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 ~~June~~September 30, 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: None

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 (Loss) 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	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3736
Item 4.	Controls and Procedures	3837
Part II	Other Information
Item 1.	Legal Proceedings	3938
Item 1A.	Risk Factors	3938

Item 6.	Exhibits	4039
Signature		4140

* 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, financial position, operating results or 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,” “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 factors that could cause our actual results to differ materially from those anticipated, estimated, projected or implied by us in those forward-looking statements. 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;

•changes in 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 corporate strategies, including our deleveraging strategy;

•our ability to successfully and timely consummate the pending divestiture of our European, Middle Eastern and African business, to successfully and timely realize the anticipated benefits from that divestiture and our divestiture completed in 2022, and to successfully operate our retained business after such divestitures;

•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 and post-employment 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 recently-enacted federal legislation promoting increased broadband ~~spending;~~development;

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

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•continuing uncertainties regarding the impact that COVID-19 disruptions 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 changes in interest rates and inflation;

•the effects of more general factors such as changes 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 June 30,			Six Months Ended June 30,				Three Months Ended September 30,			Nine Months Ended September 30,
		2022		2021	2022		2021		2022		2021	2022		2021
		(Dollars in millions)							(Dollars in millions)
OPERATING REVENUE	OPERATING REVENUE							OPERATING REVENUE
Operating revenue	Operating revenue	$	1,896	1,929	$	3,786	3,863	Operating revenue	$	1,762	1,934	$	5,548	5,797
Operating revenue - affiliates	Operating revenue - affiliates	57		56	113		111	Operating revenue - affiliates	57		56	170		167
Total operating revenue	Total operating revenue	1,953		1,985	3,899		3,974	Total operating revenue	1,819		1,990	5,718		5,964
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)	836		868	1,687		1,746	Cost of services and products (exclusive of depreciation and amortization)	785		897	2,472		2,643
Selling, general and administrative	Selling, general and administrative	318		273	632		567	Selling, general and administrative	269		305	901		872
Gain on sale of business								Gain on sale of business	(119)		—	(119)		—
Operating expenses - affiliates	Operating expenses - affiliates	162		131	308		238	Operating expenses - affiliates	173		116	481		354
Depreciation and amortization	Depreciation and amortization	405		436	801		873	Depreciation and amortization	377		431	1,178		1,304
Total operating expenses	Total operating expenses	1,721		1,708	3,428		3,424	Total operating expenses	1,485		1,749	4,913		5,173
OPERATING INCOME	OPERATING INCOME	232		277	471		550	OPERATING INCOME	334		241	805		791
OTHER (EXPENSE) INCOME	OTHER (EXPENSE) INCOME							OTHER (EXPENSE) INCOME
Interest income - affiliate	Interest income - affiliate	15		15	31		33	Interest income - affiliate	19		16	50		49
Interest expense	Interest expense	(95)		(89)	(185)		(182)	Interest expense	(99)		(90)	(284)		(272)
Other (expense) income, net	Other (expense) income, net	(14)		6	(21)		10	Other (expense) income, net	(4)		(9)	(25)		1
Total other expense, net	Total other expense, net	(94)		(68)	(175)		(139)	Total other expense, net	(84)		(83)	(259)		(222)
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	138		209	296		411	INCOME BEFORE INCOME TAXES	250		158	546		569
Income tax expense	Income tax expense	41		62	85		113	Income tax expense	312		37	397		150
NET INCOME		$	97	147	$	211	298
NET (LOSS) INCOME								NET (LOSS) INCOME	$	(62)	121	$	149	419

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(Dollars in millions)
NET INCOME $ 97 147 $ 211 298
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustments, net of $32, $(4), $42, and $3 tax (184) 80 (115) (8)
Other comprehensive (loss) income, net of tax (184) 80 (115) (8)
COMPREHENSIVE (LOSS) INCOME $ (87) 227 $ 96 290


	Three Months Ended September 30,			Nine Months Ended September 30,
	2022		2021	2022		2021
	(Dollars in millions)
NET (LOSS) INCOME	$	(62)	121	$	149	419
OTHER COMPREHENSIVE LOSS
Reclassification of realized loss on foreign currency translation to gain on sale of business, net of $—, $—, $—, and $— tax	112		—	112		—
Foreign currency translation adjustments, net of $28, $13, $70, and $16 tax	(114)		(93)	(229)		(101)
Other comprehensive loss, net of tax	(2)		(93)	(117)		(101)
COMPREHENSIVE (LOSS) INCOME	$	(64)	28	$	32	318

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


		June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
		(Dollars in millions)				(Dollars in millions)
ASSETS	ASSETS				ASSETS
CURRENT ASSETS	CURRENT ASSETS				CURRENT ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	154	146	Cash and cash equivalents	$	130	146
Accounts receivable, less allowance of $37 and $39		580		642
Accounts receivable, less allowance of $27 and $39					Accounts receivable, less allowance of $27 and $39	596		642
Note receivable - affiliate	Note receivable - affiliate	1,468		1,468	Note receivable - affiliate	1,468		1,468
Assets held for sale	Assets held for sale	2,865		2,708	Assets held for sale	10		2,708
Other	Other	263		239	Other	251		239
Total current assets	Total current assets	5,330		5,203	Total current assets	2,455		5,203
Property, plant and equipment, net of accumulated depreciation of $3,547 and $3,202		8,936		9,042
Property, plant and equipment, net of accumulated depreciation of $3,649 and $3,202					Property, plant and equipment, net of accumulated depreciation of $3,649 and $3,202	8,918		9,042
GOODWILL AND OTHER ASSETS	GOODWILL AND OTHER ASSETS				GOODWILL AND OTHER ASSETS
Goodwill	Goodwill	6,627		6,666	Goodwill	6,598		6,666
Other intangible assets, net	Other intangible assets, net	5,387		5,725	Other intangible assets, net	5,218		5,725
Other, net	Other, net	1,681		1,459	Other, net	1,614		1,459
Total goodwill and other assets	Total goodwill and other assets	13,695		13,850	Total goodwill and other assets	13,430		13,850
TOTAL ASSETS	TOTAL ASSETS	$	27,961	28,095	TOTAL ASSETS	$	24,803	28,095
LIABILITIES AND MEMBER'S EQUITY	LIABILITIES AND MEMBER'S EQUITY				LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES	CURRENT LIABILITIES				CURRENT LIABILITIES
Current maturities of long-term debt	Current maturities of long-term debt	$	28	26	Current maturities of long-term debt	$	26	26
Accounts payable	Accounts payable	428		381	Accounts payable	431		381
Accounts payable - affiliates	Accounts payable - affiliates	77		18	Accounts payable - affiliates	46		18
Accrued expenses and other liabilities	Accrued expenses and other liabilities				Accrued expenses and other liabilities
Salaries and benefits	Salaries and benefits	126		176	Salaries and benefits	161		176
Income and other taxes	Income and other taxes	92		83	Income and other taxes	98		83
Current operating lease liabilities	Current operating lease liabilities	353		299	Current operating lease liabilities	358		299
Other	Other	117		150	Other	94		150
Liabilities held for sale	Liabilities held for sale	479		435	Liabilities held for sale	—		435
Current portion of deferred revenue	Current portion of deferred revenue	298		291	Current portion of deferred revenue	307		291
Total current liabilities	Total current liabilities	1,998		1,859	Total current liabilities	1,521		1,859
LONG-TERM DEBT	LONG-TERM DEBT	10,383		10,396	LONG-TERM DEBT	8,079		10,396
DEFERRED REVENUE AND OTHER LIABILITIES	DEFERRED REVENUE AND OTHER LIABILITIES				DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	Deferred revenue	1,442		1,404	Deferred revenue	1,489		1,404
Operating lease liabilities	Operating lease liabilities	1,134		953	Operating lease liabilities	1,077		953
Other	Other	452		474	Other	807		474
Total deferred revenue and other liabilities	Total deferred revenue and other liabilities	3,028		2,831	Total deferred revenue and other liabilities	3,373		2,831
COMMITMENTS AND CONTINGENCIES (Note 8)	COMMITMENTS AND CONTINGENCIES (Note 8)	0		0	COMMITMENTS AND CONTINGENCIES (Note 8)
MEMBER'S EQUITY	MEMBER'S EQUITY				MEMBER'S EQUITY
Member's equity	Member's equity	13,018		13,360	Member's equity	12,298		13,360
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(466)		(351)	Accumulated other comprehensive loss	(468)		(351)
Total member's equity	Total member's equity	12,552		13,009	Total member's equity	11,830		13,009
TOTAL LIABILITIES AND MEMBER'S EQUITY	TOTAL LIABILITIES AND MEMBER'S EQUITY	$	27,961	28,095	TOTAL LIABILITIES AND MEMBER'S EQUITY	$	24,803	28,095

