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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 30, 2022March 31, 2023
or
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)
Delaware47-0210602
(State of Incorporation)(I.R.S. Employer
Identification No.)
1025 Eldorado Blvd.,
Broomfield,CO80021-8869
(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 Although the registrant is no longer required to file reports under Section 13 or 15(d) of such Act, it has filed all such reports for the preceding 12 months.

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 filerAccelerated filer
Non-accelerated filerSmaller 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
* 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 healthCOVID-19 pandemic and economic challenges raised by the COVID-19 pandemicits aftermath 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 intense 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 generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt repayments and benefits payments;

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;

basis and to transition customers from our abilitylegacy products to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt repayments and distributions;newer offerings;

our ability to successfully and timely implement our corporate strategies, including our deleveraging strategy;and buildout strategies;

our ability to successfully and timely consummate the planned 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 and transform 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, debt covenant restrictions or otherwise;

the ability of us and our abilityaffiliates to meet the terms and conditions of our respective 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;

our ability to timely obtain necessary hardware, software, equipment, services, governmental permits and other items on favorable terms;

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;

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

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 disruptionsand its aftermath 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 March 31,
202220212022202120232022
(Dollars in millions)
OPERATING REVENUEOPERATING REVENUEOPERATING REVENUE
Operating revenueOperating revenue$1,896 1,929 $3,786 3,863 Operating revenue$1,727 1,890 
Operating revenue - affiliatesOperating revenue - affiliates57 56 113 111 Operating revenue - affiliates57 56 
Total operating revenueTotal operating revenue1,953 1,985 3,899 3,974 Total operating revenue1,784 1,946 
OPERATING EXPENSESOPERATING EXPENSESOPERATING 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)771 851 
Selling, general and administrativeSelling, general and administrative318 273 632 567 Selling, general and administrative286 314 
Loss on disposal group held for saleLoss on disposal group held for sale77 — 
Operating expenses - affiliatesOperating expenses - affiliates162 131 308 238 Operating expenses - affiliates168 146 
Depreciation and amortizationDepreciation and amortization405 436 801 873 Depreciation and amortization347 396 
Total operating expensesTotal operating expenses1,721 1,708 3,428 3,424 Total operating expenses1,649 1,707 
OPERATING INCOMEOPERATING INCOME232 277 471 550 OPERATING INCOME135 239 
OTHER (EXPENSE) INCOMEOTHER (EXPENSE) INCOMEOTHER (EXPENSE) INCOME
Interest income - affiliateInterest income - affiliate15 15 31 33 Interest income - affiliate16 16 
Interest expenseInterest expense(95)(89)(185)(182)Interest expense(93)(90)
Other (expense) income, net(14)(21)10 
Other income (expense), netOther income (expense), net(7)
Total other expense, netTotal other expense, net(94)(68)(175)(139)Total other expense, net(72)(81)
INCOME BEFORE INCOME TAXESINCOME BEFORE INCOME TAXES138 209 296 411 INCOME BEFORE INCOME TAXES63 158 
Income tax expenseIncome tax expense41 62 85 113 Income tax expense22 44 
NET INCOMENET INCOME$97 147 $211 298 NET INCOME$41 114 
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,
2022202120222021
(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 March 31,
20232022
NET INCOME$41 114 
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments, net of $(6) and $10 tax11 69 
Other comprehensive income, net of tax11 69 
COMPREHENSIVE INCOME$52 183 
See accompanying notes to consolidated financial statements.
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LEVEL 3 PARENT, LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 2022December 31, 2021March 31, 2023December 31, 2022
(Dollars in millions)(Dollars in millions)
ASSETSASSETSASSETS
CURRENT ASSETSCURRENT ASSETSCURRENT ASSETS
Cash and cash equivalentsCash and cash equivalents$154 146 Cash and cash equivalents$147 118 
Accounts receivable, less allowance of $37 and $39580 642 
Accounts receivable, less allowance of $19 and $19Accounts receivable, less allowance of $19 and $19527 517 
Note receivable - affiliateNote receivable - affiliate1,468 1,468 Note receivable - affiliate1,466 1,468 
Assets held for saleAssets held for sale2,865 2,708 Assets held for sale1,873 1,853 
OtherOther263 239 Other225 197 
Total current assetsTotal current assets5,330 5,203 Total current assets4,238 4,153 
Property, plant and equipment, net of accumulated depreciation of $3,547 and $3,2028,936 9,042 
Property, plant and equipment, net of accumulated depreciation of $3,180 and $2,875Property, plant and equipment, net of accumulated depreciation of $3,180 and $2,8757,372 7,303 
GOODWILL AND OTHER ASSETSGOODWILL AND OTHER ASSETSGOODWILL AND OTHER ASSETS
GoodwillGoodwill6,627 6,666 Goodwill1,970 1,970 
Other intangible assets, netOther intangible assets, net5,387 5,725 Other intangible assets, net4,825 4,973 
Other, netOther, net1,681 1,459 Other, net1,387 1,360 
Total goodwill and other assetsTotal goodwill and other assets13,695 13,850 Total goodwill and other assets8,182 8,303 
TOTAL ASSETSTOTAL ASSETS$27,961 28,095 TOTAL ASSETS$19,792 19,759 
LIABILITIES AND MEMBER'S EQUITYLIABILITIES AND MEMBER'S EQUITYLIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIESCURRENT LIABILITIESCURRENT LIABILITIES
Current maturities of long-term debtCurrent maturities of long-term debt$28 26 Current maturities of long-term debt$26 26 
Accounts payableAccounts payable428 381 Accounts payable434 365 
Accounts payable - affiliatesAccounts payable - affiliates77 18 Accounts payable - affiliates107 70 
Accrued expenses and other liabilitiesAccrued expenses and other liabilitiesAccrued expenses and other liabilities
Salaries and benefitsSalaries and benefits126 176 Salaries and benefits113 146 
Income and other taxesIncome and other taxes92 83 Income and other taxes75 86 
Current operating lease liabilitiesCurrent operating lease liabilities353 299 Current operating lease liabilities323 326 
OtherOther117 150 Other95 109 
Liabilities held for saleLiabilities held for sale479 435 Liabilities held for sale466 446 
Current portion of deferred revenueCurrent portion of deferred revenue298 291 Current portion of deferred revenue272 274 
Total current liabilitiesTotal current liabilities1,998 1,859 Total current liabilities1,911 1,848 
LONG-TERM DEBTLONG-TERM DEBT10,383 10,396 LONG-TERM DEBT8,963 8,070 
DEFERRED REVENUE AND OTHER LIABILITIESDEFERRED REVENUE AND OTHER LIABILITIESDEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenueDeferred revenue1,442 1,404 Deferred revenue1,471 1,420 
Operating lease liabilitiesOperating lease liabilities1,134 953 Operating lease liabilities879 922 
OtherOther452 474 Other702 701 
Total deferred revenue and other liabilitiesTotal deferred revenue and other liabilities3,028 2,831 Total deferred revenue and other liabilities3,052 3,043 
COMMITMENTS AND CONTINGENCIES (Note 8)COMMITMENTS AND CONTINGENCIES (Note 8)00COMMITMENTS AND CONTINGENCIES (Note 8)
MEMBER'S EQUITYMEMBER'S EQUITYMEMBER'S EQUITY
Member's equityMember's equity13,018 13,360 Member's equity6,199 7,142 
Accumulated other comprehensive lossAccumulated other comprehensive loss(466)(351)Accumulated other comprehensive loss(333)(344)
Total member's equityTotal member's equity12,552 13,009 Total member's equity5,866 6,798 
TOTAL LIABILITIES AND MEMBER'S EQUITYTOTAL LIABILITIES AND MEMBER'S EQUITY$27,961 28,095 TOTAL LIABILITIES AND MEMBER'S EQUITY$19,792 19,759 
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,Three Months Ended March 31,
2022202120232022
(Dollars in millions)(Dollars in millions)
OPERATING ACTIVITIESOPERATING ACTIVITIESOPERATING ACTIVITIES
Net incomeNet income$211 298 Net income$41 114 
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 amortizationDepreciation and amortization801 873 Depreciation and amortization347 396 
Loss on disposal group held for saleLoss on disposal group held for sale77 — 
Deferred income taxesDeferred income taxes54 92 Deferred income taxes19 29 
Changes in current assets and liabilities:Changes in current assets and liabilities:Changes in current assets and liabilities:
Accounts receivableAccounts receivable33 (26)Accounts receivable(15)84 
Accounts payableAccounts payable(29)(9)Accounts payable27 (28)
Other assets and liabilities, netOther assets and liabilities, net(113)(74)Other assets and liabilities, net(108)(121)
Other assets and liabilities, affiliateOther assets and liabilities, affiliate85 (499)Other assets and liabilities, affiliate42 (14)
Changes in other noncurrent assets and liabilities, netChanges in other noncurrent assets and liabilities, net64 13 Changes in other noncurrent assets and liabilities, net(30)40 
Other, netOther, net78 (35)Other, net(21)41 
Net cash provided by operating activitiesNet cash provided by operating activities1,184 633 Net cash provided by operating activities379 541 
INVESTING ACTIVITIESINVESTING ACTIVITIESINVESTING ACTIVITIES
Capital expendituresCapital expenditures(554)(591)Capital expenditures(244)(264)
Proceeds from sale of property, plant and equipment and other assetsProceeds from sale of property, plant and equipment and other assets52 Proceeds from sale of property, plant and equipment and other assets23 
Other, netOther, net(4)— 
Net cash used in investing activitiesNet cash used in investing activities(553)(539)Net cash used in investing activities(225)(263)
FINANCING ACTIVITIESFINANCING ACTIVITIESFINANCING ACTIVITIES
Net proceeds from issuance of long-term debt— 891 
DistributionsDistributions(553)(25)Distributions(110)(210)
Payments of long-term debtPayments of long-term debt(64)(925)Payments of long-term debt(8)(40)
OtherOther— (1)Other(11)— 
Net cash used in financing activitiesNet cash used in financing activities(617)(60)Net cash used in financing activities(129)(250)
Net increase in cash, cash equivalents and restricted cashNet increase in cash, cash equivalents and restricted cash14 34 Net increase in cash, cash equivalents and restricted cash25 28 
Cash, cash equivalents and restricted cash at beginning of periodCash, cash equivalents and restricted cash at beginning of period191 205 Cash, cash equivalents and restricted cash at beginning of period164 191 
Cash, cash equivalents and restricted cash at end of periodCash, cash equivalents and restricted cash at end of period$205 239 Cash, cash equivalents and restricted cash at end of period$189 219 
Supplemental cash flow information:Supplemental cash flow information:Supplemental cash flow information:
Income taxes paid, netIncome taxes paid, net$(23)(16)Income taxes paid, net$(1)(9)
Interest paid (net of capitalized interest of $8 and $8)$(182)(190)
Interest paid (net of capitalized interest of $5 and $4)Interest paid (net of capitalized interest of $5 and $4)$(114)(113)
Supplemental non-cash information regarding financing activities:Supplemental non-cash information regarding financing activities:
Issuance of senior secured notes as part of exchange offers (Note 6)Issuance of senior secured notes as part of exchange offers (Note 6)$915 — 
Cash, cash equivalents and restricted cash:Cash, cash equivalents and restricted cash:Cash, cash equivalents and restricted cash:
Cash and cash equivalentsCash and cash equivalents$154 233 Cash and cash equivalents$147 155 
Cash and cash equivalents included in assets held for sale48 — 
Cash and cash equivalents and restricted cash included in assets held for saleCash and cash equivalents and restricted cash included in assets held for sale40 58 
Restricted cash included in Other current assetsRestricted cash included in Other current assetsRestricted cash included in Other current assets— 
Restricted cash included in Other, net noncurrent assetsRestricted cash included in Other, net noncurrent assetsRestricted cash included in Other, net noncurrent assets
TotalTotal$205 239 Total$189 219 
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 March 31,
202220212022202120232022
(Dollars in millions)
MEMBER'S EQUITYMEMBER'S EQUITYMEMBER'S EQUITY
Balance at beginning of periodBalance at beginning of period$13,264 13,290 13,360 13,139 Balance at beginning of period$7,142 13,360 
Net incomeNet income97 147 211 298 Net income41 114 
DistributionsDistributions(343)(25)(553)(25)Distributions(1,025)(210)
OtherOther41 — 
Balance at end of periodBalance at end of period13,018 13,412 13,018 13,412 Balance at end of period6,199 13,264 
ACCUMULATED OTHER COMPREHENSIVE LOSS
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of periodBalance at beginning of period(282)(322)(351)(234)Balance at beginning of period(344)(351)
Other comprehensive (loss) income(184)80 (115)(8)
Other comprehensive incomeOther comprehensive income11 69 
Balance at end of periodBalance at end of period(466)(242)(466)(242)Balance at end of period(333)(282)
TOTAL MEMBER'S EQUITYTOTAL MEMBER'S EQUITY$12,552 13,170 $12,552 13,170 TOTAL MEMBER'S EQUITY$5,866 12,982 
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 and communications provider (that is,company focused on providing our customers with a provider that owns or leases a substantial portionbroad array of integrated products and services necessary to fully participate in our ever-evolving digital world. We operate one of the property, plantworld’s most interconnected networks. Our platform empowers our customers to swiftly adjust digital programs securely to meet immediate demands, create efficiencies, accelerate market access and equipment necessaryreduce costs - allowing customers to provide our services) of a broad range of integrated communications services. We created our communications network by constructing our own assetsrapidly evolve their IT programs to address dynamic changes. Our specific products 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.are detailed in Note 4—Revenue Recognition.

