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, 2021~~March 31, 2022


☐			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)

Securities registered pursuant to Section 12(b) of the Act:

~~Title of Each Class~~None

~~Trading Symbol(s)~~

~~Name of Each Exchange on Which Registered~~

—

THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF LUMEN TECHNOLOGIES, 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. None of the interest is publicly traded.

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TABLE OF CONTENTS



	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 (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	2624
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3732
Item 4.	Controls and Procedures	3732
Part II	Other Information
Item 1.	Legal Proceedings	3833
Item 1A.	Risk Factors	3833
Item 5	Other Information	3833
Item 6.	Exhibits	3934
Signature		4035

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

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Unless the context requires otherwise, references in this report to "Level 3," “we,” “us,” "its," the "Company" and "our" refer to Level 3 Parent, LLC and its predecessor Level 3 Communications, Inc., and their respective consolidated subsidiaries. References to "Lumen Technologies" or "Lumen" refer to our ultimate parent company, Lumen Technologies, Inc. and its consolidated subsidiaries.

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 or 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:

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

•statements concerning the anticipated impact of our transactions, investments, product development, buildout plans, and other initiatives, including synergies or costs associated with these initiatives;

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

•statements regarding how the health and economic challenges raised by the COVID-19 pandemic may impact our business, ~~operations, cash flows~~financial position, operating results or ~~financial position;~~prospects; 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,~~“plans,” “believes,” “expects,” “anticipates,” “estimates,” "forecasts," “projects,” "proposes," "targets," “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 below 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~~These factors include but are not limited to:

•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 less desirable or obsolete;

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

•our ability to safeguard our network, and to avoid the adverse impact of possible cyber-attacks, security breaches, service outages, system failures, or similar events impacting our network or the availability and quality of our services;

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•the effects of ongoing changes in the regulation of the communications industry, including the outcome of legislative, regulatory or judicial proceedings relating to content liability standards, intercarrier compensation, broadband deployment, data protection, privacy and net neutrality;

•our ability to effectively retain and hire key personnel;

•possible changes in ~~the~~customer demand for our products and services, including increased demand for high-speed data transmission services;

•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 repayments and distributions;

•our ability to successfully and timely implement our ~~operating plans and~~ corporate strategies, including our deleveraging strategy;

•our ability to successfully and timely consummate the pending divestiture of our Latin American business on the terms proposed, to realize the anticipated benefits therefrom and to operate our retained business successfully thereafter;

•changes in our operating plans, corporate strategies and capital allocation plans, whether based upon changes in our cash flows, cash requirements, financial performance, financial position, market or regulatory conditions, or otherwise;

•the impact of any future material acquisitions or divestitures that we may transact;

•the negative impact of increases in the costs of Lumen’s pension, healthcare ~~for active~~ and ~~retired employees,~~ post-employment ~~or other~~ benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations;

•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 credit ratings, unstable markets or otherwise;

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

•our ability to maintain favorable relations with our security holders, key business partners, suppliers, vendors, landlords and financial institutions;

•Lumen's ability to meet evolving environmental, social and governance ("ESG") expectations and benchmarks, and effectively communicate its ESG strategies;

•our ability to collect our receivables from, or continue to do business with, financially-troubled customers;

•Lumen's ability to use its net operating loss carryforwards in the amounts projected;

•our ability to continue to use or renew intellectual property used to conduct our operations;

•any adverse developments in legal or regulatory proceedings involving us or our affiliates, including Lumen Technologies;

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•changes in tax, pension, healthcare or other laws or regulations, or in general government funding levels, including those arising from ~~pending proposals of the Biden Administration to increase infrastructure spending and~~recently-enacted federal ~~income tax rates;~~legislation promoting increased broadband spending;

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

•continuing uncertainties regarding the impact that COVID-19 disruptions and vaccination policies could have on our business, operations, cash flows and corporate initiatives;

•the effects of adverse weather, terrorism, epidemics, pandemics, rioting, societal unrest, or other natural or man-made disasters or disturbances;

•the potential adverse effects if our internal controls over financial 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 inflation, 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 referenced in the "Risk Factors" section or other portions of this report or other of our filings with the 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,
		2021		2020	2021	2020			2022		2021
		(Dollars in millions)							(Dollars in millions)
OPERATING REVENUE	OPERATING REVENUE						OPERATING REVENUE
Operating revenue	Operating revenue	$	1,934	1,918	5,797	5,782	Operating revenue		$	1,890	1,934
Operating revenue - affiliates	Operating revenue - affiliates	56		53	167	153	Operating revenue - affiliates		56		55
Total operating revenue	Total operating revenue	1,990		1,971	5,964	5,935	Total operating revenue		1,946		1,989
OPERATING EXPENSES	OPERATING EXPENSES						OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	Cost of services and products (exclusive of depreciation and amortization)	897		857	2,643	2,623	Cost of services and products (exclusive of depreciation and amortization)		851		878
Selling, general and administrative	Selling, general and administrative	305		300	872	922	Selling, general and administrative		314		294
Operating expenses - affiliates	Operating expenses - affiliates	116		101	354	274	Operating expenses - affiliates		146		107
Depreciation and amortization	Depreciation and amortization	431		429	1,304	1,250	Depreciation and amortization		396		437
Total operating expenses	Total operating expenses	1,749		1,687	5,173	5,069	Total operating expenses		1,707		1,716
OPERATING INCOME	OPERATING INCOME	241		284	791	866	OPERATING INCOME		239		273
OTHER (EXPENSE) INCOME	OTHER (EXPENSE) INCOME						OTHER (EXPENSE) INCOME
Interest income - affiliate	Interest income - affiliate	16		13	49	39	Interest income - affiliate		16		18
Interest expense	Interest expense	(90)		(99)	(272)	(301)	Interest expense		(90)		(93)
Other (expense) income, net	Other (expense) income, net	(9)		41	1	29	Other (expense) income, net		(7)		4
Total other expense, net	Total other expense, net	(83)		(45)	(222)	(233)	Total other expense, net		(81)		(71)
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	158		239	569	633	INCOME BEFORE INCOME TAXES		158		202
Income tax expense	Income tax expense	37		42	150	147	Income tax expense		44		51
NET INCOME	NET INCOME	$	121	197	419	486	NET INCOME		$	114	151

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(Dollars in millions)
NET INCOME $ 121 197 419 486
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustments, net of $13, $(21), $16 and $(2) tax (93) 41 (101) (179)
Other comprehensive (loss) income, net of tax (93) 41 (101) (179)
COMPREHENSIVE INCOME $ 28 238 318 307


	Three Months Ended March 31,
		2022		2021
		(Dollars in millions)
NET INCOME		$	114	151
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments, net of $10 and $7 tax		69		(88)
Other comprehensive income (loss), net of tax		69		(88)
COMPREHENSIVE INCOME		$	183	63

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED BALANCE SHEETS
September 30, 2021 (unaudited) December 31, 2020
(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 215 190
Accounts receivable, less allowance of $39 and $45 620 683
Note receivable - affiliate 1,468 1,468
Assets held for sale 2,657 —
Other 238 297
Total current assets 5,198 2,638
Property, plant and equipment, net of accumulated depreciation of $2,998 and $2,818 9,011 10,518
GOODWILL AND OTHER ASSETS
Goodwill 6,667 7,405
Other intangible assets, net 5,907 6,605
Other, net 1,459 1,410
Total goodwill and other assets 14,033 15,420
TOTAL ASSETS $ 28,242 28,576
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 24 14
Accounts payable 407 495
Accounts payable - affiliates 76 869
Accrued expenses and other liabilities
Salaries and benefits 166 220
Income and other taxes 98 111
Current operating lease liabilities 283 241
Other 143 159
Liabilities held for sale 412 —
Current portion of deferred revenue 289 315
Total current liabilities 1,898 2,424
LONG-TERM DEBT 10,402 10,373
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue 1,335 1,396
Operating lease liabilities 942 903
Other 468 575
Total deferred revenue and other liabilities 2,745 2,874
COMMITMENTS AND CONTINGENCIES (Note 10) 0 0
MEMBER'S EQUITY
Member's equity 13,532 13,139
Accumulated other comprehensive loss (335) (234)
Total member's equity 13,197 12,905
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 28,242 28,576

(UNAUDITED)


	March 31, 2022		December 31, 2021
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	155	146
Accounts receivable, less allowance of $36 and $39	551		642
Accounts receivable - affiliates	8		—
Note receivable - affiliate	1,468		1,468
Assets held for sale	2,892		2,708
Other	276		239
Total current assets	5,350		5,203
Property, plant and equipment, net of accumulated depreciation of $3,388 and $3,202	9,022		9,042
GOODWILL AND OTHER ASSETS
Goodwill	6,655		6,666
Other intangible assets, net	5,548		5,725
Other, net	1,526		1,459
Total goodwill and other assets	13,729		13,850
TOTAL ASSETS	$	28,101	28,095
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	29	26
Accounts payable	399		381
Accounts payable - affiliates	—		18
Accrued expenses and other liabilities
Salaries and benefits	112		176
Income and other taxes	78		83
Current operating lease liabilities	313		299
Other	121		150
Liabilities held for sale	464		435
Current portion of deferred revenue	309		291
Total current liabilities	1,825		1,859
LONG-TERM DEBT	10,390		10,396
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	1,415		1,404
Operating lease liabilities	1,009		953
Other	480		474
Total deferred revenue and other liabilities	2,904		2,831
COMMITMENTS AND CONTINGENCIES (Note 8)	0		0
MEMBER'S EQUITY
Member's equity	13,264		13,360
Accumulated other comprehensive loss	(282)		(351)
Total member's equity	12,982		13,009
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	28,101	28,095

