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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172018
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File No. 001-7784
 
ctllogo1a03.jpg
CENTURYLINK, INC.
(Exact name of registrant as specified in its charter)
 
  
Louisiana
 (State or other jurisdiction of
incorporation or organization)
72-0651161
(I.R.S. Employer
Identification No.)
100 CenturyLink Drive,
Monroe, Louisiana
 (Address of principal executive offices)
71203
 (Zip Code)
(318) 388-9000
(Registrant's telephone number, including area code)
 
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 ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
 (Do not check if a smaller reporting company)
Smaller reporting company o
   
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No ý
On November 2, 2017,August 3, 2018, there were 1,069,003,3331,080,123,279 shares of common stock outstanding.
 

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TABLE OF CONTENTS


   
Part I.
Financial Information:Information
 
Special Note Regarding Forward-Looking Statements
3
Item 1.
Financial Statements
 
 
Consolidated Statements of Operations (Unaudited)
35
 
Consolidated Statements of Comprehensive Income (Unaudited)
46
 
Consolidated Balance Sheets (Unaudited)
57
 
Consolidated Statements of Cash Flows (Unaudited)
68
 
Consolidated Statements of Stockholders' Equity (Unaudited)
79
 
Notes to Consolidated Financial Statements (Unaudited)*
810
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
3138
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
5558
Item 4.
Controls and Procedures
5558
Part II.
Other Information:Information
 
Item 1.
Legal Proceedings
5659
Item 1A.
Risk Factors
5659
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
7960
Item 6.
Exhibits
8061
Signature
9262
 
* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements.

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Special Note Regarding Forward-Looking Statements
All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are “forward-looking” statements, as defined by (and subject to the “safe harbor” protections under) the federal securities laws. When used herein, the words “anticipates,” “expects,” “believes,” “seeks,” “hopes,” “intends,” “plans,” “projects,” “will” and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements are based on a number of judgments and assumptions as of the date such statements are made about future events, many of which are beyond our control. These forward-looking statements, and the assumptions on which they are based, (i) are not guarantees of future events, (ii) are inherently speculative and (iii) are subject to significant risks and uncertainties. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us in those statements if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. All of our forward-looking statements are qualified in their entirety by reference to our discussion of certain important factors that could cause our actual results to differ materially from those anticipated, estimated, projected or implied by us in those forward-looking statements. Factors that could cause our results to differ materially from the expectations expressed in such forward-looking statements include but are not limited to the following:
the effects of competition from a wide variety of competitive providers, including decreased demand for our traditional wireline 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;
the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, interconnection obligations, universal service, broadband deployment, data protection and net neutrality;
our ability to timely realize the anticipated benefits of our recently-completed combination with Level 3, including our ability to attain anticipated cost savings, to use Level 3's net operating loss carryforwards in the amounts projected, to retain key personnel and to avoid unanticipated integration disruptions;
our ability to safeguard our network, and to avoid the adverse impact on our business from possible security breaches, service outages, system failures, equipment breakage, or similar events impacting our network or the availability and quality of our services;
our ability to effectively adjust to changes in the communications industry, and changes in the composition of our markets and product mix;
possible changes in the demand for our products and services, including our ability to effectively respond to increased demand for high-speed broadband service;
our ability to successfully maintain the quality and profitability of our existing product and service offerings, to provision them successfully to our customers and to introduce profitable new offerings on a timely and cost-effective basis;
our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt repayments, dividends, pension contributions and other benefits payments;
changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, whether based upon changes in our cash flows, cash requirements, financial performance, financial position, market conditions or otherwise;
our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages;
increases in the costs of our pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations, which may in turn impact our business and liquidity;
adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower debt credit ratings, unstable markets or otherwise;
our ability to meet the terms and conditions of our debt obligations;
our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions;

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our ability to effectively manage our network buildout project and our other expansion opportunities;
our ability to collect our receivables from financially troubled customers;
any adverse developments in legal or regulatory proceedings involving us;
changes in tax, communications, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels;
the effects of changes in accounting policies or practices, including potential future impairment charges;
the effects of adverse weather, terrorism or other natural or man-made disasters;
the effects of more general factors such as changes in interest rates, in exchange rates, in operating costs, in general market, labor, economic or geo-political conditions, or in public policy; and
other risks identified in our "Risk Factors" disclosures included in our annual report on Form 10-K for the year ended December 31, 2017.
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 dividend 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
CENTURYLINK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Three Months Ended
September 30,		 Nine Months Ended
September 30,		Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 20162018 2017 2018 2017
(Dollars in millions, except per share amounts
and shares in thousands)
(Dollars in millions, except per share amounts
and shares in thousands)
OPERATING REVENUES$4,034
 4,382
 12,333
 13,181
$5,902
 4,090
 11,847
 8,299
OPERATING EXPENSES              
Cost of services and products (exclusive of depreciation and amortization)1,927
 1,996
 5,705
 5,845
2,730
 1,890
 5,533
 3,778
Selling, general and administrative710
 798
 2,404
 2,450
1,115
 884
 2,224
 1,694
Depreciation and amortization910
 995
 2,739
 2,958
1,290
 949
 2,573
 1,829
Total operating expenses3,547
 3,789
 10,848
 11,253
5,135
 3,723
 10,330
 7,301
OPERATING INCOME487
 593
 1,485
 1,928
767
 367
 1,517
 998
OTHER (EXPENSE) INCOME              
Interest expense(362) (327) (1,000) (998)(546) (320) (1,081) (638)
Other income (expense), net14
 (17) 1
 16
16
 (7) 37
 (13)
Total other expense, net(348) (344) (999) (982)(530) (327) (1,044) (651)
INCOME BEFORE INCOME TAX EXPENSE139
 249
 486
 946
237
 40
 473
 347
Income tax expense47
 97
 214

362
Income tax (benefit) expense(55) 23
 66

167
NET INCOME$92
 152
 272
 584
$292
 17
 407
 180
BASIC AND DILUTED EARNINGS PER COMMON SHARE              
BASIC$0.17
 0.28
 0.50
 1.08
$0.27
 0.03
 0.38
 0.33
DILUTED$0.17
 0.28
 0.50
 1.08
$0.27
 0.03
 0.38
 0.33
DIVIDENDS DECLARED PER COMMON SHARE$0.54
 0.54
 1.62
 1.62
$0.54
 0.54
 1.08
 1.08
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING              
BASIC541,521
 539,806
 541,113
 539,411
1,064,711
 541,361
 1,064,663
 540,909
DILUTED541,963
 540,917
 541,879
 540,493
1,068,819
 542,151
 1,068,414
 541,836
See accompanying notes to consolidated financial statements.

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CENTURYLINK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017
2016
 (Dollars in millions)
NET INCOME$92
 152
 272
 584
OTHER COMPREHENSIVE INCOME:       
Items related to employee benefit plans:       
Change in net actuarial loss, net of $(15), $(16), $(57) and $(49) tax36
 28
 97
 82
Change in net prior service costs, net of $(1), $(1), $(3) and $(3) tax2
 2
 6
 6
Foreign currency translation adjustment and other, net of $—, $—, $— and $— tax18
 (4) 20
 (9)
Other comprehensive income56
 26
 123
 79
COMPREHENSIVE INCOME$148
 178
 395
 663
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (Dollars in millions)
NET INCOME$292
 17
 407
 180
OTHER COMPREHENSIVE (LOSS) INCOME:       
Items related to employee benefit plans:       
Change in net actuarial loss, net of $(11), $(22), $(22) and $(42) tax35
 30
 68
 61
Change in net prior service costs, net of $(1), $(1), $(2) and $(2) tax2
 2
 4
 4
Foreign currency translation adjustment and other, net of $44, $—, $30 and $— tax(239) 4
 (160) 2
Other comprehensive (loss) income(202) 36
 (88) 67
COMPREHENSIVE INCOME$90
 53
 319
 247
See accompanying notes to consolidated financial statements.

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CENTURYLINK, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As of
September 30, 2017		 As of
December 31, 2016		June 30, 2018 (Unaudited) December 31, 2017
(Dollars in millions
and shares in thousands)
(Dollars in millions
and shares in thousands)
ASSETS      
CURRENT ASSETS      
Cash and cash equivalents$160
 222
$700
 551
Accounts receivable, less allowance of $165 and $1781,888
 2,017
Restricted cash and securities5
 5
Accounts receivable, less allowance of $160 and $1642,471
 2,557
Assets held for sale7
 2,376
15
 140
Other639
 547
1,260
 941
Total current assets2,694
 5,162
4,451
 4,194
NET PROPERTY, PLANT AND EQUIPMENT   
Property, plant and equipment41,352
 39,194
Accumulated depreciation(23,718) (22,155)
Net property, plant and equipment17,634
 17,039
Property, plant and equipment, net of accumulated depreciation of $25,872 and $24,35226,494
 26,852
GOODWILL AND OTHER ASSETS      
Goodwill19,638
 19,650
30,715
 30,475
Restricted cash6,004
 2
Customer relationships, less accumulated amortization of $6,902 and $6,3182,214
 2,797
Other intangible assets, less accumulated amortization of $2,256 and $2,0421,539
 1,531
Restricted cash and securities27
 31
Customer relationships, net9,667
 10,876
Other intangibles, net1,869
 1,897
Other, net813
 836
1,123
 1,286
Total goodwill and other assets30,208
 24,816
43,401
 44,565
TOTAL ASSETS$50,536
 47,017
$74,346
 75,611
LIABILITIES AND STOCKHOLDERS' EQUITY      
CURRENT LIABILITIES      
Current maturities of long-term debt$124
 1,503
$437
 443
Accounts payable939
 1,179
1,360
 1,555
Accrued expenses and other liabilities      
Salaries and benefits679
 802
929
 890
Income and other taxes357
 301
344
 370
Interest309
 260
343
 363
Other216
 213
358
 344
Current liabilities associated with assets held for sale—
 419
Advance billings and customer deposits642
 672
Current portion of deferred revenue750
 892
Total current liabilities3,266
 5,349
4,521
 4,857
LONG-TERM DEBT24,854
 18,185
36,878
 37,283
DEFERRED CREDITS AND OTHER LIABILITIES      
Deferred income taxes, net3,128
 3,471
2,407
 2,413
Benefit plan obligations, net5,183
 5,527
4,884
 5,178
Other1,145
 1,086
2,667
 2,389
Total deferred credits and other liabilities9,456
 10,084
9,958
 9,980
COMMITMENTS AND CONTINGENCIES (Note 10)
 
COMMITMENTS AND CONTINGENCIES (Note 12)
 
STOCKHOLDERS' EQUITY      
Preferred stock—non-redeemable, $25.00 par value, authorized 2,000 and 2,000 shares, issued and outstanding 7 and 7 shares—
 —
Common stock, $1.00 par value, authorized 1,600,000 and 1,600,000 shares, issued and outstanding 549,654 and 546,545 shares550
 547
Preferred stock—non-redeemable, $25 par value, authorized 2,000 and 2,000 shares, issued and outstanding 7 and 7 shares—
 —
Common stock, $1.00 par value, authorized 1,600,000 and 1,600,000 shares, issued and outstanding 1,078,705 and 1,069,169 shares1,079
 1,069
Additional paid-in capital14,370
 14,970
23,360
 23,314
Accumulated other comprehensive loss(1,994) (2,117)(2,490) (1,995)
Retained earnings (accumulated deficit)34
 (1)
Retained earnings1,040
 1,103
Total stockholders' equity12,960
 13,399
22,989
 23,491
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$50,536
 47,017
$74,346
 75,611
See accompanying notes to consolidated financial statements.

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CENTURYLINK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,Six Months Ended June 30,
2017 20162018 2017
(Dollars in millions)(Dollars in millions)
OPERATING ACTIVITIES      
Net income$272
 584
$407
 180
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization2,739
 2,958
2,573
 1,829
Deferred income taxes(243) 32
400
 (126)
Loss on the sale of data centers and colocation business82
 —
—
 119
Impairment of assets held for sale11
 1
Impairment of assets28
 11
Provision for uncollectible accounts127
 144
83
 78
Net loss on early retirement of debt5
 27
Share-based compensation64
 60
95
 43
Changes in current assets and liabilities:      
Accounts receivable2
 (158)35
 71
Accounts payable(93) 52
(173) (112)
Accrued income and other taxes103
 1
(147) 29
Other current assets and liabilities, net(221) (24)(276) (306)
Retirement benefits(181) (143)(195) (56)
Changes in other noncurrent assets and liabilities, net(54) (41)400
 (92)
Other, net87
 19
19
 74
Net cash provided by operating activities2,700
 3,512
3,249
 1,742
INVESTING ACTIVITIES      
Payments for property, plant and equipment and capitalized software(2,363) (2,010)
Cash paid for acquisitions(5) (24)
Proceeds from sale of data centers and colocation business, less cash sold1,467
 —
Proceeds from sale of property51
 22
Capital expenditures(1,576) (1,610)
Proceeds from the sale of data centers and colocation business, less cash sold—
 1,473
Proceeds from sale of property, plant and equipment and other assets125
 48
Other investing, net(61) (5)
Net cash used in investing activities(850) (2,012)(1,512) (94)
FINANCING ACTIVITIES      
Net proceeds from issuance of long-term debt6,608
 2,161
130
 6,608
Proceeds from financing obligation (Note 3)356
 —
Proceeds from financing obligation—
 378
Payments of long-term debt(1,612) (2,436)(123) (1,530)
Net payments on credit facility and revolving line of credit(370) (325)
Net payments on revolving line of credit(405) (370)
Dividends paid(881) (876)(1,156) (590)
Proceeds from issuance of common stock5
 5
Shares withheld to satisfy tax withholdings(16) (15)
Net cash provided by (used in) financing activities4,090
 (1,486)
Net increase in cash, cash equivalents and restricted cash5,940
 14
Cash, cash equivalents and restricted cash at beginning of period224
 128
Cash, cash equivalents and restricted cash at end of period$6,164
 142
Other financing, net(36) (11)
Net cash (used in) provided by financing activities(1,590) 4,485
Effect of exchange rates on cash, cash equivalents, restricted cash and securities(2) —
Net increase in cash, cash equivalents, restricted cash and securities145
 6,133
Cash, cash equivalents, restricted cash and securities at beginning of period587
 224
Cash, cash equivalents, restricted cash and securities at end of period$732
 6,357
Supplemental cash flow information:      
Income taxes paid, net$(378) (344)
Interest paid (net of capitalized interest of $61 and $38)$(917) (922)
Income taxes refunded (paid), net$292
 (260)
Interest paid (net of capitalized interest of $28 and $41)$(1,061) (624)
See accompanying notes to consolidated financial statements.