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Six Months Ended June 30,				Nine Months Ended September 30,
		2022		2021		2022		2021
		(Dollars in millions)				(Dollars in millions)
OPERATING ACTIVITIES	OPERATING ACTIVITIES				OPERATING ACTIVITIES
Net income	Net income	$	211	298	Net income	$	149	419
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:				Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	801		873	Depreciation and amortization	1,178		1,304
Gain on sale of business					Gain on sale of business	(119)		—
Deferred income taxes	Deferred income taxes	54		92	Deferred income taxes	367		122
Net gain on early retirement of debt					Net gain on early retirement of debt	(9)		—
Changes in current assets and liabilities:	Changes in current assets and liabilities:				Changes in current assets and liabilities:
Accounts receivable	Accounts receivable	33		(26)	Accounts receivable	2		(41)
Accounts payable	Accounts payable	(29)		(9)	Accounts payable	(37)		(34)
Other assets and liabilities, net	Other assets and liabilities, net	(113)		(74)	Other assets and liabilities, net	(141)		(74)
Other assets and liabilities, affiliate	Other assets and liabilities, affiliate	85		(499)	Other assets and liabilities, affiliate	81		(780)
Changes in other noncurrent assets and liabilities, net	Changes in other noncurrent assets and liabilities, net	64		13	Changes in other noncurrent assets and liabilities, net	117		33
Other, net	Other, net	78		(35)	Other, net	99		(8)
Net cash provided by operating activities	Net cash provided by operating activities	1,184		633	Net cash provided by operating activities	1,687		941
INVESTING ACTIVITIES	INVESTING ACTIVITIES				INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(554)		(591)	Capital expenditures	(877)		(874)
Proceeds from sale of business					Proceeds from sale of business	2,707		—
Proceeds from sale of property, plant and equipment and other assets	Proceeds from sale of property, plant and equipment and other assets	1		52	Proceeds from sale of property, plant and equipment and other assets	2		52
Net cash used in investing activities		(553)		(539)
Net cash provided by (used in) investing activities					Net cash provided by (used in) investing activities	1,832		(822)
FINANCING ACTIVITIES	FINANCING ACTIVITIES				FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	Net proceeds from issuance of long-term debt	—		891	Net proceeds from issuance of long-term debt	—		891
Distributions	Distributions	(553)		(25)	Distributions	(1,210)		(25)
Payments of long-term debt	Payments of long-term debt	(64)		(925)	Payments of long-term debt	(2,367)		(932)
Other	Other	—		(1)	Other	—		(1)
Net cash used in financing activities	Net cash used in financing activities	(617)		(60)	Net cash used in financing activities	(3,577)		(67)
Net increase in cash, cash equivalents and restricted cash		14		34
Net (decrease) increase in cash, cash equivalents and restricted cash					Net (decrease) increase in cash, cash equivalents and restricted cash	(58)		52
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	191		205	Cash, cash equivalents and restricted cash at beginning of period	191		205
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	205	239	Cash, cash equivalents and restricted cash at end of period	$	133	257
Supplemental cash flow information:	Supplemental cash flow information:				Supplemental cash flow information:
Income taxes paid, net	Income taxes paid, net	$	(23)	(16)	Income taxes paid, net	$	(4)	(23)
Interest paid (net of capitalized interest of $8 and $8)		$	(182)	(190)
Interest paid (net of capitalized interest of $12 and $11)					Interest paid (net of capitalized interest of $12 and $11)	$	(326)	(304)

Cash, cash equivalents and restricted cash:	Cash, cash equivalents and restricted cash:				Cash, cash equivalents and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	154	233	Cash and cash equivalents	$	130	215
Cash and cash equivalents included in assets held for sale	Cash and cash equivalents included in assets held for sale	48		—	Cash and cash equivalents included in assets held for sale	—		36
Restricted cash included in Other current assets	Restricted cash included in Other current assets	1		2	Restricted cash included in Other current assets	1		2
Restricted cash included in Other, net noncurrent assets	Restricted cash included in Other, net noncurrent assets	2		4	Restricted cash included in Other, net noncurrent assets	2		4
Total	Total	$	205	239	Total	$	133	257

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 June 30,			Six Months Ended June 30,				Three Months Ended September 30,			Nine Months Ended September 30,
		2022		2021	2022		2021		2022		2021	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	$	13,264	13,290	13,360		13,139	Balance at beginning of period	$	13,018	13,412	13,360		13,139
Net income		97		147	211		298
Net (loss) income								Net (loss) income	(62)		121	149		419
Distributions	Distributions	(343)		(25)	(553)		(25)	Distributions	(657)		—	(1,210)		(25)
Other								Other	(1)		(1)	(1)		(1)
Balance at end of period	Balance at end of period	13,018		13,412	13,018		13,412	Balance at end of period	12,298		13,532	12,298		13,532
ACCUMULATED OTHER COMPREHENSIVE LOSS	ACCUMULATED OTHER COMPREHENSIVE LOSS							ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period	Balance at beginning of period	(282)		(322)	(351)		(234)	Balance at beginning of period	(466)		(242)	(351)		(234)
Other comprehensive (loss) income		(184)		80	(115)		(8)
Other comprehensive loss								Other comprehensive loss	(2)		(93)	(117)		(101)
Balance at end of period	Balance at end of period	(466)		(242)	(466)		(242)	Balance at end of period	(468)		(335)	(468)		(335)
TOTAL MEMBER'S EQUITY	TOTAL MEMBER'S EQUITY	$	12,552	13,170	$	12,552	13,170	TOTAL MEMBER'S EQUITY	$	11,830	13,197	$	11,830	13,197

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, 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 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 ~~six~~nine 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, 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.

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 ~~$418~~$411 million and $294 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Additionally, current operating lease liabilities included the current portion of affiliate operating lease liabilities of ~~$112~~$116 million and $82 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively, and operating lease liabilities included the noncurrent portion of affiliate operating lease liabilities of ~~$317~~$307 million and $224 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

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 1one 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, 2021.