Basis of Presentation

Our consolidated balance sheet as of December 31, 2021,2022, 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 sixthree 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, 2021.2022.

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$369 million and $294$391 million as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Additionally, current operating lease liabilities included the current portion of affiliate operating lease liabilities of $112$127 million and $82$125 million as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and operating lease liabilities included the noncurrent portion of affiliate operating lease liabilities of $317$262 million and $224$286 million as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.

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

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, 2021.2022.

Recently Adopted Accounting Pronouncements

Supplier Finance Programs

On January 1, 2023, we adopted Accounting Standards Update (“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. Please refer Note 6—Long-Term Debt to for more information.

Credit Losses

On January 1, 2023, we adopted ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosures” (“ASU 2022-02”). The ASU eliminates the TDR recognition and measurement guidance, enhances existing disclosure requirements, and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The adoption of ASU 2022-02 did not have any impact to our consolidated financial statements.

Derivatives and Hedging

On January 1, 2023, we adopted 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. The adoption of ASU 2022-01 did not have any impact to our consolidated financial statements.

Business Combinations

On January 1, 2023, we adopted ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The adoption of ASU 2021-08 did not have any impact to our consolidated financial statements.

Government Assistance

On January 1, 2022, we adopted Accounting Standards Update ("ASU")ASU 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” (“ASU 2020-10”2021-10”). This ASU increases transparency in financial reporting by requiringrequires business entities to disclose information about certain types of government assistance they receive. The ASU only impacts annual financial statement note disclosures. Therefore, theThe 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;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 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 ASU removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU 2019-12 did not have a material impact to our consolidated financial statements.

Recently Issued Accounting Pronouncements

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

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Recently Issued Accounting Pronouncements

In March 2022,2023, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2022-01, “2023-02, Derivatives“Investments-Equity method and HedgingJoint Ventures (Topic 815)323): Fair Value Hedging-Portfolio Layer MethodAccounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”” (ASU 2022-01) (“ASU 2023-02”). TheThese amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. ASU expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method. ASU 2020-012023-02 will become effective for us in the first quarter of fiscal 20232024 and early adoption is permitted. As of June 30, 2022,March 31, 2023, we do not expect ASU 2022-012023-02 to have an impact to our consolidated financial statements.

In October 2021,March 2023, the FASB issued ASU 2021-08,2023-01,Business CombinationsLeases (Topic 805)842): Accounting for Contract Assets and Contract Liabilities from Contracts with CustomersCommon Control Arrangements” (“ASU 2021-08”2023-01”), which requires. These amendments require all entities to apply Topic 606amortize leasehold improvements associated with common control leases over the useful life to recognize and measure contract assets and contract liabilities in a business combination.the common control group. ASU 2021-082023-01 will become effective for us in the first quarter of fiscal 20232024 and early adoption is permitted. As of June 30, 2022,March 31, 2023, we do not expect ASU 2021-082023-01 to have an impact to our consolidated financial statements.

