UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2019~~March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35134

LEVEL 3 PARENT, LLC

(Exact name of registrant as specified in its charter)



Delaware			47-0210602
(State of Incorporation)			(I.R.S. Employer
			Identification No.)

1025 Eldorado Blvd.,	Broomfield,	CO	80021-8869
(Address of principal executive offices)			(Zip Code)

(720) 888-1000

(Registrant’s telephone number,

including area code)

THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF CENTURYLINK, INC., MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE PURSUANT TO GENERAL INSTRUCTION H(2).

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

All of the limited liability company interest in the registrant is held by an affiliate of the registrant. NaN of the interest is publicly traded.

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	Special Note Regarding Forward-Looking Statements	3
Part I	Financial Information
Item 1.	Financial Statements	6
	Consolidated Statements of Operations (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	7
	Consolidated Balance Sheets (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	9
	Consolidated Statements of Member's Equity (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited)*	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3822
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4530
Item 4.	Controls and Procedures	4731
Part II	Other Information
Item 1.	Legal Proceedings	4832
Item 1A.	Risk Factors	4832
Item 6.	Exhibits	4935
Signature		5036

* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements.

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Special Note Regarding Forward-Looking Statements

This report and other documents filed by us under the federal securities law include, and future oral or written statements or press releases by us and our management may include, forward-looking statements about our business, financial condition, operating results and prospects. These "forward-looking" statements are defined by, and are subject to the "safe harbor" protections under, the federal securities laws. These statements include, among others:

statements regarding how the health and economic challenges raised by the COVID-19 pandemic may impact our business, operations, cash flows or financial position;

forecasts of our anticipated future results of operations, cash flows or financial position;

statements concerning the anticipated impact of our transactions, investments, product development ~~transformation projects~~ and other ~~initiatives;~~initiatives, including synergies or costs associated with our transformational initiatives, acquisitions or dispositions, and the impact of our participation in government programs;

statements about our liquidity, profitability, profit margins, tax position, tax assets, tax rates, asset values, contingent liabilities, growth opportunities, ~~and~~ growth rates, acquisition or divestiture opportunities, business prospects, regulatory and competitive outlook, market share, product capabilities, investment and expenditure plans, business strategies, debt leverage, capital allocation plans, financing alternatives and sources, and pricing plans; and

other similar statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts, many of which are highlighted by words such as “may,” “will,” “would,” “could,” “should,” “plan,” “believes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “likely,” “seeks,” “hopes,” or variations or similar expressions with respect to the future.

These forward-looking statements are based upon our judgment and assumptions as of the date such statements are made concerning future developments and events, many of which are beyond our control. These forward-looking statements, and the assumptions upon which they are based, (i) are not guarantees of future results, (ii) are inherently speculative and (iii) are subject to a number of risks and uncertainties. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us in those statements if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. All of our forward-looking statements are qualified in their entirety by reference to our discussion of factors that could cause our actual results to differ materially from those anticipated, estimated, projected or implied by us in those forward-looking statements. Factors that could affect actual results include but are not limited to:

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uncertainties due to events outside of our control regarding the impact that COVID-19 health and economic disruptions will have on our business, operations, employees, customers, suppliers, distribution channels, controls, regulatory environment, access to capital, operating or capital plans and corporate initiatives, and ultimately on our financial performance, financial position and cash flows;

the effects of competition from a wide variety of competitive providers, including decreased demand for our more mature service offerings and increased pricing pressures;

the effects of new, emerging or competing technologies, including those that could make our products and services less desirable or obsolete;

our ability to attain our key operating imperatives, including simplifying and consolidating our network, simplifying and automating our service support systems and strengthening our relationships with customers and attaining projected cost savings;

our ability to safeguard our network, and to avoid the adverse impact on our business from possible security breaches, service outages, system failures, equipment breakage, or similar events impacting our network or the availability and quality of our services;

the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, interconnection obligations, special access, universal service, broadband deployment, data protection and net neutrality;

our ability to avoid unanticipated integration disruptions;

our ability to effectively adjust to changes in the communications industry, and changes in the composition of our markets and product mix;

possible changes in the demand for our products and services, including ~~our ability to effectively respond to~~ increased demand for high-speed data transmission ~~services;~~services over the past few years and more recent changes that could result from disruptions caused by the COVID-19 pandemic;

our ability to successfully maintain the quality and profitability of our existing product and service offerings and to introduce profitable new offerings on a timely and cost-effective basis;

our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt ~~payments~~repayments and distributions;

our ability to implement our operating plans and corporate strategies. Including our delevering strategy;

changes in our operating plans, corporate strategies and capital allocation plans, ~~or changes to such plans,~~ whether based upon COVID-19 disruptions, changes in our cash flows, cash requirements, financial performance, financial position, market conditions or otherwise;

our ability to effectively retain and hire key personnel and maintain satisfactory relations with our workforce;

the negative impact of increases in the costs of CenturyLink’s pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations, which could affect our business and liquidity;

the potential negative impact of customer complaints, government investigations, security breaches or service outages impacting us or our industry;

adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower debt credit ratings, unstable markets or otherwise;

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our ability to meet the terms and conditions of our debt obligations, including our ability to make transfers of cash in compliance therewith;

our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and ~~lenders;~~financial institutions;

our ability to collect our receivables from, ~~financially troubled customers;~~or continue to do business with, financially-troubled customers, including, but not limited to, those adversely impacted by the economic dislocations caused by the COVID-19 pandemic;

CenturyLink's ability to use our net operating loss carryforwards in the amounts projected;

any adverse developments in legal or regulatory proceedings involving us or our affiliates, including CenturyLink;

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changes in tax, communications, healthcare or other laws or ~~regulations;~~regulations or in general government funding levels;

the effects of changes in accounting policies, practices or assumptions including changes that could potentially require additional future impairment charges;

the effects of adverse weather, terrorism, epidemics, pandemics or other natural or man-made disasters;

the potential adverse effects ~~of material weakness or any other significant deficiencies identified in~~if our internal controls over financial ~~reporting;~~reporting have weaknesses or deficiencies, or otherwise fail to operate as intended;

the effects of more general factors such as changes in interest rates, in exchange rates, in operating costs, in public policy, in the views of financial analysts, or in general market, labor, economic or geo-political conditions; and

other risks set forth or referenced in "Risk Factors" in Item 1A ~~or elsewhere in our annual~~of Part II of this report ~~on Form 10-K~~ or other of our filings with the ~~SEC.~~U.S. Securities and Exchange Commission (the “SEC”).

Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned not to unduly rely upon our forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise. Furthermore, any information about our intentions contained in any of our forward-looking statements reflects our intentions as of the date of such forward-looking statement, and is based upon, among other things, existing regulatory, technological, industry, competitive, economic and market conditions, and our assumptions as of such date. We may change our intentions, strategies or plans (including our distribution or other capital allocation plans) at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

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PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,
	2019			2018		2019		2018		2020			2019
	(Dollars in millions)									(Dollars in millions)
OPERATING REVENUE
Operating revenue(1)	$	2,023		1,984		5,990		6,071		$	1,932		1,895
Operating revenue - affiliates	41			26		134		78		48			55
Total operating revenue(1)	2,064			2,010		6,124		6,149		1,980			1,950
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)(1)	960			976		2,846		2,954		876			871
Selling, general and administrative	289			311		964		1,043		310			328
Operating expenses - affiliates	76			65		209		173		93			46
Depreciation and amortization	430			431		1,209		1,295		416			390
Goodwill impairment	—			—		3,708		—		—			3,708
Total operating expenses(1)	1,755			1,783		8,936		5,465		1,695			5,343
OPERATING INCOME (LOSS)	309			227		(2,812	)	684		285			(3,393	)
OTHER (EXPENSE) INCOME
Interest income - affiliate	15			18		47		50		13			16
Interest expense	(123		)	(137	)	(384	)	(381	)	(106		)	(131	)
Other (expense) income, net	(13		)	18		2		21		(34		)	12
Total other expense, net	(121		)	(101	)	(335	)	(310	)	(127		)	(103	)
INCOME (LOSS) BEFORE INCOME TAXES	188			126		(3,147	)	374		158			(3,496	)
Income tax expense	74			38		214		184		45			89
NET INCOME (LOSS)	$	114		88		(3,361	)	190		$	113		(3,585	)

_____________________________________________________________________

⁽¹⁾Reclassifications were made within certain 2019 comparative figures due to the retrospective application of an accounting policy election during the first quarter of 2020. Refer to Note 1 - Background and our Form 8-K filing dated May 7, 2020 for further information.

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(UNAUDITED)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
NET INCOME (LOSS) $ 114
88
(3,361 ) 190
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustments, net of $22, $(1), $24 and $29 tax (110 ) (1 ) (115 ) (164 )
Other comprehensive loss, net of tax (110 ) (1 ) (115 ) (164 )
COMPREHENSIVE INCOME (LOSS) $ 4
87
(3,476 ) 26



	Three Months Ended March 31,
	2020			2019
	(Dollars in millions)
NET INCOME (LOSS)	$	113		(3,585	)
OTHER COMPREHENSIVE (LOSS) INCOME:
Foreign currency translation adjustments, net of $23 and ($1) tax	(228		)	3
Other comprehensive (loss) income, net of tax	(228		)	3
COMPREHENSIVE LOSS	$	(115	)	(3,582	)

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED BALANCE SHEETS


	September 30, 2019			December 31, 2018		March 31, 2020			December 31, 2019
	(Unaudited)					(Unaudited)
	(Dollars in millions)					(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,224		243		$	239		316
Restricted cash	3			4
Accounts receivable, less allowance of $14 and $11	718			712
Restricted cash - current						3			3
Accounts receivable, less allowance of $17 and $13						737			667
Note receivable - affiliate	1,590			1,825		1,468			1,590
Other	294			234		323			266
Total current assets	3,829			3,018		2,770			2,842
Property, plant and equipment, net of accumulated depreciation of $1,610 and $1,021	9,719			9,453
Property, plant and equipment, net of accumulated depreciation of $2,110 and $1,825						9,923			9,936
GOODWILL AND OTHER ASSETS
Goodwill	7,389			11,119		7,355			7,415
Operating lease assets	1,102			—		1,061			1,060
Restricted cash	19			25		18			19
Customer relationships, net	7,026			7,567		6,657			6,865
Other intangible assets, net	458			410		474			469
Other, net	550			699		474			492
Total goodwill and other assets	16,544			19,820		16,039			16,320
TOTAL ASSETS	$	30,092		32,291		$	28,732		29,098
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	407		6		$	10		11
Accounts payable	753			726		698			654
Accounts payable - affiliates	552			246		862			669
Accrued expenses and other liabilities
Salaries and benefits	216			233		130			240
Income and other taxes	113			130		131			152
Current operating lease liabilities	244			—		273			249
Interest	78			95		78			85
Other	71			78		71			77
Current portion of deferred revenue	296			310		316			309
Total current liabilities	2,730			1,824		2,569			2,446
LONG-TERM DEBT	10,995			10,838		10,353			10,356
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	1,264			1,181		1,338			1,343
Deferred income taxes, net	225			202		212			241
Noncurrent operating lease liabilities	900			—		846			854
Other	286			369		297			313
Total deferred revenue and other liabilities	2,675			1,752		2,693			2,751

COMMITMENTS AND CONTINGENCIES (Note 9)
COMMITMENTS AND CONTINGENCIES (Note 8)
MEMBER'S EQUITY
Member's equity	13,978			18,048		13,524			13,724
Accumulated other comprehensive loss	(286		)	(171	)	(407		)	(179	)
Total member's equity	13,692			17,877		13,117			13,545
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	30,092		32,291		$	28,732		29,098

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,					Three Months Ended March 31,
	2019			2018		2020			2019
	(Dollars in millions)					(Dollars in millions)
OPERATING ACTIVITIES
Net (loss) income	$	(3,361	)	190
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income (loss)						$	113		(3,585	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,209			1,295		416			390
Goodwill impairment	3,708			—		—			3,708
Deferred income taxes	165			175		38			79
Changes in current assets and liabilities:
Accounts receivable	(28		)	51		(80		)	4
Accounts payable	(72		)	(64	)	22			(48	)
Other assets and liabilities, net	(126		)	(118	)
Other assets and liabilities, affiliate	306			55
Other current assets and liabilities, net						(188		)	(161	)
Other current assets and liabilities, affiliate						105			119
Changes in other noncurrent assets and liabilities, net	57			37		(10		)	(23	)
Other, net	(14		)	6		(21		)	—
Net cash provided by operating activities	1,844			1,627		395			483
INVESTING ACTIVITIES
Capital expenditures	(982		)	(726	)	(349		)	(285	)
Payments of notes receivable - affiliates	235			—		122			—
Proceeds from sale of property, plant and equipment and other assets	27			119		33			—
Other, net	(25		)	—
Net cash used in investing activities	(745		)	(607	)	(194		)	(285	)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	988			—
Payments of long-term debt	(404		)	(5	)	(4		)	—
Distributions	(709		)	(1,130	)	(275		)	(225	)
Other						—			(1	)
Net cash used in financing activities	(125		)	(1,135	)	(279		)	(226	)
Net increase (decrease) in cash, cash equivalents and restricted cash	974			(115	)
Cash, cash equivalents and restricted cash at beginning of period	272			331
Cash, cash equivalents and restricted cash at end of period	$	1,246		216
Net decrease in cash, cash equivalents, restricted cash and securities						(78		)	(28	)
Cash, cash equivalents, restricted cash and securities at beginning of period						338			272
Cash, cash equivalents, restricted cash and securities at end of period						$	260		244


