UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended ~~September 30, 2022~~March 31, 2023


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

For the transition period from to

Commission file number 001-35134

LEVEL 3 PARENT, LLC

(Exact name of registrant as specified in its charter)



Delaware		47-0210602
(State of Incorporation)		(I.R.S. Employer Identification No.)
1025 Eldorado Blvd.,
Broomfield,	CO	80021-8869
(Address of principal executive offices)		(Zip Code)

(720) 888-1000

(Registrant’s telephone number,

including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

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

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

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

All of the limited liability company interest in the registrant is held by an affiliate of the registrant. None of the interest is publicly traded.

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TABLE OF CONTENTS



	Special Note Regarding Forward-Looking Statements	3
Part I	Financial Information
Item 1.	Financial Statements	6
	Consolidated Statements of Operations (Unaudited)	6
	Consolidated Statements of Comprehensive (~~Loss)~~Income (Unaudited)	7
	Consolidated Balance Sheets (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	9
	Consolidated Statements of Member's Equity (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited)*	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2625
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3634
Item 4.	Controls and Procedures	3734
Part II	Other Information
Item 1.	Legal Proceedings	3835
Item 1A.	Risk Factors	3835

Item 6.	Exhibits	3936
Signature		4037

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

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

Special Note Regarding Forward-Looking Statements

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

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

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

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

•statements regarding how the ~~health~~COVID-19 pandemic and ~~economic challenges raised by the COVID-19 pandemic~~its 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 ~~ability~~legacy 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 ~~pending~~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 ~~ability~~affiliates 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 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;

•continuing uncertainties regarding the impact that COVID-19 ~~disruptions~~and 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 September 30,			Nine Months Ended September 30,				Three Months Ended March 31,
		2022		2021	2022		2021		2023		2022
		(Dollars in millions)
OPERATING REVENUE	OPERATING REVENUE							OPERATING REVENUE
Operating revenue	Operating revenue	$	1,762	1,934	$	5,548	5,797	Operating revenue	$	1,727	1,890
Operating revenue - affiliates	Operating revenue - affiliates	57		56	170		167	Operating revenue - affiliates	57		56
Total operating revenue	Total operating revenue	1,819		1,990	5,718		5,964	Total operating revenue	1,784		1,946
OPERATING EXPENSES	OPERATING EXPENSES							OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	Cost of services and products (exclusive of depreciation and amortization)	785		897	2,472		2,643	Cost of services and products (exclusive of depreciation and amortization)	771		851
Selling, general and administrative	Selling, general and administrative	269		305	901		872	Selling, general and administrative	286		314
Gain on sale of business		(119)		—	(119)		—
Loss on disposal group held for sale								Loss on disposal group held for sale	77		—
Operating expenses - affiliates	Operating expenses - affiliates	173		116	481		354	Operating expenses - affiliates	168		146
Depreciation and amortization	Depreciation and amortization	377		431	1,178		1,304	Depreciation and amortization	347		396
Total operating expenses	Total operating expenses	1,485		1,749	4,913		5,173	Total operating expenses	1,649		1,707
OPERATING INCOME	OPERATING INCOME	334		241	805		791	OPERATING INCOME	135		239
OTHER (EXPENSE) INCOME	OTHER (EXPENSE) INCOME							OTHER (EXPENSE) INCOME
Interest income - affiliate	Interest income - affiliate	19		16	50		49	Interest income - affiliate	16		16
Interest expense	Interest expense	(99)		(90)	(284)		(272)	Interest expense	(93)		(90)
Other (expense) income, net		(4)		(9)	(25)		1
Other income (expense), net								Other income (expense), net	5		(7)
Total other expense, net	Total other expense, net	(84)		(83)	(259)		(222)	Total other expense, net	(72)		(81)
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	250		158	546		569	INCOME BEFORE INCOME TAXES	63		158
Income tax expense	Income tax expense	312		37	397		150	Income tax expense	22		44
NET (LOSS) INCOME		$	(62)	121	$	149	419
NET INCOME								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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(Dollars in millions)
NET (LOSS) INCOME $ (62) 121 $ 149 419
OTHER COMPREHENSIVE LOSS
Reclassification of realized loss on foreign currency translation to gain on sale of business, net of $—, $—, $—, and $— tax 112 — 112 —
Foreign currency translation adjustments, net of $28, $13, $70, and $16 tax (114) (93) (229) (101)
Other comprehensive loss, net of tax (2) (93) (117) (101)
COMPREHENSIVE (LOSS) INCOME $ (64) 28 $ 32 318


	Three Months Ended March 31,
	2023		2022

NET INCOME	$	41	114
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments, net of $(6) and $10 tax	11		69
Other comprehensive income, net of tax	11		69
COMPREHENSIVE INCOME	$	52	183