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CENTURYLINK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)

Nine Months Ended September 30,Six Months Ended June 30,
2017 20162018 2017
(Dollars in millions)(Dollars in millions)
COMMON STOCK      
Balance at beginning of period$547
 544
$1,069
 547
Issuance of common stock through dividend reinvestment, incentive and benefit plans3
 3
10
 3
Balance at end of period550
 547
1,079
 550
ADDITIONAL PAID-IN CAPITAL      
Balance at beginning of period14,970
 15,178
23,314
 14,970
Issuance of common stock through dividend reinvestment, incentive and benefit plans5
 5
Change in common stock through dividend reinvestment, incentive and benefit plans(9) 3
Shares withheld to satisfy tax withholdings(16) (15)(35) (15)
Share-based compensation and other, net59
 59
94
 38
Dividends declared(648) (106)—
 (359)
Acquisition of additional minority interest in a subsidiary(4) —
Balance at end of period14,370
 15,121
23,360
 14,637
ACCUMULATED OTHER COMPREHENSIVE LOSS      
Balance at beginning of period(2,117) (1,934)(1,995) (2,117)
Other comprehensive income123
 79
Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(407) —
Other comprehensive (loss) income(88) 67
Balance at end of period(1,994) (1,855)(2,490) (2,050)
RETAINED EARNINGS      
Balance at beginning of period(1) 272
1,103
 (1)
Net income272
 584
407
 180
Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
407
 —
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $101 million taxes
297
 —
Cumulative effect of adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
3
 —
—
 3
Dividends declared(240) (777)(1,174) (233)
Balance at end of period34
 79
1,040
 (51)
TOTAL STOCKHOLDERS' EQUITY$12,960
 13,892
$22,989
 13,086
See accompanying notes to consolidated financial statements.

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CENTURYLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
References in the Notes to "CenturyLink," "we," "us" and "our" refer to CenturyLink, Inc. and its consolidated subsidiaries, unless the contentcontext otherwise requires and except in Note 4,6 - Long-Term Debt and Credit Facilities, where such references refer solely to CenturyLink, Inc. References in the Notes to "Level 3" refer to Level 3 Communications, Inc. prior to our acquisition thereof and to its successor-in-interest Level 3 Parent, LLC after such acquisition, unless the context otherwise requires.
(1)     Background
General
We are an integratedinternational facilities-based communications company engaged primarily in providing an integrated array of services to our residential and business customers. Our communications services include local and long-distance voice, broadband, Multi-Protocol Label Switchingvirtual private network ("MPLS"VPN"), data network, private line (including special access)access business data services), Ethernet, hosting (including cloud hosting and managed hosting), data integration, video, wavelength, network public access, Voice over Internet Protocol ("VoIP"), information technology, wavelength, broadband, colocation and data center services, managed services, professional and other services provided in connection with selling equipment, network security and various other ancillary services.
On November 1, 2017, we acquired Level 3 Communications, Inc. ("Level 3") in a cash and stock transaction. See Note 2—Acquisition of Level 3 for additional information. On May 1, 2017, we sold our data centers and colocation business to a consortium led by BC Partners, Inc. and Medina Capital for a combination of cash and equity. See Note 3—Sale of Data Centers and Colocation Business for additional information.
Basis of Presentation
Our consolidated balance sheet as of December 31, 2016,2017, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"); however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations and cash flows for the first ninesix 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 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, 20162017.
The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries.subsidiaries in which we have a controlling interest. These subsidiaries include Level 3 on and after November 1, 2017. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. In connection with our acquisition of Level 3, we acquired its deconsolidated Venezuela subsidiary and due to exchange restrictions and other conditions we have assigned no value to this subsidiary's assets. Additionally, we have excluded this subsidiary from our consolidated financial statements.
To simplify the overall presentation of our consolidated financial statements, we report immaterial amounts attributable to noncontrolling interests in certain of our subsidiaries as follows: (i) income attributable to noncontrolling interests in other income (expense), net, (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable to noncontrolling interests in other, net financing activities.
We pay dividends out of retained earnings to the extent we have retained earnings on the date the dividend is declared. If the dividend is in excess of our retained earnings on the declaration date, then the excess is drawn from our additional paid-in capital.
We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenues and our segment reporting. See Note 9—11—Segment Information for additional information. These changes had no impact on total operating revenues, total operating expenses or net income for any period.
Recently Adopted Accounting PronouncementsIncome Taxes
We have not completed our accounting for the tax effects of the Tax Cuts and Jobs Act (the "Act") which was signed into law in late December 2017. In order to complete our accounting for the second quarterimpact of 2017,the Act, we adopted Accounting Standards Update ("ASU"continue to obtain, analyze and interpret additional guidance as such guidance becomes available from the U.S. Treasury Department, the Internal Revenue Service (“IRS”) 2016-18, "Restricted Cash (a consensus of, state taxing jurisdictions, the Financial Accounting Standards Board ("FASB") Emerging Issues Task Force)" ("ASU 2016-18", and other standard-setting and regulatory bodies. Guidance issued by these bodies to date does not allow us to definitively calculate the taxes created by the Act. New guidance or interpretations may materially impact our provision for income taxes in future periods.

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Additional information that is needed to complete the analysis but is currently unavailable includes, but is not limited to, the amount of earnings of foreign subsidiaries, the final determination of certain net deferred tax assets subject to remeasurement due to purchase accounting adjustments and other matters, and the tax treatment of such provisions of the Act by various state tax authorities. We have provisionally recognized the tax impacts related to the re-measurement of deferred tax assets and liabilities. The ultimate impact may differ from our current provisional estimate due to additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Act. The change from our current provisional estimates will be reflected in our future statements of operations and could be material. We expect to complete the accounting in the fourth quarter of 2018.
The Act reduced the U.S. corporate income tax rate from a maximum of 35% to 21% for all C corporations, effective January 1, 2018, introduced further limitations on the deductibility of interest expense, made certain changes to the tax treatment of capital expenditures and various other items, and imposed a one-time repatriation tax on certain earnings of certain foreign subsidiaries. In addition, the Act introduces additional base-broadening measures, including Global Intangible Low-Taxed Income (“GILTI”) and the Base-Erosion Anti-Abuse Tax (“BEAT”). As a result of the reduction in the U.S. corporate income tax rate from 35% to 21%, we provisionally re-measured our net deferred tax liabilities at December 31, 2017 and recognized a tax benefit of approximately $1.1 billion in our consolidated statement of operations for the year ended December 31, 2017. During the first six months of 2018, we reduced this $1.1 billion tax benefit of tax reform by $76 million due to changes in certain purchase accounting adjustments related to the Level 3 acquisition, which was reflected in income tax expense. Additionally, this provisional benefit was further reduced by $208 million by the net deferred tax impact of certain tax accounting method changes filed with our 2017 Federal income tax return that significantly accelerated certain tax deductions into 2017.
During the second quarter of 2018, we continued to evaluate and analyze the tax impacts of the Act. While we have not finalized our analysis, we do not expect the provisions of the Act, exclusive of the rate reduction, to materially impact us during the remainder of 2018. However, we cannot provide any assurance that, upon completion of our analysis, the impact will not be material or that there will not be material tax impacts in future years. Accordingly, other than as noted above, we have not made any additional adjustments related to the Act in our consolidated financial statements.
As noted above, we accelerated a significant amount of tax deductions into 2017. The accelerated tax deductions resulted in a 2017 net operating loss for tax purposes, a portion of which was carried back to 2016 to generate a cash refund of $392 million. Additionally, we received a $314 million refund in the second quarter of 2018 related to 2017 federal income taxes. Because of our net operating loss carryforwards, we do not expect to experience a further material near term reduction in the amount of cash income taxes paid by us from the Act. However, we anticipate that the provisions of the Act may reduce our cash income taxes in future years.
Recently Adopted Accounting Pronouncements
In the first quarter of 2017,2018, we adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”, ASU 2016-09, “Improvements to Employee Share Based Compensation” (“ASU 2016-09”)2018-02, “Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” and ASU 2017-07, “Improving the Presentation2016-16, “Intra-Entity Transfers of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”)Assets Other Than Inventory”.
Each of these is described further below.

Restricted Cash
On November 17, 2016, the FASB issued ASU 2016-18, which requires that a statement of cash flows explain the change in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents as compared to the previous presentation, which explains only the change in cash and cash equivalents. ASU 2016-18 is effective January 1, 2018, but early adoption is permitted and requires retrospective application of the requirements to all previous periods presented. We early adopted ASU 2016-18 in the second quarter of 2017.
Prior to the financing transaction we entered into in the second quarter of 2017 related to the Level 3 acquisition, as further described in Note 4—Long-Term Debt and Credit Facilities, our restricted cash balances have been immaterial. With the adoption of ASU 2016-18, our "net increase in cash, cash equivalents and restricted cash" presented in our consolidated statements of cash flows for the nine months ended September 30, 2017 increased by $6 billion as a result of the inclusion of the restricted cash related to the Level 3 financing transaction, with a corresponding increase in net cash generated from financing activities. On November 1, 2017, the escrowed funds were released upon the consummation of the Level 3 acquisition.
Share-based Compensation
ASU 2016-09 modified the accounting and associated income tax accounting for share-based compensation in order to reduce the cost and complexity associated with previous U.S. GAAP. The primary provisions of ASU 2016-09 that affect our consolidated financial statements for the three and nine months ended September 30, 2017 are:
1.A reclassification of the income tax effect associated with the difference between the expense recognized for share-based payments and the related tax deduction from additional paid-in capital to income tax expense. This change was applied on a prospective basis and resulted in no change in income tax expense for the three months ended September 30, 2017 and a $6 million increase in income tax expense for the nine months ended September 30, 2017.

2.We elected to change our accounting policy to account for forfeitures of share-based payment grants as they occur as opposed to our previous policy of estimating the forfeitures on the grant date. The cumulative effect of adopting this policy as of January 1, 2017 resulted in an increase of $3 million, net of a $2 million tax effect, in retained earnings (accumulated deficit).
Net Periodic Pension and Postretirement Benefit Costs
ASU 2017-07 modified the presentation of net periodic pension and postretirement benefit costs and requires the service cost component to be reported separately from the other components in order to provide more useful information. Under ASU 2017-07, the service cost component of net periodic pension and postretirement benefit costs is required to be presented in the same expense category as the related salary and wages for the employee. The other components of the net periodic pension and postretirement benefit costs are required to be recognized below operating income in other income (expense), net in our consolidated statements of operations. This change was applied on a retrospective basis to all previous periods to match the current period presentation. This retrospective application resulted in a $2 million and $11 million reduction in operating income and a corresponding decrease in total other expense, net for the three and nine months ended September 30, 2016, respectively.
Recent Accounting Pronouncements
Goodwill Impairment
On January 26, 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the impairment testing for goodwill by changing the measurement for goodwill impairment. Under current rules, we are required to compute the implied fair value of goodwill to measure the impairment amount if the carrying value of a reporting unit exceeds its fair value. Under ASU 2017-04, the goodwill impairment charge will equal the excess of the reporting unit carrying value above fair value, limited to the amount of goodwill assigned to the reporting unit.
We are required to adopt the provisions of ASU 2017-04 for any goodwill impairment tests, including our required annual test, occurring after January 1, 2020, but have the option to early adopt for any impairment test that we are required to perform. We have not determined if we will elect to early adopt the provisions of ASU 2017-04. The provisions of ASU 2017-04 would not have affected our last goodwill impairment assessment, but no assurance can be provided that the simplified testing methodology will not affect our goodwill impairment assessment in the future.

Income Taxes
On October 24, 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” ("ASU 2016-16"). ASU 2016-16 eliminates the current prohibition on the recognition of the income tax effects on the transfer of assets among our subsidiaries. After adoption of this ASU, the income tax effects associated with these asset transfers, except for the transfer of inventory, will be recognized in the period the asset is transferred versus the current deferral and recognition upon either the sale of the asset to a third party or over the remaining useful life of the asset. We are currently reviewing the requirements of this ASU and evaluating the impact on our consolidated financial statements.
We expect to adopt the provisions of ASU 2016-16 on the required adoption date of January 1, 2018. The impact of adopting ASU 2016-16, if any, will be recognized through a cumulative adjustment to (accumulated deficit) retained earnings as of the date of adoption.
Financial Instruments
On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). The primary impact of ASU 2016-13 for us is a change in the model for the recognition of credit losses related to our financial instruments from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires our management team to estimate the total credit losses expected on the portfolio of financial instruments. We are currently reviewing the requirements of the standard and evaluating the impact on our consolidated financial statements.
We are required to adopt the provisions of ASU 2016-13 effective January 1, 2020, but could elect to early adopt the provisions as of January 1, 2019. We expect to recognize the impacts of adopting ASU 2016-13 through a cumulative adjustment to (accumulated deficit) retained earnings as of the date of adoption. As of the date of this report, we have not yet determined the date we will adopt ASU 2016-13.
Leases
On February 25, 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 will require lessees to present right-of-use assets and lease liabilities on their balance sheets for operating leases, which are currently not reflected on their balance sheets.
ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. Upon adoption of ASU 2016-02, we are required to recognize and measure leases at the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply.
We are currently evaluating new lease administrative and accounting systems and are in the process of developing an implementation plan. We plan to adopt the standard when it becomes effective for us beginning January 1, 2019 and the adoption of the standard will result in the recognition of right of use assets and lease liabilities that have not previously been recorded. Although we believe it is premature as of the date of this report to provide any estimate of the impact of adopting ASU 2016-02, we do expect that it will have a material impact on our consolidated financial statements. Additionally, upon the January 1, 2019, implementation of ASU 2016-02, accounting for the failed-sale-leaseback transaction described in Note 3—Sale of Data Centers and Colocation Business will no longer be applicable based on our facts and circumstances, and the real estate assets and corresponding financing obligation will be derecognized from our consolidated balance sheet.
Revenue Recognition
On May 28, 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09which replaces virtually all existing GAAPgenerally accepted accounting principles on revenue recognition and replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs.
We currently do not defer any contract acquisition costs, but we expect we will defer certain contract acquisition costs in the future, which initially could have the impact of lowering our operating expenses. We currently defer contract fulfillment costs only to the extent of any deferred revenue. Under ASU 2014-09, in certain transactions our deferred contract fulfillment costs could exceed our deferred revenues, which could result in an increase in deferred costs, and could also impact the timing on our recognition of these deferred costs.