Supplemental cash flow information:
Income taxes paid, net	$	(17	)	(24	)	$	5	7
Interest paid (net of capitalized interest of $9 and $—)	$	(416	)	(404	)
Interest paid (net of capitalized interest of $6 and $1)						115		139

Cash, cash equivalents and restricted cash:
Cash, cash equivalents, restricted cash and securities:
Cash and cash equivalents	$	1,224		188		$	239	217
Restricted cash - current	3			3		3		2
Restricted cash - noncurrent	19			25		18		25
Total	$	1,246		216		$	260	244

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY

(UNAUDITED)


	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,
	2019			2018		2019		2018		2020			2019
	(Dollars in millions)									(Dollars in millions)
MEMBER'S EQUITY
Balance at beginning of period	$	14,008		18,749		18,048		19,254		$	13,724		18,048
Net income (loss)	114			88		(3,361	)	190		113			(3,585	)
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $3 tax	—			—		—		9
Cumulative effect of adoption of ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	—			—		—		(6	)
Purchase price accounting adjustments	—			—		—		(5	)
Cumulative effect of adoption of ASU 2016-02, Leases										—			(39	)
Cumulative effect of adoption of ASU 2016-13, Credit losses										(3		)	—
Distributions	(144		)	(525	)	(709	)	(1,130	)	(318		)	(225	)
Other										8			—
Balance at end of period	13,978			18,312		13,978		18,312		13,524			14,199
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period	(176		)	(139	)	(171	)	18		(179		)	(171	)
Other comprehensive loss	(110		)	(1	)	(115	)	(164	)
Cumulative effect of adoption of ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	—			—		—		6
Other comprehensive (loss) income										(228		)	3
Balance at end of period	(286		)	(140	)	(286	)	(140	)	(407		)	(168	)
TOTAL MEMBER'S EQUITY	$	13,692		18,172		13,692		18,172		$	13,117		14,031

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

References in the Notes to “Level 3 Communications, Inc.,” "Level 3," “we,” “us,” "its," the “Company” and “our”, unless the context otherwise requires, refer to Level 3 Parent, LLC and its consolidated subsidiaries.

(1) Background

General

We are an international facilities-based communications provider (that is, a provider that owns or leases a substantial portion of the property, plant and equipment necessary to provide our services) of a broad range of integrated communications services. We created our communications network by constructing our own assets and through a combination of purchasing other companies and purchasing or leasing facilities from others. We designed our network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.

Effective November 1, 2017, we were acquired by CenturyLink in a cash and stock transaction, including the assumption of our debt (the "CenturyLink Merger").

Basis of Presentation

Our consolidated balance sheet as of December 31, ~~2018,~~2019, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"); however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations and cash flows for the first ~~nine~~three months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which we have a controlling interest. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (CenturyLink and its other subsidiaries, referred to herein as affiliates) have not been eliminated. Due to exchange restrictions and other conditions, effective at the end of the third quarter of 2015, we deconsolidated our Venezuelan subsidiary and began accounting for our investment in our Venezuelan subsidiary using the cost method of accounting. The factors that led to our conclusions at the end of the third quarter of 2015 continued to exist through the ~~third~~first quarter of ~~2019.~~2020.

We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and expenses for three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Segments

Our operations are integrated into and reported as part of CenturyLink. CenturyLink's chief operating decision maker ("CODM") is our CODM, but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the SEC. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we have 1 reportable segment.

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Change in Accounting Policy

During the first quarter of 2020, we elected to change the presentation for taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, including federal and certain state Universal Service Fund (USF) regulatory fees, to present all such taxes on a net basis in our consolidated statement of operations. Prior to the first quarter of 2020, we assessed whether we were the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business. The previous policy resulted in presenting such USF fees on a gross basis within operating revenue and cost of services and products, and all other significant taxes on a net basis. This change in accounting policy was applied retrospectively and decreased both operating revenue and cost of services and products by $96 million for both quarters ended March 31, 2020 and March 31, 2019. The change had no impact on operating income (loss) or net income (loss) in the consolidated statements of operations.

We changed our policy to present such taxes on the net basis and believe the new policy is preferable because of the historical and potential future regulatory rate changes outside of our control resulting in significant variability in tax and fee revenue that are not indicative of our operating performance. We believe the net presentation provides the most useful and transparent financial information and improves comparability and consistency of financial results.

Operating Lease Income

We lease various IRUs, office facilities, switching facilities and other network sites to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations.

For the three months ended March 31, 2020, our gross rental income was $176 million, which represents approximately 9% of our operating revenue. For the three months ended March 31, 2019, our gross rental income was $50 million, which represents approximately 3% of our operating revenue.

Recently Adopted Accounting Pronouncements

~~We adopted Accounting Standards Update ("ASU") 2016-02,~~ ~~"Leases (ASC 842)", as~~During the first quarter of ~~January 1, 2019, using~~2020, the ~~non-comparative transition option pursuant~~SEC made significant changes to ~~ASU 2018-11. Therefore, we have not restated comparative period financial information for the effects~~its disclosure requirements, Financial Disclosures About Guarantors and Issuers of ~~ASC 842,~~Guaranteed Securities and we will not make the new required lease disclosures for comparative periods beginning before January 1, 2019. Instead, we have recognized ASC 842's cumulative effect transition adjustment (discussed below) as of January 1, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard,Affiliates Whose Securities Collateralize a Registrant’s Securities, which among other things (i) allowed us to carry forward the historical lease classification; (ii) did not require us to reassess whether any expired or existing contracts are or contain leases under the new definition of a lease; and (iii) did not require us to reassess whether previously capitalized initial direct costs for any existing leases would qualify for capitalization under ASC 842. We also elected the practical expedientamended disclosure requirements related to ~~land easements, allowing us~~registered debt securities which have been updated and relocated to ~~carry forward our accounting treatment~~Rule 13-01 of Regulation S-X. The final rule allows for land easements on existing agreements. We did not elect the hindsight practical expedient regarding the likelihood of exercising a lessee purchase option or assessing any impairment of right-of-use assets for existing leases.

~~On March 5, 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-01,~~ ~~"Leases (ASC 842): Codification Improvements"~~, 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 acquiredstreamlined disclosure models and ~~when the lease commences, the definition of~~ ~~fair value~~ ~~(in ASC 820,~~ ~~"Fair ValueMeasurement"~~) should be applied. More importantly, the ASU also exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. Early adoption permits ~~public companies to adopt concurrent with the transition to ASC 842 on leases. We adopted ASU 2019-01 as of January 1, 2019.~~

Adoption of the new standards resulted in the recording of operating lease assets and operating lease liabilities of approximately $1.3 billion and $1.4 billion, respectively, as of January 1, 2019. The standards did not materially impact our consolidated net earnings and had no impact on cash flows. Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new guidance, as discussed above, while prior period amounts are not adjusted and continuepresentation to be ~~reported in accordance~~included within Management’s Discussion and Analysis of Financial Condition and Results of Operations. The rules become effective January 4, 2021, with ~~previous guidance.~~

~~Recently Issued Accounting Pronouncements~~

voluntary compliance permitted immediately as elected by the Company.

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments". The primary impact of ASU 2016-13 for us is a change in the model for the recognition of credit losses related to our financial instruments from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires our management team to estimate the total credit losses expected on the portfolio of financial instruments. ~~We are evaluating the potential impact ASU 2016-13 will have on our financial assets measured at amortized cost including, but not limited to, customer receivables and contract asset balances.~~

~~Over the fourth quarter we will complete our evaluation of the impact to our accounting and internal controls over financial reporting as a result of ASU 2016-13.~~ We ~~expect to adopt~~adopted ASU 2016-13 on January 1, 2020 and ~~recognize the impacts through~~recognized a cumulative adjustment to our opening accumulated deficit as of the date of adoption. The impact was a $3 million reduction to member's equity in the consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2019-12 removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 will become effective for us in the first quarter of fiscal 2021 and early adoption is permitted. We are evaluating the impact the adoption will have on our consolidated financial statements.

Table of Contents

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022. We are evaluating the optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued and the related impact on our consolidated financial statements.

Subsequent Event

As of the date of this report, ~~$250~~$375 million of distributions were ~~declared and $225 million were paid~~made to our parent during 2020, of which $100 million were made in the ~~fourth~~second quarter ~~of 2019.~~in 2020.

~~Table of Contents~~

(2) Goodwill, Customer Relationships and Other Intangible Assets

Goodwill, customer relationships and other intangible assets consisted of the following:


	September 30, 2019		December 31, 2018	March 31, 2020		December 31, 2019
	(Dollars in millions)			(Dollars in millions)
Goodwill	$	7,389	11,119	$	7,355	7,415
Customer relationships, less accumulated amortization of $1,355 and $833	$	7,026	7,567
Customer relationships, less accumulated amortization of $1,700 and $1,538				$	6,657	6,865
Other intangible assets subject to amortization:
Trade names, less accumulated amortization of $50 and $30	80		100
Developed technology, less accumulated amortization of $121 and $67	378		310
Capitalized software, less accumulated amortization of $179 and $146				$	406	395
Trade names, less accumulated amortization of $63 and $57				68		74
Total other intangible assets, net	$	458	410	$	474	$	469

Our goodwill was derived from CenturyLink's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We assess our goodwill 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 ~~perform an impairment test related to~~write down the value of goodwill only when our ~~goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs. The decline in CenturyLink's stock price triggered impairment testing in~~assessment determines the ~~first quarter of 2019. Due to this impairment indicator, we evaluated our goodwill as of March 31, 2019. There was not an additional triggering event during the third quarter of 2019.~~

~~When we performed our October 31, 2018 annual impairment test, we estimated the fair~~carrying value of equity ~~by considering both a market approach and a discounted cash flow method. The market approach method includes~~of our reporting unit exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assessed goodwill at our reporting unit. In reviewing the ~~use of multiples of publicly traded companies whose services~~criteria for reporting units, we have determined that we are comparable to ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows beyond the cash flows from the discrete projection period. 1 reporting unit.

Because CenturyLink's low stock price was a trigger for impairment testing, we estimated the fair value of our

operations using only the market approach in the quarter ended March 31, 2019. Applying this approach, we utilized

company comparisons and analyst reports within the telecommunications industry, which have historically

supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and

9.8x, respectively. We selected a revenue and EBITDA multiple within this range. ~~For the three months ended~~As of March 31, 2019, based on

our assessments performed as described above, we concluded that the estimated fair value of equity was less than

our carrying value of equity as of the date of our triggering event during the first quarter. As a result, we recorded a

non-cash, non-tax-deductible goodwill impairment charge ~~aggregating to~~of $3.7 billion in the ~~first~~ quarter ofended March 31, 2019.

The market multiples approach that we used ~~incorporates~~in the quarter ended March 31, 2019 incorporated significant

estimates and assumptions related to the forecasted results for the remainder of the year, including revenues,

expenses, and the achievement of ~~other~~certain cost synergies. In developing the market multiple, we also considered

observed trends of our industry participants. ~~Our failure to attain these forecasted results or changes in trends could result in future impairments.~~ Our assessment included many qualitative factors that required

significant judgment. Alternative interpretations of these factors could have resulted in different conclusions

regarding the size of our impairments. ~~Continued declines~~

Table of ~~CenturyLink's common stock may result~~Contents

likely than not that our fair value of our reporting unit was less than its carrying value as of the quarter ended March 31, 2020. In light of the negative impacts of COVID-19 on the global economy, we will continue to evaluate the general economic trends which could have an impact on our assessment of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. Future changes could cause our reporting unit fair value to be less than our carrying value, resulting in ~~further impairment.~~potential impairments of our goodwill which could have a material effect on our results of operations and financial condition. The extent of the impact, if any, will depend on future developments including actions taken to contain the coronavirus and its long-term impacts on the overall economy.

The following table shows the rollforward of goodwill from December 31, 2019 through March 31, 2020:



	(Dollars in millions)
As of December 31, 2019	$	7,415
Effect of foreign currency exchange rate change and other	(60		)
As of March 31, 2020	$	7,355

Total amortization expense for intangible assets for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ was ~~$206~~$208 million and ~~$204 million, respectively,and for the nine months ended September 30, 2019 and 2018, was $604 million and$595~~$193 million, respectively. As of ~~September 30, 2019,~~March 31, 2020, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $16.4 billion.

~~Table of Contents~~

We estimate that total amortization expense for intangible assets for the years ending December 31, ~~2019~~2020 through ~~2023~~2024 will be as follows:

(Dollars in millions)
2019 (remaining three months) $ 205
2020 825
2021 825
2022 764
2023 743

~~The following table shows the rollforward of goodwill from December 31, 2018 through September 30, 2019:~~

(Dollars in millions)
As of December 31, 2018 $ 11,119
Effect of foreign currency rate change and other (22 )
Impairment (3,708 )
As of September 30, 2019 $ 7,389



	(Dollars in millions)
2020 (remaining nine months)	$	628
2021	836
2022	776
2023	747
2024	735

(3) Revenue Recognition

Refer to the Revenue Recognition section of Note 1—Background and Summary of Significant Accounting Policies and Note 4—Revenue Recognition in our annual report on Form 10-K for the year ended December 31, 2018 for further information regarding our application of ASC 606, “Revenue from Contracts with Customers”, including practical expedients and judgments applied in determining the amounts and timing of revenue from contracts with customers.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following table provides the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards:


	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,
	2019			2018		2019		2018		2020			2019
	(Dollars in millions)									(Dollars in millions)
Total revenue(1)	$	2,064		2,010		6,124		6,149		$	1,980		1,950
Adjustments for non-ASC 606 revenue ⁽¹⁾⁽²⁾	(94		)	(72	)	(288	)	(221	)	(225		)	(50	)
Total revenue from contracts with customers	$	1,970		1,938		5,836		5,928		$	1,755		1,900

_____________________________________________________________________

⁽¹⁾

⁽²⁾Includes sublease rental income and revenue from fiber capacity lease arrangements which are not within the scope of ASC 606.