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


		September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
		(Dollars in millions)				(Dollars in millions)
ASSETS	ASSETS				ASSETS
CURRENT ASSETS	CURRENT ASSETS				CURRENT ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	130	146	Cash and cash equivalents	$	147	118
Accounts receivable, less allowance of $27 and $39		596		642
Accounts receivable, less allowance of $19 and $19					Accounts receivable, less allowance of $19 and $19	527		517
Note receivable - affiliate	Note receivable - affiliate	1,468		1,468	Note receivable - affiliate	1,466		1,468
Assets held for sale	Assets held for sale	10		2,708	Assets held for sale	1,873		1,853
Other	Other	251		239	Other	225		197
Total current assets	Total current assets	2,455		5,203	Total current assets	4,238		4,153
Property, plant and equipment, net of accumulated depreciation of $3,649 and $3,202		8,918		9,042
Property, plant and equipment, net of accumulated depreciation of $3,180 and $2,875					Property, plant and equipment, net of accumulated depreciation of $3,180 and $2,875	7,372		7,303
GOODWILL AND OTHER ASSETS	GOODWILL AND OTHER ASSETS				GOODWILL AND OTHER ASSETS
Goodwill	Goodwill	6,598		6,666	Goodwill	1,970		1,970
Other intangible assets, net	Other intangible assets, net	5,218		5,725	Other intangible assets, net	4,825		4,973
Other, net	Other, net	1,614		1,459	Other, net	1,387		1,360
Total goodwill and other assets	Total goodwill and other assets	13,430		13,850	Total goodwill and other assets	8,182		8,303
TOTAL ASSETS	TOTAL ASSETS	$	24,803	28,095	TOTAL ASSETS	$	19,792	19,759
LIABILITIES AND MEMBER'S EQUITY	LIABILITIES AND MEMBER'S EQUITY				LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES	CURRENT LIABILITIES				CURRENT LIABILITIES
Current maturities of long-term debt	Current maturities of long-term debt	$	26	26	Current maturities of long-term debt	$	26	26
Accounts payable	Accounts payable	431		381	Accounts payable	434		365
Accounts payable - affiliates	Accounts payable - affiliates	46		18	Accounts payable - affiliates	107		70
Accrued expenses and other liabilities	Accrued expenses and other liabilities				Accrued expenses and other liabilities
Salaries and benefits	Salaries and benefits	161		176	Salaries and benefits	113		146
Income and other taxes	Income and other taxes	98		83	Income and other taxes	75		86
Current operating lease liabilities	Current operating lease liabilities	358		299	Current operating lease liabilities	323		326
Other	Other	94		150	Other	95		109
Liabilities held for sale	Liabilities held for sale	—		435	Liabilities held for sale	466		446
Current portion of deferred revenue	Current portion of deferred revenue	307		291	Current portion of deferred revenue	272		274
Total current liabilities	Total current liabilities	1,521		1,859	Total current liabilities	1,911		1,848
LONG-TERM DEBT	LONG-TERM DEBT	8,079		10,396	LONG-TERM DEBT	8,963		8,070
DEFERRED REVENUE AND OTHER LIABILITIES	DEFERRED REVENUE AND OTHER LIABILITIES				DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	Deferred revenue	1,489		1,404	Deferred revenue	1,471		1,420
Operating lease liabilities	Operating lease liabilities	1,077		953	Operating lease liabilities	879		922
Other	Other	807		474	Other	702		701
Total deferred revenue and other liabilities	Total deferred revenue and other liabilities	3,373		2,831	Total deferred revenue and other liabilities	3,052		3,043
COMMITMENTS AND CONTINGENCIES (Note 8)	COMMITMENTS AND CONTINGENCIES (Note 8)				COMMITMENTS AND CONTINGENCIES (Note 8)
MEMBER'S EQUITY	MEMBER'S EQUITY				MEMBER'S EQUITY
Member's equity	Member's equity	12,298		13,360	Member's equity	6,199		7,142
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(468)		(351)	Accumulated other comprehensive loss	(333)		(344)
Total member's equity	Total member's equity	11,830		13,009	Total member's equity	5,866		6,798
TOTAL LIABILITIES AND MEMBER'S EQUITY	TOTAL LIABILITIES AND MEMBER'S EQUITY	$	24,803	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)


		Nine Months Ended September 30,				Three Months Ended March 31,
		2022		2021		2023		2022
		(Dollars in millions)				(Dollars in millions)
OPERATING ACTIVITIES	OPERATING ACTIVITIES				OPERATING ACTIVITIES
Net income	Net income	$	149	419	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 amortization	Depreciation and amortization	1,178		1,304	Depreciation and amortization	347		396
Gain on sale of business		(119)		—
Loss on disposal group held for sale					Loss on disposal group held for sale	77		—
Deferred income taxes	Deferred income taxes	367		122	Deferred income taxes	19		29
Net gain on early retirement of debt		(9)		—
Changes in current assets and liabilities:	Changes in current assets and liabilities:				Changes in current assets and liabilities:
Accounts receivable	Accounts receivable	2		(41)	Accounts receivable	(15)		84
Accounts payable	Accounts payable	(37)		(34)	Accounts payable	27		(28)
Other assets and liabilities, net	Other assets and liabilities, net	(141)		(74)	Other assets and liabilities, net	(108)		(121)
Other assets and liabilities, affiliate	Other assets and liabilities, affiliate	81		(780)	Other assets and liabilities, affiliate	42		(14)
Changes in other noncurrent assets and liabilities, net	Changes in other noncurrent assets and liabilities, net	117		33	Changes in other noncurrent assets and liabilities, net	(30)		40
Other, net	Other, net	99		(8)	Other, net	(21)		41
Net cash provided by operating activities	Net cash provided by operating activities	1,687		941	Net cash provided by operating activities	379		541
INVESTING ACTIVITIES	INVESTING ACTIVITIES				INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(877)		(874)	Capital expenditures	(244)		(264)
Proceeds from sale of business		2,707		—
Proceeds from sale of property, plant and equipment and other assets	Proceeds from sale of property, plant and equipment and other assets	2		52	Proceeds from sale of property, plant and equipment and other assets	23		1
Net cash provided by (used in) investing activities		1,832		(822)
Other, net					Other, net	(4)		—
Net cash used in investing activities					Net cash used in investing activities	(225)		(263)
FINANCING ACTIVITIES	FINANCING ACTIVITIES				FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt		—		891

Distributions	Distributions	(1,210)		(25)	Distributions	(110)		(210)
Payments of long-term debt	Payments of long-term debt	(2,367)		(932)	Payments of long-term debt	(8)		(40)
Other	Other	—		(1)	Other	(11)		—
Net cash used in financing activities	Net cash used in financing activities	(3,577)		(67)	Net cash used in financing activities	(129)		(250)
Net (decrease) increase in cash, cash equivalents and restricted cash		(58)		52
Net increase in cash, cash equivalents and restricted cash					Net increase in cash, cash equivalents and restricted cash	25		28
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	191		205	Cash, cash equivalents and restricted cash at beginning of period	164		191
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	133	257	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, net	Income taxes paid, net	$	(4)	(23)	Income taxes paid, net	$	(1)	(9)
Interest paid (net of capitalized interest of $12 and $11)		$	(326)	(304)