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,
2021 2020
(Dollars in millions)
OPERATING ACTIVITIES
Net income $ 419 486
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,304 1,250
Deferred income taxes 122 124
Changes in current assets and liabilities:
Accounts receivable (41) (101)
Accounts payable (34) (139)
Other assets and liabilities, net (74) (195)
Other assets and liabilities, affiliate (780) 364
Changes in other noncurrent assets and liabilities, net 33 116
Other, net (8) 39
Net cash provided by operating activities 941 1,944
INVESTING ACTIVITIES
Capital expenditures (874) (1,124)
Collections on note receivable - affiliate — 122
Proceeds from sale of property, plant and equipment and other assets 52 105
Net cash used in investing activities (822) (897)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 891 2,020
Distributions (25) (1,075)
Payments of long-term debt (932) (2,056)
Other (1) (4)
Net cash used in financing activities (67) (1,115)
Net increase (decrease) in cash, cash equivalents and restricted cash 52 (68)
Cash, cash equivalents and restricted cash at beginning of period 205 338
Cash, cash equivalents and restricted cash at end of period $ 257 270
Supplemental cash flow information:
Income taxes paid, net $ (23) (20)
Interest paid (net of capitalized interest of $11 and $18) $ (304) (323)
Cash, cash equivalents and restricted cash:
Cash and cash equivalents $ 215 256
Cash and cash equivalents included in assets held for sale 36 —
Restricted cash included in Other current assets 2 2
Restricted cash included in Other, net noncurrent assets 4 12
Total $ 257 270


	Three Months Ended March 31,
	2022		2021
	(Dollars in millions)
OPERATING ACTIVITIES
Net income	$	114	151
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	396		437
Deferred income taxes	29		42
Changes in current assets and liabilities:
Accounts receivable	84		1
Accounts payable	(28)		(1)
Other assets and liabilities, net	(121)		(159)
Other assets and liabilities, affiliate	(14)		(161)
Changes in other noncurrent assets and liabilities, net	40		37
Other, net	41		(19)
Net cash provided by operating activities	541		328
INVESTING ACTIVITIES
Capital expenditures	(264)		(297)
Proceeds from sale of property, plant and equipment and other assets	1		25
Net cash used in investing activities	(263)		(272)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	—		891
Distributions	(210)		—
Payments of long-term debt	(40)		(904)
Other	—		(2)
Net cash used in financing activities	(250)		(15)
Net increase in cash, cash equivalents and restricted cash	28		41
Cash, cash equivalents and restricted cash at beginning of period	191		205
Cash, cash equivalents and restricted cash at end of period	$	219	246
Supplemental cash flow information:
Income taxes paid, net	$	(9)	(7)
Interest paid (net of capitalized interest of $4 and $4)	$	(113)	(126)

Cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	155	234
Cash and cash equivalents included in assets held for sale	58		—
Restricted cash included in Other current assets	2		2
Restricted cash included in Other, net noncurrent assets	4		10
Total	$	219	246

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,
		2021		2020	2021	2020			2022		2021
		(Dollars in millions)							(Dollars in millions)
MEMBER'S EQUITY	MEMBER'S EQUITY						MEMBER'S EQUITY
Balance at beginning of period	Balance at beginning of period	$	13,412	13,301	13,139	13,724	Balance at beginning of period		$	13,360	13,139
Net income	Net income	121		197	419	486	Net income		114		151
Cumulative effect of adoption of ASU 2016-13, Measurement of Credit Losses, net of $2 tax		—		—	—	(3)
Distributions	Distributions	—		(400)	(25)	(1,118)	Distributions		(210)		—
Other	Other	(1)		(2)	(1)	7	Other		—		—
Balance at end of period	Balance at end of period	13,532		13,096	13,532	13,096	Balance at end of period		13,264		13,290
ACCUMULATED OTHER COMPREHENSIVE LOSS	ACCUMULATED OTHER COMPREHENSIVE LOSS						ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period	Balance at beginning of period	(242)		(399)	(234)	(179)	Balance at beginning of period		(351)		(234)
Other comprehensive (loss) income		(93)		41	(101)	(179)
Other comprehensive income (loss)							Other comprehensive income (loss)		69		(88)
Balance at end of period	Balance at end of period	(335)		(358)	(335)	(358)	Balance at end of period		(282)		(322)
TOTAL MEMBER'S EQUITY	TOTAL MEMBER'S EQUITY	$	13,197	12,738	13,197	12,738	TOTAL MEMBER'S EQUITY		$	12,982	12,968

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

Notes To Consolidated Financial Statements

(UNAUDITED)

Unless the context requires otherwise, references in this report to "Level 3," “we,” “us,” "its," the “Company” and “our”, refer to Level 3 Parent, LLC and its predecessor, Level 3 Communications, Inc. and their respective subsidiaries. References to "Lumen Technologies" or "Lumen" refer to our ultimate parent company, Lumen Technologies, Inc. and its consolidated subsidiaries.

(1) Background

General

We are an international facilities-based technology 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.

Basis of Presentation

Our consolidated balance sheet as of December 31, ~~2020,~~2021, 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~~note 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 U.S. Securities and Exchange Commission ("SEC"). However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading. We believe 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, ~~2020.~~2021.

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 (Lumen Technologies 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 quarter of 2021.

We reclassified certain prior period amounts to conform to the current period presentation, including our revenue by product and service categories. See Note 4—Revenue Recognition for additional information. These changes had no impact on total operating revenue, total operating expenses or net income for any period.

Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Other, net included affiliate operating lease assets of ~~$243~~$346 million and ~~$83~~$294 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Additionally, current operating lease liabilities included the current portion of affiliate operating lease liabilities of ~~$67~~$94 million and ~~$31~~$82 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, and operating lease liabilities included the noncurrent portion of affiliate operating lease liabilities of ~~$187~~$263 million and ~~$65~~$224 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

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Segments

Our operations are integrated into and reported as part of Lumen Technologies. Lumen'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 ~~determined that we have~~ 1 reportable segment.

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Summary of Significant Accounting Policies

Refer to the significant accounting policies described in Note 1 — Background and Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~

~~Assets Held for Sale~~

We classify assets and related liabilities as held for sale when: (i) management has committed to a plan to sell the assets, (ii) the net assets are available for immediate sale, (iii) there is an active program to locate a buyer and (iv) the sale and transfer of the net assets is probable within one year. Assets and liabilities held for sale are presented separately on our consolidated balance sheets with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less costs to sell. Depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale. For each period that assets are classified as being held for sale, they are tested for recoverability. Unless otherwise specified, the amounts and information in the notes presented do not include assets and liabilities that have been reclassified as held for sale as of September 30, 2021. ~~See Note 2—Planned Divestiture of the Latin American Business for additional information.~~

Recently Adopted Accounting Pronouncements

Government Assistance

On January 1, 2022, we adopted Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” (“ASU 2020-10”). This ASU increases transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. The ASU only impacts annual financial statement note disclosures. Therefore, the adoption of ASU 2021-10 did not have a material impact to our consolidated financial statements.

Leases

On January 1, 2022, we adopted ASU 2021-05, “Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments” (“ASU 2021-05”). This ASU (i) amends the lease classification requirements for lessors to align them with practice under ASC Topic 840, (ii) provides criteria for lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease; and (iii) when a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The adoption of ASU 2021-05 did not have a material impact to our consolidated financial statements.

Debt

On January 1, 2021, we adopted ASU 2020-09, "“Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762~~" ("~~” (“ASU ~~2020-09"~~2020-09”). This ASU amends and supersedes various SEC ~~paragraphs~~guidance to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The adoption of ASU 2020-09 did not have a material impact to our consolidated financial statements.

Investments

On January 1, 2021, we adopted ASU 2020-01, "“~~Investments -~~ Investments—Equity Securities (Topic 321), ~~Investments -~~ Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) ~~- Clarifying the Interactions between Topic 321, Topic 323, and Topic 815)" ("ASU 2020-01"~~” (ASU 2020-01”). This ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments - Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. As of ~~September 30, 2021,~~March 31, 2022, we determined there was no application or discontinuation of the equity method during the reporting ~~periods.~~periods covered by this report. The adoption of ASU 2020-01 did not have ana material impact to our consolidated financial statements.

Income Taxes

On January 1, 2021, we adopted ASU 2019-12, "“Income Taxes (Topic 740): Simplifying the Accounting for Income ~~Taxes (Topic 740)~~Taxes”~~" ("~~ (“ASU ~~2019-12"~~2019-12”)~~. This~~.This ASU removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU 2019-12 did not have a material impact to our consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosures” (“ASU 2022-02”). These amendments eliminate the TDR recognition and measurement guidance and enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2020-02 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of March 31, 2022, we do not expect ASU 2022-02 to have an impact to our consolidated financial statements.

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~~Measurement~~In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging-Portfolio Layer Method” (ASU 2022-01). The ASU expands the current single-layer method to allow multiple hedged layers of ~~Credit Losses on Financial Instruments~~

~~We adopted~~a single closed portfolio under the method. ASU ~~2016-13, "Measurement~~2020-01 will become effective for us in the first quarter of ~~Credit Losses on Financial Instruments" ("~~fiscal 2023 and early adoption is permitted. As of March 31, 2022, we do not expect ASU ~~2016-13") on January 1, 2020 and recognized a cumulative adjustment~~2022-01 to have an impact to our ~~accumulated deficit as of the date of adoption of $3 million, net of tax effect of $2 million. Please refer to Note 6—Credit Losses on Financial Instruments for more information.~~consolidated financial statements.

~~Recently Issued Accounting Pronouncements~~

In ~~March 2020,~~October 2021, the FASB issued ASU ~~2020-04,~~2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of March 31, 2022, we do not expect ASU 2021-08 to have an impact to our consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): ~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~Scope"" ("ASU ~~2020-04" or "Reference Rate Reform"~~2021-01"), ~~designed to ease the burden of accounting~~which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications ~~related~~and hedge accounting apply to derivatives that are affected by the ~~global market-wide reference rate transition period. Subject to certain criteria,~~discounting transition. ASU ~~2020-04 provides qualifying entities~~2021-01 also amends the ~~option to apply~~ expedients and exceptions in Topic 848 to ~~contract modifications~~capture the incremental consequences of the scope clarification and ~~hedging accounting relationships made until December 31, 2022.~~to tailor the existing guidance to derivative instruments affected by the discounting transition. These amendments ~~are effective immediately and~~ may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ASU ~~2020-04~~2021-01 provides ~~optional~~option guidance for a limited time to ease the potential burden in accounting for reference rate reform. Based on our review of our key material contracts through ~~September 30, 2021,~~March 31, 2022, we do not expect ASU ~~2020-04~~2021-01 to have ~~any~~a material impact ~~on the~~to our consolidated financial statements.