~~Includes sublease rental income and revenue from fiber capacity lease arrangements which are not within the scope of ASC 606.~~

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


	September 30, 2019		December 31, 2018	March 31, 2020		December 31, 2019
	(Dollars in millions)			(Dollars in millions)
Customer receivables ⁽¹⁾	$	737	712	$	731	678
Contract assets	31		19	40		32
Contract liabilities	412		393	378		423


(1)	Gross customer receivables of ~~$751~~$748 million and ~~$723~~$691 million, net of allowance for doubtful accounts of ~~$14~~$17 million and ~~$11~~$13 million, at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which ranges from one to ~~seven~~five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets.

~~The following table provides information about revenue recognized for~~ During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019, we recognized $99 million and ~~2018:~~$95 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020 and January 1, 2019, respectively.

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period (January 1, 2019 and 2018, respectively) $ 27
22
146
135
Performance obligations satisfied in previous periods —
—
—
—

Performance Obligations

As of ~~September 30, 2019,~~March 31, 2020, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts (including affiliates) that are unsatisfied (or partially satisfied) is approximately ~~$5.2~~$3.9 billion. We expect to recognize approximately ~~69%~~89% of this revenue through ~~2021,~~2022, with the balance recognized thereafter.

We do not disclose the value of unsatisfied performance obligations for contracts for which we are contractually entitled to bill pre-determined amounts for future services (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), or contracts that are classified as leasing arrangements that are not subject to ASC 606.

Contract Costs

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

Three Months Ended September 30,
2019 2018
(Dollars in millions)
Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs
Beginning of period balance $ 73
106
34
52
Costs incurred 13
26
16
22
Amortization (12 ) (17 ) (5 ) (8 )
End of period balance $ 74
115
45
66


	Nine Months Ended September 30,									Three Months Ended March 31,
	2019					2018				2020					2019
	(Dollars in millions)									(Dollars in millions)
	Acquisition Costs			Fulfillment Costs		Acquisition Costs		Fulfillment Costs		Acquisition Costs			Fulfillment Costs		Acquisition Costs		Fulfillment Costs
Beginning of period balance	$	64		84		13		14		$	79		121		64		84
Costs incurred	42			77		42		69		23			23		18		26
Amortization	(32		)	(46	)	(10	)	(17	)	(16		)	(22	)	(8	)	(13	)
End of period balance	$	74		115		45		66		$	86		122		74		97

Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over an expected contract term ~~between~~of 12 ~~and~~to 60 months for our business ~~customers and amortized~~customers. Amortized fulfillment costs are included in cost of services and products, and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are ~~expected~~anticipated to be amortized in the next twelve months are included in other current assets on our consolidated balance sheets. 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.

(4) Credit Losses on Financial Instruments

~~Table~~

In accordance with ASC 326, "Financial Instruments - Credit Losses" ("ASC 326"), we aggregate financial assets with similar risk characteristics such that expected credit losses reflect the credit quality or deterioration over the life of ~~Contents~~

the asset. We monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change each reporting period. Financial assets that do not share risk characteristics with other financial assets are evaluated separately. Our financial assets measured at amortized costs primarily consist of accounts receivable.

~~(4) Leases~~In developing our accounts receivable portfolio, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms, and their historical and expected credit loss patterns.

~~Financial position for reporting periods beginning on or after January 1, 2019 are presented under~~Prior to the adoption of the new ~~guidance, while prior periods amounts are not adjusted~~credit loss standard, the allowance for doubtful accounts receivable reflected our best estimate of probable losses inherent in our receivable portfolio determined based on historical experience, specific allowances for known troubled accounts, and ~~continue to be reported in accordance with previous guidance, as discussed in Note 1—Background and Summary of Significant Accounting Policies.~~other currently available evidence.

We ~~primarily lease various office facilities, switching and colocation facilities, equipment and dark fiber. Leases with an initial term of 12 months or less are not recorded on~~implemented the ~~balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.~~

We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease componentsnew standard, using a ~~portfolio approach based upon~~loss rate method to estimate our allowance for credit losses. Our current expected credit loss rate begins with the ~~length~~use of ~~the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on~~historical loss experience as a ~~straight-line basis over the lease term, while variable lease payments are expensed as incurred.~~

~~Some~~percentage of accounts receivable. We measure our lease arrangements contain lease components (including fixed payments, such as, rent, real estate taxes and insurance costs) and non-lease components (including common-area maintenance costs). We generally account for each component separatelyhistorical loss period based on the ~~estimated standalone price of each component. For colocation leases,~~average days to move accounts receivable to credit loss. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, or credit loss and recovery policies, we ~~account~~perform a qualitative and quantitative assessment to update our current loss rate, which as noted below has increased due to an increase in historic loss experience and weakening economic forecasts. We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period. We measure our forecast period based on the average days to collect payment on billed accounts receivable. The historical, current, and expected credit loss rates are combined and applied to period end accounts receivable, which results in our allowance for ~~the lease and non-lease components as a single lease component.~~credit losses.

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unlessIf there is a ~~transfer~~deterioration of ~~title~~a customer's financial condition or ~~purchase option reasonably certain~~if future default rates in general, including impacts of COVID-19, differ from those currently anticipated, we may have to ~~be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.~~

~~Lease expense consisted of~~adjust the ~~following:~~

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
(Dollars in millions)
Operating and short-term lease cost $ 92
288
Finance lease cost:
Amortization of right-of-use assets 3
10
Interest on lease liability 2
8
Total finance lease cost 5
18
Total lease cost $ 97
306

~~Table of Contents~~

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

September 30,
Leases (millions) Classification on the Balance Sheet 2019
Assets
Operating lease assets Operating lease assets $ 1,102
Finance lease assets Property, plant and equipment, net of accumulated depreciation 147
Total leased assets $ 1,249

Liabilities
Current
   Operating Current operating lease liabilities $ 244
   Finance Current portion of long-term debt 7
Noncurrent
   Operating Noncurrent operating lease liabilities 900
   Finance Long-term debt 153
Total lease liabilities $ 1,304

Weighted-average remaining lease term (years)
   Operating leases 11.1
   Finance leases 13.4
Weighted-average discount rate
   Operating leases 6.59 %
   Finance leases 5.68 %

~~Supplemental unaudited consolidated cash flow statement information related to leases:~~



	~~Nine Months Ended September 30, 2019~~
	~~(Dollars in millions)~~
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows from operating leases~~	~~296~~
~~Operating cash flows from finance leases~~	8
~~Financing cash flows from finance leases~~	3

~~Table of Contents~~

~~As of September 30, 2019, maturities of lease liabilities were as follows:~~

Operating Leases Finance Leases
(Dollars in millions)
2019 (remaining three months) $ 75
6
2020 277
15
2021 231
16
2022 199
16
2023 169
16
Thereafter 701
165
Total lease payments 1,652
234
Less: interest (508 ) (74 )
Total 1,144
160
Less: current portion (244 ) (7 )
Long-term portion $ 900
153

~~As of September 30, 2019, we had no material operating or finance leases that had not yet commenced.~~

~~Operating Lease Income~~

~~We lease various IRUs, office facilities, switching facilities and other network sites to third parties under operating leases. Lease and sublease income are included in operating revenue~~allowance for credit losses, which would affect earnings in the ~~consolidated statements of operations.~~

For the three and nine months ended September 30, 2019, our gross rental income was $52 million and $153 million, respectively, which represents 2.5% of our operating revenue for both periods. For the three and nine months ended September 30, 2018, our gross rental income was $47 million and $143 million, respectively, which represents 2.3% of our operating revenue for both periods.

~~Disclosures under ASC 840~~

~~We adopted ASU 2016-02 on January 1, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption.~~

~~Table of Contents~~

period that adjustments are made.

The ~~future annual minimum payments under capital lease agreements as~~assessment of ~~December 31, 2018 were as follows:~~the correlation between historical observed default rates, current conditions, and forecast economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the 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 customer’s actual default in the future.

Future Minimum Payments
(Dollars in millions)
Capital lease obligations:
2019 $ 16
2020 15
2021 16
2022 16
2023 17
2024 and thereafter 164
Total minimum payments 244
Less: amount representing interest and executory costs (81 )
Present value of minimum payments 163
Less: current portion (6 )
Long-term portion $ 157

~~At December 31, 2018,~~The following table presents the activity of our ~~future rental commitments~~allowance for ~~operating leases were as follows:~~

credit losses for our accounts receivable portfolio:

Operating Leases
(Dollars in millions)
2019 $ 396
2020 259
2021 219
2022 164
2023 137
2024 and thereafter 613
Total future minimum payments ⁽¹⁾
$ 1,788



(Dollars in millions)
Beginning balance at January 1, 2020⁽¹⁾	$	18
Current Period provision for expected losses	5
Write-offs charged against the allowance	(7		)
Recoveries collected	3
Foreign currency exchange rate change adjustment	(2		)
Ending Balance at March 31, 2020	$	17

______________________________________________________________________


(1)	~~Minimum payments have not been reduced by minimum sublease rentals~~The beginning balance includes the cumulative effect of ~~$29 million due in~~ the ~~future under non-cancelable subleases.~~adoption of new credit loss standard

For the three months ended March 31, 2020, our allowance for credit losses for our business accounts receivable portfolio decreased due to a devaluation of foreign currency, partially offset by an increase in historical loss experience and weakening economic forecasts.

(5) Long-Term Debt

The following ~~table summarizes~~chart reflects our consolidated long-term debt, including finance leases, unamortized discounts and premiums, and unamortized debt issuance costs, but excluding intercompany debt:


	Interest Rates	Maturities	September 30, 2019			December 31, 2018		Interest Rates⁽¹⁾	Maturities	March 31, 2020			December 31, 2019
			(Dollars in millions)							(Dollars in millions)
Level 3 Parent, LLC
Senior notes ⁽¹⁾	5.750%	2022	$	600		600
Subsidiaries
Level 3 Financing, Inc.
Senior notes ⁽²⁾	4.625%-6.125%	2021 - 2027	5,915			5,315
Term loan ⁽³⁾	LIBOR + 2.25%	2024	4,611			4,611
Senior Secured Debt:⁽²⁾
Senior notes ⁽³⁾								3.400% - 3.875%	2027 - 2029	$	1,500		1,500
Tranche B 2027 Term Loan ⁽⁴⁾								LIBOR + 1.75%	2027	3,111			3,111
Senior Notes and other debt:
Senior notes ⁽³⁾								4.625% - 5.625%	2022 - 2027	5,515			5,515
Finance leases	Various	Various	160			163		Various	Various	171			171
Total long-term debt, excluding unamortized premiums			11,286			10,689
Unamortized premiums, net			129			155				99			104
Unamortized debt issuance costs			(13		)	—				(33		)	(34	)
Total long-term debt			11,402			10,844				10,363			10,367
Less current maturities			(407		)	(6	)			(10		)	(11	)
Long-term debt, excluding current maturities			$	10,995		10,838				$	10,353		10,356

~~(1) The notes are not guaranteed by any of Level 3 Parent, LLC's subsidiaries. See "Additional Information" within this Note for redemption~~

~~details.~~

~~(2)The~~



(1)	As of March 31, 2020.
(2)	See the remainder of this Note for a description of certain parent and subsidiary guarantees and liens securing this debt.
(3)	As described further below, the notes are fully and unconditionally guaranteed ~~on an unsubordinated unsecured basis~~ by certain affiliates of Level 3 Financing, Inc., including Level 3 Parent, LLC and Level 3 Communications, LLC.
(4)	The Tranche B 2027 Term Loan had an interest rate of 2.739% as of March 31, 2020 and 3.549% at December 31, 2019.

~~Communications, LLC. See "Subsequent Events" within this Note for redemption details.~~

~~(3) The Tranche B 2024 Term Loan is a secured obligation and is guaranteed by Level 3 Parent, LLC and certain of its subsidiaries. The Tranche~~

~~B 2024 Term Loan had an interest rate of 4.294% as of September 30, 2019 and 4.754% as of December 31, 2018. The interest rate on the~~

~~Tranche B 2024 Term Loan is set with a minimum London Interbank Offered Rate ("LIBOR") of 0 percent.~~

Aggregate Maturities of Long-Term Debt

Set forth below is the aggregate principal amount of our long-term debt and finance leases (excluding unamortized ~~premiums)~~premiums, net and unamortized debt issuance costs) maturing during the following ~~years as of September 30, 2019:~~years:


	(Dollars in millions)		(Dollars in millions)
2019 (remaining three months)	$	403
2020	6
2020 (remaining nine months)			$	8
2021	7		8
2022	1,449		850
2023	1,210		1,211
2024 and thereafter	8,211
2024			911
2025 and thereafter			7,309
Total long-term debt	$	11,286	$	10,297

~~Repayments~~

~~During the nine months ended September 30, 2019, Level 3 Financing, Inc. repurchased approximately $400 million of its 6.125% Senior Notes due 2021.~~

~~New Issuance~~

On September 25, 2019, Level 3 Financing, Inc. issued $1.0 billion of 4.625% Senior Notes due 2027. The proceeds from the offering together with cash on hand will be used for general corporate purposes, including, without limitation, to redeem all of Level 3 Financing, Inc.'s $240 million outstanding principal amount of 6.125% Senior Notes due 2021, all of Level 3 Parent, LLC's $600 million outstanding principal amount of 5.75% Senior Notes due 2022 and $160 million of Level 3 Financing, Inc.'s $1 billion in outstanding principal amount of 5.375% Senior Notes due 2022. See "Subsequent Event" below.