In January 2021,June 2022, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope"2022-03, ("“Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2021-01"2022-03”), which clarifies. These amendments clarify that certain optional expedients and exceptionsa contractual restriction on the sales of an investment 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 consequencesan equity security is not considered part of the scope clarificationunit of account of the equity security and, to tailortherefore, is not considered in measuring fair value. ASU 2022-03 will become effective for us in the existing guidance to derivative instruments affected by the discounting transition. These amendments may be applied prospectively to contract modifications madefirst quarter of fiscal 2024 and hedging relationships entered into or evaluated on or before Decemberearly adoption is permitted. As of March 31, 2022. ASU 2021-01 provides option guidance for a limited time to ease the potential burden in accounting for reference rate reform. Based on our review of our key material contracts through June 30, 2022,2023, we do not expect ASU 2021-012022-03 to have a materialan impact to our consolidated financial statements.

(2) Recently CompletedPlanned Divestiture of the Latin AmericanEMEA Business

On August 1,November 2, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., closedgranted an option to Colt Technology Services Group Limited, a portfolio company of Fidelity Investments, to purchase certain of their operations in Europe, the saleMiddle East and Africa (the "EMEA business"), in exchange for $1.8 billion in cash, subject to certain working capital and other purchase price adjustments. Following the completion of Lumen's Latin American business pursuant toa French consultative process, Colt exercised its option and on February 8, 2023, the parties entered into a definitive purchase agreement, dated July 25, 2021. See Note 11—Subsequent Eventswhich contains various customary covenants for additional information regardingtransactions of this divestiture.type including various indemnities. Level 3 Parent, LLC expects to close the transaction as early as late 2023, subject to receiving all requisite regulatory approvals in the U.S. and certain countries where the EMEA business operates, as well as the satisfaction of other customary conditions.

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

We do not believe this divestiture represents a strategic shift for Level 3.us. Therefore, the Latin Americanplanned divestiture of the EMEA business does not meet the criteria to be classified as a discontinued operation.operations. As a result, we will continue to report our operating results for the Latin AmericanEMEA business (the "disposal group") in our consolidated operating results throughuntil the disposal date. transaction is closed.

The pre-tax net income of the Latin American businessdisposal group is estimated to be and reported as follows in the table below:

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
(Dollars in millions)
Pre-tax net income$95 47 178 75 
Three Months Ended March 31,
20232022
(Dollars in millions)
EMEA business pre-tax net income (loss)$48 (19)

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As of June 30, 2022March 31, 2023 in the accompanying consolidated balance sheets,sheet, the assets and liabilities of our Latin AmericanEMEA business (the "disposal group") are classified as held for sale and are measured at the lower of (i) the carrying value ofwhen we classified the disposal group as held for sale and (ii) the fair value of the disposal group, less costs to sell. Effective with the designation of the disposal group as held for sale on July 25, 2021,November 2, 2022, we suspended recording depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets while these assets are classified as held for sale. We estimate that we would have recorded an additional $48 million and $97$71 million of depreciation, intangible amortization, and amortization of right-of useright-of-use assets for the three and six months ended June 30, 2022, respectivelyMarch 31, 2023 if the Latin AmericanEMEA business did not meet the held for sale criteria.

The classification of the EMEA business as held for sale was considered an event or change in circumstance which requires an assessment of the goodwill of the disposal group for impairment. We performed a pre-classification and post-classification goodwill impairment test of the disposal group as described further in Note 3—Goodwill, Customer Relationships and Other Intangible Assets, in our Annual Report on Form 10-K for the year ended December 31, 2022. As a result of our evaluationimpairment tests, we determined the EMEA business disposal group was impaired resulting in a non-cash, non-tax-deductible goodwill impairment charge of $224 million. We evaluated 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, and recorded an estimated loss on disposal of $616 million during the year ended December 31, 2022 in the consolidated statement of operations and a valuation allowance included in assets held for sale on the consolidated balance sheet. As a result of our evaluation of the recoverability of the carrying value of the EMEA assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, as of March 31, 2023, we did not record anyrecorded an additional $77 million estimated loss on disposal during the sixthree months endedJune 30, 2022. We re-evaluate March 31, 2023 and increased the recoverability ofvaluation allowance by the disposal group each reporting period throughsame amount. In future quarters, we will conduct similar evaluations and adjust the disposal date. For information onvaluation allowance for the August 1, 2022 disposal of the Latin American business, see Note 11—Subsequent Events.EMEA assets held for sale as necessary.

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

June 30, 2022December 31, 2021March 31, 2023December 31, 2022
(Dollars in millions)(Dollars in millions)
Assets held for saleAssets held for saleAssets held for sale
Cash and cash equivalentsCash and cash equivalents$48 39 Cash and cash equivalents$39 43 
Accounts receivable, less allowance of $2 and $394 83 
Accounts receivable, less allowance of $5 and $5Accounts receivable, less allowance of $5 and $584 76 
Other current assetsOther current assets79 81 Other current assets70 56 
Property, plant and equipment, net accumulated depreciation of $431 and $4341,714 1,591 
Goodwill (1)
720 713 
Property, plant and equipment, net accumulated depreciation of $1,012 and $998Property, plant and equipment, net accumulated depreciation of $1,012 and $9981,925 1,864 
Customer relationships and other intangibles, netCustomer relationships and other intangibles, net130 126 Customer relationships and other intangibles, net103 100 
Operating lease assetsOperating lease assets170 156 
Valuation allowance on assets held for sale (1)
Valuation allowance on assets held for sale (1)
(693)(616)
Deferred tax assetsDeferred tax assets141 131 
Other non-current assetsOther non-current assets80 75 Other non-current assets34 32 
Total assets held for saleTotal assets held for sale$2,865 2,708 Total assets held for sale$1,873 1,842 
Liabilities held for saleLiabilities held for saleLiabilities held for sale
Accounts payableAccounts payable$110 101 Accounts payable$74 78 
Salaries and benefitsSalaries and benefits21 23 Salaries and benefits13 23 
Income and other taxes37 27 
Current portion of deferred revenueCurrent portion of deferred revenue27 26 Current portion of deferred revenue37 28 
Current operating lease liabilitiesCurrent operating lease liabilities38 33 
Other current liabilitiesOther current liabilitiesOther current liabilities33 28 
Deferred income taxes, net149 129 
Other non-current liabilities128 122 
Deferred income taxesDeferred income taxes45 38 
Asset retirement obligationsAsset retirement obligations31 30 
Deferred revenue, non-currentDeferred revenue, non-current95 85 
Operating lease liabilities, non-currentOperating lease liabilities, non-current100 103 
Total liabilities held for saleTotal liabilities held for sale$479 435 Total liabilities held for sale$466 446 

(1)    The assignmentIncludes the impact of goodwill was based$340 million and $353 million as of March 31, 2023 and December 31, 2022, respectively, primarily related to loss on the relative fair valueforeign currency translation, expected to be reclassified out of accumulated other comprehensive loss upon close of the disposal group and the portion of the remaining reporting unit.sale.

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(3) Goodwill, Customer Relationships and Other Intangible Assets

Goodwill, customer relationships and other intangible assets consisted of the following:
June 30, 2022December 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 $349401 378 
Trade names, less accumulated amortization of $122 and $10922 
Total other intangible assets, net$5,387 5,725 
March 31, 2023(1)
December 31, 2022(1)
(Dollars in millions)
Goodwill$1,970 1,970 
Customer relationships, less accumulated amortization of $3,423 and $3,265$4,405 4,563 
Capitalized software, less accumulated amortization of $365 and $387420 410 
Trade names, less accumulated amortization of $— and $130 (2)
— — 
Total other intangible assets, net$4,825 4,973 

(1)These values exclude assets classified as held for sale.
(2)Trade names with a gross carrying value of $130 million became fully amortized during 2022 and were retired during the first quarter of 2023.

Our goodwill was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired. As of both March 31, 2023 and December 31, 2022, our total goodwill was $2.0 billion. Total goodwill as of both March 31, 2023 and December 31, 2022 was net of accumulated impairment losses of $8.2 billion.