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) provides guidance with respect to net investments by lessors under operating leases and other related topics. The adoption of ASU 2021-05 did not have a material impact to our consolidated financial statements.

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”). This ASU amends and supersedes various SEC guidance to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The adoption of ASU 2020-09 did not have a material impact to our consolidated financial statements.

Investments

On January 1, 2021, we adopted ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)” ("ASU 2020-01”). This ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments - Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. As of ~~June~~September 30, 2022, we determined there was no application or discontinuation of the equity method during the reporting periods covered by this report. The adoption of ASU 2020-01 did not have a 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” (“ASU 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~~September 2022, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued ASU 2022-04, “Liabilities-Supplier Finance Program (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” (“ASU 2022-04”). These amendments require that a company that uses a supplier finance program in connection with the purchase of goods or services disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, program activity during the period, changes from period to period and potential magnitude of program transactions. ASU 2022-04 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we are reviewing our supplier finance agreements to determine the impact to disclosures in our consolidated financial statements.

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In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2022-03”). These amendments clarify that a contractual restriction on the sales of an investment in equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we do not expect ASU 2022-03 to have an impact to our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosures” (“ASU 2022-02”). These amendments eliminate the TDR recognition and measurement guidance, enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU ~~2020-02~~2022-02 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of ~~June~~September 30, 2022, we do not expect ASU 2022-02 to have an impact to our consolidated financial statements.

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In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging-Portfolio Layer Method” (ASU 2022-01). The ASU expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method. ASU ~~2020-01~~2022-01 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of ~~June~~September 30, 2022, we do not expect ASU 2022-01 to have an impact to our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): 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 ~~June~~September 30, 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): Scope" ("ASU 2021-01"), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. These amendments may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ASU 2021-01 provides ~~option guidance~~optional expedients for a limited time to ease the potential burden in accounting for reference rate reform. Based on our review of our key material contracts through ~~June~~September 30, 2022, ~~we do not expect~~ ASU 2021-01 todoes not have a material impact to our consolidated financial statements.

(2) Recently Completed Divestiture of the Latin American Business

On August 1, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., ~~closed the sale of~~sold Lumen's Latin American business pursuant to a definitive agreement dated July 25, ~~2021. See Note 11—Subsequent Events~~2021 for ~~additional information regarding this divestiture.~~pre-tax cash proceeds of approximately $2.7 billion, subject to certain post-closing adjustments.

During both the three and nine months ended September 30, 2022, we recorded a $119 million pre-tax gain on disposal associated with the sale of our Latin American business. This gain is reflected as operating income within the consolidated statements of operations.

In connection with the sale, Lumen has entered into a transition services agreement under which it will provide to the purchaser various support services. In addition, Lumen and the purchaser entered into commercial agreements whereby they will provide each other various network and other commercial services. Lumen also agreed to indemnify the purchaser for certain matters for which future cash payments by Lumen could be required. Lumen has estimated the fair value of these indemnifications to be $86 million, which is included in other long-term liabilities in our consolidated balance sheet and has reduced our gain on the sale accordingly.

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

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(Dollars in millions)
Pre-tax net income $ 95 47 178 75

As of June 30, 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 of the disposal group 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 while these assets are classified as held for sale. We estimate that we would have recorded an additional $48 million and $97 million of depreciation, intangible amortization, and amortization of right-of use assets for the three and six months ended June 30, 2022, respectively if the Latin American business did not meet the held for sale criteria.

As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we did not record any estimated loss on disposal during the six months endedJune 30, 2022. We re-evaluate the recoverability of the disposal group each reporting period through the disposal date. For information on the August 1, 2022 disposal of the Latin American business, see Note 11—Subsequent Events.

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	Three Months Ended September 30,			Nine Months Ended September 30,
	2022		2021	2022	2021
	(Dollars in millions)
Pre-tax net income (1)	$	19	62	197	137

(1)The pre-tax net income includes operating results prior to the close of the sale of the business on August 1, 2022

The Latin American business was included in our continuing operations and classified as assets and liabilities held for sale on our consolidated balance sheets through the closing of the transaction on August 1, 2022. As a result of closing the transaction, we derecognized $2.4 billion of net assets, the principal components of ~~the held for sale assets and liabilities as of the dates below are~~which were as follows:

June 30, 2022 December 31, 2021
(Dollars in millions)
Assets held for sale
Cash and cash equivalents $ 48 39
Accounts receivable, less allowance of $2 and $3 94 83
Other current assets 79 81
Property, plant and equipment, net accumulated depreciation of $431 and $434 1,714 1,591
Goodwill (1)
720 713
Customer relationships and other intangibles, net 130 126
Other non-current assets 80 75
Total assets held for sale $ 2,865 2,708
Liabilities held for sale
Accounts payable $ 110 101
Salaries and benefits 21 23
Income and other taxes 37 27
Current portion of deferred revenue 27 26
Other current liabilities 7 7
Deferred income taxes, net 149 129
Other non-current liabilities 128 122
Total liabilities held for sale $ 479 435


	August 1, 2022
	(Dollars in millions)
Assets
Cash and cash equivalents	$	40
Accounts receivable, less allowance of $3	105
Other current assets	86
Property, plant and equipment, net accumulated depreciation of $447	1,703
Goodwill(1)	719
Customer relationships and other intangibles, net	140
Other non-current assets	70
Total assets	$	2,863

Liabilities
Accounts payable	$	105
Income and other taxes	42
Other current liabilities	59
Deferred income taxes, net	154
Other non-current liabilities	122
Total liabilities	$	482

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

(3) Goodwill, Customer Relationships and Other Intangible Assets

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

June 30, 2022 December 31, 2021
(Dollars in millions)
Goodwill $ 6,627 6,666
Customer relationships, less accumulated amortization of $3,096 and $2,779 $ 4,977 5,325
Capitalized software, less accumulated amortization of $368 and $349 401 378
Trade names, less accumulated amortization of $122 and $109 9 22
Total other intangible assets, net $ 5,387 5,725


	September 30, 2022		December 31, 2021
	(Dollars in millions)
Goodwill	$	6,598	6,666
Customer relationships, less accumulated amortization of $3,245 and $2,779	$	4,804	5,325
Capitalized software, less accumulated amortization of $380 and $349	412		378
Trade names, less accumulated amortization of $129 and $109	2		22
Total other intangible assets, net	$	5,218	5,725

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

We assess our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to 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 1one reporting unit.

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


	(Dollars in millions)
As of December 31, 2021 (1)	$	6,666
Effect of foreign currency exchange rate changes	~~(39)~~(68)
As of ~~June~~September 30, 2022 (1)	$	~~6,627~~6,598

(1)Goodwill at ~~June~~September 30, 2022 and December 31, 2021 is net of accumulated impairment loss of $3.6 billion.

Total amortization expense for finite-lived intangible assets for the three months ended ~~June~~September 30, 2022 and 2021 totaled ~~$186~~$187 million and ~~$216~~$210 million, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, totaled ~~$378~~$565 million and ~~$427~~$637 million, respectively. As of ~~June~~September 30, 2022, the gross carrying amount of goodwill, customer relationships, capitalized software, indefinite-life and other intangible assets was $15.6 billion.