Covenants

The term loan and senior notes of ~~Level 3 Parent, LLC and~~ Level 3 Financing, Inc. contain extensive affirmative and negative covenants. Such covenants include, among other things and subject to certain significant exceptions, restrictions on ~~their~~its ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with ~~their~~its affiliates including CenturyLink and its other subsidiaries, dispose of assets and merge or consolidate with any other person. Also, ~~Level 3 Parent, LLC, as well as Level 3 Financing, Inc., will be required to offer to purchase certain of its long-term debt securities under certain circumstances~~ in connection with a "change of control" of Level 3 Parent, ~~LLC.~~LLC, or Level 3 Financing, Inc., Level 3 Financing will be required to offer to repurchase or repay certain of its long-term debt at a price of 101% of the principal amount of debt repurchased or repaid, plus accrued and unpaid interest.

Certain of CenturyLink's and our debt instruments contain cross acceleration provisions. ~~When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument.~~

Compliance

~~As of September 30, 2019, Level 3 Parent, LLC (as successor in interest to Level 3 Communications, Inc.) believes it and its subsidiaries~~At March 31, 2020, we believe we were in compliance with the ~~provisions and~~ financial covenants contained in ~~their respective material~~our debt agreements in all material respects.

Additional Information

For additional information on our long-term debt, see Note 5—6—Long-Term Debt to our consolidated financial statements in Item 8 of Part II of our annual report on Form 10-K for the year ended December 31, ~~2018.~~

~~Subsequent Event~~

On October 25, 2019, Level 3 Financing, Inc. redeemed all of the $240 million outstanding aggregate principal amount of its 6.125% Senior Notes due 2021 and $160 million of the $1.0 billion outstanding principal amount of its 5.375% Senior Notes due 2022.

~~On October 17, 2019, Level 3 Parent, LLC. issued a notice of redemption on all $600 million outstanding principal amount of Level 3 Parent, LLC's 5.75% Senior Notes due 2022 on December 1,~~ 2019.

(6) ~~Severance and Leased Real Estate~~

Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions result primarily from the progression or completion of improvement and transformation initiatives, increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to the loss of customers purchasing certain services.

We have recognized liabilities to reflect our estimates of the fair values of the existing lease obligations for real estate which we have ceased using, net of estimated sublease rentals. In accordance with transitional guidance under the new lease standard (ASC 842), the existing lease obligation of $47 million as of January 1, 2019 has been netted against the operating lease right of use assets at adoption. For additional information, see Note 4—Leases to our consolidated financial statements in Item 1 of Part I of this report.

~~Changes in our accrued liabilities for severance expenses were as follows:~~

Severance
(Dollars in millions)
Balance at January 1, 2019 $ 19
Accrued to expense (1 )
Payments, net (10 )
Balance at September 30, 2019 $ 8

~~(7)~~ Products and Services Revenue

We categorize our products, services and revenue among the following 5 categories:


•	IP and Data Services, which include primarily VPN data networks, Ethernet, IP, video (including our facilities-based video services, CDN services and Vyvx broadcast services) and other ancillary services;


•	Transport and Infrastructure, which includes private line (including business data services), wavelength, colocation and data center services, including cloud, hosting and application management solutions, professional services, network security services, dark fiber services and other ancillary services;


•	Voice and Collaboration, which includes primarily TDM voice services, ~~VOIP~~VoIP and other ancillary services;


•	Other, which includes sublease rental income and information technology services and managed services, which may be purchased in conjunction with our other network services; and


•	Affiliate ~~Services,~~services, ~~we provide our non-consolidated affiliates with~~which includes telecommunication services that we also provide to our external customers.

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

Our operating revenue for our products and services consisted of the following categories:


	Three Months Ended September 30,			Nine Months Ended September 30,		Three Months Ended March 31,
	2019		2018	2019	2018	2020		2019 ⁽¹⁾
	(Dollars in millions)					(Dollars in millions)
IP and Data Services	$	972	970	2,917	2,961	$	905	923
Transport and Infrastructure	668		664	1,981	2,013	648		630
Voice and Collaboration	379		349	1,085	1,094	353		340
Other	4		1	7	3	26		2
Affiliate Services	41		26	134	78	48		55
Total operating revenue	$	2,064	2,010	6,124	6,149	$	1,980	1,950

_____________________________________________________________________


(1)	Reclassifications were made within certain 2019 comparative figures due to the retrospective application of an accounting policy election during the first quarter of 2020, in addition to product reclassification changes. Refer to Note 1 - Background and our Form 8-K filing dated May 7, 2020 for further information.

We recognize revenue in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our customers. Our consolidated statements of operations also reflect the offsetting expense for the amounts we remit to the government agencies. These USF surcharges, where we record revenue and transaction taxes, are assigned to the products and services categories based on the underlying revenue. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to bill our customers, for which we do not record any revenue or expense because we only act as a pass-through agent.

~~The following table provides the amount of USF surcharges and transaction taxes:~~

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
USF surcharges and transaction taxes $ 116
96
326
301

~~(8)~~(7) Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, note receivable-affiliate, accounts payable, accounts payable-affiliate and long-term debt, excluding finance lease and other obligations. Due to their short-term nature, the carrying amounts of our cash, cash equivalents and restricted cash, accounts receivable, note receivable-affiliate, accounts payable and accounts payable-affiliate approximate their fair values.

The three input levels in the hierarchy of fair value measurements are defined by the Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Input Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Input Level 2 refers to fair values estimated using significant other observable inputs and Input Level 3 includes fair values estimated using significant unobservable inputs.are generally as follows:



Input Level		Description of Input
Level 1		Observable inputs such as quoted market prices in active markets.
Level 2		Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3		Unobservable inputs in which little or no market data exists.

The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding finance leases, as well as the input level used to determine the fair values indicated below:

September 30, 2019 December 31, 2018
Input Level Carrying Amount Fair Value Carrying Amount Fair Value
(Dollars in millions)
Liabilities-Long-term debt, excluding finance lease 2 $ 11,242
11,225
10,681
10,089



		March 31, 2020			December 31, 2019
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases	2	$	10,192	9,810	10,196	10,244

~~(9)~~(8) Commitments, Contingencies and Other Items

We are subject to various claims, legal proceedings and other contingent liabilities, including the matters described below, which individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. As a matter of course, we are prepared to both litigate these matters to judgment as needed, as well as to evaluate and consider reasonable settlement opportunities.

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Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for our litigation and non-income tax contingencies at ~~September 30, 2019~~March 31, 2020 aggregated to approximately ~~$66~~$60 million and are included in ~~“Other”~~other current liabilities and ~~“Other Liabilities”~~other liabilities in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows.

~~In this Note, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in that matter.~~

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of our Peruvian subsidiaries asserting $26 million of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, we believe the total amount of exposure was $8$6 million at ~~September 30, 2019.~~

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March 31, 2020.

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. A decision on this case is pending.

Brazilian Tax Claims

In December 2004, March 2009, April 2009 and July 2014, the São Paulo state tax authorities issued tax assessments against one of our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”) with respect to revenue from leasing certain assets (in the case of the December 2004, March 2009 and July 2014 assessments) and revenue from the provision of Internet access services (in the case of the April 2009 and July 2014 assessments), by treating such activities as the provision of communications services, to which the ICMS tax applies. In September 2002, July 2009 and May 2012, the Rio de Janeiro state tax authorities issued tax assessments to the same Brazilian subsidiary on similar issues.

We have filed objections to these assessments, arguing that the lease of assets and the provision of Internet access are not communication services subject to ICMS. The objections to the September 2002, December 2004 and March 2009 assessments were rejected by the respective state administrative courts, and we have appealed those decisions to the judicial courts. In October 2012 and June 2014, we received favorable rulings from the lower court on the December 2004 and March 2009 assessments regarding equipment leasing, but those rulings are subject to appeal by the state. No ruling has been obtained with respect to the September 2002 assessment. The objections to the April and July 2009 and May 2012 assessments are still pending final administrative decisions. The July 2014 assessment was confirmed during the fourth quarter of 2014 at the first administrative level, and we appealed this decision to the second administrative level.

We are vigorously contesting all such assessments in both states and, in particular, view the assessment of ICMS on revenue from equipment leasing to be without merit. These assessments, if upheld, could result in a loss of $37 million up to ~~$37~~$42 million at ~~September 30, 2019~~March 31, 2020 in excess of the accruals established for these matters.

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Qui Tam Action

We were notified in late 2017 of a qui tam action pending against Level 3 Communications, Inc. and others in the United States District Court for the Eastern District of Virginia, captioned United States of America ex rel., Stephen Bishop v. Level 3 Communications, Inc. et al. The original qui tam complaint was filed under seal on November 26, 2013, and an amended complaint was filed under seal on June 16, 2014. The court unsealed the complaints on October 26, 2017.

The amended complaint alleges that we, principally through 2 former employees, submitted false claims and made false statements to the government in connection with 2 government contracts. The relator seeks damages in this lawsuit of approximately $50 million, subject to trebling, plus statutory penalties, pre-and-post judgment interest, and attorney’s fees. The case is currently stayed.

We are evaluating our defenses to the claims. At this time, we do not believe it is probable we will incur a material loss. If, contrary to our expectations, the plaintiff prevails in this matter and proves damages at or near $50 million, and is successful in having those damages trebled, the outcome could have a material adverse effect on our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.

~~Table of Contents~~

Several people, including 2 former Level 3 employees, were indicted in the United States District Court for the Eastern District of Virginia on October 3, 2017, and charged with, among other things, accepting kickbacks from a subcontractor, who was also indicted, for work to be performed under a prime government contract. Of the 2 former employees, 1 entered a plea agreement, and the other is deceased. We are fully cooperating in the government’s investigations in this matter.

Letters of Credit

It is customary for us to use various financial instruments in the normal course of business. These instruments include letters of credit which are conditional commitments issued on our behalf in accordance with specified terms and conditions. As of both ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had outstanding letters of credit or other similar obligations of approximately ~~$24~~$23 million, of which $17 million and ~~$30~~$18 million, respectively, ~~of which $18 million and $24 million~~ are collateralized by cash that is reflected on the consolidated balance sheets as restricted cash and securities.

Other Proceedings, Disputes and Contingencies

From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, administrative hearings ~~or proceedings~~ of state public utility commissions relating primarily to our rates or services, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third-party tort actions.

We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of which are seeking substantial recoveries. These cases have progressed to various stages and one or more may go to trial ~~in the coming 24 months~~during 2020 if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.

We are subject to various foreign, federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none individually is reasonably expected to exceed $100,000 in fines and penalties.

The outcome of these other proceedings described under this heading is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.

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The matters listed above in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 1617 - Commitments, Contingencies and Other Items to the financial statements included in Item 8 of Part II of our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019. 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.

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~~(10)~~(9) Accumulated Other Comprehensive Loss

The ~~tables~~table below ~~summarize~~summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:


	Pension Plans		Foreign Currency Translation Adjustment and Other		Total		Pension Plans		Foreign Currency Translation Adjustment and Other		Total
	(Dollars in millions)						(Dollars in millions)
Balance at December 31, 2018	$	5	(176	)	(171	)
Balance at December 31, 2019							$	2	(181	)	(179	)
Other comprehensive loss, net of tax	—		(115	)	(115	)	—		(228	)	(228	)
Net other comprehensive loss	—		(115	)	(115	)	—		(228	)	(228	)
Balance at September 30, 2019	$	5	(291	)	(286	)
Balance at March 31, 2020							$	2	(409	)	(407	)

The table below summarizes changes in accumulated other comprehensive ~~income~~loss recorded on our consolidated balance sheets by component for the ~~nine~~three months ended ~~September 30, 2018:~~March 31, 2019:

Foreign Currency Translation Adjustment and Other Total
(Dollars in millions)
Balance at December 31, 2017 $ 18
18
Other comprehensive loss before reclassifications, net of tax (164 ) (164 )
Amounts reclassified from accumulated other comprehensive loss 6
6
Net other comprehensive loss (158 ) (158 )
Balance at September 30, 2018 $ (140 ) (140 )



	Pension Plans		Foreign Currency Translation Adjustment and Other		Total
	(Dollars in millions)
Balance at December 31, 2018	$	5	(176	)	(171	)
Other comprehensive loss before reclassifications, net of tax	—		3		3
Net other comprehensive loss	—		3		3
Balance at March 31, 2019	$	5	(173	)	(168	)

~~(11) Condensed Consolidating Financial Information~~

Level 3 Financing, Inc., a wholly owned subsidiary, has issued Senior Notes that are unsecured obligations of Level 3 Financing, Inc.; however, they are fully and unconditionally and jointly and severally guaranteed on an unsecured senior basis by Level 3 Parent, LLC and Level 3 Communications, LLC.

In conjunction with the registration of certain of the Level 3 Financing, Inc. Senior Notes, we have presented below the accompanying condensed consolidating financial information pursuant to SEC Regulation S-X Rule 3-10 "Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered."

The operating activities of the separate legal entities included in our consolidated financial statements are interdependent. The accompanying condensed consolidating financial information presents the statements of comprehensive income (loss), balance sheets and statements of cash flows of each legal entity and, on an aggregate basis, our other non-guarantor subsidiaries based on amounts incurred by such entities and is not intended to present the operating results of those legal entities on a stand-alone basis. Level 3 Communications, LLC leases equipment and certain facilities from other wholly owned subsidiaries of Level 3 Parent, LLC. These transactions are eliminated in our consolidated results.

