375 %

First mortgage bonds N/A N/A — 138

Senior Notes and Other Debt:

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Senior notes 6.875 % - 7.750 %

Embarq Corporation and subsidiary

Senior notes (7)

7.995 % 2036 — 1,437

Finance lease and other obligations Various Various 347 295

Unamortized premiums (discounts), net 21 ( 78 )

Finance lease and other obligations (9)

Various Various 317 347

Unamortized (discounts) premiums, net ( 7 ) 21

Unamortized debt issuance costs ( 169 ) ( 220 )

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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) The Revolving Credit Facility had an interest rate of 2.103 % as of December 31, 2021.

(4) Term Loans A and A-1 had interest rates of 6.384 % and 2.104 % as of December 31, 2022 and December 31, 2021, respectively.

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(6) The Level 3 Tranche B 2027 Term Loan had interest rates of 6.134 % and 1.854 % as of December 31, 2022 and December 31, 2021, respectively.

(7) The table excludes $ 1.4 billion of indebtedness under Embarq Corporation's 7.995 % senior notes maturing in 2036 that was classified as held for sale as of December 31, 2021 and was transferred as of October 3, 2022 concurrent with the sale of the ILEC business.

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

(8) The Qwest Corporation Term Loan had interest rates of 6.640 % and 2.110 % as of December 31, 2022 and December 31, 2021, 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.

(9) The table excludes finance lease obligations that were classified as held for sale as of December 31, 2022 and December 31, 2021.

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

Long-Term Debt Maturities

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.

Set forth below is the aggregate principal amount of our long-term debt as of December 31, 2022 (excluding unamortized (discounts) premiums, net, and unamortized debt issuance costs) maturing during the following years.

As a result of classifying our EMEA business as held for sale on our December 31, 2022 consolidated balance sheet, the amounts presented below do not include maturities of the finance lease obligations of that business.

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

(Dollars in millions)

1 unchanged sentence

Total long-term debt $ 20,748

______________________________________________________________________

(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.

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At December 31, 2022, 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:

or one of the following three 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;

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• Qwest Capital Funding, Inc., including its parent guarantor, Qwest Communications International Inc.

• Embarq Corporation.

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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• a $ 2.2 billion senior secured revolving credit facility (“the Revolving Credit Facility”);

• a $ 1.05 billion senior secured Term Loan A credit facility;

• a $ 991 million senior secured Term Loan A credit facility;

• a $ 283 million senior secured Term Loan A-1 credit facility with CoBank, ACB;

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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 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

Qwest Corporation

On October 23, 2020, Qwest Corporation borrowed $ 215 million under a variable-rate term loan with CoBank ACB and used the resulting net proceeds to pay off its previous $ 100 million term loan with CoBank ACB.

Additionally, on October 26, 2020, Qwest Corporation used the remaining net proceeds to partially facilitate the redemption of the remaining $ 160 million aggregate principal amount of its outstanding 6.625 % Notes due 2055.

The outstanding unpaid principal amount of this new term loan plus any accrued and unpaid interest is due on October 23, 2027.

On October 23, 2020, Qwest Corporation borrowed $ 215 million under a variable-rate term loan with CoBank ACB.

The outstanding unpaid principal amount of this term loan plus any accrued and unpaid interest is due on October 23, 2027.

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.

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under the Tranche B 2027 Term Loan.

Embarq Subsidiaries

At December 31, 2021 and 2020, one of our Embarq subsidiaries had outstanding first mortgage bonds.

These first mortgage bonds are secured by substantially all of the property, plant and equipment of the issuing subsidiary.

Revolving Letters of Credit

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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.

As of December 31, 2022 and 2021, we had (i) $ 94 million and $ 88 million, respectively, of letters of credit outstanding under our committed facility and various other facilities and (ii) no letters of credit outstanding under our Revolving Credit Facility.

Lumen's consolidated indebtedness at December 31, 2022 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.

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

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, 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.

are guaranteed by its parent, Level 3 Parent, LLC and one or more of its affiliates.

secured senior notes are guaranteed by the same domestic subsidiaries that guarantee the Amended Credit Agreement on substantially the same terms and conditions that govern the guarantees of the Amended Credit Agreement.

The Level 3 Financing, Inc.

secured senior notes are secured by a pledge of substantially all of its assets and guaranteed on a secured basis by the same domestic subsidiaries that guarantee its Term B 2027 Term Loan.

The remaining senior notes issued by Level 3 Financing, Inc.

are guaranteed on an unsecured basis by its parent, Level 3 Parent, LLC, and one of its subsidiaries.

The senior notes issued by Qwest Capital Funding, 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

Borrowings and Repayments

During 2022, Lumen borrowed $ 2.4 billion from, and made repayments of $ 2.6 billion to, its Revolving Credit Facility.

We used our net revolving credit draws and available cash to repay the following aggregate principal amounts of indebtedness through a combination of tender offers, redemptions, prepayments, amortization payments and payments at maturity.

These transactions resulted in a net gain on the extinguishment of debt of $ 214 million.

Debt Period of Repayment (Dollars in millions)

Lumen Technologies, Inc.

5.800 % Senior Notes due 2022 (at maturity)

Q1 2022 $ 1,400

6.750 % Senior Notes, Series W, due 2023

7.500 % Senior Notes, Series Y, due 2024

5.625 % Senior Notes, Series X, due 2025

7.200 % Senior Notes, Series D, due 2025

5.125 % Senior Notes due 2026

6.875 % Debentures, Series G, due 2028

5.375 % Senior Notes due 2029

Term Loan B prepayment Q4 2022 909

Scheduled term loan payments Multiple 125

Level 3 Financing, Inc.