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

(Dollars in millions)
2022 (remaining six months) $ 367
2023 716
2024 712
2025 687
2026 643


	(Dollars in millions)
2022 (remaining three months)	$	182
2023	718
2024	714
2025	689
2026	646

(4) Revenue Recognition

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 table provides disaggregation of revenue from contracts with customers based on service offering for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting ~~standards:~~

Three Months Ended June 30, 2022 Three Months Ended June 30, 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
(Dollars in millions)
Compute and Application Services $ 283 (126) 157 283 (127) 156
IP and Data Services 883 — 883 888 — 888
Fiber Infrastructure Services 403 (57) 346 401 (55) 346
Voice and Other 327 (4) 323 357 (3) 354
Affiliate Services 57 (57) — 56 (56) —
Total revenue $ 1,953 (244) 1,709 1,985 (241) 1,744
standards. The amounts in the tables below include the Latin American business revenues prior to it being sold on August 1, 2022.:


		Six Months Ended June 30, 2022				Six Months Ended June 30, 2021				Three Months Ended September 30, 2022				Three Months Ended September 30, 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	$	560	(254)	306	563	(254)	309	Compute and Application Services	$	235	(100)	135	287	(126)	161
IP and Data Services	IP and Data Services	1,769		—	1,769	1,769	—	1,769	IP and Data Services	831		—	831	890	—	890
Fiber Infrastructure Services	Fiber Infrastructure Services	794		(111)	683	798	(108)	690	Fiber Infrastructure Services	381		(54)	327	412	(56)	356
Voice and Other	Voice and Other	663		(8)	655	733	(5)	728	Voice and Other	315		(3)	312	345	(3)	342
Affiliate Services	Affiliate Services	113		(113)	—	111	(111)	—	Affiliate Services	57		(57)	—	56	(56)	—
Total revenue	Total revenue	$	3,899	(486)	3,413	3,974	(478)	3,496	Total revenue	$	1,819	(214)	1,605	1,990	(241)	1,749


	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 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
	(Dollars in millions)
Compute and Application Services	$	795	(354)	441	850	(380)	470
IP and Data Services	2,600		—	2,600	2,659	—	2,659
Fiber Infrastructure Services	1,175		(165)	1,010	1,210	(164)	1,046
Voice and Other	978		(11)	967	1,078	(8)	1,070
Affiliate Services	170		(170)	—	167	(167)	—
Total revenue	$	5,718	(700)	5,018	5,964	(719)	5,245

(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 ~~June~~September 30, 2022 and 2021, our gross rental income was ~~$203~~$175 million and $202 million, which represents approximately 10% of our operating revenue for both periods. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, our gross rental income was ~~$406~~$581 million and ~~$399~~$601 million, which represents approximately 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 ~~June~~September 30, 2022 and December 31, 2021:


		June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
		(Dollars in millions)				(Dollars in millions)
Customer receivables (1)	Customer receivables (1)	$	577	640	Customer receivables (1)	$	593	640
Contract assets (2)	Contract assets (2)	33		35	Contract assets (2)	30		35
Contract liabilities (3)	Contract liabilities (3)	254		247	Contract liabilities (3)	287		247

(1)Reflects gross customer receivables of ~~$614~~$620 million and $679 million, net of allowance for credit losses of ~~$37~~$27 million and $39 million, at ~~June~~September 30, 2022 and December 31, 2021, respectively. As of ~~June 30, 2022 and~~ December 31, 2021, ~~these amounts exclude~~this amount excludes customer receivables ~~reclassified~~classified as held for sale of ~~$94 million and~~ $83 ~~million respectively.~~million.

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

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

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 ~~six~~nine months ended ~~June~~September 30, 2022, we recognized ~~$23~~$20 million and ~~$108~~$128 million, respectively, of revenue that was included in contract liabilities of $305 million as of January 1, 2022, including contract liabilities that were classified as held for sale. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, we recognized ~~$28~~$30 million and ~~$121~~$151 million, respectively, of revenue that was included in contract liabilities of $385 million as of January 1, 2021.

Performance Obligations

As of ~~June~~September 30, 2022, we expect to recognize approximately ~~$3.7~~$3.8 billion of revenue in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied. We expect to recognize approximately ~~84%~~80% of this revenue through 2024, with the balance recognized thereafter.

These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), (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 recently completed divestiture.

Contract Costs

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


		Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			Three Months Ended September 30, 2022			Three Months Ended September 30, 2021
		Acquisition Costs		Fulfillment Costs (1)	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	$	77	100	75	123	Beginning of period balance	$	78	101	75	124
Costs incurred	Costs incurred	14		22	15	23	Costs incurred	16		20	15	22
Amortization	Amortization	(13)		(20)	(15)	(22)	Amortization	(14)		(17)	(14)	(21)
Change in contract costs held for sale (1)	Change in contract costs held for sale (1)	—		(1)	—	—	Change in contract costs held for sale (1)	—		1	—	(27)
End of period balance	End of period balance	$	78	101	75	124	End of period balance	$	80	105	76	98


		Six Months Ended June 30, 2022			Six Months Ended June 30, 2021			Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021
		Acquisition Costs		Fulfillment Costs (1)	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	$	76	99	78	122	Beginning of period balance	$	76	99	78	122
Costs incurred	Costs incurred	29		43	29	46	Costs incurred	45		63	44	68
Amortization	Amortization	(27)		(40)	(32)	(44)	Amortization	(41)		(57)	(46)	(65)
Change in contract costs held for sale (1)	Change in contract costs held for sale (1)	—		(1)	—	—	Change in contract costs held for sale (1)	—		—	—	(27)
End of period balance	End of period balance	$	78	101	75	124	End of period balance	$	80	105	76	98

(1)The beginning of period balance for ~~both~~ the three and ~~six~~nine months ended ~~June~~September 30, 2022 excluded fulfillment costs ~~reclassified as held for sale of $27 million, respectively. The ending balance for June 30, 2022 excluded fulfillment costs reclassified~~classified as held for sale of $28 ~~million.~~million and $27 million, respectively.

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 contract life of approximately 34 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~~a quarterly basis.

(5) Credit Losses on Financial Instruments

~~In accordance with ASC 326, "Financial Instruments - Credit Losses,~~"To assess our expected credit losses on financial instruments, we aggregate financial assets with similar risk characteristics to ~~align our expected credit losses with the~~monitor their credit quality or deterioration over the life of such assets. We periodically monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change. We separately evaluate financial assets that do not share risk characteristics with other financial assets. Our financial assets measured at amortized cost primarily consist of accounts receivable.

We use a loss rate method to estimate our allowance for credit losses. Our determination of the current expected credit loss rate begins with our review of historical loss experience as a percentage of accounts receivable. We measure our historical loss period based on the average days to recognize accounts receivable as credit losses. 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 an unexpected deterioration of a customer's financial condition or an unexpected change in economic conditions, including macroeconomic events, we assess the need to adjust the allowance for credit losses. Any such resulting adjustments would affect earnings in the period that adjustments are made.

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

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, 2021(1)	$	39
Provision for expected losses	72
Write-offs charged against the allowance	~~(12)~~(17)
Recoveries collected	2
~~Change in allowance in assets held for sale~~ Foreign currency exchange rate change adjustment~~(1)~~	1

Ending balance at ~~June~~September 30, 2022	$	3727

(1)As of ~~June 30, 2022 and~~ December 31, 2021, amount excludes allowance for credit losses classified as held for sale of ~~$2 million and~~ $3 ~~million, respectively.~~million. See Note 2—Recently Completed Divestiture of the Latin American Business.