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~~Condensed Consolidating Statements of Comprehensive Income (Loss)~~

~~Three Months Ended September 30, 2019~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
OPERATING REVENUE
Operating revenue $ —
—
995
1,028
—
2,023
Operating revenue - affiliates —
—
61
179
(199 ) 41
Total operating revenue —
—
1,056
1,207
(199 ) 2,064
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization) —
—
516
444
—
960
Selling, general and administrative (25 ) 2
322
189
(199 ) 289
Operating expenses - affiliates —
—
54
22
—
76
Depreciation and amortization —
—
169
261
—
430
Total operating expenses (25 ) 2
1,061
916
(199 ) 1,755
OPERATING INCOME (LOSS) 25
(2 ) (5 ) 291
—
309
OTHER INCOME (EXPENSE)
Interest income - affiliate 15
—
—
—
—
15
Interest (expense) income (8 ) (115 ) 4
(4 ) —
(123 )
Interest income (expense) - intercompany, net 963
161
(1,125 ) 2
(1 ) —
Equity in net (losses) earnings of subsidiaries (860 ) (934 ) 188
—
1,606
—
Other (expense) income, net (17 ) 4
2
(2 ) —
(13 )
Total other income (expense), net 93
(884 ) (931 ) (4 ) 1,605
(121 )
INCOME (LOSS) BEFORE INCOME TAXES 118
(886 ) (936 ) 287
1,605
188
Income tax expense (benefit) 4
(26 ) 2
94
—
74
NET INCOME (LOSS) 114
(860 ) (938 ) 193
1,605
114
Other comprehensive (loss), net of income taxes (110 ) —
—
(110 ) 110
(110 )
COMPREHENSIVE INCOME (LOSS) $ 4
(860 ) (938 ) 83
1,715
4

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~~Condensed Consolidating Statements of Comprehensive Income (Loss)~~

~~Three Months Ended September 30, 2018~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
OPERATING REVENUE
Operating revenue $ —
—
951
1,033
—
1,984
Operating revenue - affiliates —
—
50
47
(71 ) 26
Total operating revenue —
—
1,001
1,080
(71 ) 2,010
OPERATING EXPENSES

Cost of services and products (exclusive of depreciation and amortization) —
—
538
438
—
976
Selling, general and administrative expenses —
—
333
49
(71 ) 311
Operating expenses - affiliates —
—
50
15
—
65
Depreciation and amortization —
—
176
255
—
431
Total operating expenses —
—
1,097
757
(71 ) 1,783
OPERATING (LOSS) INCOME —
—
(96 ) 323
—
227
OTHER INCOME (EXPENSE)

Interest income - affiliate 16
—
—
2
—
18
Interest expense (8 ) (118 ) (2 ) (8 ) (1 ) (137 )
Interest income (expense) - intercompany, net 771
234
(997 ) (8 ) —
—
Equity in net (losses) earnings of subsidiaries (690 ) (834 ) 452
—
1,072
—
Other income (expense), net (3 ) —
(1 ) 21
1
18
Total other income (expense), net 86
(718 ) (548 ) 7
1,072
(101 )
INCOME (LOSS) BEFORE INCOME TAXES 86
(718 ) (644 ) 330
1,072
126
Income tax (benefit) expense (2 ) (28 ) (18 ) 86
—
38
NET INCOME (LOSS) 88
(690 ) (626 ) 244
1,072
88
Other comprehensive loss, net of income taxes (1 ) —
—
(1 ) 1
(1 )
COMPREHENSIVE INCOME (LOSS) $ 87
(690 ) (626 ) 243
1,073
87

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~~Condensed Consolidating Statements of Comprehensive Income (Loss)~~

~~Nine Months Ended September 30, 2019~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
OPERATING REVENUE
Operating revenue $ —
—
2,903
3,087
—
5,990
Operating revenue - affiliates —
—
170
596
(632 ) 134
Total operating revenue —
—
3,073
3,683
(632 ) 6,124
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization) —
—
1,484
1,362
—
2,846
Selling, general and administrative (25 ) 5
1,084
532
(632 ) 964
Operating expenses - affiliates —
—
141
68
—
209
Depreciation and amortization —
—
477
732
—
1,209
Goodwill impairment —
—
1,369
2,339
—
3,708
Total operating expenses (25 ) 5
4,555
5,033
(632 ) 8,936
OPERATING INCOME (LOSS) 25
(5 ) (1,482 ) (1,350 ) —
(2,812 )
OTHER (EXPENSE) INCOME
Interest income - affiliate 47
—
—
—
—
47
Interest (expense) income (24 ) (354 ) 7
(13 ) —
(384 )
Interest income (expense) - intercompany, net 2,844
487
(4,671 ) 1,340
—
—
Equity in net losses of subsidiaries (6,227 ) (6,445 ) (1,048 ) —
13,720
—
Other (expense) income, net (19 ) 4
10
7
—
2
Total other (expense) income, net (3,379 ) (6,308 ) (5,702 ) 1,334
13,720
(335 )
(LOSS) INCOME BEFORE INCOME TAXES (3,354 ) (6,313 ) (7,184 ) (16 ) 13,720
(3,147 )
Income tax expense (benefit) 7
(86 ) 2
291
—
214
NET (LOSS) INCOME (3,361 ) (6,227 ) (7,186 ) (307 ) 13,720
(3,361 )
Other comprehensive (loss), net of income taxes (115 ) —
—
(115 ) 115
(115 )
COMPREHENSIVE LOSS $ (3,476 ) (6,227 ) (7,186 ) (422 ) 13,835
(3,476 )

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~~Condensed Consolidating Statements of Comprehensive Income (Loss)~~

~~Nine Months Ended September 30, 2018~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
OPERATING REVENUE
Operating revenue $ —
—
2,884
3,187
—
6,071
Operating revenue - affiliates —
—
81
151
(154 ) 78
Total operating revenue —
—
2,965
3,338
(154 ) 6,149
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization) —
—
1,727
1,227
—
2,954
Selling, general and administrative —
3
878
234
(72 ) 1,043
Operating expenses - affiliates —
—
140
115
(82 ) 173
Depreciation and amortization —
—
520
775
—
1,295
Total operating expenses —
3
3,265
2,351
(154 ) 5,465
OPERATING (LOSS) INCOME —
(3 ) (300 ) 987
—
684
OTHER (EXPENSE) INCOME
Interest income - affiliate 48
—
—
2
—
50
Interest expense (24 ) (339 ) (3 ) (15 ) —
(381 )
Interest income (expense) - intercompany, net 1,474
1,446
(2,756 ) (164 ) —
—
Equity in net (losses) earnings of subsidiaries (1,321 ) (2,505 ) 451
—
3,375
—
Other income (expense), net (3 ) —
3
21
—
21
Total other income (expense), net 174
(1,398 ) (2,305 ) (156 ) 3,375
(310 )
INCOME (LOSS) BEFORE INCOME TAXES 174
(1,401 ) (2,605 ) 831
3,375
374
Income tax (benefit) expense (16 ) (80 ) 16
264
—
184
NET INCOME (LOSS) 190
(1,321 ) (2,621 ) 567
3,375
190
Other comprehensive loss, net of income taxes (164 ) —
—
(164 ) 164
(164 )
COMPREHENSIVE INCOME (LOSS) $ 26
(1,321 ) (2,621 ) 403
3,539
26

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~~Condensed Consolidating Balance Sheets~~

~~September 30, 2019~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3
—
1,156
65
—
1,224
Restricted cash —
—
—
3
—
3
Accounts receivable —
—
69
649
—
718
Intercompany advances 19,145
24,656
7,542
3,030
(54,373 ) —
Note receivable - affiliate 1,590
—
—
—
—
1,590
Other —
—
131
178
(15 ) 294
Total current assets 20,738
24,656
8,898
3,925
(54,388 ) 3,829
Property, plant, and equipment, net —
—
3,574
6,145
—
9,719
GOODWILL AND OTHER ASSETS
Goodwill —
—
382
7,007
—
7,389
Operating lease assets —
—
1,213
378
(489 ) 1,102
Restricted cash 12
—
5
2
—
19
Customer relationships, net —
—
3,465
3,561
—
7,026
Other intangible assets, net —
—
434
24
—
458
Investment in subsidiaries 9,314
11,471
2,813
—
(23,598 ) —
Other, net 268
1,508
86
200
(1,512 ) 550
Total goodwill and other assets 9,594
12,979
8,398
11,172
(25,599 ) 16,544
TOTAL ASSETS $ 30,332
37,635
20,870
21,242
(79,987 ) 30,092

LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ —
400
—
7
—
407
Accounts payable —
2
420
331
—
753
Accounts payable - affiliates 80
16
471
—
(15 ) 552
Accrued expenses and other liabilities
Salaries and benefits —
—
174
42
—
216
Income and other taxes —
7
67
39
—
113
Current operating lease liabilities —
—
252
89
(97 ) 244
Interest 3
71
1
3
—
78

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Intercompany payables —
—
50,785
3,588
(54,373 ) —
Other 1
1
8
61
—
71
Current portion of deferred revenue —
—
159
137
—
296
Total current liabilities 84
497
52,337
4,297
(54,485 ) 2,730
LONG-TERM DEBT 611
10,231
6
147
—
10,995

DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue —
—
1,055
209
—
1,264
Deferred income taxes, net 56
—
781
900
(1,512 ) 225
Noncurrent operating lease liabilities —
—
989
303
(392 ) 900
Other —
—
141
145
—
286
Total deferred revenue and other liabilities 56
—
2,966
1,557
(1,904 ) 2,675
MEMBER'S EQUITY (DEFICIT) 29,581
26,907
(34,439 ) 15,241
(23,598 ) 13,692
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 30,332
37,635
20,870
21,242
(79,987 ) 30,092

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~~Condensed Consolidating Balance Sheets~~

~~December 31, 2018~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2
—
164
77
—
243
Restricted cash —
—
—
4
—
4
Accounts receivable —
—
70
642
—
712
Intercompany advances 16,852
23,957
7,744
2,707
(51,260 ) —
Note receivable - affiliate 1,825
—
—
—
—
1,825
Other 1
3
97
133
—
234
Total current assets 18,680
23,960
8,075
3,563
(51,260 ) 3,018
Property, plant, and equipment, net —
—
3,136
6,317
—
9,453

GOODWILL AND OTHER ASSETS
Goodwill —
—
1,665
9,454
—
11,119
Restricted cash 15
—
9
1
—
25
Customer relationships, net —
—
3,823
3,744
—
7,567
Other intangible assets, net —
—
409
1
—
410
Investment in subsidiaries 15,541
17,915
3,861
—
(37,317 ) —
Other, net 275
1,421
110
225
(1,332 ) 699
Total goodwill and other assets 15,831
19,336
9,877
13,425
(38,649 ) 19,820
TOTAL ASSETS $ 34,511
43,296
21,088
23,305
(89,909 ) 32,291

LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ —
—
1
5
—
6
Accounts payable —
—
380
346
—
726
Accounts payable - affiliates 62
11
162
11
—
246
Accrued expenses and other liabilities
Salaries and benefits —
—
189
44
—
233
Income and other taxes —
4
72
54
—
130
Interest 11
78
1
5
—
95
Intercompany payables —
—
45,347
5,913
(51,260 ) —
Other 3
1
8
66
—
78

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Current portion of deferred revenue —
—
168
142
—
310
Total current liabilities 76
94
46,328
6,586
(51,260 ) 1,824
LONG-TERM DEBT 613
10,068
7
150
—
10,838
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue —
—
971
210
—
1,181
Deferred income taxes, net 56
—
841
637
(1,332 ) 202
Other —
—
197
172
—
369
Total deferred revenue and other liabilities 56
—
2,009
1,019
(1,332 ) 1,752
MEMBER'S EQUITY (DEFICIT) 33,766
33,134
(27,256 ) 15,550
(37,317 ) 17,877
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 34,511
43,296
21,088
23,305
(89,909 ) 32,291

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~~Condensed Consolidating Statements of Cash Flows~~

~~Nine Months EndedSeptember 30, 2019~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities $ (262 ) —
1,692
414
—
1,844
INVESTING ACTIVITIES
Capital expenditures —
—
(558 ) (424 ) —
(982 )
Payments of notes receivable - affiliates 235
—
—
—
—
235
Proceeds from sale of property, plant and equipment and other assets 25
—
1
1
—
27
Other, net —
—
(25 ) —
—
(25 )
Net cash provided by (used in) investing activities 260
—
(582 ) (423 ) —
(745 )
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt —
—
988
—
—
988
Payments of long-term debt —
—
(401 ) (3 ) —
(404 )
Distributions (709 ) —
—
—
—
(709 )
Increase (decrease) due from affiliate, net 709
—
(709 ) —
—
—
Net cash used in financing activities —
—
(122 ) (3 ) —
(125 )
Net (decrease) increase in cash, cash equivalents and restricted cash (2 ) —
988
(12 ) —
974
Cash, cash equivalents and restricted cash at beginning of period 17
—
173
82
—
272
Cash, cash equivalents and restricted cash at end of period $ 15
—
1,161
70
—
1,246

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~~Condensed Consolidating Statements of Cash Flows~~

~~Nine Months Ended September 30, 2018~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities $ (49 ) —
1,420
256
—
1,627
INVESTING ACTIVITIES
Capital expenditures —
—
(392 ) (334 ) —
(726 )
Proceeds from sale of property, plant and equipment and other assets 68
—
—
51
—
119
Net cash provided by (used in) investing activities 68
—
(392 ) (283 ) —
(607 )
FINANCING ACTIVITIES
Payments of long-term debt —
—
—
(5 ) —
(5 )
Distributions (1,130 ) —
—
—
—
(1,130 )
Increase (decrease) due from/to affiliates, net 1,130
—
(1,130 ) —
—
—
Net cash used in financing activities —
—
(1,130 ) (5 ) —
(1,135 )
Net increase (decrease) in cash, cash equivalents and restricted cash 19
—
(102 ) (32 ) —
(115 )
Cash, cash equivalents and restricted cash at beginning of period 32
—
186
113
—
331
Cash, cash equivalents and restricted cash at end of period $ 51
—
84
81
—
216

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context requires otherwise, references in this report to “Level 3 Communications, Inc.,” "Level 3," “we,” “us,” "its," the “Company” and “our” refer to Level 3 Parent, LLC and its consolidated subsidiaries.