(2) Planned Divestiture of the Latin American Business

On July 25, 2021, affiliates of Level 3 Parent, LLC executed a definitive agreement to divest our Latin American business to an affiliate of a fund advised by Stonepeak Partners LP in exchange for $2.7 billion cash, subject to certain working capital and other purchase price adjustments and related transaction expenses (estimated to be approximately $50 million). We ~~expect to close~~anticipate closing the transaction induring the ~~first~~second half of 2022, upon receipt of all requisite regulatory approvals in the U.S. and certain countries where the Latin American business operates, as well as the satisfaction of other customary conditions.

The actual amount of our net after-tax proceeds from this divestiture could vary substantially from the amounts we currently estimate, particularly if we experience delays in completing the transaction or if ~~there are changes in~~any of our other assumptions ~~that impact our estimates.~~prove to be incorrect.

We do not believe this divestiture transaction represents a strategic shift for Level 3. Therefore, the Latin American business does not meet the criteria to be classified as a discontinued operation. As a result, we will continue to report our operating results for the Latin American business in our consolidated operating results until the transaction is closed. The pre-tax net income of the Latin American business is estimated to be as follows in the table below:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Low High Low High Low High Low High
(Dollars in millions)
Pre-tax net income $ 59 72 36 45 $ 131 160 108 131


	Three Months Ended March 31,
		2022	2021
				(Dollars in millions)
Pre-tax net income				$	83	28

As of ~~September 30, 2021~~March 31, 2022 in the accompanying consolidated balance sheets, the assets and liabilities of our Latin American business (the "disposal group") are classified as held for sale and are measured at the lower of (i) the carrying value ~~when we classified~~of the disposal group ~~as held for sale~~ and (ii) the fair value of the disposal group less costs to sell. Effective with the designation of the disposal group as held for sale on July 25, 2021, we suspended recording depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets ~~are not recorded~~ while these assets are classified as held for sale. We estimate that we would have recorded an additional ~~$26~~$49 million of depreciation, intangible amortization, and amortization of right-of use assets for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 if the Latin American business did not meet the held for sale criteria.

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As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we did not record any estimated loss on disposal ~~during~~for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The recoverability of the disposal group will be evaluated each reporting period until the closing of the transaction.

The principal components of the held for sale assets and liabilities ~~as ofSeptember 30, 2021~~ are as follows:


	~~September 30, 2021~~
	~~(Dollars in millions)~~
~~Assets held for sale~~
~~Cash and cash equivalents~~	$	36
~~Accounts receivable, less allowance of $3~~	83
~~Other current assets~~	75
~~Property, plant and equipment, net accumulated depreciation of $445~~	~~1,545~~
~~Goodwill~~ ~~(1)~~	~~718~~
~~Customer relationships and other intangibles, net~~	~~129~~
~~Other non-current assets~~	71
~~Total assets held for sale~~	$	~~2,657~~

~~Liabilities held for sale~~
~~Accounts payable~~	$	76
~~Salaries and benefits~~	22
~~Income and other taxes~~	32
~~Current portion of deferred revenue~~	28
~~Other current liabilities~~	10
~~Deferred income taxes, net~~	~~116~~
~~Other non-current liabilities~~	~~128~~
~~Total liabilities held for sale~~	$	~~412~~

~~______________________________________________________________________~~


	March 31, 2022		December 31, 2021
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	58	39
Accounts receivable, less allowance of $3 and $3	93		83
Other current assets	83		81
Property, plant and equipment, net accumulated depreciation of $456 and $434	1,704		1,591
Goodwill (1)	733		713
Customer relationships and other intangibles, net	138		126
Other non-current assets	83		75
Total assets held for sale	$	2,892	2,708

Liabilities held for sale
Accounts payable	$	90	101
Salaries and benefits	25		23
Income and other taxes	34		27
Current portion of deferred revenue	26		26
Other current liabilities	7		7
Deferred income taxes, net	148		129
Other non-current liabilities	134		122
Total liabilities held for sale	$	464	435

(1) The assignment of goodwill was based on the relative fair value of the disposal group ~~compared to~~and the ~~fair value~~portion of the ~~total Company prior to being reclassified as held for sale.~~remaining reporting unit.

(3) Goodwill, Customer Relationships and Other Intangible Assets

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

September 30, 2021 December 31, 2020
(Dollars in millions)
Goodwill $ 6,667 7,405
Customer relationships, less accumulated amortization of $2,617 and $2,246 $ 5,487 6,156
Capitalized software, less accumulated amortization of $322 and $256 387 401
Trade names, less accumulated amortization of $98 and $83 33 48
Total other intangible assets, net $ 5,907 6,605


	March 31, 2022		December 31, 2021
	(Dollars in millions)
Goodwill	$	6,655	6,666
Customer relationships, less accumulated amortization of $2,949 and $2,779	$	5,147	5,325
Capitalized software, less accumulated amortization of $356 and $349	386		378
Trade names, less accumulated amortization of $115 and $109	15		22
Total other intangible assets, net	$	5,548	5,725

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

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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 write down the value of goodwill only when our assessment determines the carrying value of equity of our reporting unit exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess goodwill at our reporting unit. In reviewing the criteria for reporting units, we have determined that we are 1 reporting unit.

The reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American Business, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of July 31, 2021. We performed a pre-reclassification goodwill impairment test to determine whether there was an impairment prior to the reclassification and to determine the July 31, 2021 fair values to be utilized for goodwill allocation to the disposal group to be reclassified as assets held for sale. We concluded it is more likely than not that the fair value of our reporting unit exceeded the carrying value of equity of our reporting unit at July 31, 2021. We also performed a post-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to evaluate whether the fair value of our reporting unit that will remain following the divestiture exceeds the carrying value of the equity of the reporting unit after reclassification of assets held for sale.

At July 31, 2021, we estimated the fair value of equity by considering both a market approach and a discounted cash flow methodology. The market approach includes the use of comparable multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow methodology is based on the present value of projected cash flows and a terminal value equal to the present value of all normalized cash flows after the projection period. As of July 31, 2021, based on our assessment performed, the estimated fair value of our equity exceeded our carrying value of equity by approximately 17%. We concluded that we did not have any impairment as of July 31, 2021.

~~The~~ following table shows the rollforward of goodwill from December 31, ~~2020~~2021 through ~~September 30, 2021:~~March 31, 2022:


	(Dollars in millions)
As of December 31, ~~2020~~2021 (1)	$	~~7,405~~
~~Reclassified as held for sale~~ ~~(2)~~	~~(718)~~6,666
Effect of foreign currency exchange rate changes	~~(20)~~(11)
As of ~~September 30, 2021~~ March 31, 2022(1)	$	~~6,667~~6,655

(1)Goodwill at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 is net of accumulated impairment loss of $3.6 ~~billion and $3.7 billion, respectively. The change in accumulated impairment losses at September 30, 2021 is a result of amounts reclassified to held for sale related to our planned divestiture.~~

~~(2)Represents the amount of goodwill, net of accumulated impairment loss reclassified as held for sale related to our planned divestiture. See Note 2—Planned Divestiture of the Latin American Business.~~billion.

Total amortization expense for finite-lived intangible assets for ~~both~~ the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ totaled ~~$210~~$192 million and ~~for the nine months ended September 30, 2021 and 2020 totaled $637 million and $626~~$211 million, respectively. As of ~~September 30, 2021,~~March 31, 2022, the gross carrying amount of goodwill, customer relationships, capitalized software, indefinite-life and other intangible assets was $15.6 billion.

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We estimate that total amortization expense for intangible assets for the years ending December 31, ~~2021~~2022 through ~~2025~~2026 will be as provided in the table below. As a result of reclassifying our ~~disposal group~~Latin American business as being held for sale on our ~~September 30, 2021~~March 31, 2022 consolidated balance sheet, the amounts presented below do not include the future amortization of the intangible assets for the ~~disposal group.~~business to be divested. See Note 2—Planned Divestiture of the Latin American Business for more information.


		(Dollars in millions)			(Dollars in millions)
2021 (remaining three months)		$	200
2022		736
2022 (remaining nine months)				2022 (remaining nine months)	$	550
2023	2023	708		2023	713
2024	2024	704		2024	709
2025	2025	689		2025	684
2026				2026	641

(4) Revenue Recognition

~~Beginning in the first quarter of 2021, we~~We categorize our products and services and related revenue among the following categories:

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

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

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

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

•Affiliate Services, which include communications services provided to our affiliates that we also provide to our external customers.

Disaggregated Revenue by Service Offering

The following ~~tables provide~~table provides disaggregation of revenue from contracts with customers based on service offering for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. It also shows the amount of revenue that is not subject to ASC 606, "~~Revenue from Contracts with Customers" ("ASC 606"),~~ but is instead governed by other accounting standards:

Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Compute and Application Services $ 287 (126) 161 274 (124) 150
IP and Data Services 890 — 890 878 — 878
Fiber Infrastructure Services 412 (56) 356 379 (55) 324
Voice and Other 345 (3) 342 387 (2) 385
Affiliate Services 56 (56) — 53 (53) —
Total revenue $ 1,990 (241) 1,749 1,971 (234) 1,737


		Nine Months Ended September 30, 2021				Nine Months Ended September 30, 2020				Three Months Ended March 31, 2022				Three Months Ended March 31, 2021
		Total Revenue		Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers	Total Revenue	Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers		Total Revenue		Adjustments for Non-ASC 606 Revenue(1)	Total Revenue from Contracts with Customers	Total Revenue	Adjustments for Non-ASC 606 Revenue(1)	Total Revenue from Contracts with Customers
		(Dollars in millions)								(Dollars in millions)
Compute and Application Services	Compute and Application Services	$	850	(380)	470	814	(371)	443	Compute and Application Services	$	277	(128)	149	280	(127)	153
IP and Data Services	IP and Data Services	2,659		—	2,659	2,639	—	2,639	IP and Data Services	886		—	886	881	—	881
Fiber Infrastructure Services	Fiber Infrastructure Services	1,210		(164)	1,046	1,116	(157)	959	Fiber Infrastructure Services	391		(54)	337	397	(53)	344
Voice and Other	Voice and Other	1,078		(8)	1,070	1,213	(6)	1,207	Voice and Other	336		(4)	332	376	(2)	374
Affiliate Services	Affiliate Services	167		(167)	—	153	(153)	—	Affiliate Services	56		(56)	—	55	(55)	—
Total revenue	Total revenue	$	5,964	(719)	5,245	5,935	(687)	5,248	Total revenue	$	1,946	(242)	1,704	1,989	(237)	1,752

(1) Includes lease revenue which is not within the scope of ASC 606.