Tranche B 2027 Term Loan Q3 2022 700

5.375 % Senior Notes due 2025

5.250 % Senior Notes due 2026

Embarq Corporation Subsidiaries

First Mortgage Bonds Q4 2022 137

Qwest Capital Funding, Inc.

Senior Notes Q4 2022 63

Other Q4 2022 68

Total Debt Repayments $ 8,202

During 2021, Lumen borrowed $ 400 million from, and made repayments of $ 350 million to, its Revolving Credit Facility.

We also used available cash (including funds from the debt issuances mentioned below) to repay the following aggregate principal amounts of indebtedness through a combination of redemptions, prepayments, amortization payments and payments at maturity.

These transactions resulted in a net gain on the extinguishment of debt of $ 8 million.

Debt Period of Repayment (Dollars in millions)

Lumen Technologies, Inc.

6.450 % Senior Notes, Series S, due 2021 (at maturity)

Q2 2021 $ 1,231

Scheduled term loan payments Multiple 125

Level 3 Financing, Inc.

5.375 % Senior Notes due 2024

Qwest Corporation, Inc.

6.750 % Senior Notes (at maturity)

7.000 % Senior Notes due 2056

Qwest Capital Funding, Inc.

Senior Notes (at maturity) Q3 2021 97

Total Debt Repayments $ 3,538

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.

issued $ 1.0 billion aggregate principal amount of 5.375 % Senior Notes due 2029.

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, shown in the table above.

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 net proceeds were used, together with cash on hand, to redeem $ 900 million of our outstanding senior note indebtedness, shown in the table above.

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.

On August 12, 2020, Level 3 Financing, Inc., issued $ 840 million aggregate principal amount of its 3.625 % Senior Notes due 2029 (the "2029 Notes").

Level 3 Financing, Inc.

used the net proceeds from this offering to redeem certain of its outstanding senior note indebtedness.

The 2029 Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.

On June 15, 2020, Level 3 Financing, Inc., issued $ 1.2 billion aggregate principal amount of its 4.250 % Senior Notes due 2028 (the "2028 Notes").

Level 3 Financing, Inc.

used the net proceeds from this offering to redeem certain of its outstanding senior note indebtedness.

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

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, 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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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.

These indentures do not contain any provisions that restrict the incurrence of additional indebtedness.

The senior secured notes of Lumen Technologies, Inc.

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contain various representations and extensive affirmative and negative covenants.

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

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

Also, as indicated above under "Senior Notes", Level 3 Financing, Inc.

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Qwest Companies

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.

Under its term loan, Qwest Corporation must maintain a debt to EBITDA 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 permits liens on its property for the benefit of other debtholders.

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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 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.

The indenture also contains restrictions on the consummation of certain transactions substantially similar to Lumen’s above-described covenants (but without mandatory repurchase provision), as well as certain customary covenants to maintain properties and pay all taxes and lawful claims.

Impact of Covenants

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Lumen Technologies does not guarantee the debt of any unaffiliated parties, but, as noted above, as of December 31, 2022 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.

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

(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." See Note 6—Credit Losses on Financial Instruments for more information.

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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.

(5) These values exclude assets classified as held for sale.

At December 31, 2022, we classified $ 1.9 billion of certain property, plant and equipment, net related to our EMEA business as held for sale and discontinued recording depreciation on this disposal group as of November 2, 2022.

At December 31, 2021, we had $ 5.1 billion of certain property, plant and equipment, net related to our Latin American and ILEC businesses sold on August 1, 2022 and October 3, 2022, respectively, classified as held for sale and discontinued recording depreciation on these disposal groups during their classification as assets held for sale.

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

We recorded depreciation expense of $ 2.1 billion, $ 2.7 billion and $ 3.0 billion for the years ended December 31, 2022, 2021 and 2020, respectively.

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Years Ended December 31,

2021 2020 2019

(Dollars in millions)

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Change in estimate 4 ( 2 )

Reclassified as held for sale (1)

Classified as held for sale (1)

( 30 ) ( 12 )

Balance at end of year $ 156 182

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(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.

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

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

The changes in estimate referred to in the table above were offset against gross property, plant and equipment.

(10) Severance

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

These workforce reductions result primarily from the progression or completion of our post-acquisition integration plans, increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to reduced demand for certain services.

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

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Pension, Post-Retirement and Other Post-Employment Benefits

We sponsor various defined benefit pension plans (qualified and non-qualified) which, in the aggregate, cover a substantial portion of our employees including legacy CenturyLink, legacy Level 3, legacy Qwest Communications International Inc.

("Qwest") and legacy Embarq employees.

Pension benefits for participants of the Lumen Combined Pension Plan ("Combined Pension Plan") who are represented by a collective bargaining agreement are based on negotiated schedules.

We sponsor various defined benefit pension plans (qualified and non-qualified) which, in the aggregate, cover a substantial portion of our employees.

Pension benefits for participants of the Lumen Combined Pension Plan ("Combined Pension Plan") and, through the October 3, 2022 sale of the ILEC business, the Lumen Pension Plan, who are represented by a collective bargaining agreement are based on negotiated schedules.

All other participants' pension benefits are based on each individual participant's years of service and compensation.

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We use a December 31 measurement date for all our plans.

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.