We are required to 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 1our operations consist of one reporting unit.

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The following table shows the rollforward of goodwill from December 31, 2021 through June 30, 2022:
(Dollars in millions)
As of December 31, 2021 (1)
$6,666 
Effect of foreign currency exchange rate changes(39)
As of June 30, 2022 (1)
$6,627 

(1)Goodwill at June 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 30,March 31, 2023 and 2022 and 2021 totaled $186$176 million and $216 million, respectively, and for the six months ended June 30, 2022 and 2021, totaled $378 million and $427$192 million, respectively. As of June 30, 2022,March 31, 2023, the gross carrying amount of goodwill, customer relationships, capitalized software, indefinite-life and other intangible assets was $15.6$10.6 billion.

We estimate that total amortization expense for intangible assets for the years ending December 31, 20222023 through 20262027 will be as provided in the table below. As a result of reclassifyingclassifying our Latin AmericanEMEA business as being held for sale on our June 30, 2022March 31, 2023 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 CompletedPlanned Divestiture of the Latin AmericanEMEA Business for more information.
(Dollars in millions)
2022 (remaining six months)$367 
2023716 
2024712 
2025687 
2026643 

(Dollars in millions)
2023 (remaining nine months)$513 
2024680 
2025660 
2026648 
2027602 

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(4) Revenue Recognition

We categorize our products and services and related revenue among the following categories:
Compute and Application ServicesGrow, which includeincludes products and services that we anticipate will grow, including our colocation, dark fiber, Edge Cloud services, IT solutions,IP, managed security, software-defined wide area networks ("SD WAN"), secure access service edge ("SASE"), Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and managed securitywavelengths services;
IP and Data ServicesNurture, which include Ethernet, IP,includes our more mature offerings, including ethernet and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;network services;
Fiber Infrastructure Services,which include dark fiber, optical services and equipment;
Voice and OtherHarvest, which includeincludes our legacy services managed for cash flow, including Time Division Multiplexing ("TDM") voice, private line and other legacy services;
Other,which includes equipment, IT solutions and other services; and
Affiliate Services, which include communications services provided to our affiliates that we also provide to our external customers.
15From time to time, we may change the categorization of our products and services.


Disaggregated Revenue by Service Offering

The following table provides disaggregation of revenue from contracts with customers based on service offering for the sixthree months ended June 30, 2022March 31, 2023 and 2021.2022. 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, 2022Three Months Ended June 30, 2021
Total Revenue
Adjustments for Non-ASC 606 Revenue(1)
Total Revenue from Contracts with CustomersTotal 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 Services883 — 883 888 — 888 
Fiber Infrastructure Services403 (57)346 401 (55)346 
Voice and Other327 (4)323 357 (3)354 
Affiliate Services57 (57)— 56 (56)— 
Total revenue$1,953 (244)1,709 1,985 (241)1,744 
standards. The amounts in the tables below include revenue for the Latin American business prior to it being sold on August 1, 2022. See Note 2—Completed Divestiture of the Latin American Business and Planned Divestiture of European, Middle Eastern and African Business in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on these divestitures.

Six Months Ended June 30, 2022Six Months Ended June 30, 2021
Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with CustomersTotal Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Compute and Application Services$560 (254)306 563 (254)309 
IP and Data Services1,769 — 1,769 1,769 — 1,769 
Fiber Infrastructure Services794 (111)683 798 (108)690 
Voice and Other663 (8)655 733 (5)728 
Affiliate Services113 (113)— 111 (111)— 
Total revenue$3,899 (486)3,413 3,974 (478)3,496 
Three Months Ended March 31, 2023Three Months Ended March 31, 2022
Total Revenue
Adjustments for Non-ASC 606 Revenue(1)
Total Revenue from Contracts with CustomersTotal Revenue
Adjustments for Non-ASC 606 Revenue(1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Grow$973 (162)811 1,024 (182)842 
Nurture439 (3)436 503 (4)499 
Harvest290 — 290 336 — 336 
Other25 — 25 27 — 27 
Affiliate Services57 (57)— 56 (56)— 
Total revenue$1,784 (222)1,562 1,946 (242)1,704 

(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 revenueincome are included in operating revenue in our consolidated statements of operations.

For the three months ended June 30,March 31, 2023 and 2022, and 2021, our gross rental income was $203$181 million and $202 million, which represents approximately 10% of our operating revenue for both periods. For the six months ended June 30, 2022 and 2021, our gross rental income was $406 million and $399$203 million, which represents approximately 10% of our operating revenue for both periods.
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Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts reclassifiedclassified as held for sale as of June 30, 2022March 31, 2023 and December 31, 2021:2022:
June 30, 2022December 31, 2021March 31, 2023December 31, 2022
(Dollars in millions)(Dollars in millions)
Customer receivables (1)
Customer receivables (1)
$577 640 
Customer receivables (1)
$525 515 
Contract assets (2)
Contract assets (2)
33 35 
Contract assets (2)
11 13 
Contract liabilities (3)
Contract liabilities (3)
254 247 
Contract liabilities (3)
230 222 

(1)Reflects gross customer receivables of $614$544 million and $679$534 million, net of allowance for credit losses of $37 million and $39$19 million, at June 30, 2022both March 31, 2023 and December 31, 2021, respectively.2022. As of June 30, 2022March 31, 2023 and December 31, 2021, these amounts exclude2022, this amount excludes customer receivables reclassifiedclassified as held for sale of $94$84 million and $83$76 million, respectively.
(2)As of June 30, 2022March 31, 2023 and December 31, 2021, no amounts have been reclassified2022, amount excludes contract assets classified as held for sale.sale of $13 million and $16 million, respectively.
(3)As of June 30, 2022March 31, 2023 and December 31, 2021, amounts exclude2022, amount excludes contract liabilities reclassifiedclassified as held for sale of $59$57 million and $58$59 million, respectively.

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 months ended June 30,March 31, 2023, we recognized $79 million of revenue that was included in contract liabilities of $281 million as of January 1, 2023, including contract liabilities that were classified as held for sale. During the three months ended March 31, 2022, we recognized $23$85 million and $108 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 months ended June 30, 2021, we recognized $28 million and $121 million, respectively, of revenue that was included in contract liabilities of $385 million as of January 1, 2021.

Performance Obligations

As of June 30, 2022,March 31, 2023, we expect to recognize approximately $3.7$4.1 billion of revenue in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied. We expectAs of March 31, 2023, the transaction price related to recognize approximately 84%unsatisfied performance obligations that are expected to be recognized for the remainder of this revenue through2023, 2024 with the balance recognized thereafter.and thereafter was $1.5 billion, $1.3 billion and $1.3 billion, respectively.

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.planned divestiture of the EMEA business.

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Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:
Three Months Ended June 30, 2022Three Months Ended June 30, 2021Three Months Ended
March 31, 2023
Three Months Ended
March 31, 2022
Acquisition Costs
Fulfillment Costs (1)
Acquisition CostsFulfillment CostsAcquisition CostsFulfillment CostsAcquisition CostsFulfillment Costs
(Dollars in millions)(Dollars in millions)
Beginning of period balance(1)Beginning of period balance(1)$77 100 75 123 Beginning of period balance(1)$76 106 76 99 
Costs incurredCosts incurred14 22 15 23 Costs incurred17 23 15 21 
AmortizationAmortization(13)(20)(15)(22)Amortization(15)(16)(14)(20)
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)
(4)(14)— — 
End of period balance(2)End of period balance(2)$78 101 75 124 End of period balance(2)$74 99 77 100 

Six Months Ended
June 30, 2022
Six Months Ended
June 30, 2021
Acquisition Costs
Fulfillment Costs (1)
Acquisition CostsFulfillment Costs
(Dollars in millions)
Beginning of period balance$76 99 78 122 
Costs incurred29 43 29 46 
Amortization(27)(40)(32)(44)
Change in contract costs held for sale (1)
— (1)— — 
End of period balance$78 101 75 124 

(1)The beginningBeginning of period balance for both the three and six months ended June 30, 2022 excludedMarch 31, 2023 excludes $6 million of acquisition costs and no fulfillment costs reclassifiedclassified as held for sale related to the EMEA business. Beginning of period balance for the three months ended March 31, 2022 excludes no acquisition costs and $27 million respectively. The ending balance for June 30, 2022 excluded fulfillment costs reclassifiedclassified as held for sale related to the Latin American business.
(2)End of $28 million.period balance for the three months ended March 31, 2023 excludes $10 million of acquisition costs and $14 million fulfillment costs classified as held for sale related to the EMEA business. End of period balance for the three months ended March 31, 2022 excludes no acquisition costs and $27 million of fulfillment costs classified as held for sale related to the Latin American business.

Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of 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 3435 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 annuala quarterly basis.

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(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 themonitor 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.

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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 theour 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, 20212022(1)
$3919 
Provision for expected losses74 
Write-offs charged against the allowance(12)(5)
Recoveries collected21 
Change in allowance in assets held for sale Ending balance at March 31, 2023(1)
Ending balance at June 30, 2022$3719 

(1)As of June 30, 2022March 31, 2023 and December 31, 2021, amount excludes2022, amounts exclude allowance for credit losses classified as held for sale of $2 million and $3$5 million, respectively. See Note 2—Recently CompletedPlanned Divestiture of the Latin AmericanEMEA Business.

19


(6) Long-Term Debt

The following charttable 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, 2022December 31, 2021
Interest Rates (1)
Maturities (1)
March 31, 2023December 31, 2022
(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 notesSenior notes3.400% - 3.875%2027 - 2029$1,500 1,500 Senior notes3.400% - 10.500%2027 - 2030$2,415 1,500 
Tranche B 2027 Term Loan (3)
Tranche B 2027 Term Loan (3)
LIBOR + 1.75%20273,111 3,111 
Tranche B 2027 Term Loan (3)
LIBOR + 1.75%20272,411 2,411 
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 - 20295,515 5,515 
Senior notes (4)
3.625% - 4.625%2027 - 20293,940 3,940 
Finance leases and other obligationsFinance leases and other obligationsVariousVarious308 319 Finance leases and other obligationsVariousVarious278 291 
Unamortized premiums, netUnamortized premiums, net30 34 Unamortized premiums, net
Unamortized debt issuance costsUnamortized debt issuance costs(53)(57)Unamortized debt issuance costs(58)(49)
Total long-term debtTotal long-term debt10,411 10,422 Total long-term debt8,989 8,096 
Less current maturitiesLess current maturities(28)(26)Less current maturities(26)(26)
Long-term debt, excluding current maturitiesLong-term debt, excluding current maturities$10,383 10,396 Long-term debt, excluding current maturities$8,963 8,070 

(1)As of June 30, 2022.March 31, 2023.
(2)See Note 7—Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, 20212022 for a description of certain parent or subsidiaryaffiliate guarantees and liens securing this debt.
(3)The Tranche B 2027 Term Loan had an interest rate of 3.416%6.672% and 1.854%6.134% as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
(4)This debt is fully and unconditionally guaranteedSee Note 7—Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, 2022 for a description of guarantees provided by certain affiliates of Level 3 Financing, Inc., including Level 3 Parent, LLC and Level 3 Communications, LLC
20

.

Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of June 30, 2022March 31, 2023 (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 
202327 
2023 (remaining nine months)2023 (remaining nine months)$19 
2024202432 202430 
20252025838 202537 
20262026811 202635 
2027 and thereafter8,709 
202720274,180 
2028 and thereafter2028 and thereafter4,743 
Total long-term debtTotal long-term debt$10,434 Total long-term debt$9,044 
20New Issuances


Pursuant to exchange offers commenced on March 16, 2023 (the “Exchange Offers”), on March 31, 2023, Level 3 Financing, Inc. issued $915 million of its 10.500% Senior Secured Notes due 2030 (the “Initial Notes”) in exchange for $1.535 billion of Lumen’s outstanding senior unsecured notes. The transaction resulted in a distribution of the senior unsecured notes to Lumen, at which point they were concurrently cancelled.

Supplier Finance Program

Pursuant to our purchase of network equipment under a supplier finance program implemented in 2021 with one of our key equipment vendors, we are obligated to make quarterly installment payments over a 5-year period and pay annual interest of 1.25% on unpaid balances. The first unsecured quarterly payment was due April 27, 2022, with remaining quarterly payments due through the end of the term on July 1, 2026. The supplier also agreed to certain milestone performance and other provisions that could result in us earning credits to be applied by us towards future equipment purchases. As of March 31, 2023 and December 31, 2022, we had not earned any such credits and our outstanding obligations under the plan were $65 million and $67 million, respectively, of which $13 million and $12 million were included in current maturities of long-term debt and the remaining balances were included in the long-term debt.

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 30, 2022,March 31, 2023, we believe we were in compliance with the provisions and financial covenants contained in our debt agreements in all material respects.

21


Subsequent Event

On April 17, 2023, in connection with the Exchange Offers, Level 3 Financing, Inc. issued an additional $9 million of its 10.500% Senior Secured Notes due 2030 in exchange for $19 million aggregate principal amount of Lumen’s senior unsecured notes.

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

The following table presents the carrying amounts and estimated fair values of our financial liabilities as of June 30, 2022March 31, 2023 and December 31, 2021,2022, as well as the input level used to determine the fair values indicated below:
June 30, 2022December 31, 2021
Input LevelCarrying AmountFair ValueCarrying AmountFair Value
(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases2$10,103 8,867 10,103 10,090 
March 31, 2023December 31, 2022
Input LevelCarrying AmountFair ValueCarrying AmountFair Value
(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases2$8,711 6,159 7,805 6,581 
Indemnifications related to the sale of the Latin American business386 86 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
22


Table of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. Contents

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. AmountsSubject to these limitations, at March 31, 2023, we had accrued $38 million in the aggregate for our litigation and non-income tax contingencies at June 30, 2022 aggregated to approximately $44 million and arewhich is included in other current liabilities, other liabilities, or liabilities held for sale inon our consolidated balance sheet as of such date. We cannot at this time estimate the reasonably possible loss or range of loss in excess of this $38 million accrual due to the inherent uncertainties and speculative nature of contested proceedings. 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 ActLatin 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 inconnection with the US District Courtrecent 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") issuedlitigation and Brazilian tax assessments against 1 ofclaims described in our Peruvian subsidiaries asserting $26 million of additional income tax withholding and value-added taxes ("VAT"), penalties and interestprior 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 Companyamounts 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 decisionrespect to the first judicial level, which decidedBrazilian tax claims. The value of this indemnification is included in the central issueindemnification amount as disclosed in favorNote 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.

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, 2021.2022. 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 sixthree months ended June 30, 2022:March 31, 2023:
Pension PlansForeign Currency Translation Adjustment and OtherTotal
(Dollars in millions)
Balance at December 31, 2021$(354)(351)
Other comprehensive loss, net of tax— (115)(115)
Net other comprehensive loss— (115)(115)
Balance at June 30, 2022$(469)(466)
Pension PlansForeign Currency Translation Adjustment and OtherTotal
(Dollars in millions)
Balance at December 31, 2022$21 (365)(344)
Other comprehensive income, net of tax— 11 11 
Net other comprehensive income— 11 11 
Balance at March 31, 2023$21 (354)(333)

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the sixthree months ended June 30, 2021:March 31, 2022:
Pension PlansForeign Currency Translation Adjustment and OtherTotal
(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 PlansForeign Currency Translation Adjustment and OtherTotal
(Dollars in millions)
Balance at December 31, 2021$(354)(351)
Other comprehensive income, net of tax— 69 69 
Net other comprehensive income— 69 69 
Balance at March 31, 2022$(285)(282)

(10) Other Financial Information

Other Current Assets

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

June 30, 2022December 31, 2021March 31, 2023December 31, 2022
(Dollars in millions)(Dollars in millions)
Prepaid expensesPrepaid expenses$132 109 Prepaid expenses$125 99 
Contract fulfillment costsContract fulfillment costs49 48 Contract fulfillment costs46 44 
Contract acquisition costsContract acquisition costs46 45 Contract acquisition costs43 42 
Contract assetsContract assets26 28 Contract assets10 
OtherOther10 Other
Total other current assets(1)Total other current assets(1)$263 239 Total other current assets(1)$225 197 
_______________________________________________________________________________
(1)AsExcludes $70 million and $56 million of June 30, 2022other current assets related to EMEA business that were classified as held for sale as of March 31, 2023 and December 31, 2021, other current assets excludes $79 million and $81 million respectively, that have been reclassified as held for sale.2022, respectively.