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 equivalents	Cash and cash equivalents	$	130	215	Cash and cash equivalents	$	147	155
Cash and cash equivalents included in assets held for sale		—		36
Cash and cash equivalents and restricted cash included in assets held for sale					Cash and cash equivalents and restricted cash included in assets held for sale	40		58
Restricted cash included in Other current assets	Restricted cash included in Other current assets	1		2	Restricted cash included in Other current assets	—		2
Restricted cash included in Other, net noncurrent assets	Restricted cash included in Other, net noncurrent assets	2		4	Restricted cash included in Other, net noncurrent assets	2		4
Total	Total	$	133	257	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 September 30,			Nine Months Ended September 30,				Three Months Ended March 31,
		2022		2021	2022		2021		2023		2022
		(Dollars in millions)
MEMBER'S EQUITY	MEMBER'S EQUITY							MEMBER'S EQUITY
Balance at beginning of period	Balance at beginning of period	$	13,018	13,412	13,360		13,139	Balance at beginning of period	$	7,142	13,360
Net (loss) income		(62)		121	149		419
Net income								Net income	41		114
Distributions	Distributions	(657)		—	(1,210)		(25)	Distributions	(1,025)		(210)
Other	Other	(1)		(1)	(1)		(1)	Other	41		—
Balance at end of period	Balance at end of period	12,298		13,532	12,298		13,532	Balance at end of period	6,199		13,264
ACCUMULATED OTHER COMPREHENSIVE LOSS
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)								ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of period	Balance at beginning of period	(466)		(242)	(351)		(234)	Balance at beginning of period	(344)		(351)
Other comprehensive loss		(2)		(93)	(117)		(101)
Other comprehensive income								Other comprehensive income	11		69
Balance at end of period	Balance at end of period	(468)		(335)	(468)		(335)	Balance at end of period	(333)		(282)
TOTAL MEMBER'S EQUITY	TOTAL MEMBER'S EQUITY	$	11,830	13,197	$	11,830	13,197	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 portion~~broad array of integrated products and services necessary to fully participate in our ever-evolving digital world. We operate one of the ~~property, plant~~world’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 necessary~~reduce costs - allowing customers to ~~provide our services) of a broad range of integrated communications services. We created our communications network by constructing our own assets~~rapidly 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 ~~nine~~three months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~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 ~~$411~~$369 million and ~~$294~~$391 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Additionally, current operating lease liabilities included the current portion of affiliate operating lease liabilities of ~~$116~~$127 million and ~~$82~~$125 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and operating lease liabilities included the noncurrent portion of affiliate operating lease liabilities of ~~$307~~$262 million and ~~$224~~$286 million as of ~~September 30, 2022~~March 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 one 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 requiring~~requires business entities to disclose information about certain types of government assistance they receive. The ASU only impacts annual financial statement note disclosures. ~~Therefore, the~~The adoption of ASU 2021-10 did not have a material impact to our consolidated financial statements.

Leases

On January 1, 2022, we adopted ASU 2021-05, “Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments” (“ASU 2021-05”). This ASU (i) amends the lease classification requirements for lessors to align them with practice under ASC Topic 840, (ii) provides criteria for lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating ~~lease;~~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 September 30, 2022, we determined there was no application or discontinuation of the equity method during the reporting periods covered by this report. The adoption of ASU 2020-01 did not have a material impact to our consolidated financial statements.

~~Income Taxes~~

~~On January 1, 2021, we adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”~~ (“ASU 2019-12”). This 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 September 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-04, “Liabilities-Supplier Finance Program (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” (“ASU 2022-04”). These amendments require that a company that uses a supplier finance program in connection with the purchase of goods or services disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, program activity during the period, changes from period to period and potential magnitude of program transactions. ASU 2022-04 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we are reviewing our supplier finance agreements to determine the impact to disclosures in our consolidated financial statements.

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Recently Issued Accounting Pronouncements

In March 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-02, “Investments-Equity method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method” (“ASU 2023-02”). These 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 2023-02 will become effective for us in the first quarter of fiscal 2024 and early adoption is permitted. As of March 31, 2023, we do not expect ASU 2023-02 to have an impact to our consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements” (“ASU 2023-01”). These amendments require all entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. ASU 2023-01 will become effective for us in the first quarter of fiscal 2024 and early adoption is permitted. As of March 31, 2023, we do not expect ASU 2023-01 to have an impact to our consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2022-03”). These amendments clarify that a contractual restriction on the sales of an investment in an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 will become effective for us in the first quarter of fiscal ~~2023~~2024 and early adoption is permitted. As of ~~September 30, 2022,~~March 31, 2023, we do not expect ASU 2022-03 to have an impact to our consolidated financial statements.

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

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

~~In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers~~” (“ASU 2021-08”), which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we do not expect ASU 2021-08 to have an impact to our consolidated financial statements.

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

(2) ~~Recently Completed~~Planned Divestiture of the ~~Latin American~~EMEA Business

On ~~August 1,~~November 2, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., ~~sold Lumen's Latin American business pursuant~~granted an option to Colt Technology Services Group Limited, a ~~definitive agreement dated July 25, 2021~~portfolio company of Fidelity Investments, to purchase certain of their operations in Europe, the Middle East and Africa (the "EMEA business"), in exchange for ~~pre-tax~~$1.8 billion in cash, ~~proceeds of approximately $2.7 billion,~~ subject to certain ~~post-closing~~working capital and other purchase price adjustments. Following the completion of a French consultative process, Colt exercised its option and on February 8, 2023, the parties entered into a definitive purchase agreement, which contains various customary covenants for transactions of this type including various indemnities. Level 3 Parent, LLC expects to close the transaction as early as late 2023, 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.

~~During both the three and nine months ended September 30, 2022, we recorded a $119 million pre-tax gain on disposal associated with the sale~~The actual amount of our ~~Latin American business. This gain is reflected as operating income within~~net after-tax proceeds from this divestiture could vary substantially from the ~~consolidated statements~~amounts we currently estimate, particularly if we experience delays in completing the transaction or if any of ~~operations.~~

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

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

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


	Three Months Ended March 31,
	2023		2022
	(Dollars in millions)
EMEA business pre-tax net income (loss)	$	48	(19)

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

~~(1)The pre-tax net income includes operating results prior to~~As of March 31, 2023 in the ~~close~~accompanying consolidated balance sheet, the assets and liabilities of our EMEA business are classified as held for sale and measured at the lower of (i) the carrying value when we classified the disposal group as held for sale and (ii) the fair value of the ~~sale~~disposal group, less costs to sell. Effective with the designation of the disposal group as held for sale on November 2, 2022, we suspended recording depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets while these assets are classified as held for sale. We estimate that we would have recorded an additional $71 million of depreciation, intangible amortization, and amortization of right-of-use assets for the three months ended March 31, 2023 if the EMEA business ~~on August 1, 2022~~did not meet the held for sale criteria.

The ~~Latin American~~classification of the EMEA business as held for sale was ~~included~~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 ~~continuing operations and classified as~~Annual Report on Form 10-K for the year ended December 31, 2022. As a result of our impairment tests, we determined the EMEA business disposal group was impaired resulting in a non-cash, non-tax-deductible goodwill impairment charge of $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 ~~our~~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 ~~sheets through the closing of the transaction on August 1, 2022.~~sheet. As a result of ~~closing~~our evaluation of the ~~transaction,~~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 ~~derecognized $2.4 billion~~recorded an additional $77 million estimated loss on disposal during the three months ended March 31, 2023 and increased the valuation allowance by the same amount. In future quarters, we will conduct similar evaluations and adjust the valuation allowance for the EMEA assets held for sale as necessary.