As of January 1, 2022, we spun off the Lumen Pension Plan from the Lumen Combined Pension Plan in anticipation of the sale of the ILEC business, as described further in Note 2—Divestitures of the Latin American and ILEC Businesses and Planned Divestiture of the EMEA Business.

At the time of the spin-off, the Lumen Pension Plan covered approximately 2,500 active plan participants along with 19,000 other participants.

At the time of the spin-off, the Lumen Pension Plan had a pension benefit obligation of $ 2.5 billion and assets of $ 2.2 billion.

In addition, the December 31, 2021 actuarial (loss) gain and prior service cost included in accumulated other comprehensive loss was allocated between the Lumen Pension Plan and the Lumen Combined Pension Plan.

Following a revaluation of the pension obligation and pension assets for the Lumen Pension Plan, in preparation for the closing of the sale of the ILEC business, we contributed approximately $ 319 million of Lumen's cash to the Lumen Pension Plan trust to fully fund the pension plan in September 2022.

The amounts allocated to the Lumen Pension Plan were subject to adjustment up to the closing of the sale of the ILEC business on October 3, 2022, at which time the plan was transferred along with the rest of the assets and liabilities of the ILEC business.

We recognized pension costs related to both plans through the sale of the ILEC business, at which time balances related to the Lumen Pension Plan were reflected in the calculation of our gain on the sale of the business.

Pension Benefits

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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 $ 1.1 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.

The accounting unfunded status of the Combined Pension Plan was $ 580 million and $ 1.1 billion as of December 31, 2022 and 2021, respectively.

We made no voluntary cash contributions to the Combined Pension Plan in 2022 or 2021.

As discussed above, we contributed approximately $ 319 million of cash to the Lumen Pension Plan trust to fully fund the pension plan in September 2022 in preparation for the closing of the sale of the ILEC business.

We paid $ 5 million of benefits directly to participants of our non-qualified pension plans in both 2022 and 2021.

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

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.

Based on current laws and circumstances, we do not believe we are required to make any contributions to the Combined Pension Plan in 2023 and we do not expect to make voluntary contributions to the trust for the Combined Pension Plan in 2023.

We estimate that in 2023 we will pay $ 5 million of benefits directly to participants of our non-qualified pension 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.

These plans were fully funded as of December 31, 2022.

The net unfunded status of these plans was $ 17 million, as of December 31, 2021.

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 $ 35 million and $ 46 million for the years ended December 31, 2022 and 2021, 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.

Post-Retirement Benefits

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No contributions were made to the post-retirement trusts in 2022 nor 2021.

Starting in 2020, benefits were paid directly by us with available cash.

Benefits are paid directly by us with available cash.

In 2022, we paid $ 210 million of post-retirement benefits, net of participant contributions and direct subsidies.

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(1) Rates are presented net of projected fees and administrative costs.

Net periodic benefit expense (income) for our Combined Pension Plan includes the following components:

Combined Pension Plan

Prior to the sale of the ILEC business on October 3, 2022, we realized pension costs related to the Lumen Pension Plan.

Net periodic benefit expense (income) for our Combined Pension Plan and the Lumen Pension Plan (together the "Pension Plans") includes the following components:

Pension Plans

Years Ended December 31,

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Settlement charges — 383 —

Realized to gain on sale of businesses 546 — —

Special termination benefits charge — 6 13

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Expected return on plan assets — — ( 1 )

Realized to gain on sale of businesses ( 32 ) — —

Recognition of prior service cost 8 15 16

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Net periodic post-retirement benefit expense $ 54 80 106

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.

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, except for amounts realized as part of the net gain on sale of businesses, are included in other income (expense), net on our consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020.

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.

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.

As a result of ongoing efforts to reduce our workforce, we recognized one-time charges in 2021 of $ 6 million and in 2020 of $ 21 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.

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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.

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 discussion above 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 income (expense), net in our consolidated statement of operations for the year ended December 31, 2021.

This non-cash charge increased our recorded net loss 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 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 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.

In 2021 and 2020, 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 for 2020.

The Society of Actuaries did not release any revised mortality tables or projection scales in 2022.

The short-term and long-term interest crediting rates during 2022 for cash balance components of the Combined Pension Plan were 3.75 % and 3.5 %, respectively.

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Benefit obligation at beginning of year $ 9,678 12,202 12,217

Plan spin-off ( 2,552 ) — —

Service cost 37 56 59

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Benefit obligation at beginning of year $ 2,781 3,048 3,037

Benefit obligation transferred to purchaser upon sale of business ( 26 ) — —

Service cost 10 14 14

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Direct subsidy receipts 2 3 6

Plan amendments ( 41 ) — —

Actuarial (gain) loss ( 591 ) ( 125 ) 134

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Benefit obligation at end of year $ 1,995 2,781 3,048

Pension Annuitization

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.

As previously noted, assets in the post-retirement benefit plan trusts were substantially depleted as of December 31, 2016.

Fair value of post-retirement benefit plan assets of December 31, 2021, 2020 and 2019 was $ 5 million, $ 5 million and $ 13 million, respectively.

The fair value of post-retirement benefit plan assets was $ 5 million at December 31, 2022, 2021 and 2020.

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.

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Fair value of plan assets at beginning of year $ 8,531 10,546 10,493

Plan spin-off ( 2,239 ) — —

Return on plan assets ( 987 ) 422 1,210

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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.

The Combined Pension Plan's assets are invested in various asset categories utilizing multiple strategies and investment managers.