On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year until January 1, 2018, which is the date we plan to adopt this standard. ASU 2014-09 may be adopted by applying the provisions of this standard on a retrospective basis to the periods included in the financial statements or on a modified retrospective basis, which would result in the recognition of a cumulative effect of adopting ASU 2014-09 in the first quarter of 2018. We have completed our initial assessment of our business and systems requirements, and we are currently developing and implementing a new revenue recognition system to comply with the requirements of ASU 2014-09. In addition, we are undergoing a review of our existing internal controls relating to our revenue recognition and financial reporting processes, and we expect to update or implement additional controls in applying the five-step model for recognizing revenue. We currently plan to adopt the new revenue recognition standard under the modified retrospective transition method. On January 1, 2018, we recorded a cumulative catch-up adjustment that increased our retained earnings by $297 million, net of $101 million of income taxes.
Under ASU 2014-09, we are now deferring incremental contract acquisition and fulfillment costs and are recognizing (i.e. amortizing) such costs over either the initial contract (plus anticipated renewal contracts to which the costs relate) or the average customer life. Our deferred acquisition and fulfillment contract costs for our customers have average amortization periods of approximately 12 to 60 months for our business customers and 30 months for our consumer customers, and are monitored every period to reflect any significant change in assumptions.

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See Note 5—Revenue Recognition for additional information.
Comprehensive Income
ASU 2018-02 provides an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. If an entity elects to reclassify the income tax effects of the Tax Cuts and Jobs Act, the amount of that reclassification shall include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of enactment of the Tax Cuts and Jobs Act related to items remaining in accumulated other comprehensive income. The effect of the change in the U.S. federal corporate income tax rate on gross valuation allowances that were originally charged to income from continuing operations shall not be included. ASU 2018-02 is effective January 1, 2019, but early adoption is permitted and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We early adopted and applied ASU 2018-02 in the first quarter of 2018. The adoption of ASU 2018-02 resulted in a $407 million increase to retained earnings and in accumulated other comprehensive loss. See Note 14—Accumulated Other Comprehensive Loss for additional information.
Income Taxes
ASU 2016-16 eliminates the current prohibition on the recognition of the income tax effects on the transfer of assets among our subsidiaries. Prospectively, the income tax effects associated with these asset transfers, except for the transfer of inventory, will be recognized in the period the asset is transferred versus the current deferral and recognition upon either the sale of the asset to a third party or over the remaining useful life of the asset. Our adoption of ASU 2016-16 did not have a material impact to our consolidated financial statements.
Recently Issued Accounting Pronouncements
Goodwill Impairment
On January 26, 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the impairment testing for goodwill by changing the measurement for goodwill impairment. Under current rules, we are required to compute the implied fair value of goodwill to measure the impairment amount if the carrying value of a reporting unit exceeds its fair value. Under ASU 2017-04, the goodwill impairment charge will equal the excess of the reporting unit carrying value above its fair value, limited to the amount of goodwill assigned to the reporting unit.
We are required to adopt the provisions of ASU 2017-04 for any goodwill impairment tests, including our required annual test, occurring after January 1, 2020, but have the option to early adopt it for any impairment test that we are required to perform. We have not determined if we will elect to early adopt the provisions of ASU 2017-04. The provisions of ASU 2017-04 would not have affected our last goodwill impairment assessment, but no assurance can be provided that the simplified testing methodology will not affect our goodwill impairment assessment in the future.
Financial Instruments
On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). The primary impact of ASU 2016-13 for us is a change in the model for the recognition of credit losses related to our financial instruments from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires our management team to estimate the total credit losses expected on the portfolio of financial instruments. We are currently reviewing the requirements of the standard and evaluating the impact on our consolidated financial statements.
We are required to adopt the provisions of ASU 2016-13 effective January 1, 2020, but could elect to early adopt the provisions as of January 1, 2019. We expect to recognize the impacts of adopting ASU 2016-13 through a cumulative adjustment to retained earnings as of the date of adoption. As of the date of this report, we have not yet determined the date we will adopt ASU 2016-13.
Leases
On February 25, 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 will require lessees to present right-of-use assets and lease liabilities on their balance sheets for operating leases, which under GAAP are currently not ablerequired to be reflected on their balance sheets.

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ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. Upon adoption of ASU 2016-02, we are required to recognize and measure leases at the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply.
On January 25, 2018, the FASB issued ASU 2018-01, “Leases: Land Easement Practical Expedient for Transition to ASU 2016-02" ("ASU 2018-01"). ASU 2018-01 permits reporting companies to elect to forego reassessments of land easements that exist or expire before the entity’s adoption of ASU 2016-02 and that were not previously accounted for as leases. We plan to adopt ASU 2018-01 at the same time we adopt ASU 2016-02.
On July 30, 2018, the FASB issued ASU 2018-11, "Leases: Targeted Improvements". ("ASU 2018-11") provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We have not yet determined whether we will use the newly permitted adoption method.
We are in the process of implementing a new lease administration and accounting system. We plan to adopt ASU 2016-02 and ASU 2018-01 effective January 1, 2019. The adoption of ASU 2016-02 will result in our recognition of right of use assets and lease liabilities that we have not previously recorded. Although we believe it is premature as of the date of this report to provide reasonably accurate estimatesany estimate of the impact of adopting ASU 2016-02, we do expect that it will have a material impact on our consolidated financial statements. Additionally, upon implementing ASU 2014-092016-02, accounting for the failed-sale-leaseback transaction described in Note 3—Sale of Data Centers and Colocation Business will no longer be applicable based on our facts and circumstances, and the timing of our revenue recognition or the transition adjustment thatreal estate assets and corresponding financing obligation described therein will be recorded to equity on January 1, 2018.derecognized from our consolidated financial statements.
(2)    Acquisition of Level 3
On November 1, 2017, CenturyLink acquired Level 3 through successive merger transactions, including a merger of Level 3 with and into a merger subsidiary, which survived such merger as our indirect wholly-owned subsidiary under the name of Level 3 Parent, LLC.
As a resultof June 30, 2018, our preliminary estimated amount of aggregate consideration was $19.6 billion.
We have recognized the assets and liabilities of Level 3 based on CenturyLink’s preliminary estimates of the fair value of the acquired tangible and intangible assets and assumed liabilities of Level 3 as of November 1, 2017, the consummation date of the acquisition, Level 3 shareholders received $26.50 per share in cash and 1.4286 shares of CenturyLink common stock, with cash paid in lieu of fractional shares, for each outstanding share of Level 3 common stock they owned at closing, subject to certain limited exceptions. Upon closing, CenturyLink shareholders owned approximately 51% and Level 3 shareholders owned approximately 49%the excess aggregate consideration recorded as goodwill. The final determination of the combined company. At closing, we assumed Level 3's long-term debtallocation of approximately $11 billion.
In addition, each outstanding Level 3 restricted stock unit award granted prior to April 1, 2014 or granted to an outside director of Level 3 was converted into the right to receive $26.50 in cash and 1.4286 shares ofaggregate consideration paid by CenturyLink common stock (and cash in lieu of fractional shares) with respect to each Level 3 share covered by such award, less applicable tax withholdings, and each outstanding Level 3 restricted stock unit award granted on or after April 1, 2014 (other than those granted to outside directors of Level 3) was converted into a CenturyLink, Inc. restricted stock unit award using a ratio of 2.8386 to 1 as determined in accordance with a formula set forth in the merger agreement.
The consideration for this acquisition included $9.6 billion in cash payments and approximately 517 million shares of CenturyLink common stock (valued at $9.8 billioncombination will be based on the $18.99 closing pricefair value of such assets and liabilities as of the acquisition date with any excess aggregate consideration to be recorded as goodwill. The estimation of such fair values and the estimation of lives of depreciable tangible assets and amortizable intangible assets require significant judgment. We are reviewing our stockvaluation analysis and calculations of the estimates of the fair value of Level 3’s assets acquired and liabilities assumed, along with the related allocation to goodwill. We expect to complete our final fair value determinations prior to the anniversary date of the acquisition. Our final fair value determinations may be significantly different than those reflected in our consolidated financial statements at June 30, 2018.
The U.S. Department of Justice approved the acquisition subject to conditions of a consent decree on October 31, 2017) issued2, 2017, which requires us to divest (i) certain Level 3 stockholders at closing. Our final determinationmetro network assets in three markets. and (ii) 24 strands of dark fiber connecting 30 specified city-pairs across the United States in the form of an indefeasible right of use agreement. During the second quarter of 2018, we sold network assets in Boise and Albuquerque, and entered into an indefeasible right of use agreement for the dark fiber, and recognized no book gain or loss in connection therewith. The proceeds from the sales are included in the proceeds from sale of property, plant and equipment and other assets on our consolidated statements of cash flows. We continue to pursue the divestiture in Tucson, Arizona. All of the metro network assets were classified as assets held for sale on our consolidated balance sheet as of December 31, 2017. The Tucson assets continue to be classified as assets held for sale on our consolidated balance sheet as of June 30, 2018.
Level 3's results of operations have been included in our consolidated results of operations beginning November 1, 2017.
Based solely on our preliminary estimates through June 30, 2018, the aggregate consideration will also includeexceeds the aggregate estimated fair value of the pre-combination portion of certainacquired assets and assumed share-based compensation awards.liabilities by $11.1 billion, which we have recognized as goodwill. The premium paid by CenturyLink in this transactiongoodwill is attributable to strategic benefits, including enhanced financial and operational scale, market diversification and improved networks.leveraged combined networks that we expect to realize. None of the goodwill associated with this transactionacquisition is deductible for income tax purposes.
The

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As of June 30, 2018, the following is our updated assignment of the preliminary estimated aggregate cash payments requiredconsideration:
 Adjusted November 1, 2017 Balance as of December 31, 2017 
Purchase Price Adjustments (3)
 Adjusted November 1, 2017 Balance as of June 30, 2018
 (Dollars in millions)
Cash, accounts receivable and other current assets (1)
$3,317
 (14) 3,303
Property, plant and equipment9,311
 113
 9,424
Identifiable intangible assets (2)
    

Customer relationships8,964
 (476) 8,488
Other391
 (13) 378
Other noncurrent assets782
 184
 966
Current liabilities, excluding current maturities of long-term debt(1,461) (20) (1,481)
Current maturities of long-term debt(7) —
 (7)
Long-term debt(10,888) —
 (10,888)
Deferred revenue and other liabilities(1,629) (85) (1,714)
Goodwill10,837
 306
 11,143
Total estimated aggregate consideration$19,617
 (5) 19,612
____________________________________________________________________________________________________________                
(1)
Includes a preliminary estimated fair value of $861 million for accounts receivable, which had a gross contractual value of $884 million on November 1, 2017. The $23 million difference between the gross contractual value and the preliminary estimated fair value assigned represents our best estimate as of November 1, 2017 of contractual cash flows that will not be collected.
(2)
The preliminary estimate of the weighted-average amortization period for the acquired intangible assets is approximately 12.0 years.
(3)
All purchase price adjustments occurred during the six months ended June 30, 2018.
On the acquisition date, we assumed Level 3’s contingencies. For more information on our contingencies, see Note 12—Commitments and Contingencies.
Acquisition-Related Expenses
We have incurred acquisition-related expenses related to be paid on or about the closing date were funded with the proceeds of $7.945 billion of term loans and $400 million of funds borrowed under our new revolving credit facility discussed further herein, together with other available funds, which included $1.825 billionacquisition of Level 3 Parent, LLC's available funds. For additional information regarding CenturyLink’s financing3. The table below summarizes our acquisition-related expenses, which consist of theintegration-related expenses, including severance and retention compensation expenses, and transaction-related expenses:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (Dollars in millions)
Transaction-related expenses$—
 7
 1
 17
Integration-related expenses162
 11
 232
 11
Total acquisition-related expenses$162
 18
 233
 28
Through June 30, 2018, we had incurred cumulative acquisition-related expenses of $555 million for Level 3 acquisition see Note 4—Long-Term Debt and Credit Facilities.
Following the Level 3 acquisition, (i) Standard and Poor's downgraded CenturyLink, Inc.'s current unsecured long-term debt rating to B+ (with a stable outlook); (ii) Moody's Investors Services downgraded CenturyLink, Inc.'s current unsecured long-term debt rating to B2 (with a negative outlook); and (iii) Fitch's Ratings downgraded CenturyLink, Inc.'s current unsecured long-term debt rating to BB (with a stable outlook). Also subsequent to the Level 3 acquisition, (i) Standard and Poor's rated CenturyLink, Inc.'s new secured long-term debt at BBB- (with a stable outlook); (ii) Moody's Investors Services rated CenturyLink, Inc.'s new secured long-term debt at Ba3 (with a negative outlook); and (iii) Fitch's Ratings rated CenturyLink, Inc.'s new secured long-term debt at BB+ (with a stable outlook).
Following the Level 3 acquisition, Qwest Corporation's current unsecured senior debt rating3. The total amounts of Ba1 was downgraded to Ba2 with a negative outlook by Moody's Investors Service, Inc., and its current unsecured senior debt rating of BBB- was downgraded to BB+ with a stable outlook by Fitch Ratings. Standard and Poor's reaffirmed its rating of BBB- with a stable outlook for Qwest Corporation's current unsecured senior debt.

The consolidated results of operations of Level 3 will bethese expenses have been included in our consolidatedselling, general and administrative expenses beginning in the fourth quarter of 2016.
Level 3 incurred transaction-related expenses of $47 million on the date of acquisition. This amount is not included in our results of operations beginning November 1, 2017. The assets acquired and liabilities assumed of Level 3 will be recognized at their estimated acquisition date fair values. The estimation of such fair values andoperations.
References to Acquired Businesses
In the related estimation of lives of depreciable tangible assets and amortizable intangible assets will require significant judgment. Duediscussion that follows, we refer to the timingincremental business activities that we now operate as a result of the Level 3 acquisition as “Legacy Level 3”. References to “Legacy CenturyLink”, when used to compare our consolidated results for the three and six months ended June 30, 2018 and 2017, mean the business we operated prior to the Level 3 acquisition.