Table of ~~net assets, the~~Contents

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


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

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


	March 31, 2023		December 31, 2022
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	39	43
Accounts receivable, less allowance of $5 and $5	84		76
Other current assets	70		56
Property, plant and equipment, net accumulated depreciation of $1,012 and $998	1,925		1,864
Customer relationships and other intangibles, net	103		100
Operating lease assets	170		156
Valuation allowance on assets held for sale (1)	(693)		(616)
Deferred tax assets	141		131
Other non-current assets	34		32
Total assets held for sale	$	1,873	1,842

Liabilities held for sale
Accounts payable	$	74	78
Salaries and benefits	13		23
Current portion of deferred revenue	37		28
Current operating lease liabilities	38		33
Other current liabilities	33		28
Deferred income taxes	45		38
Asset retirement obligations	31		30
Deferred revenue, non-current	95		85
Operating lease liabilities, non-current	100		103
Total liabilities held for sale	$	466	446

(1) ~~The assignment~~Includes 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 value~~foreign currency translation, expected to be reclassified out of ~~the disposal group and the portion~~accumulated other comprehensive loss upon close of the ~~remaining reporting unit prior to the disposal group being classified as held for~~ sale.

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(3) Goodwill, Customer Relationships and Other Intangible Assets

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

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


	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 $387	420		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.

~~Table~~(2)Trade names with a gross carrying value of ~~Contents~~$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~~our operations consist of one reporting unit.

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


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

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

Total amortization expense for finite-lived intangible assets for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ totaled ~~$187~~$176 million and ~~$210 million, respectively, and for the nine months ended September 30, 2022 and 2021, totaled $565 million and $637~~$192 million, respectively. As of ~~September 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, ~~2022~~2023 through ~~2026~~2027 will be as provided in the table below.
(Dollars in millions)
2022 (remaining three months) $ 182
2023 718
2024 714
2025 689
2026 646
As a result of classifying our EMEA business as being held for sale on our March 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—Planned Divestiture of the EMEA Business for more information.


	(Dollars in millions)
2023 (remaining nine months)	$	513
2024	680
2025	660
2026	648
2027	602

(4) Revenue Recognition

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

•~~Compute and Application Services~~Grow, which ~~include~~includes 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 security~~wavelengths services;

•~~IP and Data Services~~Nurture, 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 Other~~Harvest, which ~~include~~includes 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 ~~nine~~three months ended ~~September 30, 2022~~March 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. The amounts in the tables below include revenue for the Latin American business ~~revenues~~ 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.

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021
Total Revenue
Adjustments for Non-ASC 606 Revenue(1)
Total Revenue from Contracts with Customers Total Revenue
Adjustments for Non-ASC 606 Revenue(1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Compute and Application Services $ 235 (100) 135 287 (126) 161
IP and Data Services 831 — 831 890 — 890
Fiber Infrastructure Services 381 (54) 327 412 (56) 356
Voice and Other 315 (3) 312 345 (3) 342
Affiliate Services 57 (57) — 56 (56) —
Total revenue $ 1,819 (214) 1,605 1,990 (241) 1,749

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Compute and Application Services $ 795 (354) 441 850 (380) 470
IP and Data Services 2,600 — 2,600 2,659 — 2,659
Fiber Infrastructure Services 1,175 (165) 1,010 1,210 (164) 1,046
Voice and Other 978 (11) 967 1,078 (8) 1,070
Affiliate Services 170 (170) — 167 (167) —
Total revenue $ 5,718 (700) 5,018 5,964 (719) 5,245


	Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
	Total Revenue		Adjustments for Non-ASC 606 Revenue(1)	Total Revenue from Contracts with Customers	Total Revenue	Adjustments for Non-ASC 606 Revenue(1)	Total Revenue from Contracts with Customers
	(Dollars in millions)
Grow	$	973	(162)	811	1,024	(182)	842
Nurture	439		(3)	436	503	(4)	499
Harvest	290		—	290	336	—	336
Other	25		—	25	27	—	27
Affiliate Services	57		(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 ~~revenue~~income are included in operating revenue in our consolidated statements of operations.

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ our gross rental income was ~~$175~~$181 million and ~~$202 million, which represents approximately 10% of our operating revenue for both periods. For the nine months ended September 30, 2022 and 2021, our gross rental income was $581 million and $601~~$203 million, which represents approximately 10% of our operating revenue for both periods.

1617

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts ~~reclassified~~classified as held for sale as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
		(Dollars in millions)				(Dollars in millions)
Customer receivables (1)	Customer receivables (1)	$	593	640	Customer receivables (1)	$	525	515
Contract assets (2)	Contract assets (2)	30		35	Contract assets (2)	11		13
Contract liabilities (3)	Contract liabilities (3)	287		247	Contract liabilities (3)	230		222

(1)Reflects gross customer receivables of ~~$620~~$544 million and ~~$679~~$534 million, net of allowance for credit losses of ~~$27 million and $39~~$19 million, at ~~September 30, 2022~~both March 31, 2023 and December 31, ~~2021, respectively.~~2022. As of March 31, 2023 and December 31, ~~2021,~~2022, this amount excludes customer receivables classified as held for sale of ~~$83 million.~~$84 million and $76 million, respectively.

(2)As of March 31, 2023 and December 31, ~~2021, no amounts have been~~2022, amount excludes contract assets classified as held for ~~sale.~~sale of $13 million and $16 million, respectively.

(3)As of March 31, 2023 and December 31, ~~2021,~~2022, amount excludes contract liabilities classified as held for sale of ~~$58 million.~~$57 million and $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 nine~~ months ended ~~September 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 ~~$20~~$85 million ~~and $128 million, respectively,~~ of revenue that was included in contract liabilities of $305 million as of January 1, 2022, including contract liabilities that were classified as held for sale. During the three and nine months ended September 30, 2021, we recognized $30 million and $151 million, respectively, of revenue that was included in contract liabilities of $385 million as of January 1, 2021.

Performance Obligations

As of ~~September 30, 2022,~~March 31, 2023, we expect to recognize approximately ~~$3.8~~$4.1 billion of revenue in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied. ~~We expect~~As of March 31, 2023, the transaction price related to ~~recognize approximately 80%~~unsatisfied performance obligations that are expected to be recognized for the remainder of ~~this revenue through~~2023, 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.

1718

Contract Costs

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


		Three Months Ended September 30, 2022			Three Months Ended September 30, 2021			Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
		Acquisition Costs		Fulfillment Costs (1)	Acquisition Costs	Fulfillment Costs		Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
		(Dollars in millions)						(Dollars in millions)
Beginning of period balance(1)	Beginning of period balance(1)	$	78	101	75	124	Beginning of period balance(1)	$	76	106	76	99
Costs incurred	Costs incurred	16		20	15	22	Costs incurred	17		23	15	21
Amortization	Amortization	(14)		(17)	(14)	(21)	Amortization	(15)		(16)	(14)	(20)
Change in contract costs held for sale ~~(1)~~	Change in contract costs held for sale ~~(1)~~	—		1	—	(27)	Change in contract costs held for sale ~~(1)~~	(4)		(14)	—	—
End of period balance(2)	End of period balance(2)	$	80	105	76	98	End of period balance(2)	$	74	99	77	100

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

(1)~~The beginning~~Beginning of period balance for the three ~~and nine~~ months ended ~~September 30, 2022 excluded~~March 31, 2023 excludes $6 million of acquisition costs and no fulfillment costs classified as held for sale related to the EMEA business. Beginning of ~~$28 million~~period balance for the three months ended March 31, 2022 excludes no acquisition costs and $27 million ~~respectively.~~fulfillment costs classified as held for sale related to the Latin American business.