Operating Lease Income

We lease various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease revenue are included in operating revenue in our consolidated statements of operations.

For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ our gross rental income was ~~$202~~$203 million and $197 million, ~~respectively,~~ which represents approximately ~~10% of our operating revenue for both periods. For the nine months ended September 30, 2021 and 2020, our gross rental income was $601 million and $565 million, respectively, which represents~~ 10% of our operating revenue for both periods.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts reclassified as held for sale as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:


		September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
		(Dollars in millions)				(Dollars in millions)
Customer receivables (1) (2)		$	618	683
Customer receivables (1)					Customer receivables (1)	$	548	640
Contract assets ~~(3)~~(2)	Contract assets ~~(3)~~(2)	32		38	Contract assets ~~(3)~~(2)	34		35
Contract liabilities ~~(4)~~(3)	Contract liabilities ~~(4)~~(3)	259		385	Contract liabilities ~~(4)~~(3)	236		247

(1)Reflects gross customer receivables of ~~$657~~$584 million and ~~$728~~$679 million, net of allowance for credit losses of $36 million and $39 million, ~~and $45 million,~~ at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~(2)~~As of ~~September 30,~~March 31, 2022 and December 31, 2021, ~~amount excludes~~these amounts exclude customer receivables reclassified as held for sale of ~~$82 million.~~$93 million and $83 million respectively.

~~(3)~~(2)As of ~~September 30,~~March 31, 2022 and December 31, 2021, no amounts have been reclassified as held for sale.

~~(4)~~(3)As of ~~September 30,~~March 31, 2022 and December 31, 2021, ~~amount excludes~~amounts exclude contract liabilities reclassified as held for sale of ~~$62 million.~~$59 million and $58 million respectively.

1716

Contract liabilities are consideration we have received from our customers or billed in advance of providing the goods or services promised in the future. We defer recognizing this consideration 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 typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue and liabilities held for sale in our consolidated balance sheets. During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, we recognized ~~$30~~$85 million ~~and $151 million, respectively,~~ of revenue that was included in contract liabilities of $305 million as of January 1, ~~2021.~~2022, including contract liabilities that were classified as held for sale. During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, we recognized ~~$29~~$93 million ~~and $158 million, respectively,~~ of revenue that was included in contract liabilities of $385 million as of January 1, ~~2020.~~2021.

Performance Obligations

As of ~~September 30, 2021,~~March 31, 2022, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately ~~$3.6~~$3.4 billion. We expect to recognize approximately ~~85%~~92% of this revenue through ~~2023,~~2024, with the balance recognized thereafter.

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

Contract Costs

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

Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs
(Dollars in millions)
Beginning of period balance $ 75 124 77 122
Costs incurred 15 22 14 21
Amortization (14) (21) (15) (22)
Reclassified as held for sale (1)
— (27) — —
End of period balance $ 76 98 76 121


		Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020			Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
		Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs		Acquisition Costs		Fulfillment Costs (1)	Acquisition Costs	Fulfillment Costs
		(Dollars in millions)						(Dollars in millions)
Beginning of period balance	Beginning of period balance	$	78	122	79	121	Beginning of period balance	$	76	99	78	122
Costs incurred	Costs incurred	44		68	44	65	Costs incurred	15		21	14	23
Amortization	Amortization	(46)		(65)	(47)	(65)	Amortization	(14)		(20)	(17)	(22)
Reclassified as held for sale (1)		—		(27)	—	—

End of period balance	End of period balance	$	76	98	76	121	End of period balance	$	77	100	75	123

(1)~~Represents~~Both the ~~amounts~~beginning and ending balances for the three months ended March 31, 2022 excluded fulfillment costs reclassified as held for sale ~~related to our planned divestiture. See Note 2—Planned Divestiture~~ of ~~the Latin American Business.~~$27 million.

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 services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average expected ~~customer~~contract life of approximately 3034 months for our business customers. Amortized fulfillment costs are included in cost of services and products, and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are anticipated to be amortized in the next 12 months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond 12 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.

~~(5) Leases~~

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

During the third quarter of 2021, we rationalized our lease footprint and ceased using 13 leased property locations that were underutilized. We determined that we no longer needed the leased space and, due to the limited remaining term on the contracts, concluded that we had neither the intent nor ability to sublease the properties. For the both the three and nine month periods ending September 30, 2021, we incurred accelerated lease costs of approximately $15 million. In conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and may incur additional costs in future periods.

~~(6)~~(5) Credit Losses on Financial Instruments

In accordance with ASC 326, "Financial Instruments - Credit Losses," we aggregate financial assets with similar risk characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets. We periodically 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.~~change. Financial assets that do not share risk characteristics with other financial assets are evaluated separately. Our financial assets measured at amortized cost primarily consist of accounts receivable.

We use a loss rate method to estimate our allowance for credit losses. Our determination of the current expected credit loss rate begins with our ~~use~~review of historical loss experience as a percentage of accounts receivable. We measure our historical loss period based on the average days to recognize accounts receivable as credit losses. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to adjust our historical loss rate. 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. To determine our current allowance for credit losses, we combine the historical and expected credit loss rates and apply them to our period end accounts receivable.

If there is aan unexpected deterioration of a customer's financial condition or ~~if future default rates~~an unexpected change in ~~general differ from currently anticipated default rates~~economic conditions (including changes caused by ~~COVID-19)~~COVID-19 or other macroeconomic events), we ~~may~~assess the need to adjust the allowance for credit ~~losses, which~~losses. Any such resulting adjustments would affect earnings in the period that adjustments are made.

The assessment of the correlation between historical observed default rates, current conditions and forecasted economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the allowance for credit losses. The amount of credit loss is sensitive to changes in circumstances and forecasted economic conditions. Our historical credit loss experience, current conditions and forecast of economic conditions may also not be representative of the customers' actual default experience in the ~~future.~~future and we may use methodologies that differ from those used by other companies.

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


	(Dollars in millions)
Beginning balance at December 31, ~~2020~~2021	$	4539
Provision for expected losses	142
Write-offs charged against the allowance	~~(21)~~(5)
~~Recoveries collected~~	4
~~Reclassified as held for sale~~ ~~(1)~~	~~(3)~~
Ending balance at ~~September 30, 2021~~March 31, 2022	$	3936

(1)~~Represents the amounts reclassified~~As of both March 31, 2022 and December 31, 2021, amount excludes allowance for credit losses classified as held for sale ~~related to our planned divestiture.~~of $3 million. See Note 2—Planned Divestiture of the Latin American Business.

~~(7)~~

(6) Long-Term Debt

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


		Interest Rates (1)	Maturities (1)	September 30, 2021		December 31, 2020		Interest Rates (1)	Maturities (1)	March 31, 2022		December 31, 2021
				(Dollars in millions)						(Dollars in millions)
Level 3 Financing, Inc.	Level 3 Financing, Inc.						Level 3 Financing, Inc.
Senior Secured Debt: (2)	Senior Secured Debt: (2)						Senior Secured Debt: (2)
Senior notes	Senior notes	3.400% - 3.875%	2027 - 2029	$	1,500	1,500	Senior notes	3.400% - 3.875%	2027 - 2029	$	1,500	1,500
Tranche B 2027 Term Loan (3) (5)		LIBOR + 1.75%	2027	3,111		3,111
Tranche B 2027 Term Loan (3)							Tranche B 2027 Term Loan (3)	LIBOR + 1.75%	2027	3,111		3,111
Senior Notes and other debt:	Senior Notes and other debt:						Senior Notes and other debt:
Senior notes (4)	Senior notes (4)	3.625% - 5.375%	2025 - 2029	5,515		5,515	Senior notes (4)	3.625% - 5.375%	2025 - 2029	5,515		5,515
Finance leases and other obligations	Finance leases and other obligations	Various	Various	323		255	Finance leases and other obligations	Various	Various	316		319
Unamortized premiums, net	Unamortized premiums, net			36		60	Unamortized premiums, net			32		34
Unamortized debt issuance costs	Unamortized debt issuance costs			(59)		(54)	Unamortized debt issuance costs			(55)		(57)
Total long-term debt	Total long-term debt			10,426		10,387	Total long-term debt			10,419		10,422
Less current maturities	Less current maturities			(24)		(14)	Less current maturities			(29)		(26)
Long-term debt, excluding current maturities	Long-term debt, excluding current maturities			$	10,402	10,373	Long-term debt, excluding current maturities			$	10,390	10,396

(1)As of ~~September 30, 2021.~~March 31, 2022.

(2)See Note 6—7—Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for a description of certain parent or subsidiary guarantees and liens securing this debt.

(3)The Tranche B 2027 Term Loan had an interest rate of ~~1.835% at September 30, 2021~~2.207% and ~~1.897% at~~1.854% as of March 31, 2022 and December 31, ~~2020.~~2021, respectively.

(4)This debt is fully and unconditionally guaranteed by certain affiliates of Level 3 Financing, Inc., including Level 3 Parent, LLC and Level 3 Communications, LLC.