(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)	June 30, 2022		December 31, 2021		Interest Rates (1)	Maturities (1)	September 30, 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)	Tranche B 2027 Term Loan (3)	LIBOR + 1.75%	2027	3,111		3,111	Tranche B 2027 Term Loan (3)	LIBOR + 1.75%	2027	2,411		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% - 4.625%	2027 - 2029	3,940		5,515
Finance leases and other obligations	Finance leases and other obligations	Various	Various	308		319	Finance leases and other obligations	Various	Various	301		319
Unamortized premiums, net	Unamortized premiums, net			30		34	Unamortized premiums, net			3		34
Unamortized debt issuance costs	Unamortized debt issuance costs			(53)		(57)	Unamortized debt issuance costs			(50)		(57)
Total long-term debt	Total long-term debt			10,411		10,422	Total long-term debt			8,105		10,422
Less current maturities	Less current maturities			(28)		(26)	Less current maturities			(26)		(26)
Long-term debt, excluding current maturities	Long-term debt, excluding current maturities			$	10,383	10,396	Long-term debt, excluding current maturities			$	8,079	10,396

(1)As of ~~June~~September 30, 2022.

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

(3)The Tranche B 2027 Term Loan had an interest rate of ~~3.416%~~4.865% and 1.854% as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

(4)~~This debt is fully and unconditionally guaranteed~~See Note 7—Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, 2021 for a description of guarantees provided by certain affiliates of Level 3 Financing, Inc.~~, including Level 3 Parent, LLC and Level 3 Communications, LLC~~.

Long-Term Debt Maturities

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


		(Dollars in millions)			(Dollars in millions)
2022 (remaining six months)		$	17
2022 (remaining three months)				2022 (remaining three months)	$	8
2023	2023	27		2023	27
2024	2024	32		2024	32
2025	2025	838		2025	38
2026	2026	811		2026	36
2027 and thereafter	2027 and thereafter	8,709		2027 and thereafter	8,011
Total long-term debt	Total long-term debt	$	10,434	Total long-term debt	$	8,152

Debt Repayment

During the nine months ended September 30, 2022, we repaid the following aggregate principal amount of indebtedness through a combination of tender offers, redemptions, and repayments. These transactions resulted in a net gain of $9 million.


Debt	Period of Repayment	(Dollars in millions)
Tranche B 2027 Term Loan	Q3 2022	$	700
5.375% Senior Notes due 2025	Q3 2022	800
5.250% Senior Notes due 2026	Q3 2022	775
Total Debt Repayments		$	2,275

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-acceleration provisions.

Compliance

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

(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~~(excluding finance leases and other obligations) and certain indemnification 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.

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The following table presents the carrying amounts and estimated fair values of our financial liabilities as of ~~June~~September 30, 2022 and December 31, 2021, as well as the input level used to determine the fair values indicated below:

June 30, 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 8,867 10,103 10,090


		September 30, 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	$	7,804	6,572	10,103	10,090
Indemnifications related to the sale of the Latin American business	3	$	86	86	—	—

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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 ~~June~~September 30, 2022 aggregated to approximately ~~$44~~$24 million and are included in other current liabilities, other liabilities, 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~~Latin American Tax Litigation and Claims

In ~~December 2020, Lumen was named as a defendant in Diana Mey v. CenturyLink Communications, LLC, et al., an action pending in~~connection with the ~~US District Court~~recent divestiture of our Latin American business, the purchaser assumed responsibility 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~~litigation and Brazilian tax ~~assessments against 1 of~~claims described in our ~~Peruvian subsidiaries asserting $26 million of additional income tax withholding and value-added taxes ("VAT"), penalties and interest~~prior periodic reports filed with the SEC. We have agreed to indemnify the purchaser for ~~calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. In May 2021, the Company~~amounts 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~~respect to the ~~first judicial level, which decided~~Brazilian tax claims. The value of this indemnification is included in the ~~central issue~~indemnification amount as disclosed in ~~favor~~Note 7—Fair Value 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 appeals. In November 2017, the court of appeals issued a decision affirming the first judicial level and we filed an appeal of that decision to the Supreme Court of Justice. In May 2021, the Supreme Court of Justice issued its final decision in favor of the Company. The Company provided additional information to SUNAT regarding 2001 tax payments and, in June 2022, SUNAT notified the Company of its decision regarding the 2001 refund amount. In July 2022, the Company appealed that decision to the Tax Court. The appeal is pending.

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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, the State appealed those rulings. In other cases, the assessment was affirmed at the first administrative level and we have appealed to the second administrative level. Other assessments are still pending state judicial decisions.

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

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 1one or more may go to trial within the next twelve months if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. 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.

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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 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 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, 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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(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 ~~six~~nine months ended ~~June~~September 30, 2022:


		Pension Plans		Foreign Currency Translation Adjustment and Other	Total		Pension Plans		Foreign Currency Translation Adjustment and Other	Total
		(Dollars in millions)					(Dollars in millions)
Balance at December 31, 2021	Balance at December 31, 2021	$	3	(354)	(351)	Balance at December 31, 2021	$	3	(354)	(351)
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—		(115)	(115)	Other comprehensive loss, net of tax	—		(229)	(229)
Amounts reclassified from accumulated other comprehensive (loss) income						Amounts reclassified from accumulated other comprehensive (loss) income	$	—	112	112
Net other comprehensive loss	Net other comprehensive loss	—		(115)	(115)	Net other comprehensive loss	—		(117)	(117)
Balance at June 30, 2022		$	3	(469)	(466)
Balance at September 30, 2022						Balance at September 30, 2022	$	3	(471)	(468)

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The tables below present further information about our reclassifications out of accumulated other comprehensive (loss) income by component for the three and nine months ended September 30, 2022:

Three and Nine Months Ended September 30, 2022

Decrease (Increase)
in Net Income

Affected Line Item in Consolidated Statement of Operations

(Dollars in millions)

Reclassification of realized loss on foreign currency translation to gain on sale of business

112

Gain on sale of business

Income tax benefit

—

Income tax expense

Net of tax

112

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

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 — (8) (8)
Net other comprehensive loss — (8) (8)
Balance at June 30, 2021 $ (13) (229) (242)


	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)

(10) Other Financial Information

Other Current Assets

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


		June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
		(Dollars in millions)				(Dollars in millions)
Prepaid expenses	Prepaid expenses	$	132	109	Prepaid expenses	$	127	109
Contract fulfillment costs	Contract fulfillment costs	49		48	Contract fulfillment costs	48		48
Contract acquisition costs	Contract acquisition costs	46		45	Contract acquisition costs	47		45
Contract assets	Contract assets	26		28	Contract assets	23		28
Other	Other	10		9	Other	6		9
Total other current assets	Total other current assets	$	263	239	Total other current assets	$	251	239

_______________________________________________________________________________

(1)As of ~~June 30, 2022 and~~ December 31, 2021, other current assets ~~excludes $79 million and~~excluded $81 million ~~respectively,~~ that ~~have~~had been ~~reclassified~~classified as held for sale.