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Combined Pro Forma Operating Results (Unaudited)
For the three and six months ended June 30, 2018, CenturyLink's results of operations included operating revenues (net of intercompany eliminations) attributable to Level 3 of $2.025 billion and $4.087 billion, respectively.
The following unaudited pro forma financial information presents the combined results of CenturyLink as if the Level 3 acquisition had been consummated as of January 1, 2017:
 Three Months Ended June 30, 2017 Six Months Ended June 30, 2017
 (Dollars in millions, except per share amounts)
Operating revenues$6,091
 12,285
Net income93
 265
Basic earnings per common share0.09
 0.25
Diluted earnings per common share0.09
 0.25
This pro forma information reflects certain adjustments to previously-reported operating results, consisting primarily but not exclusively of:
decreased operating revenues and expenses due to the elimination of transactions among CenturyLink and Level 3 that are now subject to intercompany elimination and the elimination of deferred revenues associated with installation activities that were preliminarily assigned no value at the acquisition date;
increased amortization expense related to identifiable intangible assets, net of decreased depreciation expense to reflect the preliminary fair value of property, plant and equipment;
increased interest expense resulting from (i) interest on the new debt to finance the combination and amortization of the daterelated debt discount and debt issuance costs, (ii) the elimination of this report, we cannot yet make with reasonable accuracy estimatesLevel 3’s historical amortization of certain componentsdebt discount and debt issuance costs and (iii) a reduction in interest expense due to the accretion of an adjustment to reflect the increased preliminary fair value of the aggregatelong-term debt of Level 3 recognized on the acquisition considerationdate; and
the fair valuesrelated income tax effects.
The pro forma information is presented for illustrative purposes only and does not necessarily reflect the actual results of assets acquiredoperations had the Level 3 acquisition been consummated at January 1, 2017, nor is it necessarily indicative of future operating results. The pro forma information excludes transaction costs incurred by us and liabilities assumed. The final determinations of aggregate acquisition considerationLevel 3 during the quarterly periods presented above (which are further described above in this note) and our estimates of acquisition date fair value will be determined based in part upon an analysis, which is expecteddoes not reflect integration costs to be completedincurred by us in 2018.future periods. In addition, the pro forma information does not give effect to any potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisition (other than those actually realized in our historical consolidated financial statements after November 1, 2017).
As a result of September 30, 2017, we had recognized approximately $70 million in cumulative merger-related transaction costs, including investment banker and legal fees.
In the first half of 2017, we granted less than 1 million shares of restricted stock and approximately $21 million of deferred cash compensation awards to certain executive officers and other key employees as part of a retention program in connection with our acquisition of Level 3. The shares of restricted stock will vest in equal installments on3's net operating losses ("NOL"s), we expect to significantly reduce our federal cash taxes for the first, second and third anniversaries of the merger closing date. Each employee receiving a deferred cash award is expected to receive one-half of the award no later than 15 days after the closing date and receive the other half on the one year anniversary of the merger closing date, subject to continued employment with us. Both the restricted stock grant and the deferred cash award will accelerate if we terminate the recipient without cause or under certain other conditions. During the nine months ended September 30, 2017, we recorded compensation expense of $17 million related to this retention program (which does not reflect compensation expense separately incurred by Level 3 under its distinct retention plan).next several years.
(3)    Sale of Data Centers and Colocation Business
On May 1, 2017, we sold our data centers and colocation business to a consortium led by BC Partners, Inc. and Medina Capital in exchange for cash and a minority stake in the limited partnership that owns the consortium's newly-formed global secure infrastructure company, Cyxtera Technologies ("Cyxtera").
We received pre-tax cash proceeds of $1.8 billion, and we have valued our minority stake at $150 million, which was based upon the total equity contribution to the limited partnership on the date made. Due to the sale and related restructuring actions we have taken regarding certain subsidiaries involved in the data centers and colocation business, we have estimated a cumulative current tax impact relating to the sale totaling $65 million, $18 million

Table of which was accrued in 2016 and $47 million of which was accrued in the first half of 2017.Contents

In connection with our sale of the data centers and colocation business to Cyxtera, we agreed to lease back from Cyxtera a portion of the data center space to provide data hosting services to our customers. Because we have continuing involvement in the business through our minority stake in Cyxtera's parent, we do not meet the requirements for a sale-leaseback transaction as described in ASC 840-40, Leases - Sale-Leaseback Transactions. Under the failed-sale-leaseback accounting model, we are deemed under GAAP to still own certain real estate assets sold to Cyxtera, which we must continue to reflect on our consolidated balance sheetsheets and depreciate over the assets' remaining useful life. WeUnder this accounting model, we must also treat a certain amount of the pre-tax cash proceeds from the sale of the assets as though it were the result of a financing obligation on our consolidated balance sheet,sheets, and our consolidated results of operations must include imputed revenue associated with the portion of the real estate assets that we have not leased back and imputed interest expense on the financing obligation. A portion of the rent payments required under our leaseback arrangement with Cyxtera are recognized as reductions of the financing obligation, resulting in lower recognized rent expense than the amounts actually paid each period. At the end of the lease term, the remaining imputed financing obligation and the remaining net book value of the real estate assets will be derecognized. Please see "Leases" (ASU 2016-02) in Note 1—Background for additional information on the impact the new lease standard will have on the accounting for the failed-sale-leaseback.

The following table reflects the assets sold to and the liabilities assumed by Cyxtera on May 1, 2017, including our most current estimatesestimate of the impact of failed-sale-leaseback:
 Dollars in millions
Goodwill$1,142
Property, plant and equipment1,051
Other intangible assets249
Other assets66
Less assets recorded as part of the failed-sale-leaseback(526)
Total net amount of assets derecognized$1,982
  
Capital lease obligations$294
Other liabilities274
Less imputed financing obligations from the failed-sale-leaseback(628)
Total net imputed liabilities recognized$(60)
In addition, based on our most current estimates, the failed-sale-leaseback accounting treatment had the following effects on our consolidated results of operations for the three and nine months ended September 30, 2017, respectively:
 Positive (Negative) Impact to Net Income
 Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
 (Dollars in millions)
Increase in revenue$19
 31
Decrease in cost of sales6
 9
Decrease (increase) in loss on sale of business included in selling, general and administrative expense15
 (102)
Increase in depreciation expense (one-time)—
 (44)
Increase in depreciation expense (ongoing)(19) (29)
Increase in interest expense(17) (25)
(Increase) decrease in income tax expense(3) 60
Increase (decrease) in net income$1
 (100)
After factoring in the costs to sell the data centers and colocation business, excluding the estimated impacts from the failed-sale-leaseback accounting treatment, the sale resulted in a $20 million gain as a result of the aggregate value of the proceeds we received exceeding the carrying value of the assets sold and liabilities assumed. Based on our most current estimates of the fair market values of the failed-sale-leaseback assets, the failed-sale-leaseback accounting treatment resulted in a loss of $102 million as a result of the requirement to treat a certain amount of the pre-tax cash proceeds from the sale of the assets as though it were the result of a financing obligation. The combined net loss of $82 million is included in selling, general and administrative expenses in our consolidated statement of operations for the nine months ended September 30, 2017. The sale also resulted in a significant capital loss carryforward, which will be entirely offset by a valuation allowance due to our determination that we are not likely to be able to utilize this carryforward prior to its expiration.
We evaluated our minority stake in the limited partnership and determined that we were not the primary beneficiary of the entity. As a result, we classified our $150 million investment in the limited partnership in other assets on our consolidated balance sheet as of SeptemberJune 30, 2017. In addition2018.
(4)    Goodwill, Customer Relationships and Other Intangible Assets
Goodwill, customer relationships and other intangible assets consisted of the following:
 June 30, 2018 December 31, 2017
 (Dollars in millions)
Goodwill$30,715
 30,475
Customer relationships, less accumulated amortization of $7,803 and $7,096$9,667
 10,876
Indefinite-life intangible assets$269
 269
Other intangible assets subject to amortization:   
Capitalized software, less accumulated amortization of $2,447 and $2,2941,454
 1,469
Trade names and patents, less accumulated amortization of $46 and $31146
 159
Total other intangible assets, net$1,869
 1,897
Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired (including the acquisition described in Note 2—Acquisition of Level 3). At June 30, 2018 and December 31, 2017, the net carrying amounts of goodwill, customer relationships and other intangibles assets included preliminary estimates of $19.5 billion and $20.1 billion, respectively, as a result of our Level 3 acquisition.

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Total amortization expense for intangible assets for the three and six months ended June 30, 2018 totaled $447 million and $890 million, respectively, and for the three and six months ended June 30, 2017 totaled $276 million and $551 million, respectively. As of June 30, 2018, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $52.5 billion.
We estimate that total amortization expense for intangible assets (which include preliminary estimates for the intangible assets acquired from Level 3) for the years ending December 31, 2018 through 2022 will be as follows:
 (Dollars in millions)
2018 (remaining six months)$889
20191,691
20201,588
20211,156
2022979
The following table shows the rollforward of goodwill assigned to our investment,reportable segments from December 31, 2017 through June 30, 2018:
 Business Consumer Total
 (Dollars in millions)
As of December 31, 2017$20,197
 10,278
 30,475
Purchase accounting and other adjustments306
 —
 306
Effect of foreign currency rate change(66) —
 (66)
As of June 30, 2018$20,437
 10,278
 30,715
As of June 30, 2018, the $20.4 billion of goodwill assigned to our business reportable segment had not been allocated to our expected future reporting units ((i) medium and small business, (ii) enterprise, (iii) international and global accounts, (iv) wholesale and indirect and (v) consumer) as we had not completed our valuation analysis and calculation.
(5)     Revenue Recognition
We earn most of our consolidated revenue from contracts with customers, primarily through the provision of telecommunications and other services. Revenue from contracts with customers is accounted for under Accounting Standards Codification ("ASC") 606, which we adopted on January 1, 2018 using the modified retrospective approach. We also earn revenues from leasing arrangements (primarily fiber capacity agreements) and governmental subsidiary payments, neither of which are accounted for under ASC 606.
Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. Revenue is recognized based on the following five-step model:
•Identification of the contract with a customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and,
•Recognition of revenue when, or as, we satisfy a performance obligation.
We provide an array of communications services, including local voice, broadband, private line (including special access), network access, Ethernet, information technology, video and other ancillary services. We provide these services to a wide range of businesses, including global/international, enterprise, wholesale, government, small and medium business customers, as well as residential customers. Certain contracts also include the sale of equipment, which is not significant to our business.

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For access services, we generally bill fixed monthly charges one month in advance to customers and recognize revenue as service is provided over the contract term in alignment with the customer's receipt of service. For usage, installation and other ancillary services, we generally bill in arrears and recognize revenue as usage or delivery occurs. In most cases, the amount invoiced for our service offerings constitutes the price that would be billed on a standalone basis. To the extent certain products or services are discounted as a part of a bundle arrangement, the bundle discounts are included in our calculation of the total transaction price with the customer, which is allocated to the various services in the bundle offering based on the estimated selling price of services included in each bundle combination.
Under ASC 606, we recognize revenue for services when we provide the applicable service or when control is transferred. Recognition of certain payments received in advance of services being provided is deferred until the service is provided. These advance payments include certain activation and certain installation charges. If the activation and installation charges are not separate performance obligations, we recognize as revenue over the actual or expected contract term using historical experience, which ranges from one year to seven years depending on the service. In most cases, termination fees or other fees on existing contracts that are negotiated in conjunction with new contracts are deferred and recognized over the new contract term.
Promotional or performance-based incentive payments are estimated at contract inception (and updated on a periodic basis as needed) and accounted for as variable consideration. In certain cases, customers may be permitted to modify their contracts without incurring a penalty. We evaluate the change in scope or price to identify whether the modification should be treated as a separate contract, whether the modification is a termination of the existing contract and creation of a new contract, or if it is a change to the existing contract. The impact of contract modifications is not significant to our results.
Customer contracts are evaluated to determine whether the performance obligations are separable. If the performance obligations are deemed separable and separate earnings processes exist, the total transaction price that we expect to receive with the customer is allocated to each performance obligation based on its relative standalone selling price. The revenue associated with each performance obligation is then recognized as earned. The portion of any advance payment allocated to the service based upon its relative selling price is recognized ratably over the contract term.
We periodically sell optical capacity on our network. These transactions are structured as indefeasible rights of use, commonly referred to as IRUs, which are the exclusive right to use a specified amount of capacity or fiber for a specified term, typically 10 to 20 years. In most cases, we account for the cash consideration received on transfers of optical capacity and fiber assets and on all of the other elements deliverable under an IRU as non-ASC 606 lease revenue, which we recognize ratably over the term of the agreement. We do not recognize revenue on any contemporaneous exchanges of our optical capacity assets for other non-owned optical capacity assets.
In connection with offering products and services provided to the end user by third-party vendors, we review the relationship between us, the vendor and the end user to assess whether revenue should be reported on a gross or net basis. In assessing whether revenue should be reported on a gross or net basis, we consider whether we act as a principal in the transaction and control the goods and services used to fulfill the performance obligations associated with the transaction. Based on our agreement with DIRECTV, we offer this service through a sales agency relationship which we report on a net basis.
We have service level commitments pursuant to contracts with certain of our customers. To the extent that such service levels are not achieved or are otherwise disputed due to performance or service issues or other service interruptions or conditions, we will estimate the amount of credits to be issued and record a reduction to revenues in the period that the service level commitment was not met.
Customer payments are made based on billing schedules included in our customer contracts, which is typically on a monthly basis. For certain products or services and customer types, payment is required before products or services are provided.