(2)End of 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 a quarterly basis.

(5) Credit Losses on Financial Instruments

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

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

If there is an unexpected deterioration of a customer's financial condition or an unexpected change in economic conditions, including macroeconomic events, we assess the need to adjust the allowance for credit losses. Any such resulting adjustments would affect earnings in the period that adjustments are made.

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

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


	(Dollars in millions)
Beginning balance at December 31, ~~2021~~2022(1)	$	3919
Provision for expected losses	24
Write-offs charged against the allowance	~~(17)~~(5)
Recoveries collected	2
~~Foreign currency exchange rate change adjustment~~	1

Ending balance at ~~September 30, 2022~~March 31, 2023(1)	$	2719

(1)As of March 31, 2023 and December 31, ~~2021, amount excludes~~2022, amounts exclude allowance for credit losses classified as held for sale of ~~$3 million.~~$5 million, respectively. See Note 2—~~Recently Completed~~Planned Divestiture of the ~~Latin American~~EMEA Business.

(6) Long-Term Debt

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


		Interest Rates (1)	Maturities (1)	September 30, 2022		December 31, 2021		Interest Rates (1)	Maturities (1)	March 31, 2023		December 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 notes	Senior notes	3.400% - 3.875%	2027 - 2029	$	1,500	1,500	Senior notes	3.400% - 10.500%	2027 - 2030	$	2,415	1,500
Tranche B 2027 Term Loan (3)	Tranche B 2027 Term Loan (3)	LIBOR + 1.75%	2027	2,411		3,111	Tranche B 2027 Term Loan (3)	LIBOR + 1.75%	2027	2,411		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% - 4.625%	2027 - 2029	3,940		5,515	Senior notes (4)	3.625% - 4.625%	2027 - 2029	3,940		3,940
Finance leases and other obligations	Finance leases and other obligations	Various	Various	301		319	Finance leases and other obligations	Various	Various	278		291
Unamortized premiums, net	Unamortized premiums, net			3		34	Unamortized premiums, net			3		3
Unamortized debt issuance costs	Unamortized debt issuance costs			(50)		(57)	Unamortized debt issuance costs			(58)		(49)
Total long-term debt	Total long-term debt			8,105		10,422	Total long-term debt			8,989		8,096
Less current maturities	Less current maturities			(26)		(26)	Less current maturities			(26)		(26)
Long-term debt, excluding current maturities	Long-term debt, excluding current maturities			$	8,079	10,396	Long-term debt, excluding current maturities			$	8,963	8,070

(1)As of ~~September 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, ~~2021~~2022 for a description of certain affiliate guarantees and liens securing this debt.

(3)The Tranche B 2027 Term Loan had an interest rate of ~~4.865%~~6.672% and ~~1.854%~~6.134% as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

(4)See Note 7—Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 for a description of guarantees provided by certain affiliates of Level 3 Financing, Inc.

Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of ~~September 30, 2022~~March 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 three months)		$	8
2023		27
2023 (remaining nine months)				2023 (remaining nine months)	$	19
2024	2024	32		2024	30
2025	2025	38		2025	37
2026	2026	36		2026	35
2027 and thereafter		8,011
2027				2027	4,180
2028 and thereafter				2028 and thereafter	4,743
Total long-term debt	Total long-term debt	$	8,152	Total long-term debt	$	9,044

~~Debt Repayment~~New Issuances

~~During the nine months ended September 30, 2022, we repaid the following aggregate principal amount~~Pursuant to exchange offers commenced on March 16, 2023 (the “Exchange Offers”), on March 31, 2023, Level 3 Financing, Inc. issued $915 million of ~~indebtedness through a combination~~its 10.500% Senior Secured Notes due 2030 (the “Initial Notes”) in exchange for $1.535 billion of ~~tender offers, redemptions, and repayments. These transactions~~Lumen’s outstanding senior unsecured notes. The transaction resulted in a ~~net gain~~distribution of ~~$9 million.~~the senior unsecured notes to Lumen, at which point they were concurrently cancelled.

Supplier Finance Program


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

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 ~~September 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.

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 finance leases and other obligations) and certain indemnification obligations. Due to their short-term nature, the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, note receivable-affiliate and accounts payable approximate their fair values.

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

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

The three input levels in the hierarchy of fair value measurements are defined by the FASB are generally as follows:


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

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The following table presents the carrying amounts and estimated fair values of our financial liabilities as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, as well as the input level used to determine the fair values indicated below:


			September 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
		Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value		Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
			(Dollars in millions)							(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases	Liabilities-Long-term debt, excluding finance leases	2	$	7,804	6,572	10,103	10,090	Liabilities-Long-term debt, excluding finance leases	2	$	8,711	6,159	7,805	6,581
Indemnifications related to the sale of the Latin American business	Indemnifications related to the sale of the Latin American business	3	$	86	86	—	—	Indemnifications related to the sale of the Latin American business	3	86		86	86	86

(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~~

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. ~~Amounts~~Subject to these limitations, at March 31, 2023, we had accrued $38 million in the aggregate for our litigation and non-income tax contingencies ~~at September 30, 2022 aggregated to approximately $24 million and are~~which 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.

Latin American Tax Litigation and Claims

In connection with the recent divestiture of our Latin American business, the purchaser assumed responsibility for the Peruvian tax litigation and Brazilian tax claims described in our prior periodic reports filed with the SEC. We have agreed to indemnify the purchaser for amounts paid in respect to the Brazilian tax claims. The value of this indemnification is included in the indemnification amount as disclosed in Note 7—Fair Value of 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 one or more may go to trial within the next twelve months if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. 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.