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(11) Subsequent Events

Pending Divestiture of ~~the Latin American~~our European, Middle Eastern and African Business

On ~~August 1,~~November 2, 2022, ~~we completed~~affiliates of Level 3 Parent, LLC entered into an exclusive arrangement to divest our operations in Europe, the ~~sale~~Middle East and Africa (the “EMEA business”) to Colt Technology Services Group Limited, a portfolio company of ~~our Latin American business to an affiliate of a fund advised by Stonepeak Partners LP~~Fidelity Investments, in exchange for $1.8 billion in cash, ~~proceeds of approximately $2.7 billion~~ subject to certain ~~post-closing~~working capital and other purchase price adjustments. We expect to ~~recognize a gain on~~close the transaction as early as late 2023, following completion of a consultation process under French law required prior to execution of the purchase agreement and receipt of all requisite regulatory approvals in ~~operating income during~~ the ~~third quarter of 2022. In connection with the sale, Lumen has entered into a transition services agreement under which it will provide to the purchaser various support services~~U.S. and certain ~~long-term agreements under which Lumen and~~countries where the ~~purchaser~~EMEA business operates, as well as the satisfaction of other customary conditions. Upon being executed following the French consultation process, the purchase agreement will ~~provide to each other~~contain various ~~network and other commercial services.~~

~~Distributions to Parent~~

~~As of the date~~customary covenants for transactions of this ~~report, $75 million of distributions were made to our parent in the third quarter of 2022.~~

~~Tender Offer and Consent Solicitation~~

On July 25, 2022, Lumen initiated a tender offer to repurchase (i) any and all of $1.575 billion aggregate principal amount of certain of our outstanding Level 3 Financing, Inc. senior notes and (ii) certain other Lumen Technologies, Inc. and affiliated subsidiary senior notes, subject to certain repurchase caps and sublimits andtype, including various other terms and conditions. This offer, which was made pursuant to an Offer to Purchase and Consent Solicitation Statement dated July 25, 2022, has an early tender date of August 5, 2022, and will expire on August 19, 2022, unless extended. In addition, we announced a consent solicitation to eliminate substantially all of the restrictive covenants, eliminate certain events of default, and modify certain redemption notice requirements contained in the respective indentures for Level 3 senior notes subject to the tender offer.

~~Debt Repayment~~

~~On August 3, 2022, we repaid approximately $700 million aggregate principal amount of our Tranche B 2027 Term Loan.~~indemnities.

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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, 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 ~~six~~nine 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.

On August 1, 2022, affiliates of Level 3 Parent, LLC sold our Latin American business to an affiliate of a fund advised by Stonepeak Partners LP in exchange for pre-tax cash proceeds of approximately $2.7 billion, subject to certain post-closing adjustments. See Note 2—Recently Completed Divestiture of the Latin American Business for additional details.

Pending Divestiture of our European, Middle Eastern and African Business

On November 2, 2022, affiliates of Level 3 Parent, LLC entered into an exclusive arrangement to divest our operations in Europe, the Middle East and Africa in exchange for $1.8 billion in cash, subject to certain working capital and other purchase price adjustments. For more information, see Note 11—Subsequent Events ~~for additional details.~~to our consolidated financial statements in Item 1 of Part I of this report.

Impact of COVID-19 Pandemic and the Macroeconomic Environment

As previously described in greater detail in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 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. We expect to continue revising our responses to the pandemic or take additional steps necessary to adjust to changed circumstances.

Social distancing, business and school closures, travel restrictions, and ~~other actions taken in response to~~macroeconomic changes arising out of 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 and macroeconomic changes arising therefrom have resulted in (i) increases in certain revenue streams and decreases in others, (ii) increases in overtime expenses, (iii) operational challenges resulting from shortages of certain components and other supplies that we use in our business, and (iv) delays in our cost transformation initiatives. We have also experienced delayed decision-making by certain of our ~~customers during 2021.~~customers. Thus far, these changes have not materially impacted our financial performance or financial position. However, we continue to monitor global disruptions and work with our vendors to mitigate supply chain risks.

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

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Products, Services and Revenue

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

Results in this section include the results of our Latin American business prior to it being sold on August 1, 2022.

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


		Three Months Ended June 30,			Six Months Ended June 30,			Three Months Ended September 30,			Nine Months Ended September 30,
		2022		2021	2022	2021		2022		2021	2022	2021
		(Dollars in millions)						(Dollars in millions)
Operating revenue	Operating revenue	$	1,953	1,985	3,899	3,974	Operating revenue	$	1,819	1,990	5,718	5,964
Operating expenses	Operating expenses	1,721		1,708	3,428	3,424	Operating expenses	1,485		1,749	4,913	5,173
Operating income	Operating income	232		277	471	550	Operating income	334		241	805	791
Other expense, net	Other expense, net	(94)		(68)	(175)	(139)	Other expense, net	(84)		(83)	(259)	(222)
Income before income taxes	Income before income taxes	138		209	296	411	Income before income taxes	250		158	546	569
Income tax expense	Income tax expense	41		62	85	113	Income tax expense	312		37	397	150
Net income		$	97	147	211	298
Net (loss) income							Net (loss) income	$	(62)	121	149	419

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 ~~June~~September 30, 2022.

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Operating Revenue

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


		Three Months Ended June 30,						Three Months Ended September 30,
		2022		2021	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Compute and Application Services	Compute and Application Services	$	283	283	—	%	Compute and Application Services	$	235	287	(18)	%
IP and Data Services	IP and Data Services	883		888	(1)	%	IP and Data Services	831		890	(7)	%
Fiber Infrastructure Services	Fiber Infrastructure Services	403		401	—	%	Fiber Infrastructure Services	381		412	(8)	%
Voice and Other	Voice and Other	327		357	(8)	%	Voice and Other	315		345	(9)	%
Affiliate Services	Affiliate Services	57		56	2	%	Affiliate Services	57		56	2	%
Total operating revenue	Total operating revenue	$	1,953	1,985	(2)	%	Total operating revenue	$	1,819	1,990	(9)	%


		Six Months Ended June 30,						Nine Months Ended September 30,
		2022		2021	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Compute and Application Services	Compute and Application Services	$	560	563	(1)	%	Compute and Application Services	$	795	850	(6)	%
IP and Data Services	IP and Data Services	1,769		1,769	—	%	IP and Data Services	2,600		2,659	(2)	%
Fiber Infrastructure Services	Fiber Infrastructure Services	794		798	(1)	%	Fiber Infrastructure Services	1,175		1,210	(3)	%
Voice and Other	Voice and Other	663		733	(10)	%	Voice and Other	978		1,078	(9)	%
Affiliate Services	Affiliate Services	113		111	2	%	Affiliate Services	170		167	2	%
Total operating revenue	Total operating revenue	$	3,899	3,974	(2)	%	Total operating revenue	$	5,718	5,964	(4)	%

Our total operating revenue decreased by ~~$32~~$171 million and ~~$75~~$246 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021 primarily due to the sale of the Latin American business, as well as overall decreases in IT Solutions, Ethernet services, VPN data networks, voice and private line and ready access ~~revenue, which were~~revenue. For the nine months ended September 30, 2022, the decrease was partially offset growth in IP, cloud services ~~wavelengths~~ and managed security revenue.