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Comparative Results
The following tables present our reported results under ASC 606 and a reconciliation to results using the historical accounting method:
 Three Months Ended June 30, 2018
 
(Dollars in millions, except per share amounts
and shares in thousands)
 Reported Balances as of June 30, 2018 Impact of ASC 606 
ASC 605
Historical Adjusted Balances
Operating revenues$5,902
 11
 $5,913
Cost of services and products (exclusive of depreciation and amortization)2,730
 3
 2,733
Selling, general and administrative1,115
 10
 1,125
Income tax benefit(55) —
 (55)
Net income$292
 (2) $290
      
BASIC AND DILUTED EARNINGS PER COMMON SHARE     
BASIC$0.27
 —
 $0.27
DILUTED$0.27
 —
 $0.27
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING     
BASIC1,064,711
 —
 1,064,711
DILUTED1,068,819
 —
 1,068,819
 Six Months Ended June 30, 2018
 
(Dollars in millions, except per share amounts
and shares in thousands)
 Reported Balances as of June 30, 2018 Impact of ASC 606 
ASC 605
Historical Adjusted Balances
Operating revenues$11,847
 26
 $11,873
Cost of services and products (exclusive of depreciation and amortization)5,533
 10
 5,543
Selling, general and administrative2,224
 26
 2,250
Income tax expense66
 (2) 64
Net income$407
 (8) $399
      
BASIC AND DILUTED EARNINGS PER COMMON SHARE     
BASIC$0.38
 —
 $0.38
DILUTED$0.38
 —
 $0.38
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING  
 
BASIC1,064,663
 —
 1,064,663
DILUTED1,068,414
 —
 1,068,414

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The following table presents a reconciliation of certain consolidated balance sheet captions under ASC 606 to the balance sheet results using the historical accounting method:
 As of June 30, 2018
 (Dollars in millions)
 Reported Balances as of June 30, 2018 Impact of ASC 606 
ASC 605
Historical Adjusted Balances
Other current assets$1,260
 (125) $1,135
Other long-term assets, net1,123
 (103) 1,020
Deferred revenue2,379
 132
 2,511
Deferred income taxes, net2,407
 (102) 2,305
Other long-term liabilities2,667
 49
 2,716
Retained earnings1,040
 (307) 733


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Disaggregated Revenue by Service Offering
The following tables provide disaggregation of revenue from contracts with customers based on service offerings for the three and six ended June 30, 2018, respectively. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards.
 Three Months Ended June 30, 2018
 (Dollars in millions)
 Total Revenue 
Adjustments for Non-ASC 606 Revenue (8)
 Total Revenue from Contracts with Customers
Business segment     
IP & Data Services (1)
$1,748
 —
 $1,748
Transport & Infrastructure (2)
1,342
 (80) 1,262
Voice & Collaboration (3)
1,111
 —
 1,111
IT & Managed Services (4)
164
 —
 164
Total business segment revenues4,365
 (80) 4,285
      
Consumer segment     
Voice & Collaboration (3)
545
 —
 545
IP & Data Services (5)
85
 (7) 78
Transport & Infrastructure (6)
722
 (53) 669
Total consumer segment revenues1,352
 (60) 1,292
      
Non-segment revenues

 

 

Regulatory revenues (7)
185
 (185) —
Total non-segment revenues185
 (185) —
      
Total revenues$5,902
 (325) $5,577
      
Timing of Revenue     
Goods transferred at a point in time    $42
Services performed over time    5,535
Total revenues from contracts with customers    $5,577
(1)Includes primarily VPN data network, Ethernet, IP, video and ancillary revenues.
(2)Includes primarily broadband, private line (including business data services), colocation and data centers, wavelength and ancillary revenues.
(3)Includes local, long-distance and other ancillary revenues.
(4)Includes IT services and managed services revenues.
(5)Includes retail video revenues (including our facilities-based video revenues).
(6)Includes primarily broadband, private line (including business data services), colocation and data centers, wavelength, equipment sales and professional and ancillary revenues.
(7)Includes CAF Phase I, CAF Phase 2, federal and state USF support revenue, sublease rental income and failed-sale leaseback income.
(8)Includes regulatory revenues, lease revenues, sublease rental income, revenue from fiber capacity lease arrangements and failed sale leaseback income, which are not within the scope of ASC 606.

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 Six Months Ended June 30, 2018
 (Dollars in millions)
 Total Revenue 
Adjustments for Non-ASC 606 Revenue (8)
 Total Revenue from Contracts with Customers
Business segment     
IP & Data Services (1)
$3,485
 —
 $3,485
Transport & Infrastructure (2)
2,691
 (147) 2,544
Voice & Collaboration (3)
2,247
 —
 2,247
IT & Managed Services (4)
325
 —
 325
Total business segment revenues8,748
 (147) 8,601
      
Consumer segment     
Voice & Collaboration (3)
1,101
 —
 1,101
IP & Data Services (5)
179
 (16) 163
Transport & Infrastructure (6)
1,451
 (105) 1,346
Total consumer segment revenues2,731
 (121) 2,610
      
Non-segment revenues     
Regulatory revenues (7)
368
 (368) —
Total non-segment revenues368
 (368) —
      
Total revenues$11,847
 (636) $11,211
      
Timing of Revenue     
Goods transferred at a point in time    $81
Services performed over time    11,130
Total revenues from contracts with customers    $11,211
(1)Includes primarily VPN data network, Ethernet, IP, video and ancillary revenues.
(2)Includes primarily broadband, private line (including business data services), colocation and data centers, wavelength and ancillary revenues.
(3)Includes local, long-distance and other ancillary revenues.
(4)Includes IT services and managed services revenues.
(5)Includes retail video revenues (including our facilities-based video revenues).
(6)Includes primarily broadband, private line (including business data services), colocation and data centers, wavelength, equipment sales and professional and ancillary revenues.
(7)Includes CAF Phase I, CAF Phase 2, federal and state USF support revenue, sublease rental income and failed-sale leaseback income.
(8)Includes regulatory revenues, lease revenues, sublease rental income, revenue from fiber capacity lease arrangements and failed sale leaseback income, which are not within the scope of ASC 606.
Customer Receivables and Contract Balances
The following table provides balances of customer receivables, contract assets and contract liabilities as of June 30, 2018 and January 1, 2018:
 June 30, 2018 January 1, 2018
 (Dollars in millions)
Customer receivables(1)
$2,414
 2,504
Contract liabilities553
 623
Contract assets158
 255

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(1) Gross customer receivables of $2.6 billion and $2.7 billion, net of allowance for doubtful accounts of $160 million and $155 million, at June 30, 2018 and January 1, 2018, respectively.
Contract liabilities are consideration we have received from our customers in advance of providing goods or services promised in the future. We defer this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which ranges from one to seven years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheet.
Performance Obligations
A performance obligation is a receivablepromise in a contract with a customer to provide a good or service to the customer. We recognize revenue for $80 million from Cyxtera,services when we satisfy our performance obligation as services are provided.
We do not disclose 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), or contracts that are classified primarilyas leasing arrangements that are not subject to ASC 606.
As of June 30, 2018, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts that are unsatisfied (or partially satisfied) is approximately $10.0 billion. We expect to recognize approximately 73% of this revenue through 2020, with the balance recognized thereafter.
Contract Costs
The following table provides changes in our contract acquisition costs and fulfillment costs:
 Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
 (Dollars in millions)
 Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs
Beginning of period balance$280
 105
 268
 88
Costs incurred47
 29
 99
 59
Amortization(41) (18) (81) (31)
End of period balance$286
 116
 286
 116
Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities. Deferred commissions and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of 30 months to 49 months. The amounts of these deferred costs that are anticipated to be amortized in the next twelve months are included in other current assets on our consolidated balance sheetsheets. We recognize incremental costs of obtaining contracts as of September 30, 2017. We will continue to have an ongoing obligation to Cyxtera related to our lease of data center space from them. From May 1, 2017 through September 30, 2017, we paid rent to Cyxtera totaling $40 million.
Effective November 3, 2016, which isexpense when incurred if the date we entered into the agreement to sell our data centers and colocation business, we ceased recording depreciationamortization period of the property, plant and equipmentassets is less than one year. The amount of deferred costs expected to be soldamortized beyond the next twelve months is included in other assets on our consolidated balance sheets. Deferred acquisition and amortization of the business's intangible assets in accordance with applicable accounting rules. Otherwise, we estimate that we would have recorded additional depreciation and amortization expense of $67 million from January 1, 2017 through May 1, 2017.fulfillment costs are assessed for impairment on a quarterly basis.

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(6) Long-Term Debt and Credit Facilities
Long-termThe following chart reflects the consolidated long-term debt of CenturyLink, Inc. and its subsidiaries, including unamortized discounts and premiums and unamortized debt issuance costs, consisting of borrowings by CenturyLink, Inc. and certain of its subsidiaries, including CenturyLink Escrow, LLC, Qwest Corporation, Qwest Capital Funding, Inc. and Embarq Corporation and its subsidiaries ("Embarq"), were as follows:but excluding intercompany debt:
Interest Rates Maturities 
As of
September 30, 2017
 As of
December 31, 2016
Interest Rates(1)
 Maturities June 30, 2018 December 31, 2017
    (Dollars in millions)    (Dollars in millions)
Senior Secured Debt:    
CenturyLink, Inc.    
2017 Revolving Credit Facility(2)
4.844% 2022 $—
 405
Term Loan A4.844% 2022 1,664
 1,575
Term Loan A-14.844% 2022 361
 370
Term Loan B4.844% 2025 5,970
 6,000
Subsidiaries:    
Level 3 Financing, Inc.    
Tranche B 2024 Term Loan (3)
LIBOR + 2.25% 2024 4,611
 4,611
Embarq Corporation subsidiaries    
First mortgage bonds7.125% - 8.375% 2023 - 2025 138
 151
Senior Notes and Other Debt:       
CenturyLink, Inc.           
Senior notes5.625% - 7.650% 2019 - 2042 $8,125
 8,975
5.625% - 7.650% 2019 - 2042 8,125
 8,125
2012 credit facility and revolving line of credit(1)
— 2019 —
 370
2012 term loan2.990% 2019 319
 336
Subsidiaries    
CenturyLink Escrow, LLC    
Term loan B(2)
2.75% 2025 6,000
 —
Subsidiaries:    
Level 3 Financing, Inc.    
Senior notes5.125% - 6.125% 2021 - 2026 5,315
 5,315
Level 3 Parent, LLC    
Senior notes5.750% 2022 600
 600
Qwest Corporation        
Senior notes6.125% - 7.750% 2021 - 2057 7,294
 7,259
6.125% - 7.750% 2021 - 2057 7,294
 7,294
Term loan2.990% 2025 100
 100
4.100% 2025 100
 100
Qwest Capital Funding, Inc.        
Senior notes6.500% - 7.750% 2018 - 2031 981
 981
6.5% - 7.750% 2018 - 2031 981
 981
Embarq Corporation and subsidiaries    
Embarq Corporation and subsidiary    
Senior note7.995% 2036 1,485
 1,485
7.995% 2036 1,485
 1,485
First mortgage bonds7.125% - 8.770% 2019 - 2025 151
 223
Other9.000% 2019 150
 150
9.000% 2019 150
 150
Capital lease and other obligations(3)
Various Various 740
 440
Unamortized discounts, net    (164) (133)
Capital lease and other obligationsVarious Various 844
 891
Unamortized premiums and other, net    11
 23
Unamortized debt issuance costs (203) (193) (334) (350)
Total long-term debt    24,978
 19,993
    37,315
 37,726
Less current maturities not associated with assets held for sale    (124) (1,503)
Less capital lease obligations associated with assets held for sale —
 (305)
Long-term debt, excluding current maturities and capital leases obligations associated with assets held for sale    $24,854
 18,185
Less current maturities    (437) (443)
Long-term debt, excluding current maturities    $36,878
 37,283
______________________________________________________________________ 
(1)
As of(1)June 30, 2018.
(2)
The aggregate amount outstanding on our 2012 credit facility and revolving line of credit borrowings atDecember 31, 20162017 was $370$405 million, with a weighted-average interest rate of 4.500%4.186%. At SeptemberJune 30, 2017,2018, we had no borrowings outstanding under our 2012 credit facility and revolving line of credit. These amounts typically change on a regular basis. As described under "2017 Credit Agreement" below, we discharged and terminated our 2012 credit facility on November 1, 2017.
(2)
(3)		RepresentsThe Tranche B 2024 Term Loan is a secured obligation and is guaranteed by Level 3 Parent, LLC and certain other subsidiaries. The Tranche B 2024 Term Loan had an interest rate of 4.3341% as of June 30, 2018 and 3.557% as of December 31, 2017. The interest rate on the fixed rate and the obligor in effect at September 30, 2017. Please see "2017 Credit Agreement" for further information on our term loans and revolving credit facility under our June 19, 2017 credit agreement.Tranche B 2024 Term Loan is set with a minimum London Interbank Offered Rate ("LIBOR") of zero percent.

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Long-Term Debt Maturities
Set forth below is the aggregate principal amount of our long-term debt (excluding unamortized discounts, net and unamortized debt issuance costs) maturing during the following years:
 
(Dollars in millions)(1)(2)
2018 (remaining six months)$303
2019638
20201,194
20213,110
20224,757
2023 and thereafter27,136
Total long-term debt$37,138

(3)
(1)		As a result of not meeting the sale leaseback accounting requirements, we must treat a certain amount of the pre-tax cash proceeds from the sale of our real estate assets as though it were the result of a financing obligation on our consolidated balance sheet. Also, the capital lease obligations that were shown as held for sale as of December 31, 2016 are retained and revalued. Please seeIn Note 3—Sale of Data Centers and Colocation Business, for additional informationwe describe an imputed financing obligation. The amount outstanding on our most current estimatethat imputed financing obligation at June 30, 2018 was $578 million. The aggregate maturities of long-term debt do not include $499 million of this obligation, which prior to the end of the financing obligation.lease term on April 30, 2020, will be derecognized along with the remaining net book value of the associated real estate assets.
(2)Actual principal paid in any year may differ due to the possible future refinancing of outstanding debt or the issuance of new debt. The projected amounts in the table also exclude any impacts from any further acquisitions.