Interests in commingled funds are fair valued using a practical expedient to the net asset value ("NAV") per unit (or its equivalent) of each fund.

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Investments held in separate accounts are individually classified.

The table below present the fair value of plan assets by category and the input levels used to determine those fair values at December 31, 2021.

The table below presents the fair value of plan assets by category and the input levels used to determine those fair values at December 31, 2022.

It is important to note that the asset allocations do not include market exposures that are gained with derivatives.

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Multi-asset strategies (l) 25 — — 25

Derivatives (m) — 1 — 1

Cash equivalents and short-term investments (o) — 1 — 1

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Repurchase agreements (n) $ — ( 269 ) — ( 269 )

Derivatives (m) ( 1 ) ( 10 ) — ( 11 )

Investments valued at NAV 2,259

Total pension plan assets $ 4,715

The table below present the fair value of plan assets by category and the input levels used to determine those fair values at December 31, 2020.

The table below presents the fair value of plan assets by category and the input levels used to determine those fair values at December 31, 2021.

It is important to note that the asset allocations do not include market exposures that are gained with derivatives.

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Multi-asset strategies (l) 41 — — 41

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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Combined Pension Plan Assets Valued Using Level 3 Inputs

Stocks Private Debt Total

(Dollars in millions)

Balance at December 31, 2020 $ 6 2 8

Acquisitions (dispositions) 1 — ( 17 ) ( 16 )

Actual return on plan assets — 3 3

Balance at December 31, 2021 6 5 11

Dispositions ( 1 ) ( 4 ) ( 5 )

Actual return on plan assets ( 1 ) — ( 1 )

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These allocations also impact our calculation of net acquisitions and dispositions.

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.

For the year ended December 31, 2022, the investment program produced actual losses on Combined Pension Plan assets of $ 987 million as compared to expected returns of $ 329 million, for a difference of $ 1.3 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 the expected returns of $ 535 million, for a difference of $ 113 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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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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Currently, we match a percentage of employee contributions in cash.

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.

At December 31, 2022 and 2021, the assets of the plan included approximately 10 million shares of our common stock, 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 $ 91 million, $ 96 million and $ 101 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Deferred Compensation Plans

We sponsored non-qualified deferred compensation plans for various groups that included certain of our current and former highly compensated employees.

We sponsor non-qualified deferred compensation plans for various groups that included certain of our current and former highly compensated employees.

The value of liabilities related to these plans was not significant.

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

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Stock options generally expire ten years from the date of grant.

There was an insignificant amount of outstanding stock options as of December 31, 2020 and none as of December 31, 2021.

There were no outstanding stock options as of December 31, 2022.

Restricted Stock Awards and Restricted Stock Unit Awards

For equity based restricted stock and restricted stock unit awards that contain only service conditions for vesting (time-based awards), we calculate the award fair value based on the closing price of Lumen Technologies common stock on the accounting grant date.

We also grant equity-based awards that contain service conditions as well as additional market or performance conditions.

We also grant equity-based awards that contain additional market or performance conditions, as well as service conditions.

For awards having both service and market conditions, the award fair value is calculated using Monte-Carlo simulations.

Awards with service as well as market or performance conditions specify a target number of shares for the award, although each recipient ultimately has the opportunity to receive between 0 % and 200 % of the target number of shares.

For awards with service and market conditions, the percentage received is based on our total shareholder return over the three-year service period versus that of selected peer companies.

For awards with service and performance conditions, the percentage received depends upon the attainment of one or more financial performance targets during the two - or three-year service period.

Awards with service as well as performance conditions specify a target number of shares for the award, although each recipient ultimately has the opportunity to receive between 0 % and 200 % of the target number of shares.

For awards with service and market conditions, the percentage received is typically based on our total shareholder return over the up to three-year service period versus that of selected peer companies.

For awards with service and performance conditions, the percentage received depends upon the attainment of one or more performance targets during the two - or three-year service period.

The following table summarizes activity involving restricted stock and restricted stock unit awards for the year ended December 31, 2022:

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During 2020, we granted 17.8 million shares of restricted stock and restricted stock unit awards at a weighted-average price of $ 12.08 .

The total fair value of restricted stock that vested during 2021, 2020 and 2019, was $ 139 million, $ 126 million and $ 118 million, respectively.

The total fair value of restricted stock and restricted stock unit awards that vested during 2022, 2021 and 2020, was $ 98 million, $ 139 million and $ 126 million, respectively.

We do not estimate forfeitures, but recognize them as they occur.

Compensation Expense and Tax Benefit

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.

For time-based awards that vest ratably over the service period, we recognize compensation expense on a straight-line basis over the requisite service period for the entire award.

For our performance stock-based awards, we recognize compensation expense over the service period and based upon the expected performance outcome, until the final performance outcome is determined.

Total compensation expense for all stock-based payment arrangements for the years ended December 31, 2022, 2021 and 2020, was $ 98 million, $ 120 million and $ 175 million, respectively.