All references to "Notes" in this Item 2 of Part I refer to the Notes to Consolidated Financial Statements included in Item 1 of Part I of this report.

Certain statements in this report constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements" appearing at the beginning of this report and "Risk Factors" set forth or referenced in Item 1A of Part III of this report or other of our ~~annual report on Form 10-K for~~filings with the ~~year ended December 31, 2018~~SEC for a discussion of certain factors that could cause our actual results to differ from our anticipated results or otherwise impact our business, financial condition, results of operations, liquidity or prospects.

Overview

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with MD&A and the other information included in our annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, and with the consolidated financial statements and related notes in

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Item 1 of Part I of this report. The results of operations and cash flows for the first ~~nine~~three months of the year are not necessarily indicative of the results of operations and cash flows that might be expected for the entire year.

We are an international facilities-based communications company engaged in providing a broad array of integrated communication services to our business customers. We designed our network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.

Impact of COVID-19 Pandemic

In response to the safety and economic challenges arising out of the COVID-19 pandemic, we have taken a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees, to enable us to continue to provide our products and services worldwide to our customers, and to strengthen our communities. These steps include:

CenturyLink taking the FCC’s “Keep Americans Connected Pledge,” which, in certain circumstances, obligates us to waive late fees and to forego certain service terminations;

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

adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel;

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

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

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

As the crisis continues, we may revise our responses or take additional steps to adjust to changed circumstances.

By the end of the first quarter of 2020, social distancing, travel restrictions, business and school closures, and other actions taken in response to the pandemic had begun to impact us, our customers and our business. In particular, the pandemic has reduced our late fee and Vyvx revenues, as noted further below in this Item. However, most of those changes impacted only the latter portions of the first quarter of 2020. We expect that pandemic-related changes will have a more pronounced impact on our second quarter 2020 operating results, especially if the economic slowdown adversely impacts our customers' ability and willingness to order and pay for our products and services. The impact of those changes after the second quarter of 2020 will materially depend on additional steps that we may take in response to the pandemic and various events outside of our control, including the duration of the health crisis, the length and severity of the economic slowdown, actions taken by governmental agencies or legislative bodies, and the impact of those events on our employees, suppliers and customers. For additional information, see the risk factor disclosures set forth or referenced in Item 1A of Part II of this report

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Results of Operations

The following table summarizes the results of our consolidated operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~September 30, 2018:~~March 31, 2019:


	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,
	2019			2018		2019		2018		2020			2019
	(Dollars in millions)									(Dollars in millions)
Operating revenue(1)	$	2,064		2,010		6,124		6,149		$	1,980		1,950
Operating expenses(1)	1,755			1,783		8,936		5,465		1,695			5,343
OPERATING INCOME	309			227		(2,812	)	684
Operating income (loss)										285			(3,393	)
Other expense, net	(121		)	(101	)	(335	)	(310	)	(127		)	(103	)
INCOME (LOSS) BEFORE INCOME TAXES	188			126		(3,147	)	374
Income (loss) before income taxes										158			(3,496	)
Income tax expense	74			38		214		184		45			89
NET INCOME (LOSS)	$	114		88		(3,361	)	190
Net income (loss)										$	113		(3,585	)

____________________________________________________________________

For a discussion of certain trends that impact our business, see the MD&A discussion of trends impacting CenturyLink’s non-consumer business included in CenturyLink’s reports filed with the SEC, including its Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2019.~~

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March 31, 2020.

Operating Revenue

We categorize our products, services and revenue among the following five categories:


•	IP and Data Services, which include primarily VPN data networks, Ethernet, IP, video (including our facilities-based video services, CDN services and Vyvx broadcast services) and other ancillary services;


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


•	Voice and Collaboration, which includes primarily TDM voice services, VoIP and other ancillary services;


•	Other, which includes sublease rental income and information technology services and managed services, which may be purchased in conjunction with our other network services; and


•	Affiliate Services, ~~we provide our affiliates with~~ which includestelecommunication services that we also provide to our external customers.

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

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The following ~~tables summarize~~table summarizes our consolidated operating revenue recorded under our five revenue categories:

Three Months Ended September 30,
2019 2018 Increase/(Decrease) % Change
(Dollars in millions)
IP and Data Services $ 972
970
2
— %
Transport and Infrastructure 668
664
4
1 %
Voice and Collaboration 379
349
30
9 %
Other 4
1
3
nm
Affiliate Services 41
26
15
58 %
Total operating revenue $ 2,064
2,010
54
3 %

Nine Months Ended September 30,
2019 2018 Increase/(Decrease) % Change
(Dollars in millions)
IP and Data Services $ 2,917
2,961
(44 ) (1 )%
Transport and Infrastructure 1,981
2,013
(32 ) (2 )%
Voice and Collaboration 1,085
1,094
(9 ) (1 )%
Other 7
3
4
133 %
Affiliate Services 134
78
56
72 %
Total operating revenue $ 6,124
6,149
(25 ) — %



	Three Months Ended March 31,
	2020		2019 ⁽¹⁾	Increase/(Decrease)		% Change
	(Dollars in millions)
IP and Data Services	$	905	923	(18	)	(2	)%
Transport and Infrastructure	648		630	18		3	%
Voice and Collaboration	353		340	13		4	%
Other	26		2	24		nm
Affiliate Services	48		55	(7	)	(13	)%
Total operating revenue	$	1,980	1,950	30		2	%



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

____________________________________________________________________

⁽¹⁾Reclassifications were made within certain 2019 comparative figures due to the retrospective application of an accounting policy election during the first quarter of 2020, in addition to product reclassification changes. Refer to Note 1 - Background and our Form 8-K filing dated May 7, 2020 for further information.

Our total operating revenue increased by ~~$54~~$30 million, or 3%2%, for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the three months ended ~~September 30, 2018,~~March 31, 2019, primarily due to ~~increases~~the increase in managed services, transport and infrastructure and voice and collaboration ~~and affiliate~~ services, ~~attributable to high service volumes for each and increased rates in voice and collaboration. Total operating revenue decreased~~which were partially offset by ~~$25 million, or less than 1%, for the nine months ended September 30, 2019,~~

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~~as compared to the nine months ended September 30, 2018 primarily due to~~ declines in IP and data ~~services~~ and ~~transport and infrastructure, which were partially offset by an increase~~affiliate revenue due to a decrease in the level of services we provide to our affiliates.

Operating Expenses

~~The following tables summarize our consolidated operating expenses:~~

Three Months Ended September 30,
2019 2018 Increase/(Decrease) % Change
(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization) $ 960
976
(16 ) (2 )%
Selling, general and administrative 289
311
(22 ) (7 )%
Operating expenses - affiliates 76
65
11
17 %
Depreciation and amortization 430
431
(1 ) — %
Total operating expenses $ 1,755
1,783
(28 ) (2 )%


	Nine Months Ended September 30,							Three Months Ended March 31,
	2019		2018	Increase/(Decrease)		% Change		2020		2019	Increase/(Decrease)		% Change
	(Dollars in millions)							(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)(1)	$	2,846	2,954	(108	)	(4	)%	$	876	871	5		1	%
Selling, general and administrative	964		1,043	(79	)	(8	)%	310		328	(18	)	(5	)%
Operating expenses - affiliates	209		173	36		21	%	93		46	47		102	%
Depreciation and amortization	1,209		1,295	(86	)	(7	)%	416		390	26		7	%
Goodwill impairment	3,708		—	3,708		nm		—		3,708	(3,708	)	nm
Total operating expenses(1)	$	8,936	5,465	3,471		64	%	$	1,695	5,343	(3,648	)	(68	)%



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

____________________________________________________________________

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

Cost of services and products (exclusive of depreciation and amortization) ~~decreased~~increased by ~~$16~~$5 million, or 2%1%, for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the three months ended September 30, 2018. Cost of services and products (exclusive of depreciation and amortization) decreased by $108 million, or 4%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018.March 31, 2019. The ~~decreases~~increase in our cost of services and products ~~for both periods were~~was primarily due to ~~lower salaries and wages and employee related expenses from lower headcount, reduced~~higher network expense and voice usage costs, ~~reduced~~ customer premises equipment costs from higher sales and ~~lower space and power costs, which~~customer installation costs. These increases were partially offset by ~~higher direct taxes~~a reduction in salaries and ~~fees, customer installation costs and an increase in right~~wages from lower headcount.

Table of ~~way and dark fiber expenses.~~Contents

Selling, General and Administrative

Selling, general and administrative decreased by ~~$22~~$18 million, or 7%5%, for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the three months ended ~~September 30, 2018. Selling, general and administrative decreased by $79 million, or 8%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018.~~March 31, 2019. The ~~decreases~~decrease in selling, general and administrative expenses ~~for both periods were~~was primarily due to ~~lower salaries and wages from lower headcount, lower rent expense in 2019 and from higher exited lease obligations in 2018, lower hardware and software expenses,~~ reductions in ~~marketing and advertising expenses and~~ property and other taxes, commissions, bad debt expense and a gain on the sale of an ~~increase~~asset in the ~~amount of labor capitalized or deferred, which~~current quarter. These reductions were partially offset by higher ~~commissions~~employee-related benefits and ~~other expense.~~

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real estate and power costs.

Operating Expenses - Affiliates

Operating expenses - affiliate increased by ~~$11~~$47 million, or ~~17%~~102%, for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the three months ended ~~September 30, 2018. Operating expenses - affiliate increased by $36 million, or 21%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018.The~~March 31, 2019. The increase in operating expenses - affiliates was primarily due to the increase in the level of services provided to us by our affiliates.

Depreciation and Amortization

The following table provides detail regarding depreciation and amortization expense:

Three Months Ended September 30,
2019 2018 Increase/(Decrease) % Change
(Dollars in millions)
Depreciation $ 224
227
(3 ) (1 )%
Amortization 206
204
2
1 %
Total depreciation and amortization $ 430
431
(1 ) — %


	Nine Months Ended September 30,							Three Months Ended March 31,
	2019		2018	Increase/(Decrease)		% Change		2020		2019	Increase/(Decrease)	% Change
	(Dollars in millions)							(Dollars in millions)
Depreciation	$	605	700	(95	)	(14	)%	$	208	197	11	6	%
Amortization	604		595	9		2	%	208		193	15	8	%
Total depreciation and amortization	$	1,209	1,295	(86	)	(7	)%	$	416	390	26	7	%

Depreciation expense ~~decreased~~increased by $3$11 million, or 1%6%, for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the three months ended ~~September 30, 2018,~~March 31, 2019, primarily due to the impact of the full depreciation of plant, property and equipment assigned a one year life at the time CenturyLink acquired us, of approximately $60 million, offset by increases associated with changesnet growth in ~~our estimates of the remaining economic life of certain network assets of $28 million and an increase in net~~ depreciable assets of ~~$30 million. Depreciation expense decreased~~$19 million partially offset by ~~$95~~2019 change in estimate of $5 million ~~or 14%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to the~~and foreign currency impact of the full depreciation of plant, property and equipment assigned a one year life at the time CenturyLink acquired us, of approximately $180 million, offset by increases associated with changes in our estimates of the remaining economic life of certain network assets of $43 million and an increase in net depreciable assets of $43$3 million.

Amortization expense increased by $2$15 million, or 1%8%, for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the three months ended ~~September 30, 2018 and $9 million, or 2%, for the nine months ended September 30,~~March 31, 2019, ~~as compared to the nine months ended September 30, 2018,~~ primarily due to ~~an increase~~net growth in ~~net~~ amortizable ~~assets.~~assets of $15 million.

Goodwill Impairment

Our goodwill was derived from CenturyLink's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We are required to perform an impairment test related to our goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs. The decline in CenturyLink's stock price triggered impairment testing in the first quarter of ~~2019 triggered impairment testing. Due to this impairment indicator,~~2019. Consequently, we evaluated our goodwill as of March 31, ~~2019, which led to the first quarter 2019 impairment charge described below. There were no additional indicators of impairment during the second or third quarter of~~ 2019.

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When we performed our ~~October 31, 2018 annual~~ impairment test ~~we estimated~~during the ~~fair value~~first quarter of equity by considering both a market approach and a discounted cash flow method. The market approach method includes the use of multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value equal to the present value of all the remaining cash flows after the projection period. Because CenturyLink's low stock price was the trigger for impairment testing, we estimated the fair value of our operations using only the market approach as of March 31, 2019. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple within this range. For the three months ended March 31, 2019, ~~based on our assessments performed as described above,~~ we concluded that the estimated fair value of our business was less than our carrying value of equity as of the date of our triggering event during the first quarter. As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge ~~aggregating to~~of $3.7 billion ~~for~~in the ~~three months~~quarter ended March 31, 2019.