Covenants
New Issuances
On April 27, 2017, Qwest Corporation issued $575 million aggregate principal amountCertain debt instruments of 6.75% Notes due 2057 and, on May 5, 2017, issued an additional $85 million aggregate principal amount of such notes pursuant to an over-allotment option in exchange for aggregate net proceeds, after deducting underwriting discounts and other expenses, of $638 million. All of the 6.75% Notes are senior unsecured obligations and may be redeemed by Qwest Corporation, in whole or in part, on or after June 15, 2022, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.
Repayments
On August 1, 2017, subsidiaries of Embarq Corporation paid at maturity the $72 million principal amount and accrued and unpaid interest due under their 8.77% Notes.
On June 15, 2017, CenturyLink, Inc. paid at maturity the $350 million principal and accrued and unpaid interest due under its 5.15% Notes.
On May 9, 2017, Qwest Corporation redeemed $125 million aggregate principal amount of the remaining $288 million of its 7.5% Notes due 2051, which resulted in an immaterial loss.
On May 4, 2017, Qwest Corporation redeemed all $500 million of its 6.5% Notes due 2017, which resulted in an immaterial loss.
On April 3, 2017, CenturyLink, Inc. paid at maturity the $500 million principal and accrued and unpaid interest due under its 6.00% Notes.
2017 Credit Agreement
As further described in Note 2—Acquisition of Level 3, we completed our acquisition of Level 3 on November 1, 2017. To finance a substantial portion of our acquisition of Level 3, on June 19, 2017, we caused our wholly-owned subsidiary, CenturyLink Escrow, LLC (the "Escrow Borrower"), to enter into a credit agreement (the "Credit Agreement") with, among others, Bank of America, N.A., as administrative agent and collateral agent, providing for $9.945 billion in senior secured credit facilities (the "New Senior Secured Credit Facilities"). These facilities consist of:
a $2 billion revolving credit facility (“the New Revolving Credit Facility”), which has 18 lenders, each with commitments ranging from $32.8 million to $167.8 million, which we initially drew upon on November 1, 2017;
a $1.575 billion senior secured Term Loan A credit facility, which has 17 lenders, each with commitments ranging from $28.6 million to $132.2 million, which we drew in full on November 1, 2017;
a $370 million senior secured Term Loan A-1 credit facility with CoBank, ACB, which we drew in full on November 1, 2017; and
a $6 billion senior secured Term Loan B credit facility, the proceeds of which were fully pre-funded less a discount into escrow on June 19, 2017 and released to us on November 1, 2017. These escrowed debt proceeds, together with pre-funded amounts in escrow to cover interest payments, are reflected as "restricted cash" in our consolidated balance sheet as of September 30, 2017.
We used the proceeds of borrowings under the New Senior Secured Credit Facilities, together with other available funds (including amounts received from Level 3), (i) to fund the cash portion of the consideration and transaction costs payable in connection with the Level 3 acquisition and (ii) to repay all indebtedness outstanding under our 2012 term loan, and we terminated our 2012 credit facility, the revolving line of credit and our 2012 term loan. The New Revolving Credit Facility and borrowings under the Term Loan A and A-1 facilities will mature on November 1, 2022. Borrowings under the Term Loan B facility will mature on January 31, 2025.
By virtue of merging the Escrow Borrower into CenturyLink, Inc. on November 1, 2017, CenturyLink, Inc. assumed all rights and obligations under the Credit Agreement, including the right to borrow funds under the New Revolving Credit Facility on the terms and conditions specified in the Credit Agreement.

Loans under the Term Loan A and A-1 facilities and the New Revolving Credit Facility bear interest at a rate equal to, at our option, the London Interbank Offered Rate (“LIBOR”) or the alternative base rate (each as defined in the Credit Agreement) plus an applicable margin between 2.25% to 3.00% per annum for LIBOR loans and 1.25% to 2.00% per annum for alternative base rate loans, depending on our then current total leverage ratio. Borrowings under the Term Loan B facility bore interest at 1.375% per annum between June 19, 2017 and July 18, 2017, at 2.75% per annum from July 19, 2017 through the date of closing of the Level 3 acquisition and will bear interest of LIBOR plus 2.75% per annum thereafter. Loans under each of the term loan facilities require certain specified quarterly amortization payments and certain specified mandatory prepayments in connection with certain asset sales and debt issuances and out of excess cash flow, among other things, subject in each case to certain significant exceptions.
All of our obligations under the New Senior Secured Credit Facilities are guaranteed by certain of our subsidiaries. The guarantees by certain of those guarantors are secured by a first priority security interest in substantially all assets (including certain subsidiaries' stock) directly owned by them, subject to certain exceptions and limitations.
The New Revolving Credit Facility replaced our 2012 revolving credit facility. A portion of the New Revolving Credit Facility in an amount not to exceed $100 million is available for swingline loans and a portion in an amount not to exceed $400 million is available for the issuance of letters of credit. On November 1, 2017, we discharged our 2012 term loan scheduled to mature in 2019 and entered into Term Loan A-1 with the same lender. On such date, we also paid certain specified financing fees totaling $239 million under the New Senior Secured Credit Facilities.
With respect to the Term Loan A and A-1 facilities and the New Revolving Credit Facility, the Credit Agreement requires us to maintain (i) a maximum total leverage ratio of not more than 5.00 to 1.00 between the closing date of the Level 3 acquisition and the second anniversary thereof and 4.75 to 1.00 thereafter and (ii) a minimum consolidated interest coverage ratio of at least 2.00 to 1.00, with such ratios being determined and calculated in the manner described in the Credit Agreement.
The New Senior Secured Credit Facilitiessubsidiaries contain various representations and warranties and affirmative and negative covenants.  SuchDebt at CenturyLink, Inc., Level 3 Parent, LLC, and Level 3 Financing, Inc. contain more extensive covenants include,including, among other things and subject to certain significant exceptions, restrictions on ourtheir ability to declare or pay dividends, repurchase stock, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with their affiliates including CenturyLink and its affiliates,other subsidiaries, dispose of assets and merge or consolidate with any other person. Also, Level 3 Parent, LLC, as well as Level 3 Financing, Inc., will be required to offer to purchase certain of its long-term debt securities under certain circumstances in connection with a "change of control" of Level 3 Parent, LLC.
CovenantsCertain of the debt instruments of CenturyLink, Inc. and its subsidiaries contain cross acceleration provisions. When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument.
Compliance
As of SeptemberJune 30, 2017,2018, we believe we were in compliance with the provisions and financial covenants contained in our 2012 revolving credit facility, Credit Agreement and other material debt agreements.
Level 3For additional information on our long-term debt and credit facilities, see Note 5—Long-Term Debt
Level 3 and its financing subsidiary are indebted under certain senior notes and term loans, allCredit Facilities to our consolidated financial statements in Item 8 of which contain various affirmative and negative covenants. Additional information about this indebtedness can be found elsewhere herein and in Level 3's filings withPart II of our annual report on Form 10-K for the SEC.year ended December 31, 2017.
(5)(7)  Severance and Leased Real Estate
Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions result primarily from the progression or completion of our post-acquisition integration plans, increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to the loss of customers purchasing certain services.
We report severance liabilities within accrued expenses and other liabilities - salaries and benefits in our consolidated balance sheets and report severance expenses in selling, general and administrative expenses in our consolidated statements of operations. As described in Note 9—Segment Information, we do not allocate these severance expenses to our segments.
We have recognized liabilities to reflect our estimates of the fair values of the existing lease obligations for real estate which we have ceased using, net of estimated sublease rentals. Our fair value estimates were determined using discounted cash flow methods. We recognize expense to reflect accretion of the discounted liabilities and periodically we adjust the expense when our actual subleasing experience differs from our initial estimates. We report the current portion of liabilities for ceased-use real estate leases in accrued expenses and other liabilities - other and report the noncurrent portion in deferred credits and other liabilities - other in our consolidated balance sheets. We report the related expenses in selling, general and administrative expenses in our consolidated statements of operations. At SeptemberJune 30, 2017,2018, the current and noncurrent portions of our leased real estate accrual were $8$21 million and $53$92 million, respectively. The remaining lease terms range from 0.70.26 years to 8.212.5 years, with a weighted-average of 7.2 years.

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Changes in our accrued liabilities for severance expenses and leased real estate were as follows:
 Severance Real Estate
 (Dollars in millions)
Balance at December 31, 2016$98
 67
Accrued to expense19
 3
Payments, net(98) (9)
Reversals and adjustments—
 —
Balance at September 30, 2017$19
 61
 Severance Real Estate
 (Dollars in millions)
Balance at December 31, 2017$33
 64
Accrued to expense111
 57
Payments, net(107) (8)
Balance at June 30, 2018$37
 113
(6)(8)  Employee Benefits
Net periodic benefit (income) expense (income) for our qualified and non-qualified pension plans included the following components:
Pension PlansPension Plans
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 20162018 2017 2018 2017
(Dollars in millions)(Dollars in millions)
Service cost$16
 16
 47
 48
$16
 14
 32
 31
Interest cost102
 107
 308
 321
98
 105
 197
 206
Expected return on plan assets(166) (183) (499) (550)(171) (167) (342) (333)
Recognition of prior service credit(2) (2) (6) (6)(2) (2) (4) (4)
Recognition of actuarial loss51
 44
 154
 131
46
 52
 90
 103
Net periodic pension benefit expense (income)$1
 (18) 4
 (56)
Net periodic pension benefit (income) expense$(13) 2
 (27) 3
Net periodic benefit expense for our post-retirement benefit plans included the following components:
 Post-Retirement Benefit Plans
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (Dollars in millions)
Service cost$4
 4
 13
 14
Interest cost25
 29
 75
 84
Expected return on plan assets—
 (2) (1) (6)
Recognition of prior service cost5
 5
 15
 15
Net periodic post-retirement benefit expense$34
 36
 102
 107
We report service cost for our qualified pension and post-retirement benefit plans in cost of services and products and selling, general and administrative expenses in our consolidated statements of operations. Additionally, a portion of the service cost is also allocated to certain assets under construction, which are capitalized and reflected as part of property, plant and equipment in our consolidated balance sheets. The remaining components of net periodic benefit expense (income) are reported in other income (expense), net in our consolidated statements of operations. The expected rate of return on plan assets is the long-term rate of return we expect to earn on the plans' assets, net of administrative expenses paid from plan assets.
 Post-Retirement Benefit Plans
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (Dollars in millions)
Service cost$5
 5
 9
 9
Interest cost25
 25
 49
 50
Expected return on plan assets—
 (1) —
 (1)
Recognition of prior service cost5
 5
 10
 10
Net periodic post-retirement benefit expense$35
 34
 68
 68
Benefits paid by our qualified pension plan are paid through a trust that holds all plan assets. Based on current laws and circumstances, we do not expect any contributions to be required for our qualified pension plan during the remainder of 2017.2018. However, we made a voluntary contribution of $100 million to the trust for our qualified pension plan in June 2018, and made an additional voluntary contribution of $400 million during the third quarter of 2017.2018.


(7)Table of Contents

(9)  Earnings Per Common Share
Basic and diluted earnings per common share for the three and nine months ended September 30, 2017 and 2016 were calculated as follows:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 20162018 2017 2018 2017
(Dollars in millions, except per share amounts, shares in thousands)(Dollars in millions, except per share amounts, shares in thousands)
Income (Numerator):              
Net income$92
 152
 272
 584
$292
 17
 407
 180
Earnings applicable to non-vested restricted stock—
 —
 —
 —
—
 —
 —
 —
Net income applicable to common stock for computing basic earnings per common share92
 152
 272
 584
292
 17
 407
 180
Net income as adjusted for purposes of computing diluted earnings per common share$92
 152
 272
 584
$292
 17
 407
 180
Shares (Denominator):              
Weighted-average number of shares:              
Outstanding during period549,618
 546,310
 548,779
 545,715
1,078,986
 549,100
 1,076,273
 548,359
Non-vested restricted stock(8,097) (6,504) (7,666) (6,304)(14,275) (7,739) (11,610) (7,450)
Weighted-average shares outstanding for computing basic earnings per common share541,521
 539,806
 541,113
 539,411
1,064,711
 541,361
 1,064,663
 540,909
Incremental common shares attributable to dilutive securities:              
Shares issuable under convertible securities10
 10
 10
 10
10
 10
 10
 10
Shares issuable under incentive compensation plans432
 1,101
 756
 1,072
4,098
 780
 3,741
 917
Number of shares as adjusted for purposes of computing diluted earnings per common share541,963
 540,917
 541,879
 540,493
1,068,819
 542,151
 1,068,414
 541,836
Basic earnings per common share$0.17
 0.28
 0.50
 1.08
$0.27
 0.03
 0.38
 0.33
Diluted earnings per common share$0.17
 0.28
 0.50
 1.08
$0.27
 0.03
 0.38
 0.33
Our calculation of diluted earnings per common share excludes shares of common stock that are issuable upon exercise of stock options when the exercise price is greater than the average market price of our common stock. We also exclude unvested restricted stock awards that are antidilutiveanti-dilutive as a result of unrecognized compensation cost. Such shares averaged 5.13.1 million and 2.73.1 million for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and averaged 4.23.7 million and 3.33.7 million for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively.
(8)(10)  Fair Value Disclosure
Our financial instruments consist of cash, cash equivalents and restricted cash, accounts receivable, accounts payable and long-term debt, excluding capital lease and other obligations. Due to their short-term nature, the carrying amounts of our cash, cash equivalents and restricted cash, accounts receivable 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 set forth by the FASB.
We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on 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 generally as follows:
Input LevelDescription of Input
Level 1Observable inputs such as quoted market prices in active markets.
Level 2Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3Unobservable inputs in which little or no market data exists.
Financial Instruments
The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding capital lease and other obligations, as well as the input level used to determine the fair values indicated below:
   As of September 30, 2017 As of December 31, 2016
 
Input
Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
   (Dollars in millions)
Liabilities—Long-term debt, excluding capital lease and other obligations2 $24,238
 24,642
 19,553
 19,639
   June 30, 2018 December 31, 2017
 
Input
Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
   (Dollars in millions)
Liabilities—Long-term debt, excluding capital lease and other obligations2 $36,471
 35,671
 36,835
 36,402


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(9)
(11)  Segment Information
Segment Data
In January 2017, we implemented a new organizational structure designed to further strengthen our ability to attain our operational, strategic and financial goals. Prior to this reorganization, we operated and reported as two segments, business and consumer. As a result of this reorganization, we changed the name of the predecessor business segment to "enterprise" segment. At September 30, 2017, we had the following two reportable segments:
Enterprise Segment. Consists generally of providing strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers. Our strategic products and services offered to these customers include our MPLS, Ethernet, broadband, wavelength, VoIP and other ancillary services. Our legacy services offered to these customers primarily include local and long-distance voice, including the sale of unbundled network elements ("UNEs"), which allow our wholesale customers to use all or part of our network to provide voice and data services to their customers, private line (including special access), switched access and other ancillary services. Our data integration offerings include the sale of telecommunications equipment located on customers' premises and related products and professional services, all of which are described further below under the heading "Product and Service Categories"; and
Consumer Segment. Consists generally of providing strategic and legacy products and services to residential customers. Our strategic products and services offered to these customers include our broadband, video (including our Prism TV services) and other ancillary services. Our legacy services offered to these customers include local and long-distance voice and other ancillary services.
In connection with our January 2017 reorganization, we also reassigned our information technology, managed hosting, cloud hosting and hosting area network services from our former business segment to a new non-reportable operating segment.