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(11) Subsequent Events

Divestiture of the Latin American Business

On August 1, 2022, we completed the sale of our Latin American business to an affiliate of a fund advised by Stonepeak Partners LP in exchange for cash proceeds of approximately $2.7 billion subject to certain post-closing adjustments. We expect to recognize a gain on the transaction 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 and certain long-term agreements under which Lumen and the purchaser will provide to each other various network and other commercial services.

Distributions to Parent

As of the date 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 and 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.

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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 for factors relating to these statements 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 risk factors that could cause our actual resultsapplicable 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, 2021,2022, 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 sixthree 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,Pending Divestiture of our European, Middle Eastern and African Business

Under agreements entered into on November 2, 2022 and February 8, 2023, affiliates of Level 3 Parent, LLC sold our Latin American businesshave agreed to an affiliatedivest certain operations in EMEA to Colt Technology Services Group Limited, a portfolio company of a fund advised by Stonepeak Partners LPFidelity Investments, in exchange for $1.8 billion in cash, proceeds of approximately $2.7 billion, subject to certain post-closing adjustments. See Note 11—Subsequent Events for additional details.We expect to close the transaction as early as late 2023, following receipt of all requisite regulatory approvals in the U.S. and certain countries where the EMEA business operates, as well as the satisfaction of other customary conditions. The actual amount of our net after-tax proceeds from this divestiture could vary substantially from the amounts we currently estimate, particularly if we experience delays in completing the transaction or any of our other assumptions prove to be incorrect.

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 safetySocietal, governmental, and economic challengesmacroeconomic changes 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 the pandemic have impacted us, our customers and our business in several ways since March 2020. Beginning in the second half of 2020 and continuing into 2023, we rationalized our leased footprint and ceased using 13 leased property locations that were underutilized. In conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and expect to incur additional accelerated lease costs in future periods. Additionally, as discussed in further detail in our prior reports,elsewhere herein, 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 inflation and, to a lesser extent, shortages of certain components and other supplies that we use in our business, and (iv)(iii) delays in our cost transformation initiatives. We also experiencedinitiatives, and (iv) delayed decision-making by certain of our customers during 2021. Thus far,customers. None of these changeseffects, individually or in the aggregate, have notto date 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.

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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If any of the above-listed factors intensify, our financial results could be materially impacted in a variety of ways, including by increasing our expenses, decreasing our revenues, further delaying our network expansion plans or otherwise interfering with our ability to deliver products and services. For additional information on the impacts of the pandemic and the macroeconomic changes arising therefrom, see (i) the remainder of this item, including "—Liquidity and Capital Resources—Overview" and (ii) Item 1A of this report.

Products, Services and Revenue

We categorize our products and services and related revenue among the following categories:
Compute and Application ServicesGrow, which includeincludes products and services that we anticipate will grow, including our colocation, dark fiber, Edge Cloud services, IT solutions,IP, managed security, software-defined wide area networks ("SD WAN"), secure access service edge ("SASE"), Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and managed securitywavelengths services;
IP and Data ServicesNurture, which include Ethernet, IP,includes our more mature offerings, including ethernet and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;network services;
Fiber Infrastructure Services,which include dark fiber, optical services and equipment;
Voice and OtherHarvest, which includeincludes our legacy services managed for cash flow, including Time Division Multiplexing ("TDM") voice, private line and other legacy services;
Other,which includes equipment, IT solutions and other 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 months ended June 30, 2022March 31, 2023 and June 30, 2021:March 31, 2022:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
202220212022202120232022
(Dollars in millions)
Operating revenueOperating revenue$1,953 1,985 3,899 3,974 Operating revenue$1,784 1,946 
Operating expensesOperating expenses1,721 1,708 3,428 3,424 Operating expenses1,649 1,707 
Operating incomeOperating income232 277 471 550 Operating income135 239 
Other expense, netOther expense, net(94)(68)(175)(139)Other expense, net(72)(81)
Income before income taxesIncome before income taxes138 209 296 411 Income before income taxes63 158 
Income tax expenseIncome tax expense41 62 85 113 Income tax expense22 44 
Net incomeNet income$97 147 211 298 Net income$41 114 

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 30, 2022.March 31, 2023.

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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,
20222021% Change
(Dollars in millions)
Compute and Application Services$283 283 — %
IP and Data Services883 888 (1)%
Fiber Infrastructure Services403 401 — %
Voice and Other327 357 (8)%
Affiliate Services57 56 %
Total operating revenue$1,953 1,985 (2)%

Six Months Ended June 30,
20222021% Change
(Dollars in millions)
Compute and Application Services$560 563 (1)%
IP and Data Services1,769 1,769 — %
Fiber Infrastructure Services794 798 (1)%
Voice and Other663 733 (10)%
Affiliate Services113 111 %
Total operating revenue$3,899 3,974 (2)%
Three Months Ended March 31,
20232022% Change
(Dollars in millions)
Grow$973 1,024 (5)%
Nurture439 503 (13)%
Harvest290 336 (14)%
Other25 27 (7)%
Affiliate Services57 56 %
Total operating revenue$1,784 1,946 (8)%

Our total operating revenue decreased by $32$162 million and $75 million, respectively, for the three and six months ended June 30, 2022,March 31, 2023, as compared to the three and six months ended June 30, 2021March 31, 2022. Approximately $178 million of the decrease was due to the sale of the Latin American business in the second half of 2022. More specifically, within each revenue category:

Grow decreased by $51 million for the three months ended March 31, 2023 compared to March 31, 2022 due to a decrease of approximately $129 million associated with the sale of the Latin American business. This decline was partially offset by growth in most products, primarily due to decreasesan increase of $78 million in products such as IP, dark fiber, wavelengths and colocation;

Nurture decreased by $64 million for the three months ended March 31, 2023 compared to March 31, 2022. Approximately $43 million of the decrease was attributable to the sale of the Latin American business. The remainder of the decline is principally attributable to a decline in Ethernet services of $20 million;

Harvest decreased by $46 million for the three months ended March 31, 2023 compared to March 31, 2022. Approximately $6 million of the decrease was attributable to the sale of the Latin American business. The remainder of the decline is principally attributable to a $39 million decline in legacy voice services;

Other decreased for the three months ended March 31, 2023 compared to March 31, 2022 primarily due to a decrease in IT Solutions, Ethernet services, VPN data networks, voice and private line and ready access revenue, which were partially offset growth in IP, cloud services, wavelengths and managed securitysolutions revenue.

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Operating Expenses

The following table summarizes our consolidated operating expenses:

Three Months Ended June 30,Three Months Ended March 31,
20222021% Change20232022% 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)$771 851 (9)%
Selling, general and administrativeSelling, general and administrative318 273 16 %Selling, general and administrative286 314 (9)%
Loss on disposal group held for saleLoss on disposal group held for sale77 — nm
Operating expenses - affiliatesOperating expenses - affiliates162 131 24 %Operating expenses - affiliates168 146 15 %
Depreciation and amortizationDepreciation and amortization405 436 (7)%Depreciation and amortization347 396 (12)%
Total operating expensesTotal operating expenses$1,721 1,708 %Total operating expenses$1,649 1,707 (3)%


Six Months Ended June 30,
20222021% Change
(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)$1,687 1,746 (3)%
Selling, general and administrative632 567 11 %
Operating expenses - affiliates308 238 29 %
Depreciation and amortization801 873 (8)%
Total operating expenses$3,428 3,424 — %
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$80 million and $59 million, respectively, for the three and six months ended June 30, 2022,March 31, 2023, as compared to the three and six months ended June 30, 2021,March 31, 2022, primarily due to an $88 million decrease associated with the sale of the Latin American business in the second half of 2022, as well as a $12 million decrease in network expenses. These decreases were partially offset by an increase of $18 million in facility costs and lower real estate and powerfacilities costs.