~~Table of Contents~~

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 ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:

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

~~Table of Contents~~

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

~~Three and Nine Months Ended September 30, 2022~~

Decrease (Increase)
in Net Income

~~Affected Line Item in Consolidated Statement of Operations~~

~~(Dollars in millions)~~

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

~~112~~

~~Gain on sale of business~~

~~Income tax benefit~~

—

~~Income tax expense~~

~~Net of tax~~

~~112~~


	Pension Plans		Foreign Currency Translation Adjustment and Other	Total
	(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)

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


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

(10) Other Financial Information

Other Current Assets

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


		September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
		(Dollars in millions)				(Dollars in millions)
Prepaid expenses	Prepaid expenses	$	127	109	Prepaid expenses	$	125	99
Contract fulfillment costs	Contract fulfillment costs	48		48	Contract fulfillment costs	46		44
Contract acquisition costs	Contract acquisition costs	47		45	Contract acquisition costs	43		42
Contract assets	Contract assets	23		28	Contract assets	8		10
Other	Other	6		9	Other	3		2
Total other current assets(1)	Total other current assets(1)	$	251	239	Total other current assets(1)	$	225	197

_______________________________________________________________________________

(1)AsExcludes $70 million and $56 million of ~~December 31, 2021,~~ other current assets ~~excluded $81 million~~related to EMEA business that ~~had been~~were classified as held for ~~sale.~~sale as of March 31, 2023 and December 31, 2022, respectively.

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~~(11) Subsequent Events~~

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

On November 2, 2022, affiliates of Level 3 Parent, LLC entered into an exclusive arrangement to divest our operations in Europe, the Middle East and Africa (the “EMEA business”) to Colt Technology Services Group Limited, a portfolio company of Fidelity Investments, in exchange for $1.8 billion in cash, subject to certain working capital and other purchase price adjustments. We expect to close the transaction as early as late 2023, following completion of a consultation process under French law required prior to execution of the purchase agreement and receipt of all requisite regulatory approvals in the U.S. and certain countries where the EMEA business operates, as well as the satisfaction of other customary conditions. Upon being executed following the French consultation process, the purchase agreement will contain various customary covenants for transactions of this type, including various indemnities.

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

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

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

Certain statements in this report constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements" appearing at the beginning of this report 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 results~~applicable 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 ~~nine~~three months of the year are not necessarily indicative of the results of operations and cash flows that might be expected for the entire year.

We are an international facilities-based technology and communications company engaged in providing a broad array of integrated communication services to our business customers.

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

Pending Divestiture of our European, Middle Eastern and African Business

OnUnder agreements entered into on November 2, 2022 and February 8, 2023, affiliates of Level 3 Parent, LLC ~~entered into an exclusive arrangement~~have agreed to divest ~~our~~certain operations in ~~Europe, the Middle East and Africa~~EMEA to Colt Technology Services Group Limited, a portfolio company of Fidelity Investments, in exchange for $1.8 billion in cash, subject to certain ~~working capital~~post-closing adjustments. 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 ~~purchase price adjustments. For more information, see Note 11—Subsequent Events~~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 ~~our consolidated financial statements in Item 1 of Part I of this report.~~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 safety and economic challenges arising out of the COVID-19 pandemic and in a continued attempt to mitigate the negative impact on our stakeholders, we have taken a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees and customers, to enable us to continue to adapt and provide our products and services worldwide to our customers, and to strengthen our communities. We expect to continue revising our responses to the pandemic or take additional steps necessary to adjust to changed circumstances.

~~Social distancing, business and school closures, travel restrictions,~~Societal, governmental, and macroeconomic changes arising out of the COVID-19 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 have also experienced~~initiatives, and (iv) delayed decision-making by certain of our customers. ~~Thus far,~~None of these ~~changes~~effects, individually or in the aggregate, have ~~not~~to 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.~~

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

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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:

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

•~~Voice and Other~~Harvest, which ~~include~~includes 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 nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021:~~March 31, 2022:


		Three Months Ended September 30,			Nine Months Ended September 30,			Three Months Ended March 31,
		2022		2021	2022	2021		2023		2022
		(Dollars in millions)
Operating revenue	Operating revenue	$	1,819	1,990	5,718	5,964	Operating revenue	$	1,784	1,946
Operating expenses	Operating expenses	1,485		1,749	4,913	5,173	Operating expenses	1,649		1,707
Operating income	Operating income	334		241	805	791	Operating income	135		239
Other expense, net	Other expense, net	(84)		(83)	(259)	(222)	Other expense, net	(72)		(81)
Income before income taxes	Income before income taxes	250		158	546	569	Income before income taxes	63		158
Income tax expense	Income tax expense	312		37	397	150	Income tax expense	22		44
Net (loss) income		$	(62)	121	149	419
Net income							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 ~~September 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 September 30,
2022 2021 % Change
(Dollars in millions)
Compute and Application Services $ 235 287 (18) %
IP and Data Services 831 890 (7) %
Fiber Infrastructure Services 381 412 (8) %
Voice and Other 315 345 (9) %
Affiliate Services 57 56 2 %
Total operating revenue $ 1,819 1,990 (9) %

Nine Months Ended September 30,
2022 2021 % Change
(Dollars in millions)
Compute and Application Services $ 795 850 (6) %
IP and Data Services 2,600 2,659 (2) %
Fiber Infrastructure Services 1,175 1,210 (3) %
Voice and Other 978 1,078 (9) %
Affiliate Services 170 167 2 %
Total operating revenue $ 5,718 5,964 (4) %


	Three Months Ended March 31,
	2023		2022	% Change
	(Dollars in millions)
Grow	$	973	1,024	(5)	%
Nurture	439		503	(13)	%
Harvest	290		336	(14)	%
Other	25		27	(7)	%
Affiliate Services	57		56	2	%
Total operating revenue	$	1,784	1,946	(8)	%

Our total operating revenue decreased by ~~$171~~$162 million ~~and $246 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, as compared to the three ~~and nine~~ months ended ~~September 30, 2021 primarily~~March 31, 2022. Approximately $178 million of the decrease was due to the sale of the Latin American business ~~as well as overall decreases~~ in ~~IT Solutions, Ethernet services, VPN data networks, voice and private line and ready access revenue. For~~ the ~~nine~~second half of 2022. More specifically, within each revenue category:

•Grow decreased by $51 million for the three months ended ~~September 30,~~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 an 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 ~~partially offset growth~~attributable to the sale of the Latin American business. The remainder of the decline is principally attributable to a decline in ~~IP, cloud~~Ethernet services ~~and managed security~~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 revenue.

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Operating Expenses

The following table summarizes our consolidated operating expenses:

Three Months Ended September 30,
2022 2021 % Change
(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization) $ 785 897 (12) %
Selling, general and administrative 269 305 (12) %
Gain on sale of business (119) — nm
Operating expenses - affiliates 173 116 49 %
Depreciation and amortization 377 431 (13) %
Total operating expenses $ 1,485 1,749 (15) %


		Nine Months Ended September 30,						Three Months Ended March 31,
		2022		2021	% Change			2023		2022	% Change
		(Dollars in millions)						(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	Cost of services and products (exclusive of depreciation and amortization)	$	2,472	2,643	(6)	%	Cost of services and products (exclusive of depreciation and amortization)	$	771	851	(9)	%
Selling, general and administrative	Selling, general and administrative	901		872	3	%	Selling, general and administrative	286		314	(9)	%
Gain on sale of business		(119)		—	nm
Loss on disposal group held for sale							Loss on disposal group held for sale	77		—	nm
Operating expenses - affiliates	Operating expenses - affiliates	481		354	36	%	Operating expenses - affiliates	168		146	15	%
Depreciation and amortization	Depreciation and amortization	1,178		1,304	(10)	%	Depreciation and amortization	347		396	(12)	%
Total operating expenses	Total operating expenses	$	4,913	5,173	(5)	%	Total operating expenses	$	1,649	1,707	(3)	%

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 ~~$112~~$80 million ~~and $171 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, as compared to the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, primarily due to an $88 million decrease associated with the sale of the Latin American business ~~and~~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 power~~facilities costs.