The results of our two reportable segments, enterprise and consumer, are summarized below:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017
2016
 (Dollars in millions)
Total reportable segment revenues$3,558
 3,916
 10,943
 11,776
Total reportable segment expenses1,913
 2,068
 5,720
 6,009
Total reportable segment income$1,645
 1,848
 5,223
 5,767
Total margin percentage46% 47% 48% 49%
        
Enterprise segment:       
Revenues$2,171
 2,444
 6,742
 7,321
Expenses1,292
 1,425
 3,907
 4,116
Income$879
 1,019
 2,835
 3,205
Margin percentage40% 42% 42% 44%
Consumer segment:       
Revenues$1,387
 1,472
 4,201
 4,455
Expenses621
 643
 1,813
 1,893
Income$766
 829
 2,388
 2,562
Margin percentage55% 56% 57% 58%
Additional Changes in Segment Reporting
As a part of the implementation of the new organizational structure described in "Segment Data", we made several changes with respect to the assignment of certain expenses to our reportable segments, most notably the reassignment of certain marketing and advertising expenses from the consumer segment to the enterprise segment. We have recast our previously-reported segment results for the three and nine months ended September 30, 2016, to conform to the current presentation reflected in this report.
In connection with our acquisition of Level 3 (discussed further in Note 2—Acquisition of Level 3), effective November 1, 2017, we implemented a new organization structure and began managing our operations in two segments: (i)business and consumer. Our consumer segment remains substantially unchanged under this reorganization, and our newly reorganized business segment which consists generally of providing strategic, legacyincludes the Legacy CenturyLink enterprise segment operations and data integration products and services (includingthe Legacy Level 3 operations. In addition, we reassigned our information technology, managed hosting, cloud hosting and hosting area network services previously reflected in our above-mentionedoperations back into the business segment, thereby eliminating a former non-reportable segment)operating segment. At June 30, 2018, we had the following two reportable segments:
Business Segment. This segment consists generally of providing products and services to small, medium and enterprise businesses andbusiness, wholesale and government customers, including other communication providersproviders. Our products and (ii) consumerservices offered to these customers include our local and long-distance voice, VPN data network, private line (including business data services), Ethernet, information technology, wavelength, broadband, colocation and data center services, managed services, professional and other services provided in connection with selling equipment, network security and various other ancillary services, all of which are described further under "Products and Services Categories"; and
Consumer Segment. This segment which consists generally of providing strategic and legacy products and services to residential customers. Our products and services offered to these customers include our broadband, local and long-distance voice, video and other ancillary services.
The results of our two reportable segments, business and consumer, are summarized below:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018
2017
 (Dollars in millions)
Total reportable segment revenues$5,717
 3,907
 11,479
 7,944
Total reportable segment expenses3,093
 2,169
 6,275
 4,375
Total reportable segment adjusted EBITDA$2,624
 1,738
 5,204
 3,569
Total margin percentage46% 44% 45% 45%
        
Business segment:       
Revenues$4,365
 2,470
 8,748
 5,060
Expenses2,524
 1,538
 5,094
 3,104
Adjusted EBITDA$1,841
 932
 3,654
 1,956
Margin percentage42% 38% 42% 39%
Consumer segment:       
Revenues$1,352
 1,437
 2,731
 2,884
Expenses569
 631
 1,181
 1,271
Adjusted EBITDA$783
 806
 1,550
 1,613
Margin percentage58% 56% 57% 56%
Product and Service Categories
From time to time, we change the categorization of our products and services, and we may make similar changes in the future. During the second quarter of 2017, we determined that certain of our legacy services, specifically our dark fiber network leasing, are more closely aligned with our strategic services than with our legacy services. As a result, we now reflect these operating revenues as strategic services, and we have reclassified certain prior period amounts to conform to this change. The revision resulted in an increase of revenue from strategic services and a corresponding decrease in revenue from legacy services of $12 million and $36 million for the three and nine months ended September 30, 2016, respectively.
We categorize our products, services and revenues among the following fourfive categories:
StrategicIP and data services, which include primarily broadband, MPLS,VPN data networks, Ethernet, hosting (including cloud hosting and managed hosting),IP, video (including our facilities-based video services, which we offer in 16 markets), wavelength, VoIP, information technologyCDN services and Vyvx broadcast services) and other ancillary services;
Legacy servicesTransport and infrastructure, which include broadband, private line (including business data services), data center facilities and services, including cloud, hosting and application management solutions, wavelength, equipment sales and professional services, network security services, dark fiber services and other ancillary services;
Voice and collaboration, which includes primarily local and long-distance voice, including the sale of UNEs, private line (including special access), Integrated Services Digital Network ("ISDN") (which uses regular telephone lines to supportwholesale voice, video and data applications), switched access and other ancillary services;service;

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Data integrationIT and managed services, which includes the sale of telecommunications equipment located on customers' premisesinclude information technology services and related products and professionalmanaged services, such aswhich may be purchased in conjunction with our other network management, installation and maintenance of data equipment, the building of proprietary fiber-optic broadband networks for our governmental and business customers and the reselling of software;services; and
Other operatingRegulatory revenues, which consist primarilyconsists of Universal Service Fund ("USF") and Connect America Fund ("CAF") support payments Universal Service Fund ("USF") support payments and USF surcharges.other operating revenues. We receive federal support payments from both Phase 1 and Phase 2 of the CAF program, and support payments from both federal and state USF programs. Theseprograms and from the federal CAF program. The USF and CAF support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services, including the costs of deploying, maintaining and operating voice and broadband infrastructure in high-cost rural areas where we are not able to fully recover our costs from our customers.services. We also collect USF surcharges based on specific services we list on our customers' invoices to fund the FCC's universal service programs. We also generate other operating revenues from the leasing and subleasing of space in our office buildings, warehouses and other properties and from rental income associated with the failed-sale-leaseback. Because we centrally manage the activities that generate these other operatingregulatory revenues, these revenues are not included in our segment revenues.


Our operating revenue detail for our products and services consisted of the following categories:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (Dollars in millions)
Business segment       
IP and data services (1)
$1,748
 744
 3,485
 1,501
Transport and infrastructure (2)
1,342
 797
 2,691
 1,691
Voice and collaboration (3)
1,111
 767
 2,247
 1,554
IT and managed services (4)
164
 162
 325
 314
Total business segment revenues4,365
 2,470
 8,748
 5,060
        
Consumer segment       
IP and data services (1)
85
 107
 179
 210
Transport and infrastructure (2)
722
 683
 1,451
 1,366
Voice and collaboration (3)
545
 647
 1,101
 1,308
Total consumer segment revenues1,352
 1,437
 2,731
 2,884
        
Non-segment revenues       
Regulatory revenues (7)
185
 183
 368
 355
Total non-segment revenues185
 183
 368
 355
        
Total revenues$5,902
 4,090
 11,847
 8,299
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (Dollars in millions)
Strategic services       
Enterprise high-bandwidth data services (1)$767
 744
 2,296
 2,235
Other enterprise strategic services (2)182
 334
 735
 989
IT and managed services (3)169
 160
 483
 483
Consumer broadband services (4)673
 674
 1,995
 2,023
Other consumer strategic services (5)101
 115
 311
 340
Total strategic services revenues1,892
 2,027
 5,820
 6,070
        
Legacy services       
Enterprise voice services (6)551
 601
 1,682
 1,834
Enterprise low-bandwidth data services (7)289
 339
 905
 1,056
Other enterprise legacy services (8)252
 265
 754
 809
Consumer voice services (6)541
 605
 1,678
 1,854
Other consumer legacy services (9)72
 78
 216
 237
Total legacy services revenues1,705
 1,888
 5,235
 5,790
        
Data integration       
  Enterprise data integration130
 161
 370
 398
  IT and managed services data integration4
 2
 14
 3
  Consumer data integration—
 —
 1
 1
Total data integration revenues134
 163
 385
 402
        
Other revenues       
  High-cost support revenue (10)165
 171
 501
 518
  Other revenue (11)138
 133
 392
 401
Total other revenues303
 304
 893
 919
        
Total revenues$4,034
 4,382
 12,333
 13,181
______________________________________________________________________ 
(1)Includes MPLS,primarily VPN data network, Ethernet, IP, video and wavelength revenueancillary revenues.
(2)Includes primarily broadband, private line (including business data services), colocation broadband, VOIP, video and fiber lease revenuedata centers, wavelength and ancillary revenues.
(3)Includes primarily IT services, managed hosting, cloud hostinglocal, long-distance and hosting area network revenueother ancillary revenues.
(4)Includes broadbandIT services and relatedmanaged services revenuerevenues.
(5)Includes retail video and other revenuerevenues (including our facilities-based video revenues).
(6)Includes localprimarily broadband and long-distance voice revenueequipment sales and professional services revenues.
(7)Includes private line (including special access) revenue
(8)Includes UNEs, public access, switched access and other ancillary revenue
(9)Includes other ancillary revenue
(10)Includes CAF Phase 1,I, CAF Phase 2, and federal and state USF support revenue,
(11)Includes USF surcharges and failed-sale-leaseback sublease rental income and failed-sale leaseback income.

We recognize revenues in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our customers. Our consolidated statements of operations also reflect the offsetting expense for the amounts we remit to the government agencies. The total amount of such surcharges and transaction taxes that we included in revenues aggregated $129$229 million and $144$133 million for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and $392$476 million and $435$263 million for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively. These USF surcharges, where we record revenue, are included in "other" operating revenues and these transaction taxes are included in "legacy services"assigned to the products and services categories of each segments based on the underlying revenues. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to bill our customers, for which we do not record any revenue or expense because we only act as a pass-through agent.

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Allocations of Revenues and Expenses
Our segment revenues include all revenues from our strategic, legacybusiness and data integration operationsconsumer segments as described in more detail above. Our segment revenues are based upon each customer's classification. We report our segment revenues based upon all services provided to that segment's customers. Our segment expenses include specific expenses incurred as a direct result of providing services and products to segment customers, along with selling, general and administrative expenses that are (i) directly associated with specific segment customers or activities and (ii) allocated expenses, which include network expenses, facilities expenses and other expenses such as fleet and real estate expenses. We do not assign depreciation and amortization expense or impairments to our segments, as the related assets and capital expenditures are centrally managed and are not monitored by or reported to the chief operating decision maker ("CODM") by segment. Generally speaking, severance expenses, restructuring expenses and certain centrally managed administrative functions (such as finance, information technology, legal and human resources) are not assigned to our segments. Interest expense is also excluded from segment results because we manage our financing on a consolidated basis and have not allocated assets or debt to specific segments. Other income and expense items are not monitored as a part of our segment operations and are therefore excluded from our segment results.
The following table reconciles total reportable segment incomeadjusted EBITDA to net income:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (Dollars in millions)
Total reportable segment income$1,645
 1,848
 5,223
 5,767
Non-reportable segment revenues173
 162
 497
 486
Other operating revenues303
 304
 893
 919
Depreciation and amortization(910) (995) (2,739) (2,958)
Other operating expenses(724) (726) (2,389) (2,286)
Total other expense, net(348) (344) (999) (982)
Income before income tax expense139
 249
 486
 946
Income tax expense(47) (97) (214) (362)
Net income$92
 152
 272
 584
At September 30, 2017, we did not have any single customer that provided more than 10% of our total consolidated operating revenues, and substantially all of our consolidated revenues came from customers located in the United States.
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (Dollars in millions)
Total reportable segment adjusted EBITDA$2,624
 1,738
 5,204
 3,569
Regulatory revenues185
 183
 368
 355
Depreciation and amortization(1,290) (949) (2,573) (1,829)
Other operating expenses(752) (605) (1,482) (1,097)
Total other expense, net(530) (327) (1,044) (651)
Income before income tax expense237
 40
 473
 347
Income tax (benefit) expense(55) 23
 66
 167
Net income$292
 17
 407
 180
(10)(12) Commitments and Contingencies and Other Items
We are vigorously defending against all ofsubject to various claims, legal proceedings and other contingent liabilities, including the matters described below, (excluding those referred to underthat individually or in the heading "Hurricane Damage").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 all reasonable settlement opportunities.
Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for such contingencies at June 30, 2018 aggregate to approximately $138 million and are included in “Other” current liabilities and “Other Liabilities” in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows.
In this Note, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in that matter. We have established accrued liabilities for these matters described below where losses are deemed probable and reasonably estimable.