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(Dollars in millions, except per share amounts, shares in thousands)

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 )

(Loss) income (numerator)

Net (loss) income $ ( 1,548 ) 2,033 ( 1,232 )

Net (loss) income applicable to common stock for computing basic (loss) earnings per common share ( 1,548 ) 2,033 ( 1,232 )

Net (loss) income as adjusted for purposes of computing diluted (loss) earnings per common share $ ( 1,548 ) 2,033 ( 1,232 )

Shares (denominator):

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Non-vested restricted stock ( 20,552 ) ( 17,852 ) ( 17,154 )

Weighted average shares outstanding for computing basic earnings (loss) per common share 1,059,541 1,079,130 1,071,441

Weighted average shares outstanding for computing basic (loss) earnings per common share 1,007,517 1,059,541 1,079,130

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 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 )

Number of shares as adjusted for purposes of computing diluted (loss) earnings per common share 1,007,517 1,066,778 1,079,130

Basic (loss) earnings per common share $ ( 1.54 ) 1.92 ( 1.14 )

Diluted earnings (loss) per common share (1)

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______________________________________________________________________________

(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.

(1) For the years ended December 31, 2022 and December 31, 2020, we excluded from the calculation of diluted loss per share 3.8 million and 5.3 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) earnings 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, restricted cash, accounts receivable, accounts payable, long-term debt, excluding finance lease and other obligations, interest rate swap contracts and certain investments.

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, certain equity investments and certain indemnification obligations.

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 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.

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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 financial liabilities as of December 31, 2021:

The following table presents the carrying amounts and estimated fair values of our financial assets and liabilities as of December 31, 2022:

As of December 31, 2022 As of December 31, 2021

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(Dollars in millions)

Equity securities (1)

1 $ 22 22 — —

Long-term debt, excluding finance lease and other obligations (2)

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Interest rate swap contracts (see Note 15)

2 25 25 107 107

Indemnifications related to the sale of the Latin American business 3 86 86 — —

______________________________________________________________________

(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.

(1) For the year ended December 31, 2022, we recognized $ 109 million of loss on equity securities in other (expense) income, net in our consolidated statements of operations.

(2) As of December 31, 2021, these amounts excluded $ 1.4 billion of carrying amount and $ 1.6 billion of fair value of debt that had been classified as held for sale related to our divestiture of the ILEC business on October 3, 2022.

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

We hold an investment in a limited partnership created as a holding company for various investments, including a portion of the colocation and data center business that we divested in 2017.

The limited partnership has sole discretion as to the amount and timing of distributions of the underlying assets.

As of December 31, 2022, the underlying investments held by the limited partnership are traded in active markets and, as such, we account for our investment in the limited partnership using NAV.

The investments held by the limited partnership were subject to lock-up agreements that restricted the sale or distribution of certain underlying assets prior to July 2022 and October 2022.

The restrictions on one of the investments held by the limited partnership expired on July 29, 2022, and we received a distribution of 11.5 million shares of publicly-traded common stock, which are reflected in our fair value table as of December 31, 2022, as seen above.

The restriction on the remaining underlying investment expired on October 12, 2022.

No shares have been distributed to date.

Subject to restrictions imposed by law and other provisions of the limited partnership agreement, the general partner has the sole discretion as to the amounts and timing of distributions of partnership assets to partners.

The following table summarizes the net asset value of our investment in this limited partnership.

As of December 31, 2022 As of December 31, 2021

Net Asset Value

(Dollars in millions)

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______________________________________________________________________

(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.

(1) For the years ended December 31, 2022 and December 31, 2021, we recognized $ 83 million of loss on investment and $ 138 million of gain on investment, respectively, reflected in other income (expense), net in our consolidated statement of operations.

(15) Derivative Financial Instruments

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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 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.

Through their expiration on June 30, 2022, we designated the interest rate swap agreements described below as cash flow hedges.

Under these hedges, we received 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 was reflected in accumulated other comprehensive loss and was subsequently reclassified into earnings in the period that the hedged transaction affected earnings by virtue of qualifying as effective cash flow hedges.

We do not use derivative financial instruments for speculative purposes.

In February 2019, we entered into five variable-to-fixed interest rate swap agreements to hedge the interest payments on $ 2.5 billion notional amount of floating rate debt.

The five interest rate swap agreements are with different counterparties;

one for $ 700 million and the other four for $ 450 million each.

The transactions were effective beginning March 31, 2019 and mature March 31, 2022.

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 2.48 %.

In June 2019, we entered into six variable-to-fixed interest rate swap agreements to hedge the interest payments on $ 1.5 billion notional amount of floating rate debt.

The six interest rate swap agreements are with different counterparties for $ 250 million each.

The transactions were effective beginning June 30, 2019 and mature June 30, 2022.

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, 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.

In 2019, we entered into variable-to-fixed interest rate swap agreements to hedge the interest on $ 4.0 billion notional amount of floating rate debt.

As of December 31, 2021 and 2020, we evaluated the effectiveness of our remaining 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.

The counterparties to any of the financial derivatives we enter into are major institutions with investment grade credit ratings.

We evaluate counterparty credit risk before entering into any hedge transaction and continue to closely monitor the financial market and the risk that our counterparties will default on their obligations as part of our quarterly qualitative effectiveness evaluation.

Amounts accumulated in AOCI related to derivatives are indirectly recognized in earnings as periodic settlement payments are made throughout the term of the swaps.

We evaluate counterparty credit risk before entering into any hedge transaction and continue to closely monitor the financial markets and the risk that our counterparties will default on their obligations as part of our quarterly qualitative effectiveness evaluation.