During the first quarter of 2020, we observed a decline in CenturyLink's stock price as a result of events occurring after the end of 2019, including the COVID-19 pandemic. We evaluated whether such events would indicate the fair value of our reporting unit was below its carrying value. We believe these events have impacted the global economy more directly than the Company, and when considered with other factors, we have concluded it is not more likely than not that the fair value of our reporting unit was less than its carrying value as of the quarter ended March 31, 2020. In light of the negative impacts of COVID-19 on the global economy, we will continue to evaluate the general economic trends which could have an impact on our assessment of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. Future changes could cause our

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reporting unit fair value to be less than our carrying value, resulting in potential impairments of our goodwill which could have a material effect on our results of operations and financial condition. The extent of the impact, if any, will depend on future developments including actions taken to contain the coronavirus and its long-term impacts on the overall economy.

See Note 2—Goodwill, Customer Relationships and Other Intangible Assets for more information.

Other Consolidated Results

The following ~~tables summarize our total~~table summarizes other ~~expense, net:~~

(expense) income and income tax expense:


	Three Months Ended September 30,									Three Months Ended March 31,
	2019			2018		Increase/(Decrease)		% Change		2020			2019		Increase/(Decrease)		% Change
	(Dollars in millions)									(Dollars in millions)
Interest income - affiliate	$	15		18		(3	)	(17	)%	$	13		16		(3	)	(19	)%
Interest expense	(123		)	(137	)	(14	)	(10	)%	(106		)	(131	)	(25	)	(19	)%
Other (expense) income, net	(13		)	18		(31	)	(172	)%	(34		)	12		(46	)	nm
Total other expense, net	$	(121	)	(101	)	20		20	%	$	(127	)	(103	)	24		23	%
Income tax expense	$	74		38		36		95	%	$	45		89		(44	)	(49	)%

Nine Months Ended September 30,
2019 2018 Increase/(Decrease) % Change
(Dollars in millions)
Interest income - affiliate $ 47
50
(3 ) (6 )%
Interest expense (384 ) (381 ) 3
1 %
Other income, net 2
21
(19 ) (90 )%
Total other expense, net $ (335 ) (310 ) 25
8 %
Income tax expense $ 214
184
30
16 %



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

Interest Income - Affiliate

Interest income - affiliate decreased by $3 million, or ~~17%~~19%, for the three months ended ~~September 30, 2019~~March 31, 2020, as compared to the three months ended ~~September 30, 2018, and decreased by $3 million, or 6%, for the nine months ended September 30,~~March 31, 2019 ~~as compared to the nine months ended September 30, 2018. Decreases in interest income - affiliate for both periods are~~ primarily due to ~~the repayment of a portion of amounts owed~~reduced receivable balances due to ~~us under notes receivable - affiliate.~~

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repayments from CenturyLink.

Interest Expense

Interest expense decreased by ~~$14~~$25 million, or ~~10%~~19%, for the three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the three months ended ~~September 30, 2018, primarily due to payments of long-term debt. Interest expense increased by $3 million, or 1%, for thenine months ended September 30, 2019, as compared to the nine months ended September 30, 2018.~~March 31, 2019. The ~~increase~~decrease was primarily due to ~~the increase in long term-debt, which was partially offset by an increase in capitalized interest.~~lower average debt outstanding, lower interest rates from refinancing debt and lower variable interest rates.

Other (Expense) Income, net

Other income, net decreased by ~~$31~~$46 million ~~or 172%,~~ for thethree months ended ~~September 30, 2019,~~March 31, 2020, as compared to the three months ended ~~September 30, 2018. Other income, net decreased by $19 million or 90%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018.~~March 31, 2019. The decrease in other income, net ~~for both periods~~ was primarily due to an increase in foreign currency ~~losses, which were partially offset by the gain on the early extinguishment of debt.~~loss.

Income Tax Expense

For the three months ended ~~September 30, 2019 and the three months ended September 30, 2018,~~March 31, 2020, our effective income tax rate was ~~39.4% and 30.2%, respectively. For the nine months ended September 30, 2019 and the nine months ended September 30, 2018, our effective income tax rate was (6.8)% and 49.2%, respectively.~~28.5%. The effective tax rate for the three months ended September 30, 2019 was significantly impacted by the new base erosion and anti-abuse provisions of the Tax Cuts and Jobs Act and immaterial discrete items. The effective tax rate for the nine months ended September 30,March 31, 2019 was significantly impacted by the goodwill impairment and the new base erosion and anti-abuse provisions of the Tax Cuts and Jobs Act. Without the goodwill impairment, the rate would ~~be 38.1%~~have been 42.0%. The effective tax rate for the nine months ended September 30, 2018 was significantly impacted by the enactment of the Tax Cuts and Jobs Act legislation in December 2017 which resulted in a re-measurement of our deferred tax assets and liabilities at the new federal corporate tax rate.

Liquidity and Capital Resources

Overview

At ~~September 30, 2019,~~March 31, 2020, we held cash and cash equivalents of ~~$1.2 billion.~~$239 million. At ~~September 30, 2019,~~March 31, 2020, cash and cash equivalents of ~~$43~~$35 million were held in foreign bank accounts for funding our foreign operations. Due to various factors, our access to foreign cash is generally more restricted than our access to domestic cash.

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Capital Expenditures

We incur capital expenditures on an ongoing basis to enhance and modernize our networks, compete effectively in our markets and expand our service offerings. CenturyLink and we evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and the expected return on investment. The amount of CenturyLink's consolidated capital investment is influenced by, among other things, demand for CenturyLink's services and products, cash flow generated by operating activities and cash required for other purposes.

Debt and Other Financing Arrangements

As of ~~September 30, 2019,~~March 31, 2020, our long-term debt (including current maturities and finance leases) totaled ~~$11.4 billion,~~$10.4 million, compared to ~~$10.8~~$10.4 billion outstanding as of December 31, ~~2018. This increase is attributable to the timing between our sale of new senior notes in the third quarter of 2019 to redeem outstanding notes in the fourth quarter of~~ 2019. See Note 5—Long-Term Debt.

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Subject to market conditions, from time to time we expect to continue to issue term debt or senior notes primarily to refinance our maturing debt. The availability, interest rate and other terms of any new borrowings will ~~depend on~~be impacted by the ratings assigned us by the three major credit rating agencies, among other factors. As of the date of this report, the credit ratings for the senior ~~unsecured debt of Level 3 Parent, LLC~~secured and unsecured ~~and secured~~ debt of Level 3 Financing, Inc. were as follows:



Borrower	Moody's Investor Services, Inc.	Standard & Poor's	Fitch Ratings
~~Level 3 Parent, LLC~~
~~Unsecured~~	B1	B+	BB

Level 3 Financing, Inc.
Unsecured	Ba3	BB	BB
Secured	Ba1	BBB-	BBB-

Future Contractual Obligations

For information regarding our estimated future contractual obligations, see the MD&A discussion included in Item 7 of Part II of our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Historical Information

The following table summarizes our consolidated cash flow activities:


	Nine Months Ended September 30,							Three Months Ended March 31,
	2019			2018		Change		2020			2019		Change
	(Dollars in millions)							(Dollars in millions)
Net cash provided by operating activities	$	1,844		1,627		217		$	395		483		(88	)
Net cash used in investing activities	$	(745	)	(607	)	138		(194		)	(285	)	(91	)
Net cash used in financing activities	$	(125	)	(1,135	)	(1,010	)	(279		)	(226	)	53

Operating Activities

Net cash provided by operating activities ~~increased $217~~decreased $88 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, primarily due to ~~increases~~an increase of $84 million in ~~other assets~~accounts receivable and ~~liabilities, affiliate and other noncurrent assets and liabilities,~~a decrease in net income adjusted for non-cash items partially offset by ~~decreases~~an increase in accounts ~~receivable, accounts payable, deferred revenue and other current assets and liabilities, net.~~payable. Cash provided by operating activities is subject to variability period over period as a result of the timing of the collection of receivables and payments related to interest expense, accounts payable, and bonuses.

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Investing Activities

Net cash used in investing activities ~~increased $138~~decreased $91 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 primarily due to ~~an increase in capital expenditures~~$122 million repayment of affiliate loans and ~~a decrease~~increases in proceeds from the sale of property, plant and equipment, ~~and other assets~~ partially offset by an increase in ~~payments of notes receivable - affiliates.~~capital expenditures.

Financing Activities

Net cash used in financing activities ~~decreased $1.0 billion~~increased $53 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, as compared to the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 primarily due to ~~a decrease in distributions and~~ an increase in ~~proceeds from long-term debt partially offset by increases in payments~~distributions of ~~long-term debt.~~

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$50 million.

Other Matters

We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. See Note 98 - Commitments, Contingencies and Other Items for additional information.

CenturyLink is involved in several legal proceedings to which we are not a party that, if resolved against it, could have a material adverse effect on its business and financial condition. As a wholly owned subsidiary of CenturyLink, our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in CenturyLink's quarterly and annual reports filed with the Securities and Exchange Commission ("SEC"). Because we are not a party to any of the matters, we have not accrued any liabilities for these matters.

Summarized Financial Information

Level 3 Financing, Inc., our wholly owned subsidiary, has registered several series of Senior Notes that are fully and unconditionally and jointly and severally guaranteed on an unsubordinated unsecured basis by Level 3 Parent, LLC and Level 3 Communications, LLC. Level 3 Financing, Inc., Level 3 Parent, LLC and Level 3 Communications, LLC are collectively referred to as the “Obligor Group.”

In conjunction with the registration of those Level 3 Financing, Inc. Senior Notes under the Securities Act of 1933, we have presented below the accompanying summarized financial information pursuant to SEC Regulation S-X Rule 13-01 "Guarantors and issuers of guaranteed securities registered or being registered."

The summarized financial information set forth below excludes subsidiaries that are not within the Obligor Group and presents transactions between the Obligor Group and the subsidiaries that do not guarantee the Senior Notes (the “Non-Guarantor Subsidiaries”). Investment in, and equity in earnings of subsidiaries have been excluded from the summarized financial information.

The following table presents summarized financial information specified in Rule 1-02(bb)(1) of Regulation S-X for the three months ended March 31, 2020:



	Three Months Ended March 31, 2020
	Level 3 Parent, LLC			Level 3 Financing, Inc.	Level 3 Communications, LLC
	(Dollars in millions)
Operating revenue	$	—		—	958
Operating revenue-affiliates	—			—	51
Operating expenses	(25		)	—	974
Operating expenses-affiliates	—			—	71
Operating income (loss)	25			—	(36	)
Net income (loss)	1,011			87	(1,198	)

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The following tables present summarized financial information reflected in our consolidated balance sheet as of March 31, 2020 and December 31, 2019, respectively:



	March 31, 2020
	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC
	(Dollars in millions)
Advances to affiliates	$	17,695	29,832	—
Note receivable-affiliate	1,468		—	—
Other current assets	3		—	502
Operating lease assets - affiliates	—		—	517
Other noncurrent assets	283		1,510	8,576
Accounts payable-affiliates	84		17	756
Current operating lease liabilities-affiliates	—		—	107
Due to affiliates	—		—	51,324
Other current liabilities	1		84	857
Non-current operating lease liabilities-affiliates	—		—	410
Other noncurrent liabilities	59		10,191	2,577



	December 31, 2019
	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC
	(Dollars in millions)
Advances to affiliates	$	16,828	29,796	—
Note receivable-affiliate	1,590		—	—
Other current assets	4		—	380
Operating lease assets - affiliates	—		—	527
Other noncurrent assets	284		1,485	8,546
Accounts payable-affiliates	80		17	569
Current operating lease liabilities-affiliates	—		—	109
Due to affiliates	—		—	50,005
Other current liabilities	1		104	977
Non-current operating lease liabilities-affiliates	—		—	418
Other noncurrent liabilities	57		10,196	2,613

Market Risk

At ~~September 30, 2019,~~March 31, 2020, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations. We seek to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates.

As of ~~September 30, 2019,~~March 31, 2020, we ~~have~~had approximately ~~$11.1~~$10.1 billion (excluding unamortized premiums, unamortized debt issuance costs and finance leases) of long-term debt outstanding, ~~59%~~69% of which bears interest at fixed rates and is therefore not exposed to interest rate risk. We also ~~have $4.6~~had $3.1 billion of floating rate debt exposed to changes in the London InterBank Offered Rate ("LIBOR"). A hypothetical increase of 100 basis points in LIBOR relative to this debt would decrease our annual pre-tax earnings by ~~$46~~$31 million.

By operating internationally, we are exposed to the risk of fluctuations in the foreign currencies used by our international subsidiaries, including the British Pound, the Euro, the Brazilian Real and the Argentinian Peso. Although the percentages of our consolidated revenue and costs that are denominated in these currencies are immaterial, our consolidated results of operations could be adversely impacted by volatility in exchange rates or an increase in the number of foreign currency transactions.

Certain shortcomings are inherent in the method of analysis presented in the computation of exposures to market risks. Actual values may differ materially from those presented above if market conditions vary from the assumptions used in the analyses performed. These analyses only incorporate the risk exposures that existed at ~~September 30, 2019.~~March 31, 2020.

Off-Balance Sheet Arrangements

As of ~~September 30, 2019,~~March 31, 2020, we have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support and we did not engage in leasing, hedging or other similar activities that expose us to any significant liabilities that are not (i) reflected on the face of the consolidated financial statements, (ii) disclosed in Note 1617 - Commitments and Contingencies to our consolidated financial statements in Item 8 of Part II of our annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, or in the Future Contractual Obligations table included in Item 7 of Part II of the same report, or (iii) discussed under the heading "Market Risk" above.