Selling, General and Administrative

Selling, general and administrative decreased by ~~$36~~$28 million for the three months ended ~~September 30, 2022~~March 31, 2023 as compared to the three months ended ~~September 30, 2021~~March 31, 2022 primarily due to ~~lower non-employee related expenses and lower bad debt expense, as well as~~a $34 million decrease associated with the sale of our Latin American ~~business. Selling, general and administrative increased $29 million for~~business in the ~~nine months ended September 30,~~second half of 2022, ~~as compared to the nine months ended September 30, 2021 primarily due to higher employee related expenses~~ as well as a $13 million decrease associated with a gain on the sale of ~~assets in the nine months ended September 30, 2021, which was~~property. These decreases were partially offset by ~~the sale~~an increase of ~~our Latin American business.~~$16 million in employee related expenses.

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~~Gain~~Loss on Disposal Group Held for Sale ~~of Business~~

For a discussion of the ~~gain~~loss on the disposal group held for sale ~~of the Latin American business~~ that we ~~recorded in~~recognized for the ~~third quarter of 2022,~~three months ended March 31, 2023, see Note 2—~~Recently Completed~~Planned Divestiture of the ~~Latin American~~EMEA Business.

Operating Expenses - Affiliates

Operating expenses - affiliates increased by ~~$57~~$22 million ~~and $127 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, as compared to the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, primarily due to higher employee related affiliate ~~lease expense for circuits~~expenses 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 September 30,
2022 2021 % Change
(Dollars in millions)
Depreciation $ 190 221 (14) %
Amortization 187 210 (11) %
Total depreciation and amortization $ 377 431 (13) %


		Nine Months Ended September 30,						Three Months Ended March 31,
		2022		2021	% Change			2023		2022	% Change
		(Dollars in millions)						(Dollars in millions)
Depreciation	Depreciation	$	613	667	(8)	%	Depreciation	$	171	204	(16)	%
Amortization	Amortization	565		637	(11)	%	Amortization	176		192	(8)	%
Total depreciation and amortization	Total depreciation and amortization	$	1,178	1,304	(10)	%	Total depreciation and amortization	$	347	396	(12)	%

Depreciation expense decreased by ~~$31~~$33 million ~~and $54 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, as compared to the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, primarily due to ~~discontinuing~~the discontinuation during the fourth quarter of 2022 of the depreciation of the tangible assets of our ~~recently divested Latin American~~planned divestiture of our EMEA business, ~~during their classification as assets held for sale,~~ resulting in a decrease of $9$45 million ~~and $61 million, respectively,~~ of depreciation expense during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to the three ~~and nine~~ months ended September 30, 2021. The decrease for the three months ended September 30, 2022 was also due to a decrease of $9 million resulting from the net decrease in depreciable assets. The decrease during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021March 31, 2022. This was partially offset by ~~a $13~~higher depreciation expense of $12 million ~~increase~~associated with net growth in ~~net~~ depreciable assets.

Amortization expense decreased by ~~$23~~$16 million ~~and $72 million, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, as compared to the three ~~and nine~~ months ended ~~September 30, 2021. For the three and nine months ended September 30,~~March 31, 2022, ~~amortization expense decreased by $19 million and $44 million, respectively, associated with the net reduction in amortizable assets and by $3 million and $25 million, respectively,~~primarily due to ~~discontinuing~~a decrease of $8 million due to the discontinuation during the fourth quarter of 2022 of the amortization of the intangible assets of our ~~recently divested Latin American~~planned divestiture of our EMEA business ~~during their classification as assets held for sale.~~

~~Table~~and a decrease of ~~Contents~~

$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 September 30,
2022 2021 % Change
(Dollars in millions)
Interest income - affiliate $ 19 16 19 %
Interest expense (99) (90) 10 %
Other expense, net (4) (9) nm
Total other expense, net $ (84) (83) 1 %
Income tax expense $ 312 37 nm


		Nine Months Ended September 30,						Three Months Ended March 31,
		2022		2021	% Change			2023		2022	% Change
		(Dollars in millions)						(Dollars in millions)
Interest income - affiliate	Interest income - affiliate	$	50	49	2	%	Interest income - affiliate	$	16	16	—	%
Interest expense	Interest expense	(284)		(272)	4	%	Interest expense	(93)		(90)	3	%
Other (expense) income, net		(25)		1	nm
Other expense, net							Other expense, net	5		(7)	nm
Total other expense, net	Total other expense, net	$	(259)	(222)	17	%	Total other expense, net	$	(72)	(81)	(11)	%
Income tax expense	Income tax expense	$	397	150	165	%	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 ~~increased by $3 million and $1 million, respectively,~~remained flat for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, as compared to the three ~~and nine~~ months ended ~~September 30, 2021. The increase was driven by increases in affiliate note balances and an increase in interest rates.~~March 31, 2022.

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Interest Expense

Interest expense increased by ~~$9 million and $12~~$3 million for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, as compared to the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022. The increase was due to an increase in average interest rates from 3.53% to ~~4.13% and 3.60% to 3.89%, respectively,~~4.67% for the three ~~and nine~~ months ended ~~September 30, 2022. This~~March 31, 2022 as compared to the three months ended March 31, 2023, which was ~~partially~~ offset by the decrease in average outstanding long-term debt from $10.4 billion to ~~$9.3~~$8.6 billion for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, as compared to the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022.

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Other Income (Expense) ~~Income,~~, Net

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

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

Nine Months Ended September 30, % Change
2022 2021
(Dollars in millions)
Gain on extinguishment of debt $ 9 16 (44) %
Foreign currency gain (41) (14) (193) %
Interest income 5 — nm
Other 2 (1) nm
Total other income, net $ (25) 1 nm

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


	Three Months Ended March 31,
	2023		2022
	(Dollars in millions)
Foreign currency gain (loss)	$	3	(9)
Other	2		2
Total other income (expense), net	$	5	(7)

Income Tax Expense

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ our effective income tax rate was ~~124.8%~~34.9% and ~~23.4%~~27.8%, respectively. ~~For the nine months ended September 30, 2022 and 2021,~~The increase in our effective income tax rate ~~was 72.7% and 26.4%, respectively. The effective tax rate for the three and nine months ended September 30, 2022 was significantly impacted by the gain on~~is primarily a result of the sale of ~~our Latin American business. Without~~ the ~~gain on the sale of our~~ Latin American business ~~our effective tax would have been 28.0% and 28.5%, respectively, for~~in the ~~three and nine months ended September 30,~~second half of 2022.