Amounts accumulated in accumulated other comprehensive loss 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 sheets at December 31, 2022 and December 31, 2021 as follows (in millions):

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Cash flow hedging contracts Other current and noncurrent liabilities $ — 25

The amount of unrealized losses recognized in AOCI consists of the following (in millions):

The amount of unrealized losses recognized in accumulated other comprehensive loss consists of the following (in millions):

Derivatives designated as hedging instruments 2022 2021 2020

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Years Ended December 31, $ — 1 115

The amount of realized losses reclassified from AOCI to the statement of operations consists of the following (in millions):

The amount of realized losses reclassified from accumulated other comprehensive loss to the statement of operations consists of the following (in millions):

Derivatives designated as hedging instruments 2022 2021 2020

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Years Ended December 31, $ 22 83 62

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.

Amounts included in accumulated other comprehensive loss at the beginning of the period were reclassified into earnings upon the settlement of the cash flow hedging contracts on March 31, 2022 and June 30, 2022.

During the year ended December 31, 2022, $ 19 million of net losses on the interest rate swaps have been reflected in our consolidated statements of operations upon settlement of the agreements in the first half of 2022.

(16) Income Taxes

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2022 2021 2020

(Percentage of pre-tax income (loss))

(Percentage of pre-tax (loss) income)

Statutory federal income tax rate 21.0 % 21.0 % 21.0 %

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Change in liability for unrecognized tax position ( 0.2 ) % 0.1 % ( 0.6 ) %

Legislative changes to GILTI — % 1.8 % — %

Legislative changes to Global Intangible Low-Taxes Income ("GILTI") — % — % 1.8 %

Nondeductible executive stock compensation ( 0.1 ) % 0.2 % ( 1.6 ) %

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Research and development credits 1.1 % ( 0.5 ) % 1.6 %

Divestitures of businesses (1)

( 4.0 ) % — % — %

Other, net ( 0.2 ) % — % 0.1 %

Effective income tax rate ( 56.2 ) % 24.7 % ( 57.5 ) %

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.

_______________________________________________________________________________

(1) Includes GILTI incurred as a result of the sale of our Latin American business.

The effective tax rate for the year ended December 31, 2022 includes a $ 682 million unfavorable impact of non-deductible goodwill impairments and $ 128 million unfavorable impact related to incurring GILTI as a result of the sale of our Latin American business.

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 to GILTI, as well as a $ 20 million benefit related to the release of previously established valuation allowances against capital losses.

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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Net deferred tax liability $ ( 3,030 ) ( 3,889 )

_______________________________________________________________________________

(1) Excludes $ 138 million of deferred tax assets and $ 38 million of deferred tax liabilities related to the EMEA business that were classified as held for sale as of December 31, 2022.

Excludes $ 46 million of deferred tax assets and $ 129 million of deferred tax liabilities related to the Latin American business sold on August 1, 2022 that were classified as held for sale as of December 31, 2021.

There were no material deferred tax amounts classified as held for sale related to the ILEC business.

Of the $ 3.0 billion and $ 3.9 billion net deferred tax liability at December 31, 2022 and 2021, respectively, $ 3.2 billion and $ 4.0 billion is reflected as a long-term liability and $ 133 million and $ 160 million is reflected as a net noncurrent deferred tax asset, in other, net on our consolidated balance sheets at December 31, 2022 and 2021, respectively.

At December 31, 2021, we had federal NOLs of $ 2.9 billion, net of limitations of Section 382 of the Internal Revenue Code ("Section 382") and uncertain tax positions, for U.S.

Income taxes payable as of December 31, 2022 and 2021 were $ 943 million and $ 3 million, respectively.

The increase to our payable in the current period is primarily driven by the sale of our Latin American and ILEC businesses.

At December 31, 2022, we had federal NOLs of $ 1.0 billion, net of expirations from Section 382 limitations and uncertain tax positions, for U.S.

federal income tax purposes.

We expect to use substantially all of these tax attributes to reduce our future federal tax liabilities, although the timing of that use will depend upon our future earnings and future tax circumstances.

Our ability to use these NOLs is subject to annual limits imposed by Section 382.

As a result, we anticipate that our cash income tax liabilities will increase substantially in future periods.

If unused, the NOLs will expire between 2028 and 2033.

federal net operating loss carryforwards expire as follows:

The federal NOLs will expire as follows:

Expiring Amount

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Financial NOLs $ 1,014

At December 31, 2022 we had state net operating loss carryforwards of $ 13 billion (net of uncertain tax positions).

We also had foreign NOL carryforwards of $ 6 billion.

Our acquisitions of Level 3, Qwest and SAVVIS, Inc.

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We establish valuation allowances when necessary to reduce the deferred tax assets to amounts we expect to realize.

As of December 31, 2021, a valuation allowance of $ 1.6 billion was established as it is more likely than not that this amount of net operating loss, capital loss and tax credit carryforwards will not be utilized prior to expiration.

Our valuation allowance at December 31, 2021 and 2020 is primarily related to foreign and state NOL carryforwards.

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.

As of December 31, 2022, a valuation allowance of $ 550 million was established as it is more likely than not that this amount of net operating loss, capital loss and tax credit carryforwards will not be utilized prior to expiration.

Our valuation allowance at December 31, 2022 and 2021 is primarily related to NOL carryforwards.

This valuation allowance decreased by $ 1.0 billion during 2022, primarily due to the impact of adjustments related to the planned divestiture of our EMEA business, including classification of a portion of the valuation allowance as held for sale.

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 2022 and 2021 is as follows:

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Increase in tax positions taken in the current year 634 4

Increase in tax positions taken in the prior year 2 1

(Decrease) increase in tax positions taken in the prior year ( 3 ) 2

Decrease due to payments/settlements — ( 3 )

Decrease from the lapse of statute of limitations — ( 1 )

Decrease related to divestitures of businesses $ ( 27 ) —

Unrecognized tax benefits at end of year $ 1,318 $ 1,375

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(17) Segment Information

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:

We report our results within two segments:

Business and Mass Markets.