Selling, General and Administrative

Selling, general and administrative increaseddecreased by $45$28 million and $65 million, respectively, for the three and six months ended June 30, 2022,March 31, 2023 as compared to the three and six months ended June 30, 2021March 31, 2022 primarily due to higher employee related expensesa $34 million decrease associated with the sale of our Latin American business in both the three and six months ended June 30,second half of 2022, as well as a $13 million decrease associated with a gain on the sale of assetsproperty. These decreases were partially offset by an increase of $16 million in employee related expenses.

Loss on Disposal Group Held for Sale

For a discussion of the sixloss on the disposal group held for sale that we recognized for the three months ended June 30, 2021.March 31, 2023, see Note 2—Planned Divestiture of the EMEA Business.

Operating Expenses - Affiliates

Operating expenses - affiliates increased by $31$22 million and $70 million, respectively, for the three and six months ended June 30, 2022,March 31, 2023, as compared to the three and six months ended June 30, 2021,March 31, 2022, primarily due to higher employee related affiliate lease expense for circuitsexpenses and colocation facilities.a decrease in expenses we allocated to other affiliates.
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Depreciation and Amortization

The following table provides detail regarding depreciation and amortization expense:

Three Months Ended June 30,
20222021% Change
(Dollars in millions)
Depreciation$219 220 — %
Amortization186 216 (14)%
Total depreciation and amortization$405 436 (7)%

Six Months Ended June 30,Three Months Ended March 31,
20222021% Change20232022% Change
(Dollars in millions)(Dollars in millions)
DepreciationDepreciation$423 446 (5)%Depreciation$171 204 (16)%
AmortizationAmortization378 427 (11)%Amortization176 192 (8)%
Total depreciation and amortizationTotal depreciation and amortization$801 873 (8)%Total depreciation and amortization$347 396 (12)%

Depreciation expense decreased by $1$33 million and $23 million, respectively, for the three and six months ended June 30, 2022,March 31, 2023, as compared to the three and six months ended June 30, 2021March 31, 2022, primarily due to discontinuingthe discontinuation during the fourth quarter of 2022 of the depreciation of the tangible assets reclassified as held for sale of our Latin Americanplanned divestiture of our EMEA business, upon entering into our divestiture agreement. We estimate we would have recorded an additional $37resulting in a decrease of $45 million and $74 million, respectively, of depreciation expense during the three and six months ended June 30, 2022 if we had not agreedMarch 31, 2023 compared to sell this business.the three months ended March 31, 2022. This was partially offset by an increasehigher depreciation expense of $34$12 million and $52 million, respectively, resulting from theassociated with net growth in depreciable assets during the three and six months ended June 30, 2022.assets.

Amortization expense decreased by $30$16 million and $49 million, respectively, for the three and six months ended June 30, 2022,March 31, 2023, as compared to the three and six months ended June 30, 2021. For the three and six months ended June 30,March 31, 2022, amortization expense decreased by $14 million and $23 million, respectively, associated with the net reduction in amortizable assets and by $10 million and $20 million, respectively,primarily due to discontinuinga decrease of $8 million due to the discontinuation during the fourth quarter of 2022 of the amortization of the intangible assets reclassified as held for sale of our Latin Americanplanned divestiture of our EMEA business upon entering into our divestiture agreement.
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$6 million associated with net reductions in amortizable assets.

Other Consolidated Results

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

Three Months Ended June 30,
20222021% Change
(Dollars in millions)
Interest income - affiliate$15 15 — %
Interest expense(95)(89)%
Other (expense) income, net(14)nm
Total other expense, net$(94)(68)38 %
Income tax expense$41 62 (34)%

Six Months Ended June 30,Three Months Ended March 31,
20222021% Change20232022% Change
(Dollars in millions)(Dollars in millions)
Interest income - affiliateInterest income - affiliate$31 33 (6)%Interest income - affiliate$16 16 — %
Interest expenseInterest expense(185)(182)%Interest expense(93)(90)%
Other (expense) income, net(21)10 nm
Other expense, netOther expense, net(7)nm
Total other expense, netTotal other expense, net$(175)(139)26 %Total other expense, net$(72)(81)(11)%
Income tax expenseIncome tax expense$85 113 (25)%Income tax expense$22 44 (50)%

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 for the three months ended June 30, 2022 and decreased by $2 million for the six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021.

Interest Expense

Interest expense increased by $6 million and $3 million for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021. The increase was primarily due to an increase in average interest rates from (i) 3.53% to 3.82% for the three months ended June 30, 2022March 31, 2023, as compared to the three 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 30, 2021.

March 31, 2022.
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Interest Expense

Interest expense increased by $3 million for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022. The increase was due to an increase in average interest rates from 3.53% to 4.67% for the three months ended March 31, 2022 as compared to the three months ended March 31, 2023, which was offset by the decrease in average outstanding long-term debt from $10.4 billion to $8.6 billion for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

Other Income (Expense) Income,, Net

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

Three Months Ended June 30,% Change
20222021
(Dollars in millions)
Foreign currency (loss) gain(11)nm
Other(3)(2)50 %
Total other (expense) income, net$(14)nm

Six Months Ended June 30,% Change
20222021
(Dollars in millions)
Gain on extinguishment of debt$— 16 nm
Foreign currency gain(20)(3)nm
Other(1)(3)(67)%
Total other income, net$(21)10 nm

nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
Three Months Ended March 31,
20232022
(Dollars in millions)
Foreign currency gain (loss)$(9)
Other
Total other income (expense), net$(7)

Income Tax Expense

For both the three months ended June 30,March 31, 2023 and 2022, and 2021, our effective income tax rate was 29.7%. For the six months ended June 30, 202234.9% and 2021,27.8%, respectively. The increase in our effective income tax rate was 28.7% and 27.5%, respectively.

is primarily a result of the sale of the Latin American business in the second half of 2022.

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Liquidity and Capital Resources

Overview

As of June 30, 2022,March 31, 2023, we held cash and cash equivalents includingof $186 million, $39 million of which is classified as held for sale. We had approximately $76 million of cash and cash equivalents classified as held for sale, of $202 million, of which $94 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.

We are currently experiencing competitive, macroeconomic and financial pressures, such as operational challenges resulting from inflation, dis-synergies resulting from our 2022 divestiture and, to a lesser extent, shortages of certain components and other supplies that we use in our business. If these pressures continue, we may experience significant deterioration in our projected cash flows or market capitalization, or make significant changes to our assumptions of discount rates and market multiples. Any of these could result in a determination in a future quarter that our goodwill has been impaired.

Impact of Recently CompletedPlanned Divestiture of our Latin Americanthe EMEA Business

As discussed inDuring 2022, we agreed to divest our EMEA business subject to the receipt of various approvals and the satisfaction of other customary conditions. See Note 2—Recently CompletedPlanned Divestiture of the Latin American Business, we sold our Latin American business on August 1, 2022.EMEA Business. As further described elsewhere herein, this transactionin previous reports, these transactions have provided or are expected to provide 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 Instruments and Other Financing Arrangements

As of June 30, 2022,March 31, 2023, our long-term debt (including current maturities and finance leases) outstanding totaled $10.4$9.0 billion. See Note 6—Long-Term Debt.

Pursuant to exchange offers commenced on March 16, 2023 (the “Exchange Offers”), on March 31, 2023, Level 3 Financing, Inc. issued $915 million of its 10.500% Senior Secured Notes due 2030 (the “Initial Notes”) in exchange for $1.535 billion of Lumen’s outstanding senior unsecured notes. On April 17, 2023, in connection with the final settlement under the Exchange Offers, Level 3 Financing, Inc. issued an additional $9 million of its 10.500% Senior Secured Notes due 2030 in exchange for $19 million aggregate principal amount of Lumen’s senior unsecured notes. These transactions resulted in distributions of the senior unsecured notes to Lumen, at which point they were concurrently cancelled.

Subject to market conditions and to the extent permitted under applicable debt covenants, 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 filing date of this report, the credit ratings for the senior secured and unsecured debt of Level 3 Financing, Inc. were as follows:

BorrowerMoody's Investor Services, Inc.Standard & Poor'sFitch Ratings
Level 3 Financing, Inc.
UnsecuredBa3B1BBBBBB+
SecuredBa1Ba2BBB-BB-BBB-BB

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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.us or our subsidiaries could impact our access to debt capital or adjustborrowing costs. With the recent downgrades of our borrowing costs.credit ratings, we may find it more difficult to borrow on favorable terms, or at all. 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, 2021.2022.