~~(5)See Note 1— Background for our considerations of the impact of Reference Rate Reform on our debt subject to rate reference changes from LIBOR.~~

~~New Issuances~~

On January 13, 2021, Level 3 Financing, Inc. issued $900 million aggregate principal amounts of its 3.750% Sustainability-Linked Senior Notes due 2029 (the "Sustainability-Linked Notes"). The net proceeds were used, together with cash on hand, to redeem certain of its outstanding senior note indebtedness. See "—Redemption of Senior Notes" below. The Sustainability-Linked Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.

~~Redemption of Senior Notes~~

On February 12, 2021, Level 3 Financing, Inc. redeemed all $900 million aggregate principal amount of its outstanding 5.375% Senior Notes due 2024. This transaction resulted in a gain of $16 million.

Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of ~~September 30, 2021~~March 31, 2022 (excluding unamortized premiums, net, ~~and~~ unamortized debt issuance ~~costs)~~costs, and intercompany debt), maturing during the following ~~years.~~

(Dollars in millions)
2021 (remaining three months) $ 7
2022 24
2023 27
2024 32
2025 837
2026 and thereafter 9,522
Total long-term debt $ 10,449
years:


	(Dollars in millions)
2022 (remaining nine months)	$	23
2023	27
2024	32
2025	838
2026	811
2027 and thereafter	8,711
Total long-term debt	$	10,442

Covenants

The term loan and senior notes of 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 ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with their affiliates including Lumen Technologies and its other subsidiaries, dispose of assets and merge or consolidate with any other person. Also, in connection with a "change of control" of Level 3 Parent, 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 Lumen's and our debt instruments contain ~~cross-payment default or~~ cross-acceleration provisions.

Compliance

As of ~~September 30, 2021,~~March 31, 2022, we believe we were in compliance with the provisions and financial covenants contained in our ~~material~~ debt agreements in all material respects.

~~(8)Property, Plant and Equipment~~

~~Net property, plant and equipment is composed of the following:~~
September 30, 2021 December 31, 2020
(Dollars in millions)
Land $ 305 320
Fiber conduit and other outside plant (1)
5,495 6,186
Central office and other network electronics (2)
3,185 3,388
Support assets (3)
2,480 2,722
Construction-in-progress (4)
544 720
Gross property, plant and equipment 12,009 13,336
Accumulated depreciation (2,998) (2,818)
Net property, plant and equipment $ 9,011 10,518
~~_______________________________________________________________________________~~

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

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

~~(3)Support assets consist of buildings, data centers, computers and other administrative and support equipment.~~

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

As of September 30, 2021, we classified certain property, plant and equipment as held for sale and discontinued recording depreciation on the disposal group. See Note 2—Planned Divestiture of the Latin American Business for more information.

We recorded depreciation expense of $221 million and $667 million for the three and nine months ended September 30, 2021 and $219 million and $624 million for the three and nine months ended September 30, 2020.

~~(9)~~(7) Fair Value of Financial Instruments

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

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy.

We determined the fair values of our long-term debt, including the current portion, based primarily on inputs other than quoted market prices in active markets that are either directly or indirectly observable such as discounted future cash flows using current market interest rates.

The three input levels in the hierarchy of fair value measurements are defined by the FASB 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.

~~Table of Contents~~

The following table presents the carrying amounts and estimated fair values of our ~~long-term debt, excluding finance leases,~~financial liabilities as of March 31, 2022 and December 31, 2021, as well as the input level used to determine the fair values indicated below:

September 30, 2021 December 31, 2020
Input Level Carrying Amount Fair Value Carrying Amount Fair Value
(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases 2 $ 10,103 10,208 10,132 10,340


		March 31, 2022			December 31, 2021
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases	2	$	10,103	9,601	10,103	10,090

~~(10)~~

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(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.

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, 2021~~March 31, 2022 aggregated to approximately ~~$40~~$42 million and are included in other current liabilities, other liabilities, ~~and~~or liabilities held for sale 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.

Telephone Consumer Protection Act Litigation

In December 2020, Lumen was named as a defendant in Diana Mey v. CenturyLink Communications, LLC, et al., an action pending in the US District Court for the Northern District of West Virginia alleging violations of the Telephone Consumer Protection Act for delivering unsolicited calls to her mobile phone. She asserts claims on behalf of herself and a putative class of similarly situated persons. The complaint seeks damages, statutory awards, costs and fees, and other relief. We are defending the claims asserted.

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against 1 of our Peruvian subsidiaries asserting $26 million of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. In May 2021, the Company paid the remaining amount on the fractioning regimes entered into by the Company to pay the amount assessed while it was appealed.

We challenged the assessments via administrative and then judicial review processes. In October 2011, the highest administrative review tribunal (the Tribunal) decided the central issue underlying the 2002 assessments in SUNAT's favor. We appealed the Tribunal's decision to the first judicial level, which decided the central issue in favor of Level 3. SUNAT and we filed cross-appeals with the court of appeal. In May 2017, the court of appeal issued a decision reversing the first judicial level. In June 2017, we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level. Oral argument was held before the Supreme Court of Justice in October 2018. A decision on this case is pending.

In October 2013, the Tribunal decided the central issue underlying the 2001 assessments in SUNAT’s favor. We appealed that decision to the first judicial level in Peru, which decided the central issue in favor of SUNAT. In June 2017, we filed an appeal with the court of appeal. In November 2017, the court of appeals issued a decision affirming the first judicial level and we filed an appeal of the decision to the Supreme Court of Justice. Oral argument was held before the Supreme Court of Justice in June 2019. In May 2021, the Company was served with a favorable and final decision from the Supreme Court of Justice. The Company ~~expects an order for~~has provided SUNAT ~~to comply with~~ the ~~Supreme Court of Justice's decision.~~additional information requested about tax payments made in 2001.

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Brazilian Tax Claims

The São Paulo and Rio de Janeiro state tax authorities have issued tax assessments against our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”), mainly with respect to revenue from leasing certain assets and revenue from the provision of Internet access services by treating such activities as the provision of communications services, to which the ICMS tax applies. We filed objections to these assessments in both states, arguing, among other things that neither the lease of assets nor the provision of Internet access qualifies as “communication services” subject to ICMS.

We have appealed to the respective state judicial courts the decisions by the respective state administrative courts that rejected our objections to these assessments. In cases in which state lower courts ruled partially in our favor finding that the lease assets are not subject to ICMS, in connection, the State appealed those rulings. In other cases, the assessment was affirmed at the first administrative level and ~~our appeal~~we have appealed to the second administrative ~~level is pending.~~level. Other assessments are still pending state judicial decisions.

We are vigorously contesting all such assessments in both states and view the assessment of ICMS on revenue from equipment leasing and Internet access to be without merit. These assessments, if upheld, could result in a loss of up to ~~$47~~$51 million as of ~~September 30, 2021,~~March 31, 2022, in excess of the reserved accruals established for these matters.

Other Proceedings, Disputes and Contingencies

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

We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of which are seeking substantial recoveries. These cases have progressed to various stages and 1 or more may go to trial ~~during~~within the ~~fourth quarter of 2021 or during 2022~~next twelve months 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 $300,000 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.

The matters listed ~~above~~ in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 16—Commitments, Contingencies and Other Items to the consolidated financial statements included in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. 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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~~(11)~~(9) Accumulated Other Comprehensive Loss

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

Pension Plans Foreign Currency Translation Adjustment and Other Total
(Dollars in millions)
Balance at December 31, 2020 $ (13) (221) (234)
Other comprehensive loss, net of tax — (101) (101)
Net other comprehensive loss — (101) (101)
Balance at September 30, 2021 $ (13) (322) (335)


	Pension Plans		Foreign Currency Translation Adjustment and Other	Total
	(Dollars in millions)
Balance at December 31, 2021	$	3	(354)	(351)
Other comprehensive income, net of tax	—		69	69
Net other comprehensive income	—		69	69
Balance at March 31, 2022	$	3	(285)	(282)

Pension Plans Foreign Currency Translation Adjustment and Other Total
(Dollars in millions)
Balance at December 31, 2019 $ 2 (181) (179)
Other comprehensive loss, net of tax — (179) (179)
Net other comprehensive loss — (179) (179)
Balance at September 30, 2020 $ 2 (360) (358)

~~During the three and nine month periods ended September 30, 2021 and 2020, there were no reclassifications out of accumulated other comprehensive income (loss) in our statements of operations.~~


	Pension Plans		Foreign Currency Translation Adjustment and Other	Total
	(Dollars in millions)
Balance at December 31, 2020	$	(13)	(221)	(234)
Other comprehensive loss, net of tax	—		(88)	(88)
Net other comprehensive loss	—		(88)	(88)
Balance at March 31, 2021	$	(13)	(309)	(322)

~~(12)~~(10) Other Financial Information

Other Current Assets

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


		September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
		(Dollars in millions)				(Dollars in millions)
Prepaid expenses	Prepaid expenses	$	108	106	Prepaid expenses	$	140	109
Contract fulfillment costs	Contract fulfillment costs	48		63	Contract fulfillment costs	49		48
Contract acquisition costs	Contract acquisition costs	44		47	Contract acquisition costs	45		45
Contract assets	Contract assets	29		34	Contract assets	28		28
Other	Other	9		47	Other	14		9
Total other current assets	Total other current assets	$	238	297	Total other current assets	$	276	239

_______________________________________________________________________________

(1)As of March 31, 2022 and December 31, 2021, other current assets excludes $83 million and $81 million respectively, that have been reclassified as held for sale.

(11) Subsequent Events

As of the date of this report, $100 million of distributions were made to our parent in the second quarter of 2022.

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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. References to "Lumen Technologies" or "Lumen" refer to our ultimate parent company, Lumen Technologies, Inc. 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" referenced in Item 1A of Part II of this report or other of our filings with the 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, ~~2020,~~2021, and with the consolidated financial statements and related notes in 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 technology and communications company engaged in providing a broad array of integrated communication services to our business customers. 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.