The Business segment includes four sales channels:

Under our Business segment we provide products and services to meet the needs of our enterprise and wholesale customers under four distinct 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.

As previously disclosed, we plan to update these sales channels beginning with our first quarterly report filed after this annual report.

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.

The Business segment included the results of our Latin American business prior to it being sold on August 1, 2022.

Under our Mass Markets Segment, we provide products and services to residential and small business customers.

Following the completion of the CAF II program at December 31, 2021, we recategorized our products used to report our Mass Markets segment revenue and currently use the following categories:

Fiber Broadband, Other Broadband and Voice and Other.

See detailed descriptions of these product and service categories in Note 4—Revenue Recognition.

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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 2022, 2021 and 2020 based on the segment categorization we were operating under at December 31, 2022.

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Selling, general and administrative 1,101 562 1,663 1,415 3,078

Gain on sale of businesses — — — ( 773 ) ( 773 )

Loss on disposal groups held for sale — — — 700 700

stock-based compensation — — — ( 98 ) ( 98 )

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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 Finance, Human Resources, Legal, Marketing, Product Management and IT, which are reported as "Other operating expenses" in the table below;

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:

• network expenses not incurred as a direct result of providing services and products to segment customers and centrally managed expenses such as Finance, Human Resources, Legal, Marketing, Product Management and IT, all of which are reported as "Operations and Other" in the tables above, and "Operations and other expenses" in the table below;

• depreciation and amortization expense;

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• 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 income (loss) for the years ended December 31, 2021, 2020 and 2019:

• other income and expense items.

The following table reconciles total segment adjusted EBITDA to net (loss) income for the years ended December 31, 2022, 2021 and 2020:

Years Ended December 31,

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Stock-based compensation ( 98 ) ( 120 ) ( 175 )

Operating income (loss) 4,285 962 ( 2,726 )

Operating income 95 4,285 962

Total other expense, net ( 1,086 ) ( 1,584 ) ( 1,744 )

Income (loss) before income taxes 2,701 ( 782 ) ( 4,766 )

(Loss) income before income taxes ( 991 ) 2,701 ( 782 )

Income tax expense 557 668 450

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

Net (loss) income $ ( 1,548 ) 2,033 ( 1,232 )

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

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CenturyLink, et al.

The complaint asserts claims on behalf of a putative class of former Level 3 shareholders who became CenturyLink, Inc.

The complaint asserted claims on behalf of a putative class of former Level 3 shareholders who became CenturyLink, Inc.

shareholders as a result of our acquisition of Level 3.

It alleges that the proxy statement provided to the Level 3 shareholders failed to disclose various material information of several kinds, including information about strategic revenue, customer loss rates, and customer account issues, among other items.

It alleged that the proxy statement provided to the Level 3 shareholders failed to disclose various material information of several kinds, including information about strategic revenue, customer loss rates, and customer account issues, among other items.

The complaint seeks damages, costs and fees, rescission, rescissory damages, and other equitable relief.

In May 2020, the court dismissed the complaint.

Plaintiffs appealed that decision, and the appeal is pending.

Plaintiffs appealed that decision, and in March 2022, the appellate court affirmed the district court's order in part and reversed it in part.

It then remanded the case to the district court for further proceedings.

State Tax Suits

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These municipalities are seeking, among other things, declaratory relief regarding the application of business license and gross receipts taxes and back taxes from 2007 to the present, plus penalties and interest.

In a February 2017 ruling in connection with one of these pending cases, the court entered an order awarding plaintiffs $ 4 million and broadening the tax base on a going-forward basis.

In a February 2017 ruling in connection with one of these pending cases, the court entered an order awarding the plaintiffs $ 4 million and broadening the tax base on a going-forward basis.

We appealed that decision to the Missouri Supreme Court.

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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.

On appeal, the Missouri Court of Appeals affirmed in part and reversed in part, vacated the judgment and remanded the case to the trial court with instructions for further proceedings consistent with the Missouri Supreme Court's decision.

We continue to vigorously defend against these claims.

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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.

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.

In October 2011, the highest administrative review tribunal (the Tribunal) decided the central issue underlying the 2002 assessments in SUNAT's favor.

We appealed the Tribunal's decision to the first judicial level, which decided the central issue in favor of Level 3.

SUNAT and we filed cross-appeals with the court of appeal.

In May 2017, the court of appeal issued a decision reversing the first judicial level.

In June 2017, we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level.

Oral argument was held before the Supreme Court of Justice in October 2018.

A decision on this case is pending.

In October 2013, the Tribunal decided the central issue underlying the 2001 assessments in SUNAT’s favor.

We appealed that decision to the first judicial level in Peru, which decided the central issue in favor of SUNAT.

In June 2017, we filed an appeal with the court of appeal.

In November 2017, the court of appeals issued a decision affirming the first judicial level and we filed an appeal of the decision to the Supreme Court of Justice.

Oral argument was held before the Supreme Court of Justice in June 2019.

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

The São Paulo and Rio de Janeiro state tax authorities have issued tax assessments against our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”), mainly with respect to revenue from leasing certain assets and revenue from the provision of Internet access services by treating such activities as the provision of communications services, to which the ICMS tax applies.