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Liquidity and Capital Resources

Overview

As of ~~September 30, 2022,~~March 31, 2023, we held cash and cash equivalents of ~~$130~~$186 million, $39 million of which ~~$68~~is classified as held for sale. We had approximately $76 million ~~were~~of cash and cash equivalents 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 Completed~~Planned Divestiture of ~~our Latin American~~the EMEA Business

~~As discussed in~~During 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 Completed~~Planned Divestiture of the ~~Latin American Business, we sold our Latin American business on August 1, 2022.~~EMEA Business. As further described ~~elsewhere herein, this transaction~~in 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 ~~September 30, 2022,~~March 31, 2023, our long-term debt (including current maturities and finance leases) outstanding totaled ~~$8.1~~$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:

Borrower

Moody's Investor Services, Inc.

Standard & Poor's

Fitch Ratings

Level 3 Financing, Inc.

Unsecured

~~Ba3~~B1

B+

Secured

Ba2

BB-

~~Secured~~

~~Ba1~~

~~BB+~~

~~BBB-~~

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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 ~~adjust our~~ borrowing costs. With the recent ~~downgrade of certain~~downgrades of our credit ratings, we may ~~experience increased borrowing costs.~~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.~~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, ~~and~~ our cash ~~requirements.~~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.

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Letters of Credit

It is customary for us to use various financial instruments in the normal course of business. These instruments include letters of credit. Letters of credit are conditional commitments issued on our behalf in accordance with specified terms and conditions. As of ~~September 30, 2022,~~March 31, 2023, we had outstanding letters of credit or other similar obligations of approximately $3 million, all of which ~~was~~were 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.

Cash Flow Activities

The following table summarizes our consolidated cash flow activities:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021	$ Change		2023		2022	$ Change
		(Dollars in millions)					(Dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	1,687	941	746	Net cash provided by operating activities	$	379	541	(162)
Net cash provided by (used in) investing activities		$	1,832	(822)	2,654
Net cash used in investing activities						Net cash used in investing activities	(225)		(263)	(38)
Net cash used in financing activities	Net cash used in financing activities	$	(3,577)	(67)	3,510	Net cash used in financing activities	(129)		(250)	(121)

Operating Activities

Net cash provided by operating activities ~~increased~~decreased by ~~$746~~$162 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, primarily due ~~payments on~~to lower net income adjusted for non-cash expenses and income and an increase in accounts ~~payable - affiliate during the nine months ended September 30, 2021, as well as foreign currency adjustments.~~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 ~~provided by (used in)~~used in investing activities ~~increased~~decreased by ~~$2.7 billion~~$38 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The ~~increase~~decrease was primarily due to ~~pre-tax~~a decrease in capital expenditures as well as an increase in proceeds ~~of $2.7 billion~~ from the sale of ~~the Latin American business.~~property, plant and equipment.

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Financing Activities

Net cash used in financing activities ~~increased~~decreased by ~~$3.5 billion~~$121 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily due ~~an increase~~to a decrease in distributions paid to our parent ~~as well as due to the prior period repayment of accounts payable - affiliate, as discussed in Operating Activities above,~~ and ~~an increase in payments 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.

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Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the Obama Administration. In November 2021, the U.S. Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants. As of the date of this report, various state and federal agencies are continuing to take steps to make this funding available to eligible applicants, including us. It remains premature to speculate on the potential impact of this legislation on us.

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Market Risk

At ~~September 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 ~~September 30, 2022,~~March 31, 2023, we had approximately ~~$7.9~~$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 $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 approximately $24 million. ~~Additionally, our~~Our 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, we~~We conduct a portion of our business in currencies other than the U.S. dollar, the currency in which our consolidated financial statements are ~~exposed~~reported. Our European subsidiaries use, and prior to the ~~risk~~August 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 and the Euro. Although the percentages of our consolidated revenue and costs that are denominated in these currencies are immaterial, our consolidated results of operations could be adversely impacted by volatility incurrency exchange rates, we will likely recognize gains or ~~an increase~~losses 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 above~~disclosed 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 ~~September 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 ~~September 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 ~~September 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

~~Other than the implementation of controls over accounting for the divestiture of our Latin American business and the calculation of the resulting gain therefrom, there~~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 ~~third~~first quarter of ~~2022~~2023 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 ~~urge~~recommend 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
~~2.1~~4.1			~~Put Option~~Indenture dated March 31, 2023, among Level 3 Financing, Inc., as Issuer, Level 3 Parent, LLC, as Guarantor, the subsidiary guarantors party thereto, and The Bank of New York Mellon Trust Company, as Trustee and Note Collateral Agent, designating and outlining the terms and conditions of Level 3 Financing, Inc.’s 10.500% Senior Secured Notes due 2030 (incorporated by reference to Exhibit 4.1 to Level 3 Parent, LLC’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on March 31, 2023).
10.1*			LIBOR Transition Amendment, dated as of March 17, 2023, by and among Level 3 Parent, LLC, Level 3 Financing, Inc., the Subsidiary Loan Parties party thereto, and Merrill Lynch Capital Corporation, as administrative agent, amending the parties’ Amended and Restated Credit Agreement dated as of November ~~2, 2022 by and among certain affiliate~~s ~~of Level 3 Parent, LLC. and Colt Technology Services Group Limited (incorporated by reference to Exhibit 2.1 to~~ L ~~evel 3 Parent, LLC's~~ ~~Current Report on Form 8-K filed with the SEC on November 2, 2022).~~29, 2019.
31.1*			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*			Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*			The following materials from the Quarterly Report on Form 10-Q of Level 3 Parent, LLC for the quarter ended ~~September 30, 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 ~~November~~May 3, ~~2022.~~2023.


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

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	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
	Total Revenue		Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers	Total Revenue	Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers
	(Dollars in millions)
Compute and Application Services	$	795	(354)	441	850	(380)	470
IP and Data Services	2,600		—	2,600	2,659	—	2,659
Fiber Infrastructure Services	1,175		(165)	1,010	1,210	(164)	1,046
Voice and Other	978		(11)	967	1,078	(8)	1,070
Affiliate Services	170		(170)	—	167	(167)	—
Total revenue	$	5,718	(700)	5,018	5,964	(719)	5,245


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