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 aggregate interest costs, improve our financial flexibility or otherwise enhance our debt profile. We plan to continue to pursue similar transactions in the future to the extent feasible. Whether and when we implement any additional such transactions depends on a wide variety of factors, including without limitation market conditions, our upcoming debt maturities, our cash requirements and limitations under our debt covenants. There is no guarantee that we will be successful in implementing any such transactions or attaining our stated objectives. We may not disclose these transactions in advance, unless required by applicable law or material in nature or amount. See Note 6—Long-Term Debt for additional information about our long-term debt.information.

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 30, 2022,March 31, 2023, we had outstanding letters of credit or other similar obligations of approximately $8$3 million, all of which $3 million waswere 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, 2021.2022.

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Cash Flow Activities

The following table summarizes our consolidated cash flow activities:
Six Months Ended June 30,Three Months Ended March 31,
20222021$ Change20232022$ Change
(Dollars in millions)(Dollars in millions)
Net cash provided by operating activitiesNet cash provided by operating activities$1,184 633 551 Net cash provided by operating activities$379 541 (162)
Net cash used in investing activitiesNet cash used in investing activities$(553)(539)14 Net cash used in investing activities(225)(263)(38)
Net cash used in financing activitiesNet cash used in financing activities$(617)(60)557 Net cash used in financing activities(129)(250)(121)

Operating Activities

Net cash provided by operating activities increaseddecreased by $551$162 million for the sixthree months ended June 30, 2022,March 31, 2023, as compared to the sixthree months ended June 30, 2021,March 31, 2022, primarily due payments onto lower net income adjusted for non-cash expenses and income and an increase in accounts payable - affiliate during the six months ended June 30, 2021, as well as higher collections on accounts receivable for the six months ended June 30, 2022.receivable. Cash provided by operating activities is subject to variability period over period as a result of timing, including the collection of receivables and payments of interest, accounts payable and bonuses.

Investing Activities

Net cash used in investing activities increaseddecreased by $14$38 million for the sixthree months ended June 30, 2022,March 31, 2023, as compared to the sixthree months ended June 30, 2021.March 31, 2022. The decrease was primarily due to a decrease in capital expenditures as well as an increase in proceeds from the sale of property, plant and equipment, which was slightly offset by a decrease in capital expenditures.equipment.

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Financing Activities

Net cash used in financing activities increaseddecreased by $557$121 million for the sixthree months ended June 30, 2022,March 31, 2023, as compared to the sixthree months ended June 30, 2021March 31, 2022 primarily due to an increasea decrease in distributions paid to our parent and a decrease in net proceeds from issuance of long-term debt. This was partially offset by a decrease in repayments of long-term debt.debt repayments.

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.

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 grantsto make this funding available to eligible applicants, so it isincluding 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, LLCLevel 3 Financing, Inc.Level 3 Communications, LLC
(Dollars in millions)
Operating revenue$— — 2,101 
Operating revenue - affiliates— — 120 
Operating expenses— 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, LLCLevel 3 Financing, Inc.Level 3 Communications, LLC
(Dollars in millions)
Advances to affiliates$25,980 30,695 247 
Note receivable - affiliate1,468 — — 
Other current assets— 478 
Operating lease assets - affiliates— — 891 
Other noncurrent assets271 1,731 8,814 
Accounts payable - affiliates68 67 290 
Current operating lease liabilities - affiliates— — 245 
Due to affiliates— — 64,440 
Other current liabilities88 606 
Non-current operating lease liabilities - affiliates— — 657 
Other noncurrent liabilities81 10,105 2,819 

December 31, 2021
Level 3 Parent, LLCLevel 3 Financing, Inc.Level 3 Communications, LLC
(Dollars in millions)
Advances to affiliates$24,161 30,473 174 
Note receivable - affiliate1,468 — — 
Other current assets— 509 
Operating lease assets - affiliates— — 737 
Other noncurrent assets271 1,687 8,701 
Accounts payable - affiliates73 64 174 
Current operating lease liabilities - affiliates— — 189 
Due to affiliates— — 61,657 
Other current liabilities89 747 
Non-current operating lease liabilities - affiliates— — 560 
Other noncurrent liabilities88 10,106 2,872 


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Market Risk

At June 30, 2022,March 31, 2023, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations.

As of June 30, 2022,March 31, 2023, we had approximately $10.1$8.8 billion (excluding unamortized premiums, net, unamortized debt issuance costs and finance leases) of long-term debt outstanding, 69%72% 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 $31approximately $24 million. Additionally, ourOur credit agreements contain language about a possible change from LIBOR to an alternative index. Additionally, we executed an amendment in March 2023 to change the reference rate in our credit agreement to SOFR from LIBOR.

By operating internationally, weWe conduct a portion of our business in currencies other than the U.S. dollar, the currency in which our consolidated financial statements are exposedreported. Our European subsidiaries use, and prior to the riskAugust 1, 2022 divestiture of our Latin American business, certain of our former Latin American subsidiaries used the local currency as their functional currency, as the majority of their sales and purchases are or were transacted in their local currencies. Although we continue to evaluate strategies to mitigate risks related to the effect of fluctuations in the foreign currencies used by our international subsidiaries, including the British Pound, the Euro, the Brazilian Real and the Argentinian Peso. Although the percentages of our consolidated revenue and costs that are denominated in these currencies are immaterial, our consolidated results of operations could be adversely impacted by volatility incurrency exchange rates, we will likely recognize gains or an increaselosses from international transactions. Accordingly, changes in the number of foreign currency transactions.rates relative to the U.S. dollar could positively or negatively impact our operating results.

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 abovedisclosed by us from time to time if market conditions vary from the assumptions used in the analyses performed. These analyses only incorporate the risk exposures that existed at June 30, 2022.March 31, 2023.

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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 President and Chief Executive Officer, Jeff K. Storey,Kate Johnson, and our Executive Vice President and Chief Financial Officer, Chris Stansbury, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022.March 31, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective, as of June 30, 2022,March 31, 2023, 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 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 secondfirst quarter of 20222023 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”our financial condition and operating results and on our ability to access the capital markets” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.

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 urgerecommend that 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, 2021.2022, which are supplemented by the disclosure immediately below:

Like many businesses, we continue to face a growing threat from cyber-attacks, and, notwithstanding our extensive cybersecurity measures, we cannot provide any assurances that these attacks will not ultimately have a material adverse effect on our business, operations or financial results.

As we noted in our Annual Report on Form 10-K for the year ended December 31, 2022, we faced a growing number of cyber-attacks in 2022. On March 27, 2023, we announced two cybersecurity incidents, including one that involved a sophisticated intruder that had accessed our internal information technology systems. Since March 27, 2023, we have continued taking the measures described in our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on March 27, 2023 to assess, contain and remediate both incidents, including working with outside forensic firms.

Based on our ongoing investigations and information known at this time, we continue to believe that these incidents have neither had nor are likely to have a material adverse impact on our ability to serve our customers or our business, operations or financial results. Based on these ongoing investigations and information known at this time, we have determined that the sophisticated intruder that accessed our internal information technology systems is an advanced persistent threat actor that conducted activity best characterized as surveillance.

More generally, we believe the importance of our network to global internet data flows makes it a target to a wide range of intruders, including advanced persistent threat actors. And while we currently do not believe the recently reported events are likely to have a material adverse effect on our business, cybersecurity events inherently involve a range of risks and uncertainties, and we cannot assure you that future events or developments will not ultimately have a material adverse impact on our ability to serve our customers or our business, operations or financial results.
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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*4.1
10.1*
31.1*
31.2*
32.1*
32.2*
101*
The following materials from the Quarterly Report on Form 10-Q of Level 3 Parent, LLC for the quarter ended June 30, 2022,March 31, 2023, 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, 2022.May 3, 2023.
 LEVEL 3 PARENT, LLC
 By:/s/ Andrea Genschaw
Andrea Genschaw
Senior Vice President, Controller
 (Principal Accounting Officer)
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