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Operating Expenses

The following table summarizes our consolidated operating expenses:


		Three Months Ended June 30,						Three Months Ended September 30,
		2022		2021	% 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)	$	836	868	(4)	%	Cost of services and products (exclusive of depreciation and amortization)	$	785	897	(12)	%
Selling, general and administrative	Selling, general and administrative	318		273	16	%	Selling, general and administrative	269		305	(12)	%
Gain on sale of business							Gain on sale of business	(119)		—	nm
Operating expenses - affiliates	Operating expenses - affiliates	162		131	24	%	Operating expenses - affiliates	173		116	49	%
Depreciation and amortization	Depreciation and amortization	405		436	(7)	%	Depreciation and amortization	377		431	(13)	%
Total operating expenses	Total operating expenses	$	1,721	1,708	1	%	Total operating expenses	$	1,485	1,749	(15)	%


		Six Months Ended June 30,						Nine Months Ended September 30,
		2022		2021	% 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)	$	1,687	1,746	(3)	%	Cost of services and products (exclusive of depreciation and amortization)	$	2,472	2,643	(6)	%
Selling, general and administrative	Selling, general and administrative	632		567	11	%	Selling, general and administrative	901		872	3	%
Gain on sale of business							Gain on sale of business	(119)		—	nm
Operating expenses - affiliates	Operating expenses - affiliates	308		238	29	%	Operating expenses - affiliates	481		354	36	%
Depreciation and amortization	Depreciation and amortization	801		873	(8)	%	Depreciation and amortization	1,178		1,304	(10)	%
Total operating expenses	Total operating expenses	$	3,428	3,424	—	%	Total operating expenses	$	4,913	5,173	(5)	%

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

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

Cost of services and products (exclusive of depreciation and amortization) decreased by ~~$32~~$112 million and ~~$59~~$171 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021, primarily due tothe sale of the Latin American business and decreases in facility costs and lower real estate and power costs.

Selling, General and Administrative

Selling, general and administrative ~~increased~~decreased by ~~$45~~$36 million ~~and $65 million, respectively,~~ for the three ~~and six~~ months ended ~~June~~September 30, 2022 as compared to the three ~~and six~~ months ended ~~June~~September 30, 2021 primarily due to lower non-employee related expenses and lower bad debt expense, as well as the sale of our Latin American business. Selling, general and administrative increased $29 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021 primarily due to higher employee related expenses ~~in both the three and six months ended June 30, 2022~~ as well as a gain on sale of assets in the ~~six~~nine months ended ~~June~~September 30, ~~2021.~~2021, which was partially offset by the sale of our Latin American business.

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Gain on Sale of Business

For a discussion of the gain on the sale of the Latin American business that we recorded in the third quarter of 2022, see Note 2—Recently Completed Divestiture of the Latin American Business.

Operating Expenses - Affiliates

Operating expenses - affiliates increased by ~~$31~~$57 million and ~~$70~~$127 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to higher affiliate lease expense for circuits and colocation facilities.

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Depreciation and Amortization

The following table provides detail regarding depreciation and amortization expense:


		Three Months Ended June 30,						Three Months Ended September 30,
		2022		2021	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Depreciation	Depreciation	$	219	220	—	%	Depreciation	$	190	221	(14)	%
Amortization	Amortization	186		216	(14)	%	Amortization	187		210	(11)	%
Total depreciation and amortization	Total depreciation and amortization	$	405	436	(7)	%	Total depreciation and amortization	$	377	431	(13)	%


		Six Months Ended June 30,						Nine Months Ended September 30,
		2022		2021	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Depreciation	Depreciation	$	423	446	(5)	%	Depreciation	$	613	667	(8)	%
Amortization	Amortization	378		427	(11)	%	Amortization	565		637	(11)	%
Total depreciation and amortization	Total depreciation and amortization	$	801	873	(8)	%	Total depreciation and amortization	$	1,178	1,304	(10)	%

Depreciation expense decreased by $1$31 million and ~~$23~~$54 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to discontinuing the depreciation of the tangible assets ~~reclassified~~of our recently divested Latin American business during their classification as assets held for sale, resulting in a decrease of ~~our Latin American business upon entering into our divestiture agreement. We estimate we would have recorded an additional $37~~$9 million and ~~$74~~$61 million, respectively, of depreciation expense during the three and ~~six~~nine months ended ~~June~~September 30, 2022 ~~if we had not agreed~~compared to ~~sell this business. This~~the three and nine months ended September 30, 2021. The decrease for the three months ended September 30, 2022 was also due to a decrease of $9 million resulting from the net decrease in depreciable assets. The decrease during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021 was partially offset by ana $13 million increase ~~of $34 million and $52 million, respectively, resulting from the~~in net ~~growth in~~ depreciable ~~assets during the three and six months ended June 30, 2022.~~assets.

Amortization expense decreased by ~~$30~~$23 million and ~~$49~~$72 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, amortization expense decreased by ~~$14~~$19 million and ~~$23~~$44 million, respectively, associated with the net reduction in amortizable assets and by ~~$10~~$3 million and ~~$20~~$25 million, respectively, due to discontinuing the amortization of the intangible assets ~~reclassified as held for sale~~ of our recently divested Latin American business ~~upon entering into our divestiture agreement.~~during their classification as assets held for sale.

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Other Consolidated Results

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


		Three Months Ended June 30,						Three Months Ended September 30,
		2022		2021	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Interest income - affiliate	Interest income - affiliate	$	15	15	—	%	Interest income - affiliate	$	19	16	19	%
Interest expense	Interest expense	(95)		(89)	7	%	Interest expense	(99)		(90)	10	%
Other (expense) income, net		(14)		6	nm
Other expense, net							Other expense, net	(4)		(9)	nm
Total other expense, net	Total other expense, net	$	(94)	(68)	38	%	Total other expense, net	$	(84)	(83)	1	%
Income tax expense	Income tax expense	$	41	62	(34)	%	Income tax expense	$	312	37	nm


		Six Months Ended June 30,						Nine Months Ended September 30,
		2022		2021	% Change			2022		2021	% Change
		(Dollars in millions)						(Dollars in millions)
Interest income - affiliate	Interest income - affiliate	$	31	33	(6)	%	Interest income - affiliate	$	50	49	2	%
Interest expense	Interest expense	(185)		(182)	2	%	Interest expense	(284)		(272)	4	%
Other (expense) income, net	Other (expense) income, net	(21)		10	nm		Other (expense) income, net	(25)		1	nm
Total other expense, net	Total other expense, net	$	(175)	(139)	26	%	Total other expense, net	$	(259)	(222)	17	%
Income tax expense	Income tax expense	$	85	113	(25)	%	Income tax expense	$	397	150	165	%

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 ~~remained flat~~increased by $3 million and $1 million, respectively, for the three and nine months ended ~~June 30, 2022 and decreased by $2 million for the six months ended June~~September 30, 2022, as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021. The increase was driven by increases in affiliate note balances and an increase in interest rates.

Interest Expense

Interest expense increased by $6$9 million and $3$12 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021. The increase was ~~primarily~~ due to an increase in average interest rates from ~~(i)~~ 3.53% to ~~3.82%~~4.13% and 3.60% to 3.89%, respectively, for the three and nine months ended ~~June~~September 30, 2022. This was partially offset by the decrease in average outstanding long-term debt from $10.4 billion to $9.3 billion, for both the three and nine months ended September 30, 2022, as compared to the three and nine months ended ~~June 30, 2021, and (ii) from 3.61% to 3.77% for the six months ended June 30, 2022 as compared to the six months ended June~~September 30, 2021.