On July 25, 2021, affiliates of Level 3 Parent, LLC entered into a definitive agreement to divest our Latin American business to an affiliate of a fund advised by Stonepeak Partners LP in exchange for $2.7 billion cash, subject to certain working capital and other purchase price adjustments and related transaction expenses (estimated to be approximately $50 million). For more information, see (i) Note 2—Planned Divestiture of the Latin American Business to our consolidated financial statements in Item 1 of Part I of this report and (ii) the risk factors ~~included~~referred to in Item 1A of Part II of this report.

Impact of COVID-19 Pandemic

As previously ~~outlined~~described in greater detail in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, in response to the safety and economic challenges arising out of the COVID-19 pandemic and in a continued attempt to mitigate the negative impact on our stakeholders, we have taken a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees and customers, to enable us to continue to adapt and provide our products and services worldwide to our customers, and to strengthen our communities. As vaccination rates increase, we expect to continue revising our responses to the pandemic or take additional steps necessary to adjust to changed circumstances.

AsSocial distancing, business and school closures, travel restrictions, and other actions taken in response to the pandemic have impacted us, our customers and our business since March 2020. Additionally, as discussed in further detail in our prior reports, the pandemic resulted in (i) increases in certain revenue streams and decreases in others, (ii) increases in ~~allowances for credit losses through the end of 2020,~~overtime expenses, (iii) ~~increases~~operational challenges resulting from component shortages and certain other supplies that we use in ~~overtime expenses,~~our business, and (iv) delays in our cost transformation ~~initiatives and (v) an acceleration of our real estate rationalization efforts and the incurrence of related costs.~~initiatives. We ~~believe we are~~ also ~~experiencing~~experienced delayed decision-making by certain of our customers ~~in the current environment. These~~during 2021. Thus far, these changes ~~did~~have not materially ~~impact~~impacted our financial performance or financial ~~position during 2020,~~position. However, we continue to monitor global disruptions and ~~barring any substantial deterioration~~work with our vendors to mitigate supply chain risks.

We reopened our offices in ~~prevailing health or economic conditions, are not expected~~April 2022 under a "hybrid" working environment, which will permit some of our employees the flexibility to ~~materially impact us in~~work remotely at least some of the ~~near term.~~time for the foreseeable future.

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Effective December 8, 2021, we plan to comply with President Biden's September 2021 Executive Order requiring covered employees of federal contractors to be vaccinated against COVID-19. For additional information, see "Risk Factors" in Item 1A of Part II of this report.

Products, Services and Revenue

~~Beginning in the first quarter of 2021, we~~We categorize our products and services and related revenue among the following categories:

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

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

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

•Affiliate Services, which include communications services provided to our affiliates that we also provide to our external customers.

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

Results of Operations

The following table summarizes the results of our consolidated operations for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~September 30, 2020:~~March 31, 2021:


		Three Months Ended September 30,			Nine Months Ended September 30,			Three Months Ended March 31,
		2021		2020	2021	2020			2022		2021
		(Dollars in millions)							(Dollars in millions)
Operating revenue	Operating revenue	$	1,990	1,971	5,964	5,935	Operating revenue		$	1,946	1,989
Operating expenses	Operating expenses	1,749		1,687	5,173	5,069	Operating expenses		1,707		1,716
Operating income	Operating income	241		284	791	866	Operating income		239		273
Other expense, net	Other expense, net	(83)		(45)	(222)	(233)	Other expense, net		(81)		(71)
Income before income taxes	Income before income taxes	158		239	569	633	Income before income taxes		158		202
Income tax expense	Income tax expense	37		42	150	147	Income tax expense		44		51
Net income	Net income	$	121	197	419	486	Net income		$	114	151

For a discussion of certain trends that impact our business, see the MD&A discussion of trends impacting Lumen’s non-mass markets business included in Lumen’s reports filed with the SEC, including its Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2021.~~March 31, 2022.

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Operating Revenue

The following ~~tables summarize~~table summarizes our consolidated operating revenue recorded under our above-described revenue categories:

Three Months Ended September 30,
2021 2020 % Change
(Dollars in millions)
Compute and Application Services $ 287 274 5 %
IP and Data Services 890 878 1 %
Fiber Infrastructure Services 412 379 9 %
Voice and Other 345 387 (11) %
Affiliate Services 56 53 6 %
Total operating revenue $ 1,990 1,971 1 %


		Nine Months Ended September 30,						Three Months Ended March 31,
		2021		2020	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Compute and Application Services	Compute and Application Services	$	850	814	4	%	Compute and Application Services	$	277	280	(1)	%
IP and Data Services	IP and Data Services	2,659		2,639	1	%	IP and Data Services	886		881	1	%
Fiber Infrastructure Services	Fiber Infrastructure Services	1,210		1,116	8	%	Fiber Infrastructure Services	391		397	(2)	%
Voice and Other	Voice and Other	1,078		1,213	(11)	%	Voice and Other	336		376	(11)	%
Affiliate Services	Affiliate Services	167		153	9	%	Affiliate Services	56		55	2	%
Total operating revenue	Total operating revenue	$	5,964	5,935	—	%	Total operating revenue	$	1,946	1,989	(2)	%

Our total operating revenue ~~increased~~decreased by ~~$19~~$43 million ~~and $29 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, as compared to the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 primarily due to ~~increases~~decreases in ~~IP, dark fiber~~IT Solutions, Ethernet services, VPN data networks, voice and ~~wavelength services, and managed security,~~private line revenue, which were partially offset ~~by declines~~growth in ~~voice~~IP and ~~other, CDN services, IT solutions, VPN data network, and ethernet services.~~managed security revenue.

~~Table of Contents~~

Operating Expenses

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

Three Months Ended September 30,
2021 2020 % Change
(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization) $ 897 857 5 %
Selling, general and administrative 305 300 2 %
Operating expenses - affiliates 116 101 15 %
Depreciation and amortization 431 429 — %
Total operating expenses $ 1,749 1,687 4 %


		Nine Months Ended September 30,						Three Months Ended March 31,
		2021		2020	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	Cost of services and products (exclusive of depreciation and amortization)	$	2,643	2,623	1	%	Cost of services and products (exclusive of depreciation and amortization)	$	851	878	(3)	%
Selling, general and administrative	Selling, general and administrative	872		922	(5)	%	Selling, general and administrative	314		294	7	%
Operating expenses - affiliates	Operating expenses - affiliates	354		274	29	%	Operating expenses - affiliates	146		107	36	%
Depreciation and amortization	Depreciation and amortization	1,304		1,250	4	%	Depreciation and amortization	396		437	(9)	%
Total operating expenses	Total operating expenses	$	5,173	5,069	2	%	Total operating expenses	$	1,707	1,716	(1)	%

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

Cost of services and products (exclusive of depreciation and amortization) ~~increased~~decreased by ~~$40~~$27 million ~~and $20 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, as compared to the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, primarily due to ~~higher customer premise equipment expenses, higher network expenses,~~decreases in facility costs and ~~accelerated lease costs as part of our~~lower real estate ~~rationalization during the third quarter of 2021. These increases were partially offset by lower employee-related expenses resulting from lower headcount~~ and ~~lower facility costs due to lower voice usage.~~power costs.

Selling, General and Administrative

Selling, general and administrative increased by $5$20 million for the three months ended ~~September 30, 2021,~~March 31, 2022, as compared to the three months ended ~~September 30, 2020~~March 31, 2021 primarily due to a gain on sale of assets in the third quarter of 2020 that did not recur in the third quarter of 2021. The increase was partially offset by lower bad debt expenses, reduced salaries and wages, and lower allocated corporate expenses. Selling, general and administrative decreased by $50 million for the ninethree months ended September 30, 2021, as compared to the nine months ended September 30, 2020 due primarily to a reduction in salaries and wages and employee-related benefits, lower bad debt expense and lower insurance costs. These reductions were partially offset by a lower gain on sale of assets in 2021 compared to 2020, and higher professional fees and external commissions.March 31, 2021.

Operating Expenses - Affiliates

Operating expenses - affiliates increased by ~~$15 million and $80~~$39 million for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, as compared to the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, primarily due to higher affiliate lease ~~expenses~~expense for circuits and colocation facilities. ~~The increase for the nine months ended was also partially~~ ~~due to~~ transferring certain employees to other affiliates, which results in expenses being allocated back to us through operating expenses - affiliates rather than included in selling, general and administrative expenses.

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Depreciation and Amortization

The following ~~tables provide~~table provides detail regarding depreciation and amortization expense:

Three Months Ended September 30,
2021 2020 % Change
(Dollars in millions)
Depreciation $ 221 219 1 %
Amortization 210 210 — %
Total depreciation and amortization $ 431 429 — %


		Nine Months Ended September 30,						Three Months Ended March 31,
		2021		2020	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Depreciation	Depreciation	$	667	624	7	%	Depreciation	$	204	226	(10)	%
Amortization	Amortization	637		626	2	%	Amortization	192		211	(9)	%
Total depreciation and amortization	Total depreciation and amortization	$	1,304	1,250	4	%	Total depreciation and amortization	$	396	437	(9)	%

Depreciation expense ~~increased~~decreased by $2$22 million ~~and $43 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, as compared to the three ~~and nine~~ months ended ~~September 30, 2020. The increases were~~March 31, 2021 primarily due to increases of $19 million and $55 million, respectively, resulting from the net growth in depreciable assets and increases of $2 million and $7 million, respectively due foreign currency exchange rate impacts. The increases are partially offset by a decrease of $20 million for both periods due to discontinuing the depreciation of the tangible assets reclassified as held for sale of our Latin American business upon entering into our divestiture agreement. We estimate we would have recorded an additional $37 million of depreciation expense during the three months ended March 31, 2022 if we had not agreed to sell this business. This was partially offset by an increase of $18 million resulting from the net growth in depreciable assets.