Other Information

CenturyLink's and our website is www.centurylink.com. We routinely post important investor information in the "Investor Relations" section of our website at ir.centurylink.com. The information contained on, or that may be accessed through, our website is not part of this quarterly report. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports in the "Investor Relations" section of our website (ir.centurylink.com) under the heading "SEC Filings." These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. From time to time, we also use our website to webcast our earnings calls and certain of our meetings with investors or other members of the investment community.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Omitted pursuant to General Instruction H(2).

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer, Jeff K. Storey, and our Executive Vice President and Chief Financial Officer, Indraneel Dev, evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~September 30, 2019.~~March 31, 2020. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ~~not~~ effective, as of ~~September 30, 2019, due to the material weakness~~March 31, 2020, in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended in December 31, 2018 related to the existence and accuracy of our revenue transactions.

~~Remediation Plans~~

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, we began implementing remediation plans to address both of the material weaknesses described in that report. During the second quarter, we remediated our material weakness related to the ineffective design and operation of process level internal controls over the fair value measurement of certain assets acquired and liabilities assumed in CenturyLink's acquisition of us.

The remaining material weakness relates to our ineffective design and operation of certain process level internal controls over the existence and accuracy of revenue transactions. This material weakness will not be considered remediated until we have designed and implemented sufficient process level controls and the applicable controls operate for a sufficient period of time such that management has concluded, through testing, that these controls are operating effectively. Based on our progress to date, we expectproviding reasonable assurance that the ~~remediation of~~information required to be disclosed by us in this ~~material weakness will be completed as of December 31, 2019.~~report was accumulated and communicated in the manner provided above.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the ~~third~~first quarter of ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We currently expect, however, to complete the implementation of changes in our internal control over financial reporting during the fourth quarter of 2019 in connection with the remediation efforts discussed above.

Inherent Limitations of Internal Controls

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. By their nature, our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management's control objectives.

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PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information contained in Note 98 - Commitments, Contingencies and Other Items, included in Item 1 of Part I of this quarterly report on Form 10-Q is incorporated herein by reference. The ultimate outcome of the matters described in Note 98 may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing in such Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us. For more information, see “Risk Factors—Risks Relating to Legal and Regulatory Matters—Our pending legal proceedings could have a material adverse impact on our financial condition and operating results, on the trading price of our securities and on our ability to access the capital markets” in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019 and Item 1A of Part II of this report.

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition or future results. ~~In addition~~We urge you to carefully consider (i) the other information set forth in this report ~~you should carefully consider~~and (ii) the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, as supplemented by the additional risk factors appearing below:

An outbreak of disease or similar public health threat, such as the recent COVID‑19 pandemic, could have a material adverse impact on our operating results and financial condition.

An outbreak of disease or similar public health threat, such as the recent COVID‑19 pandemic and its detrimental impact on the worldwide economy, could have a material adverse impact on our operating results and financial condition.

We are vulnerable to the general economic effects of disease outbreaks and similar public health threats. Since the latter half of the first quarter of 2020, the COVID-19 pandemic has caused a sudden and substantial reduction in worldwide economic activity. COVID-19 poses the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities at expected levels through established processes for an indefinite period of time, including due to shutdowns or related restrictions that may be requested or mandated by governmental authorities (such as the shutdowns of sporting events, which has reduced our Vyvx revenues). We provide services in regions significantly impacted by COVID-19. The extent to which COVID-19 will ultimately impact our results, including its impact on demand for our products and services and related impacts upon network usage, the ability of our customers to continue to pay in a timely manner, the impact on other third parties upon which our operations, financial performance and liquidity are materially reliant, impacts on our relationships with unionized employees and related collective bargaining agreements negotiations, impacts upon counterparty risk relative to our major contracts, impacts upon our transformational efforts and impacts on our supply chains or distribution channels for our products and services, is dependent on future developments, which are uncertain and unpredictable, including new information which may emerge concerning the risks and severity of COVID-19 and additional actions which may be taken to contain it or treat its impact. Such future uncertain and unpredictable developments include:

•

The duration, extent and severity of the pandemic. COVID-19 has rapidly spread worldwide, and it is not yet known (i) when the current pandemic will abate, (ii) whether, when or to what extent additional outbreaks may arise, (iii) the extent to which various populations will experience more severe adverse health consequences, (iv) the effectiveness of current mitigation steps, and (v) whether or when treatments or vaccines will be developed to improve the rate of infection or staunch the pandemic.

•

The response of governmental and nongovernmental authorities. Many governmental and nongovernmental bodies have taken action to substantially curtail household and business activity to help slow the spread of COVID-19 or to otherwise mitigate its potential adverse effects. In the United States and many other countries, these mandates have been issued by state or local officials, which significantly increases the unpredictability and variability of when and how these mandates will be amended or rescinded. The significant health and economic challenges arising out of the pandemic has

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led to changes in laws governing the rights of workers and has caused, and may continue to cause, various parties to propose additional changes to laws or regulations, including those governing communications companies. The continuing impact of existing or new mandates, restrictions ,laws or regulations could have a material adverse impact on our operations and the operations of our suppliers or others with which we do business.

•

Impacts to economic and market conditions. COVID-19 has created significant disruption to and volatility in global, national, regional and local economies and markets. Uncertainties related to, and perceived or experienced negative effects from, COVID-19 may cause significant volatility or decline in the trading price of our securities, worldwide labor markets and general economic conditions. These changes began to affect us, our customers and our business by the end of the first quarter of 2020. Following the first quarter of 2020, we expect these changes either may or will (i) increase the likelihood of litigation, including derivative shareholder litigation, (ii) continue to limit or restrict our ability to conduct normal business activities with customers, vendors, lenders or others with whom we do business, (iii) continue to result in changes in spending patterns or reduced demand for our products and services, (iv) result in reductions in our labor force, (v) cause us to change our operating or capital spending plans, (vi) result in future changes in tax rates, (vii) restrict our ability to implement our transformation plans and (vii) otherwise render it more difficult or impossible to implement our operational or strategic plans.

•

Impacts to Capital Markets. Shortly after COVID-19 began its rapid spread beyond Asia, domestic and worldwide capital markets ceased operating for a short period, and have remained unstable or unpredictable since then, particularly for non-investment grade issuers. Legislative bodies and reserve banks have taken various actions in response to the pandemic that have impacted the capital markets, and we expect that these efforts could continue. We are materially reliant upon the capital markets to access funding necessary to refinance our outstanding indebtedness. If the economic disruptions caused by COVID-19 continue to interfere with the operations of the capital markets, our access to cash to refinance our debt or to fund our other cash requirements could be materially adversely affected.


•	Impacts to individuals and companies that may do business with us or be involved in our business. COVID-19 may impact the health of our employees, directors or customers, reduce the availability of our workforce or those of companies with which we do business, create disruptions in our supply chain or otherwise cause human impacts that have a material adverse impact on our business.

In addition, preparing for and responding to the continuing pandemic could divert management’s attention from our key strategic priorities, increase costs as we prioritize health and safety matters for our employees and customers, cause us to reduce, delay, alter or abandon initiatives that may otherwise increase our long-term value, increase vulnerability to information technology or cybersecurity related risks as more of our employees work remotely and otherwise continue to disrupt our business operations. Moreover, if the pandemic ultimately materially reduces our cash flows, we may need to re-evaluate our capital allocation plans, especially if increased broadband usage increases our need to invest in our network to remain competitive.

While it is not possible at this time to estimate the full impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by governments to combat it are expected to impact us to a greater degree in the second quarter of 2020 and could have a material adverse impact on our operating results and financial condition.

Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described under the section entitled “Item 1A. Risk Factors” in our annual report on Form 10‑K for the year ended December 31, 2019, including those relating to the risks of additional asset impairments. Specifically, during the first quarter of 2020, CenturyLink observed a decline in its stock price as a result of events occurring after the end of 2019, including the COVID-19 pandemic. We evaluated whether such events would indicate the fair value of our reporting unit was below its carrying value. We believe these events have impacted the global economy more directly than us, and when considered with other factors, we have concluded it is not more than likely than not

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that the fair value of our reporting unit was less than its carrying value as of the quarter ended March 31, 2020. In light of the negative impacts of COVID-19 on the global economy, we will continue to evaluate the general economic trends which could have an impact on our assessment of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. Future changes could cause our reporting unit fair value to be less than its carrying value, resulting in potential impairments of our goodwill which could have a material effect on our results of operations and financial condition. The extent of the impact, if any, will depend on future developments including actions taken to contain the coronavirus and its long-term impacts on the overall economy.

We have taken certain precautions due to the uncertain and evolving situation relating to the spread of COVID-19 that could have a material adverse impact on our operating results and financial condition.

In light of the uncertain and evolving situation relating to the spread of COVID-19, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, our customers, business partners and the communities in which we participate, which could have a material adverse impact on our operating results and financial condition. To this end, we have, among other things, established safety protocols for the safety of our on-site technicians and customers, adopted an employee work-from-home policy where employees who can work-from-home do so, substantially restricted non-essential business travel and taken the “Keep Americans Connected Pledge,” which obligates us in certain circumstances to waive late fees and to not terminate a residential or small business customer’s service due to financial circumstances associated with COVID-19 for a period of time. In addition to reducing our late fee revenues, these measures could make it more difficult to (i) timely and efficiently furnish products and services to our customers, (ii) devote sufficient resources to our ongoing network and product simplification projects, (iii) efficiently monitor and maintain our network, (iv) maintain effective internal controls, (v) mitigate information technology or cybersecurity related risks and (vi) otherwise operate and administer our affairs. As such, these measures ultimately could have a material adverse impact on our operating results and financial condition. The extent to which COVID-19 may impact our workforce, business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with a reasonable level of certainty at this time.

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ITEM 6. EXHIBITS

Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference. All other exhibits are provided as part of this electronic submission.



18.1*	Preferability Letter
22.1*	Guaranteed Securities
31.1*	~~Rule 13a-14(a)/15d-14(a)~~ Certification of the Chief Executive ~~Officer.~~Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	~~Rule 13a-14(a)/15d-14(a)~~ Certification of the Chief Financial ~~Officer.~~Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer ~~pursuant to 18 U.S.C. Section 1350, as adopted~~ pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer ~~pursuant to 18 U.S.C. Section 1350, as adopted~~ pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	The following materials from the Quarterly Report on Form 10-Q of Level 3 Parent, LLC for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language); (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Member's Equity and (vi) Notes to Consolidated Financial Statements.
104*	Cover page formatted as Inline XBRL and contained in Exhibit 101.

_______________________________________________________________________________


*	Exhibit filed herewith.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on ~~November~~May 8, ~~2019.~~2020.



	LEVEL 3 PARENT, LLC
	By:	/s/ Eric J. Mortensen
	By:	Eric J. Mortensen Senior Vice President - Controller (Principal Accounting Officer)

5036



	(Dollars in millions)
As of December 31, 2018	$	11,119
Effect of foreign currency rate change and other	(22		)
Impairment	(3,708		)
As of September 30, 2019	$	7,389



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
	(Dollars in millions)
Operating and short-term lease cost	$	92	288
Finance lease cost:
Amortization of right-of-use assets	3		10
Interest on lease liability	2		8
Total finance lease cost	5		18
Total lease cost	$	97	306



		September 30,
Leases (millions)	Classification on the Balance Sheet	2019
Assets
Operating lease assets	Operating lease assets	$	1,102
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	147
Total leased assets		$	1,249

Liabilities
Current
Operating	Current operating lease liabilities	$	244
Finance	Current portion of long-term debt	7
Noncurrent
Operating	Noncurrent operating lease liabilities	900
Finance	Long-term debt	153
Total lease liabilities		$	1,304

Weighted-average remaining lease term (years)
Operating leases		11.1
Finance leases		13.4
Weighted-average discount rate
Operating leases		6.59		%
Finance leases		5.68		%



	Future Minimum Payments
	(Dollars in millions)
Capital lease obligations:
2019	$	16
2020	15
2021	16
2022	16
2023	17
2024 and thereafter	164
Total minimum payments	244
Less: amount representing interest and executory costs	(81		)
Present value of minimum payments	163
Less: current portion	(6		)
Long-term portion	$	157



	Severance
	(Dollars in millions)
Balance at January 1, 2019	$	19
Accrued to expense	(1		)
Payments, net	(10		)
Balance at September 30, 2019	$	8



Intercompany payables	—		—	50,785		3,588	(54,373	)	—
Other	1		1	8		61	—		71
Current portion of deferred revenue	—		—	159		137	—		296
Total current liabilities	84		497	52,337		4,297	(54,485	)	2,730
LONG-TERM DEBT	611		10,231	6		147	—		10,995

DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	—		—	1,055		209	—		1,264
Deferred income taxes, net	56		—	781		900	(1,512	)	225
Noncurrent operating lease liabilities	—		—	989		303	(392	)	900
Other	—		—	141		145	—		286
Total deferred revenue and other liabilities	56		—	2,966		1,557	(1,904	)	2,675
MEMBER'S EQUITY (DEFICIT)	29,581		26,907	(34,439	)	15,241	(23,598	)	13,692
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	30,332	37,635	20,870		21,242	(79,987	)	30,092



Current portion of deferred revenue	—		—	168		142	—		310
Total current liabilities	76		94	46,328		6,586	(51,260	)	1,824
LONG-TERM DEBT	613		10,068	7		150	—		10,838
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	—		—	971		210	—		1,181
Deferred income taxes, net	56		—	841		637	(1,332	)	202
Other	—		—	197		172	—		369
Total deferred revenue and other liabilities	56		—	2,009		1,019	(1,332	)	1,752
MEMBER'S EQUITY (DEFICIT)	33,766		33,134	(27,256	)	15,550	(37,317	)	17,877
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	34,511	43,296	21,088		23,305	(89,909	)	32,291