We filed objections to these assessments in both states, arguing among other things that neither the lease of assets nor the provision of Internet access qualifies as communication services subject to ICMS.

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, 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.

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

Level 3 was notified in late 2017 of a qui tam action pending against Level 3 Communications, Inc.

and others in the U.S.

District Court for the Eastern District of Virginia, captioned United States of America ex rel., Stephen Bishop v.

Level 3 Communications, Inc.

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.

The matter was tried before the WUTC in December 2022 and we await a decision by the WUTC.

AT&T Proceedings

In August 2022, certain of our subsidiaries filed a complaint in federal district court in Colorado captioned Central Telephone Company of Virginia, et al, v.

AT&T Corp., et al.

The suit seeks relief and damages for AT&T’s failure to pay amounts for services it receives.

AT&T disputes those claims and has asserted counterclaims alleging breach of contract and seeking declaratory relief.

It has requested the court to enjoin the plaintiffs from terminating services for failure to pay, and it has requested the court transfer the case to federal court in the southern district of New York for further proceedings.

Also in August 2022, AT&T filed a separate lawsuit in federal court in the western district of Louisiana against Central Telephone Company of Virginia and other of our subsidiaries alleging, among other claims, breach of contract provisions pertaining to network architecture.

The Lumen plaintiff entities dispute AT&T’s claims.

Latin American Tax Litigation and Claims

In connection with the recent divestiture of our Latin American business, the purchaser assumed responsibility for the Peruvian tax litigation and Brazilian tax claims described in our prior periodic reports filed with the SEC.

We have agreed to indemnify the purchaser for amounts paid in respect of the Brazilian tax claims.

The value of this indemnification is included in the indemnification amount as disclosed in Note 14—Fair Value of Financial Instruments.

Other Proceedings, Disputes and Contingencies

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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 within the next 12 months if they are not otherwise resolved.

These cases have progressed to various stages and one or more may go to trial within the next twelve 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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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, 2021, our future rental commitments and Right-of-Way agreements were as follows:

Right-of-Way Agreements

At December 31, 2022, our future rental commitments and Right-of-Way ("ROW") agreements were as follows:

Future Rental Commitments and ROW Agreements

(Dollars in millions)

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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, 2022.

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.

Amounts included in the Right-of-Way table and in the purchase commitments disclosed above are inclusive of contractual obligations related to our EMEA business to be divested.

(19) Other Financial Information

Other Current Assets

The following table presents details of other current assets in our consolidated balance sheets:

The following table presents details of other current assets reflected in our consolidated balance sheets:

As of December 31,

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______________________________________________________________________

(1) As of December 31, 2021, other current assets exclude $ 126 million that have been reclassified as held for sale.

(1) Excludes $ 59 million of other current assets related to the EMEA business that were classified as held for sale as of December 31, 2022.

Excludes $ 126 million of other current assets related to the Latin American and ILEC businesses sold on August 1, 2022 and October 3, 2022, respectively, that were classified as held for sale as of December 31, 2021.

Included in accounts payable at December 31, 2022 and 2021 were $ 265 million and $ 248 million, respectively, associated with capital expenditures.

(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.

Effective November 2, 2022, our Board of Directors authorized a new two-year program to repurchase up to an aggregate of $ 1.5 billion of our outstanding common stock.

During the year ended December 31, 2022, we repurchased under this program 33 million shares of our outstanding common stock in the open market for an aggregate market price of $ 200 million, or an average purchase price of $ 6.07 per share.

All repurchased common stock has been retired.

As a result, common stock and additional paid-in capital were reduced as of December 31, 2022 by $ 33 million and $ 167 million, respectively.

On 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.

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As a result, common stock and additional paid-in capital were reduced as of December 31, 2021 by $ 81 million and $ 919 million, respectively.

We expect repurchases made in 2023 and beyond to be subject to a non-deductible 1% excise tax on the fair market value of the stock under the Inflation Reduction Act of 2022.

(21) Accumulated Other Comprehensive Loss

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Amortization of pension & post-retirement plans (1)

Net actuarial loss $ 190 Other expense, net

Settlement charge 383 Other expense, net

Prior service cost 6 Other expense, net

Net actuarial loss $ 121 Other income (expense), net

Prior service cost ( 2 ) Other income (expense), net

Reclassification of net actuarial loss and prior service credit to gain on the sale of business 539 Gain on sale of businesses

Total before tax 658

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Net of tax $ 493

Reclassification of realized loss on foreign currency translation to gain on the sale of business $ 112 Gain on sale of businesses

Income tax benefit — Income tax expense

Net of tax $ 112

________________________________________________________________________

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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

Net actuarial loss $ 190 Other income (expense), net

Settlement charge 383 Other income (expense), net

Prior service cost 6 Other income (expense), net

Total before tax 579

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As of December 31, 2022, approximately 20 % of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW").

None of our collective bargaining agreements were in expired status as of December 31, 2022.

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, 2023.

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(in millions)

November 18, 2021 11/29/2021 $ 0.25 $ 251 12/10/2021

August 18, 2022 8/30/2022 $ 0.25 $ 253 9/9/2022

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February 25, 2021 3/8/2021 0.25 276 3/19/2021

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.

On February 24, 2022, our Board of Directors declared a quarterly cash dividend of $ 0.25 per share.

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

On November 2, 2022, we announced that our Board had terminated our quarterly cash dividend program.

Under this revised capital allocation policy, the company plans to continue to invest in growth initiatives.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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