Amortization expense ~~was unchanged and increased~~decreased by ~~$11~~$19 million ~~respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, as compared to the three ~~and nine~~ months ended ~~September 30, 2020. For the three and nine ended September 30, 2021 amortization~~March 31, 2021. Amortization expense ~~increased~~decreased by $2$9 million ~~and $6 million, respectively,~~ associated with the net ~~growth~~reduction in amortizable assets and ~~increased~~ by $3$10 million and $6 million, respectively, due to the accelerated amortization of decommissioned applications. Amortization expense for the nine month comparative period also increased by $3 million due foreign currency exchange rate impacts. These increases in amortization expense are partially offset by a decrease of $5 million for both periods due to discontinuing the amortization of the intangible assets reclassified as held for sale of our Latin American business upon entering into our divestiture agreement.

~~Goodwill Impairment~~

The reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American Business, was considered a change in event or circumstance which required an assessment of our goodwill for impairment as of July 31, 2021. We performed a pre-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to determine whether there was an impairment prior to the reclassification of these assets to held for sale and to determine the July 31, 2021 fair values to be utilized for goodwill allocation regarding the disposal group to be reclassified as assets held for sale. We concluded it is more likely than not that the fair value of our reporting unit exceeded the carrying value of equity of our reporting unit at July 31, 2021.

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We also performed a post-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to determine whether the fair value of our reporting unit that will remain following the divestiture exceeds the carrying value of the equity of the reporting unit after reclassification of assets held for sale. At July 31, 2021, we estimated the fair value of our remaining reporting unit by considering both a market approach and a discounted cash flow methodology. Based on our assessment performed, we concluded it was more likely than not that the fair value of our remaining reporting unit exceeded the carrying value of equity of our remaining reporting unit at July 31, 2021. Therefore, we concluded we did not have any impairment as of our assessment date.

~~Note 3—Goodwill, Customer Relationships and Other Intangible Assets for further details on these tests and impairment charges.~~

Other Consolidated Results

The following ~~tables summarize~~table summarizes other expense, net and income tax expense:

Three Months Ended September 30,
2021 2020 % Change
(Dollars in millions)
Interest income - affiliate $ 16 13 23 %
Interest expense (90) (99) (9) %
Other (expense) income, net (9) 41 nm
Total other expense, net $ (83) (45) 84 %
Income tax expense $ 37 42 (12) %


		Nine Months Ended September 30,						Three Months Ended March 31,
		2021		2020	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Interest income - affiliate	Interest income - affiliate	$	49	39	26	%	Interest income - affiliate	$	16	18	(11)	%
Interest expense	Interest expense	(272)		(301)	(10)	%	Interest expense	(90)		(93)	(3)	%
Other income, net		1		29	nm
Other (expense) income, net							Other (expense) income, net	(7)		4	nm
Total other expense, net	Total other expense, net	$	(222)	(233)	(5)	%	Total other expense, net	$	(81)	(71)	14	%
Income tax expense	Income tax expense	$	150	147	2	%	Income tax expense	$	44	51	(14)	%

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 ~~increased~~decreased by $3$2 million ~~and $10 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, as compared to the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 primarily due to ~~an increase~~a decrease in the average interest rate associated with our note receivable - affiliate ~~balance.~~balance from 4.90% to 4.75% for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Interest Expense

Interest expense decreased by $9$3 million ~~and $29 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, as compared to the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 primarily due to ~~(i) a decrease in our average long-term debt from $11.0 billion to $10.4 billion and~~ a decrease in the average interest rate from ~~3.85%~~3.61% to 3.53% for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the three months ended ~~September 30, 2020, and (ii) a decrease in the average interest rate from 4.08% to 3.60% for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.~~March 31, 2021.

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Other (Expense) Income, Net

The following ~~tables~~table summarizes our total other (expense) income, net:

Three Months Ended September 30, % Change
2021 2020
(Dollars in millions)
Gain on extinguishment of debt $ — 27 nm
Foreign currency (loss) gain (11) 15 nm
Other 2 (1) nm
Total other (expense) income, net $ (9) 41 nm

Nine Months Ended September 30, % Change
2021 2020
(Dollars in millions)
Gain on extinguishment of debt $ 16 27 (41) %
Foreign currency (loss) gain (14) 7 nm
Interest income — 1 nm
Other (1) (6) (83) %
Total other income, net $ 1 29 (97) %


	Three Months Ended March 31,			% Change
	2022		2021
	(Dollars in millions)
Gain on extinguishment of debt	$	—	16	nm
Foreign currency loss	(9)		(11)	18	%
Other	2		(1)	nm
Total other (expense) income, net	$	(7)	4	nm

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

Income Tax Expense

For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ our effective income tax rate was ~~23.4%~~27.8% and ~~17.6%, respectively. For the nine months ended September 30, 2021 and 2020, our effective income tax rate was 26.4% and 23.2%~~25.2%, respectively.

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Liquidity and Capital Resources

Overview

As of ~~September 30, 2021,~~March 31, 2022, we held cash and cash equivalents, including cash and cash equivalents classified as held for sale, of ~~$251~~$213 million, of which ~~$67~~$61 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.

We anticipate that any future liquidity needs will be met through (i) our cash provided by operating activities (ii) amounts due to us from Lumen Technologies (iii) proceeds from the ~~planned~~pending divestiture of our Latin American business, (iv) our ability to refinance our debt obligations and (v) capital contributions, advances or loans from Lumen Technologies or its affiliates if and to the extent they have available funds or access to funds that they are willing and able to contribute, advance or loan.

Impact of Planned Divestiture of our Latin American Business

As discussed in Note 2—Planned Divestiture of the Latin American Business to our consolidated financial statements in Item 1 of Part 1 of this report, we executed a definitive agreement to divest our Latin American business on July 25, 2021. As further described elsewhere herein, this transaction is expected to provide us with a substantial amount of cash proceeds upon closing but ultimately will reduce our base of income-generating assets that generate our recurring cash from operating activities that we plan to use to fund our future cash requirements.

Debt and Other Financing Arrangements

As of ~~September 30, 2021 and December~~March 31, ~~2020,~~2022, our long-term debt (including current maturities and finance leases) outstanding totaled $10.4 ~~billion for both periods.~~billion. See Note 7—6—Long-Term Debt.

Subject to market conditions, from time to time we expect to continue to issue term debt or senior notes to refinance our maturing debt. The availability, interest rate and other terms of any new borrowings will 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 secured and unsecured debt of Level 3 Financing, Inc. were as follows:

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Borrower

Moody's Investor Services, Inc.

Standard & Poor's

Fitch Ratings

Level 3 Financing, Inc.

Unsecured

Ba3

Secured

Ba1

BBB-

Our credit ratings are reviewed and adjusted from time to time by the rating agencies. Any future changes in the senior unsecured or secured debt ratings of Level 3 Financing, Inc. could impact our access to debt capital or adjust our borrowing costs. See "Risk Factors—Financial Risks" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

See Note 7—6—Long-Term Debt for additional information about our long-term debt.

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. Letters of credit are conditional commitments issued on our behalf in accordance with specified terms and conditions. As of ~~September 30, 2021,~~March 31, 2022, we had outstanding letters of credit or other similar obligations of approximately $9 million, of which $5$4 million was collateralized by restricted cash. ~~We do not believe exposure to loss related to our letters of credit is material.~~

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, ~~2020.~~

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2021.

~~Historical Information~~Cash Flow Activities

The following table summarizes our consolidated cash flow activities:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020	$ Change		2022		2021	$ Change
		(Dollars in millions)					(Dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	941	1,944	(1,003)	Net cash provided by operating activities	$	541	328	213
Net cash used in investing activities	Net cash used in investing activities	$	(822)	(897)	(75)	Net cash used in investing activities	$	(263)	(272)	(9)
Net cash used in financing activities	Net cash used in financing activities	$	(67)	(1,115)	(1,048)	Net cash used in financing activities	$	(250)	(15)	235

Operating Activities

Net cash provided by operating activities ~~decreased~~increased by ~~$1.0 billion~~$213 million for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, as compared to the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, primarily due to ~~a decrease in the contribution from working capital related to a reduction in advances from affiliates and a decrease in net income adjusted for non-cash items.~~higher collections on accounts receivable. Cash provided by operating activities is subject to variability period over period as a result of timing, including the collection of receivables and payments of interest, accounts payable, and bonuses.

Investing Activities

Net cash used in investing activities decreased by ~~$75~~$9 million for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, as compared to the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 primarily due to a decrease in capital expenditures. The decrease was partially offset by ~~lower collections on affiliate notes receivable and~~ a decrease in proceeds from the sale of property, plant and equipment.

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Financing Activities

Net cash used in financing activities ~~decreased~~increased by ~~$1.0 billion~~$235 million for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, as compared to the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 primarily due to ~~a decrease~~an increase in ~~repayments of long-term debt~~distributions paid to our parent and a decrease in ~~distributions paid, which~~net proceeds from issuance of long-term debt. This was partially offset by a decrease in ~~net proceeds from issuance~~repayments of long-term debt.

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 ~~10—~~8—Commitments, Contingencies and Other Items for additional information.

Lumen Technologies 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 Lumen Technologies, our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in Lumen's quarterly and annual reports filed with the SEC. Because we are not a party to any of the matters, we have not accrued any liabilities for these matters.

~~As part of its~~Federal officials have proposed ~~infrastructure plan, the Biden Administration has proposed investing substantial sums~~changes to ~~expand internet access in the United States. The Administration seeks several other changes~~current programs and laws that could impact ~~Lumen or~~ us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the Obama Administration. ~~Proposed~~In November 2021, the U.S. Congress enacted legislation ~~or regulations, if enacted or adopted, could impact us or~~that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants. As of the ~~scope~~date of ~~our services. Currently, we believe~~this report, the U.S. Department of Commerce is still developing guidance regarding these grants, so it is premature to speculate on the potential impact of ~~these proposals~~this legislation on ~~Lumen or~~ us.