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Other (Expense) Income, Net

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

Three Months Ended June 30, % Change
2022 2021
(Dollars in millions)
Foreign currency (loss) gain (11) 8 nm
Other (3) (2) 50 %
Total other (expense) income, net $ (14) 6 nm


	Three Months Ended September 30,			% Change
	2022		2021
	(Dollars in millions)
Gain on extinguishment of debt	$	9	—	nm
Foreign currency loss	(21)		(11)	(91)	%
Interest income	5		—	nm
Other	3		2	50	%
Total other expense, net	$	(4)	(9)	nm


		Six Months Ended June 30,			% Change			Nine Months Ended September 30,			% Change
		2022		2021				2022		2021
		(Dollars in millions)						(Dollars in millions)
Gain on extinguishment of debt	Gain on extinguishment of debt	$	—	16	nm		Gain on extinguishment of debt	$	9	16	(44)	%
Foreign currency gain	Foreign currency gain	(20)		(3)	nm		Foreign currency gain	(41)		(14)	(193)	%

Interest income							Interest income	5		—	nm
Other	Other	(1)		(3)	(67)	%	Other	2		(1)	nm
Total other income, net	Total other income, net	$	(21)	10	nm		Total other income, net	$	(25)	1	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 ~~both~~ the three months ended ~~June~~September 30, 2022 and 2021, our effective income tax rate was ~~29.7%.~~124.8% and 23.4%, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, our effective income tax rate was ~~28.7%~~72.7% and ~~27.5%~~26.4%, respectively.

The effective tax rate for the three and nine months ended September 30, 2022 was significantly impacted by the gain on the sale of our Latin American business. Without the gain on the sale of our Latin American business, our effective tax would have been 28.0% and 28.5%, respectively, for the three and nine months ended September 30, 2022.

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Liquidity and Capital Resources

Overview

As of ~~June~~September 30, 2022, we held cash and cash equivalents ~~including cash and cash equivalents classified as held for sale,~~ of ~~$202~~$130 million, of which ~~$94~~$68 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 recently completed 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 Recently Completed Divestiture of our Latin American Business

As discussed in Note 2—Recently Completed Divestiture of the Latin American Business, we sold our Latin American business on August 1, 2022. As further described elsewhere herein, this transaction provided us with a substantial amount of cash proceeds, but ultimately will reduce our base of income-generating assets that generate our recurring cash from operating activities.

Debt and Other Financing Arrangements

As of ~~June~~September 30, 2022, our long-term debt (including current maturities and finance leases) outstanding totaled ~~$10.4~~$8.1 billion. See Note 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:

Borrower

Moody's Investor Services, Inc.

Standard & Poor's

Fitch Ratings

Level 3 Financing, Inc.

Unsecured

Ba3

BBBB-

Secured

Ba1

~~BBB-~~BB+

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. With the recent downgrade of certain of our credit ratings, we may experience increased 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, 2021.

~~See Note 6—Long-Term Debt for~~From time to time over the past couple of years, we have engaged in various refinancings, redemptions, tender offers, open market purchases and other transactions designed to reduce our consolidated indebtedness, lower our interest costs, improve our financial flexibility or otherwise enhance our debt profile. We plan to continue to pursue similar transactions in the future. Whether and when we implement any additional ~~information about~~such transactions depends on a wide variety of factors, including without limitation market conditions, our ~~long-term debt.~~upcoming debt maturities, and our cash requirements. There is no guarantee that we will be successful in implementing any such transactions or attaining our stated objectives.

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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 ~~June~~September 30, 2022, we had outstanding letters of credit or other similar obligations of approximately $8$3 million, all of which ~~$3 million~~ was collateralized by restricted cash.

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, 2021.

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Cash Flow Activities

The following table summarizes our consolidated cash flow activities:


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021	$ Change		2022		2021	$ Change
		(Dollars in millions)					(Dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	1,184	633	551	Net cash provided by operating activities	$	1,687	941	746
Net cash used in investing activities		$	(553)	(539)	14
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	$	1,832	(822)	2,654
Net cash used in financing activities	Net cash used in financing activities	$	(617)	(60)	557	Net cash used in financing activities	$	(3,577)	(67)	3,510

Operating Activities

Net cash provided by operating activities increased by ~~$551~~$746 million for the ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due payments on accounts payable - affiliate during the ~~six~~nine months ended ~~June~~September 30, 2021, as well as ~~higher collections on accounts receivable for the six months ended June 30, 2022.~~foreign currency adjustments. 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~~provided by (used in) investing activities increased by ~~$14 million~~$2.7 billion for the ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the ~~six~~nine months ended ~~June~~September 30, 2021. The ~~decrease~~increase was primarily due to ~~a decrease in~~pre-tax proceeds of $2.7 billion from the sale of ~~property, plant and equipment, which was slightly offset by a decrease in capital expenditures.~~the Latin American business.

Financing Activities

Net cash used in financing activities increased by ~~$557 million~~$3.5 billion for the ~~six~~nine months ended ~~June~~September 30, 2022, as compared to the ~~six~~nine months ended ~~June~~September 30, 2021 primarily due to an increase in distributions paid to our parent as well as due to the prior period repayment of accounts payable - affiliate, as discussed in Operating Activities above, and ~~a decrease~~an increase in ~~net proceeds from issuance of long-term debt. This was partially offset by a decrease in repayments~~payments 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 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.

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Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the Obama Administration. In November 2021, the U.S. Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants. As of the date of this report, various state and federal agencies are continuing to take steps ~~in anticipation of making grants~~to make this funding available to eligible applicants, ~~so it is~~including us. It remains premature to speculate on the potential impact of this legislation on 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 table presents summarized financial information specified in Rule 1-02(bb)(1) of Regulation S-X for the six months ended June 30, 2022:~~

Six Months Ended June 30, 2022
Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC
(Dollars in millions)
Operating revenue $ — — 2,101
Operating revenue - affiliates — — 120
Operating expenses — 1 1,965
Operating expenses - affiliates — — 256
Operating loss — (1) —
Net income (loss) 2,373 266 (2,738)

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

June 30, 2022
Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC
(Dollars in millions)
Advances to affiliates $ 25,980 30,695 247
Note receivable - affiliate 1,468 — —
Other current assets 2 — 478
Operating lease assets - affiliates — — 891
Other noncurrent assets 271 1,731 8,814
Accounts payable - affiliates 68 67 290
Current operating lease liabilities - affiliates — — 245
Due to affiliates — — 64,440
Other current liabilities 2 88 606
Non-current operating lease liabilities - affiliates — — 657
Other noncurrent liabilities 81 10,105 2,819

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

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Market Risk

At ~~June~~September 30, 2022, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations.

As of ~~June~~September 30, 2022, we had approximately ~~$10.1~~$7.9 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~~$2.4 billion of floating rate debt exposed to changes in the London InterBank Offered Rate ("LIBOR"). A hypothetical increase of 100 basis points in LIBOR relative to this debt would decrease our annual pre-tax earnings by ~~$31~~$24 million. Additionally, our credit agreements contain language about a possible change from LIBOR to an alternative index.

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.~~Euro. 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 ~~June~~September 30, 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).

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed by 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, Chris Stansbury, evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective, as of ~~June~~September 30, 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

~~There~~Other than the implementation of controls over accounting for the divestiture of our Latin American business and the calculation of the resulting gain therefrom, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the ~~second~~third quarter of 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 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 8 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, 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, 2021.

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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*2.1			~~Guaranteed Securities~~Put Option Agreement, dated as of November 2, 2022 by and among certain affiliate s of L evel 3 Parent, LLC . and Colt Technology Services Group Limited (incorporated by reference to Exhibit 2.1 to L evel 3 Parent, LLC's Current Report on Form 8-K filed with the SEC on November 2, 2022).
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 ~~June~~September 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language); (i) Consolidated Statements of Operations, (ii) Consolidated Statements Of Comprehensive (Loss) Income, (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 ~~August 4,~~November 3, 2022.


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

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