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Summarized Financial Information

Level 3 Financing, Inc., our wholly owned subsidiary, has registered two series of currently outstanding 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 ~~tables present~~table presents summarized financial information specified in Rule 1-02(bb)(1) of Regulation S-X for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:


		Nine Months Ended September 30, 2021					Three Months Ended March 31, 2022
		Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC		Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC
		(Dollars in millions)					(Dollars in millions)
Operating revenue	Operating revenue	$	—	—	3,088	Operating revenue	$	—	—	1,041
Operating revenue-affiliates	Operating revenue-affiliates	—		—	177	Operating revenue-affiliates	—		—	66
Operating expenses	Operating expenses	(76)		1	2,954	Operating expenses	—		—	970
Operating expenses-affiliates	Operating expenses-affiliates	—		—	284	Operating expenses-affiliates	—		—	120
Operating income (loss)		76		(1)	27
Operating income						Operating income	—		—	17
Net income (loss)	Net income (loss)	3,365		(66)	(3,380)	Net income (loss)	1,183		134	(1,360)

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The following tables present summarized financial information reflected in our consolidated balance sheet as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively:


		September 30, 2021					March 31, 2022
		Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC		Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC
		(Dollars in millions)					(Dollars in millions)
Advances to affiliates	Advances to affiliates	$	23,280	29,908	—	Advances to affiliates	$	25,118	30,562	163
Note receivable-affiliate	Note receivable-affiliate	1,468		—	—	Note receivable-affiliate	1,468		—	—
Other current assets	Other current assets	35		—	490	Other current assets	4		—	453
Operating lease assets - affiliates	Operating lease assets - affiliates	—		—	703	Operating lease assets - affiliates	—		—	831
Other noncurrent assets	Other noncurrent assets	294		1,663	8,751	Other noncurrent assets	270		1,709	8,729
Accounts payable-affiliates	Accounts payable-affiliates	74		64	274	Accounts payable-affiliates	58		67	207
Current operating lease liabilities-affiliates	Current operating lease liabilities-affiliates	—		—	172	Current operating lease liabilities-affiliates	—		—	222
Due to affiliates	Due to affiliates	—		—	59,655	Due to affiliates	—		—	63,030
Other current liabilities	Other current liabilities	1		63	753	Other current liabilities	—		64	627
Non-current operating lease liabilities-affiliates	Non-current operating lease liabilities-affiliates	—		—	541	Non-current operating lease liabilities-affiliates	—		—	619
Other noncurrent liabilities	Other noncurrent liabilities	89		10,106	2,637	Other noncurrent liabilities	86		10,105	2,717

December 31, 2020
Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC
(Dollars in millions)
Advances to affiliates $ 19,985 30,062 —
Note receivable-affiliate 1,468 — —
Other current assets 18 — 432
Operating lease assets - affiliates — — 472
Other noncurrent assets 271 1,595 8,811
Accounts payable-affiliates 85 21 773
Current operating lease liabilities-affiliates — — 107
Due to affiliates — — 55,114
Other current liabilities 1 101 774
Non-current operating lease liabilities-affiliates — — 377
Other noncurrent liabilities 83 10,131 2,636


	December 31, 2021
	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC
	(Dollars in millions)
Advances to affiliates	$	24,161	30,473	174
Note receivable-affiliate	1,468		—	—
Other current assets	4		—	509
Operating lease assets - affiliates	—		—	737
Other noncurrent assets	271		1,687	8,701
Accounts payable-affiliates	73		64	174
Current operating lease liabilities-affiliates	—		—	189
Due to affiliates	—		—	61,657
Other current liabilities	1		89	747
Non-current operating lease liabilities-affiliates	—		—	560
Other noncurrent liabilities	88		10,106	2,872

Market Risk

At ~~September 30, 2021,~~March 31, 2022, 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, 2021,~~March 31, 2022, we had approximately $10.1 billion (excluding unamortized premiums, net, unamortized debt issuance costs and finance leases) of long-term debt outstanding, 69% of which bears interest at fixed rates and is therefore not exposed to interest rate risk. We also held approximately $3.1 billion of floating rate debt exposed to changes in the ~~LIBOR.~~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 $31 million. Additionally, our credit agreements contain language about a possible change from LIBOR to an alternative index.

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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, 2021.~~March 31, 2022.

Other Information

Lumen's and our website is www.lumen.com. We routinely post important investor information in the "Investor Relations" section of our website at ir.lumen.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 annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed by us or our ultimate controlling member Lumen Technologies, Inc., and all amendments to those reports, in the "Investor Relations" section of our website (ir.lumen.com) under the heading "SEC Filings." These reports are available on our website as soon as reasonably practicable after they are electronically filed with the SEC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omitted pursuant to General Instruction H(2).

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 us in the reports we file or furnish 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 this information is accumulated and communicated to our senior management, including our 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,~~Chris Stansbury, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2021.~~March 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective, as of ~~September 30, 2021,~~March 31, 2022, in providing reasonable assurance the information required to be disclosed by us in this report was accumulated and communicated in the manner provided above.

Changes in Internal Control Over Financial Reporting

~~Other than the implementation of controls over reporting for the assets and liabilities to be sold through our previously announced divestiture, there~~There have been no changes in our internal control over financial reporting (as defined in ~~Rules~~Rule 13a-15(f) ~~and 15d-15(f)~~ of the Exchange Act) that occurred during the ~~third~~first quarter of ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 ~~10—~~8—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 108 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—Legal and Regulatory Risks—Our pending legal proceedings could have a material adverse impact on us” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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. We urge you to carefully consider (i) the other information set forth in this report 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, ~~2020, as supplemented by the following additional risk factors.~~

~~We may not be able to complete our pending divestiture of our Latin American business or realize the benefits of this transaction.~~

On July 25, 2021, certain of our affiliates agreed to sell our Latin American business and enter into various post-closing commercial agreements with the purchaser designed to ensure the continuity of services to customers. The completion of this divestiture is subject to receipt of several regulatory approvals and other customary closing conditions, the satisfaction of which is not assured. The pendency of this divestiture could impact us in several ways, including impacting relationships with our customers, vendors and employees, restricting our operations and diverting management’s attention from operating our business in the ordinary course. Even if we successfully complete the divestiture, we may (i) incur greater tax or costs or realize fewer benefits than anticipated under the purchase agreement and the post-closing commercial agreements that we plan to enter into with the purchaser and (ii) experience operational difficulties segregating the divested assets from our retained assets. Moreover, the divestiture will reduce our future cash flows.

~~COVID-19 vaccination requirements could potentially result in personnel shortages or disruptions.~~

Effective December 8, 2021, we plan to comply with President Biden’s September 2021 Executive Order requiring covered employees of federal contractors to be vaccinated against COVID-19. This mandate will require all of our domestic employees to be vaccinated against COVID-19 or face termination, unless a religious or medical exemption applies. This requirement could make it more difficult to retain or attract employees who oppose vaccination mandates and are ineligible for an exemption. In addition, certain of our contractors and vendors may also be subject to this Executive Order. It is possible that any resulting personnel shortages could have a material adverse impact on our operating results or financial condition.

2021.

ITEM 5. OTHER INFORMATION

The following disclosure is being made under Section 13(r) of the Exchange ~~Act out of an abundance of caution:~~Act:

~~We are~~During the first quarter of 2022, we terminated our commercial activities within Russia. Prior to doing so, we were required to engage on a regular basis with the Russian Federal Security Service (“FSB”) in the FSB’s official capacity of regulating our use of technology in Russia in connection with providing commercial services therein through our local subsidiary. On March 2, 2021, the U.S. Secretary of State designated the FSB as a party subject to the provisions of U.S. Executive Order No. 13382 issued in 2005. We do not derive any gross revenues or net profits directly associated with any such dealings by us with the FSB and all such dealings ~~are~~were explicitly authorized by General License 1B issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control. ~~We plan to continue these activities as required to continue to provide commercial services in Russia.~~

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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.


Exhibit Number			Description
22.1*			Guaranteed Securities
31.1*			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*			Certification of the Chief Financial Officer 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, 2021,~~March 31, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language); (i) Consolidated Statements of Operations, (ii) Consolidated Statements ofOf 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 4, 2021.~~May 5, 2022.


			LEVEL 3 PARENT, LLC
			By:			/s/ Andrea Genschaw
						Andrea Genschaw Senior Vice President, - Controller (Principal Accounting Officer)

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	September 30, 2021 (unaudited)		December 31, 2020
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	215	190
Accounts receivable, less allowance of $39 and $45	620		683
Note receivable - affiliate	1,468		1,468
Assets held for sale	2,657		—
Other	238		297
Total current assets	5,198		2,638
Property, plant and equipment, net of accumulated depreciation of $2,998 and $2,818	9,011		10,518
GOODWILL AND OTHER ASSETS
Goodwill	6,667		7,405
Other intangible assets, net	5,907		6,605
Other, net	1,459		1,410
Total goodwill and other assets	14,033		15,420
TOTAL ASSETS	$	28,242	28,576
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	24	14
Accounts payable	407		495
Accounts payable - affiliates	76		869
Accrued expenses and other liabilities
Salaries and benefits	166		220
Income and other taxes	98		111
Current operating lease liabilities	283		241
Other	143		159
Liabilities held for sale	412		—
Current portion of deferred revenue	289		315
Total current liabilities	1,898		2,424
LONG-TERM DEBT	10,402		10,373
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	1,335		1,396
Operating lease liabilities	942		903
Other	468		575
Total deferred revenue and other liabilities	2,745		2,874
COMMITMENTS AND CONTINGENCIES (Note 10)	0		0
MEMBER'S EQUITY
Member's equity	13,532		13,139
Accumulated other comprehensive loss	(335)		(234)
Total member's equity	13,197		12,905
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	28,242	28,576


	Three Months Ended September 30, 2021				Three Months Ended September 30, 2020
	Total Revenue		Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers	Total Revenue	Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers
	(Dollars in millions)
Compute and Application Services	$	287	(126)	161	274	(124)	150
IP and Data Services	890		—	890	878	—	878
Fiber Infrastructure Services	412		(56)	356	379	(55)	324
Voice and Other	345		(3)	342	387	(2)	385
Affiliate Services	56		(56)	—	53	(53)	—
Total revenue	$	1,990	(241)	1,749	1,971	(234)	1,737