PendingCenturyLink MattersTable of Contents

Shareholder Class Action Suit
CenturyLink and thecertain members of the CenturyLink Board of Directors have been named as defendants in a putative shareholder class action lawsuit filed on January 11, 2017 in the 4th Judicial District Court of the State of Louisiana, Ouachita Parish, captioned Jeffery Tomasulo v. CenturyLink, Inc., et al., Docket No. C-20170110. The complaint asserts, among other things, that the members of CenturyLink’s Board allegedly breached their fiduciary duties to the CenturyLink shareholders in approving the Level 3 merger agreement and, more particularly, that: the consideration that CenturyLink agreed to pay to Level 3 stockholders in the transaction is allegedly unfairly high; the CenturyLink directors allegedly had conflicts of interest in negotiating and approving the transaction; and the disclosures set forth in our preliminary joint proxy statement/prospectus filed in December 2016 are insufficient in that they allegedly fail to contain material information concerning the transaction. The complaint seeks, among other things, a declaration that the members of the CenturyLink Board have breached their fiduciary duties, corrective disclosure, rescissory or other damages and equitable relief, including rescission of the transaction. On February 13, 2017, the parties entered into a memorandum of understanding providing for the settlement of the lawsuit. The proposed settlement is subject to court approval, among other conditions, and the amount of the settlement is not material to our consolidated financial statements.
Retiree Benefits Suit
In William Douglas Fulghum, et al. v. Embarq Corporation, et al., filed on December 28, 2007 in the United States District Court for the District of Kansas, a group of retirees filed a class action lawsuit challenging the decision to make certain modifications in retiree benefits programs relating to life insurance, medical insurance and prescription drug benefits, generally effective January 1, 2006 and January 1, 2008 (which, at the time of the modifications, was expected to reduce estimated future expenses for the subject benefits by more than $300 million). Defendants include Embarq, certain of its benefit plans, its Employee Benefits Committee and the individual plan administrator of certain of its benefits plans. Additional defendants include Sprint Nextel and certain of its benefit plans. The court certified classes on the claims for vested benefits and age discrimination, but rejected class certification on the claims for breach of fiduciary duty. On October 14, 2011, the Fulghum lawyers filed a new, related lawsuit, Abbott et al. v. Sprint Nextel et al. In Abbott, approximately 1,500 plaintiffs alleged breach of fiduciary duty in connection with the changes in retiree benefits that were at issue in Fulghum. After extensive district court proceedings in Fulghum, and an interlocutory appeal to the United States Court of Appeals for the Tenth Circuit, defendants prevailed in 2015 on all age discrimination claims and on the majority of claims for vested benefits. The district court in Fulghum subsequently granted judgment in favor of defendants on all remaining vested benefits claims, and in July 2016 ordered that any affected class members could appeal this ruling. No appeal was taken, and all claims for vested benefits thus have lapsed. On August 31, 2016, the parties reached a settlement in principle on all remaining claims in Fulghum and Abbott. Since then, a settlement agreement has been finalized and, per its terms, the settlement funds have been distributed to class members. The settlement payments were not material to our consolidated financial statements.
Switched Access Disputes
Subsidiaries of CenturyLink, Inc. are among hundreds of companies involved in an industry-wide dispute, raised in nearly 100 federal lawsuits (filed between 2014 and 2016) that have been consolidated as In Re: IntraMTA Switched Access Charges Litigation, in the United States District Court for the Northern District of Texas for pretrial procedures. The disputes relate to switched access charges that local exchange carriers ("LECs") collect from interexchange carriers ("IXCs") for IXCs' use of LEC's access services. In the lawsuits, IXCs, including Sprint Communications Company L.P. ("Sprint") and various affiliates of Verizon Communications Inc. ("Verizon"),IXCs assert that federal and state laws bar LECs are prohibited from collecting access charges when IXCs exchange certain types of calls between mobile and wireline devices that are routed through an IXC.devices. Some of these IXCs have asserted claims seekingseek refunds of payments for access charges previously paid and declaratory relief from future access charges.
In November 2015, the federal court agreed with the LECs and rejected the IXCs' contention thatclaims under federal law prohibits these particularand entered final judgments against the IXCs on the LECs' claims for unpaid access charges and for late payment charges. In lightThe cases are now on appeal before the U.S. Court of this ruling,Appeals for the Fifth Circuit. Separately, some of the defendants including us, have petitioned the FCC to address these issues on an industry-wide basis.
As both an IXC and a LEC, we both pay and assess significant amounts of the charges in question. The outcome of these disputes and lawsuits, as well as any related regulatory proceedings that could ensue, could affect our financial results and are currently not predictable. If we are required to stop assessing these charges or to pay refunds of any such charges, our financial results could be negatively affected.

State Tax Suits
Several Missouri municipalities have, beginning in May 2012, asserted claims alleging underpayment of taxes against CenturyLink, Inc. and several of its subsidiaries are defendants in lawsuitsa number of proceedings filed over the past few years in the Circuit Court of St. Louis County, Missouri by numerous Missouri municipalities alleging underpayment of taxes.Missouri. These municipalities are seeking, among other things, (i) a declaratory judgmentrelief regarding the extentapplication of our obligations to pay certain business license and gross receipts taxes and (ii) a monetary award of back taxes coveringfrom 2007 to the present, plus penalties and interest. In a February 2017 ruling in connection with one of these pending cases, the court entered into a finalan order awarding plaintiffs $4 million and broadening the tax base on a going forwardgoing-forward basis. We filed a notice of appeal on March 3, 2017.We expect the outcome of our appeal to reduce our ultimate exposure, although we can provide no assurances to this effect.have appealed that ruling. In a June 9, 2017 ruling in connection with another one of these pending cases, the court made findings which, if not overturned, will result in a tax liability to us well in excess of the contingent liability we have established. Following further proceedings at the district court,In due course, we plan to file an appeal andthat decision. We continue to vigorously defend against these claims. For a variety of reasons, we expect the outcome of our appeal to significantly reduce our ultimate exposure, although we can provide no assurances to this effect.
Billing Practices Suits
In June 2017, a former employee filed an employment lawsuit against us claiming that she was wrongfully terminated for alleging that we charged some of our retail customers for products and services they did not authorize. Starting shortly thereafter and continuing since then, and based in part on the allegations made by the former employee, several legal proceedings have been filed.

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In June 2017, McLeod v. CenturyLink, a series ofputative consumer and shareholder putative class actions wereaction, was filed against us and we received several shareholder derivative demands. In July 2017,in the Minnesota Attorney General also filed a civil suit on behalfU.S. District Court for the Central District of the Minnesota consumersCalifornia alleging that we engagedcharged some of our retail customers for products and services they did not authorize. A number of other complaints asserting similar claims have been filed in other federal and state courts, as well. The lawsuits assert claims including fraud, unfair competition, and unjust enrichment. Also in June 2017, Craig. v. CenturyLink, Inc., et al., a putative securities investor class action, was filed in U.S. District Court for the Southern District of New York, alleging that we failed to disclose material information regarding improper sales practices, and billing practices. The filingasserting federal securities law claims. A number of additional related lawsuits is possible. Theother cases asserting similar claims have also been filed. Both the putative consumer class actions and the putative securities investor class actions have been transferred to the U.S. District Court for the District of Minnesota for coordinated and consolidated pretrial proceedings. The shareholder putative class actions have been consolidated into a single action that currently is pending in U.S. District Court for the Western District of Louisiana.proceedings as In addition, a separate, related class action has been filed in U.S. District Court for the Southern District of New York purportedly on behalf of persons who purchased certain of our Senior Notes. In lateRe: CenturyLink Sales Practices and Securities Litigation.
Beginning June 2017, the Board of Directors formed a special committee of outside directors to investigate improper sales and billing practices andwe also received several shareholder derivative demands addressing related matters.topics. In August 2017, the Board of Directors formed a special litigation committee of outside directors to address the allegations of impropriety contained in the shareholder derivative demands. Both investigations are ongoing.
Pending Litigation Matters AssumedIn April 2018, the special litigation committee concluded its review of the derivative demands and declined to take further action. Since then, six derivative cases were filed. Two of these cases, Castagna v. Post and Pinsly v. Post, were filed in Level 3 Acquisition
Rights-of-Way Litigation
Level 3 is party to a number of purported class action lawsuits involving its right to install fiber optic cable network in railroad right-of-ways adjacent to plaintiffs' land. In general, Level 3 obtained the rights to construct its networks from railroads, utilities, and others, and have installed its networks along the rights-of-way so granted. PlaintiffsLouisiana state court in the purported class actions assert that they are the owners of lands over which the fiber optic cable networks pass, and that the railroads, utilities and others who granted Level 3 the right to construct and maintain its network did not have the legal authority to do so. The complaints seek damages on theories of trespass, unjust enrichment and slander of title and property, as well as punitive damages. Level 3 has also received, and may in the future receive, claims and demands related to rights-of-way issues similar to the issues in these cases that may be based on similar or different legal theories. Level 3 has defeated motions for class certification in a number of these actions but expect that, absent settlement of these actions, plaintiffs in the pending lawsuits will continue to seek certification of statewide or multi-state classes. The only lawsuit in which a class was certified against Level 3, absent an agreed upon settlement, occurred in Koyle, et. al. v. Level 3 Communications, Inc., et. al., a purported two state class action filed in the United StatesFourth Judicial District Court for the Parish of Ouachita; four others, Ault v. Post, Barbree v. Post, Flanders v. Post, and Palkon v. Boulet, were filed in Louisiana federal court in the Monroe Division of the Western District of Idaho. The Koyle lawsuit hasLouisiana. These cases have been dismissed pursuant to a settlement reached in November 2010 as described further below.
Level 3 negotiated a seriesbrought on behalf of class settlements affecting all persons who own or owned land next to or near railroad rights of way in which Level 3 has installed its fiber optic cable networks. The United States District Court for the District of Massachusetts in Kingsborough v. Sprint Communications Co. L.P. granted preliminary approval of the proposed settlement; however, on September 10, 2009, the court denied a motion for final approval of the settlement on the basis that the court lacked subject matter jurisdiction and dismissed the case.
In November 2010, Level 3 negotiated revised settlement terms for a series of state class settlements affecting all persons who own or owned land next to or near railroad rights of way in which Level 3 has installed its fiber optic cable networks. Level 3 is currently pursuing presentment of the settlement in applicable jurisdictions. The settlements, affectingCenturyLink against certain current and former landowners,officers and directors of the Company and seek damages for alleged breaches of fiduciary duties.
In July 2017, the Minnesota state attorney general filed State of Minnesota v. CenturyTel Broadband Services LLC, et al. in the Asoka County Minnesota District Court, alleging claims of fraud and deceptive trade practices relating to improper consumer sales practices. The suit seeks an order of restitution on behalf of all CenturyLink customers, civil penalties, injunctive relief, and costs and fees. Additionally, we have received final federal court approval in all but one of the applicable states, and the parties are actively engaged in, or have completed, the claims process for the vast majority of the applicable states, including payment of claims. Level 3 continuesresponded to seek approval in the remaining state.

Management believes that Level 3 has substantial defenses to the claims asserted in the remaining stateinformation requests and intends to defend them vigorously if a satisfactory settlement is not ultimately approved for the affected landowners. inquiries from other states.
Peruvian Tax Litigation
Beginning inIn 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of Level 3’sour Peruvian subsidiaries received a numberasserting $26 million, of assessments foradditional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002. Peruvian tax authorities ("SUNAT") took2002 on the positionbasis that the Peruvian subsidiary incorrectly documented its importations resulting in additional income tax withholding and value-added taxes ("VAT"). The total amount of the asserted claims, including potential interest and penalties, was $26 million, consisting of $3 million for income tax withholding in connection with the import of services for calendar years 2001 and 2002, $7 million for VAT in connection with the import of services for calendar years 2001 and 2002, and $16 million in connection with the disallowance of VAT credits for periods beginning in 2005.importations. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, the total amount of exposure is $16$13 million at SeptemberJune 30, 2017.2018.
Level 3We challenged the tax assessments during 2005 by filingvia administrative claims before SUNAT. During August 2006 and June 2007, SUNAT rejected Level 3’s administrative claims, thereby confirming the assessments. Appeals were filed in September 2006 and July 2007 with the Tribunal Fiscal, the highest level of administrativethen judicial review which is not part of the Peru judiciary (the "Tribunal"). The 2001 and 2002 assessed withholding tax assessments were resolved in our favor in separate administrative resolutions; however, the penalties with respect to withholding tax remain at issue in the administrative appeals.
processes. In October 2011, the Tribunal issued itshighest administrative resolution with respect to the calendar year 2002 tax period regarding VAT, associated penalties and penalties associated with withholding taxes, decidingreview tribunal (the Tribunal) decided the central issue underlying the 2002 assessments in the government's favor, while confirming the assessment in part and denying a portion of the assessment on procedural grounds. Level 3SUNAT's favor. We appealed the Tribunal's October 2011 administrative resolutions to the judicial court in Peru. In September 2014, the first judicial court rendered a decision largely in Level 3’s favor on the central issue underlying the assessments. SUNAT appealed the court’s decision to the next judicial level. The court of appeal remanded the case to the first judicial court for further development of the facts and legal analysis supporting its decision. In April 2016, the first judicial level, rendered a decision in Level 3’s favor onwhich decided the central issue underlyingin favor of Level 3. SUNAT and we filed cross-appeals with the assessments. SUNAT has appealed the substantive issue to the next judicial level. Level 3 also appealed certain procedural points.court of appeal. In May 2017, the court of appeal issued a decision reversing the favorable decision reached by the first judicial level. In June 2017, Level 3we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level. That appeal is pending.
In October 2013, the Tribunal notified Level 3 of its July 2013 administrative resolution with respect to the calendar year 2001 tax period regarding VAT, associated penalties and penalties associated with withholding taxes, determiningdecided the central issue underlying the 2001 assessments in the government's favor, while confirming the assessment in part and denying a portion of the assessment on procedural grounds. Level 3SUNAT’s favor. We appealed the Tribunal's July 2013 administrative resolutions to the judicial court in Peru. In April 2015, the first judicial court rendered athat decision largely in SUNAT’s favor on the central issue underlying the assessments. Level 3 appealed the court’s decision to the next judicial level. In April 2016, the court of appeal rendered a decision that declared null the April 2015 decision and remanded the case to the first judicial court for further developmentlevel in Peru, which decided the central issue in favor of the facts and legal analysis supporting its decision.SUNAT. In June 2017, the first judicial court issued a ruling against Level 3 primarily based on the same grounds from the original decision. In June 2017, Level 3we filed an appeal with the court of appeal. An oral hearing took place beforeIn November 2017, the court of appeals on October 18, 2017. Aissued a decision on this case is pending.
In December 2013, SUNAT initiated an audit of calendar year 2001. In June 2014, Level 3 was served with SUNAT’s assessments ofaffirming the 2001 VAT credits declared null by the Tribunalfirst judicial level and the corresponding fine. In July 2014, Level 3 challenged these assessments by filing administrative claims before SUNAT. In January 2015, SUNAT rejected the administrative claims, thereby confirming the assessments. Level 3we filed an appeal withof the Tribunal in February 2015. In May 2015, the Tribunal notified Level 3 of its administrative resolution declaring the assessments and corresponding fines null. The time for SUNAT to appeal this resolution has closed. Under local practice, notification of an appeal can take several months. Counsel confirmed in the first quarter of 2016 that SUNAT has not filed an appealdecision to the resolution. Nevertheless, SUNAT retains the right to reissue the assessments declared null or start a new audit. However, Level 3Supreme Court of Justice. That appeal is under no obligation to provide additional information and any fine issued by SUNAT based on the same information that it has already used in the past would be declared null. Accordingly, in March 2016, Level 3 released an accrual of approximately $15 million for an assessment and associated interest.
In addition, based on a change in legal interpretation by the Peruvian judicial courts, the statute of limitations with respect to the 2001 fines has expired. Accordingly, in the fourth quarter of 2016, Level 3 released an accrual of approximately $11 million of fines and associated interest.

pending.
Employee Severance and Contractor Termination Disputes
A number of former employees and third-party contractors have asserted a variety of claims in litigation against certain of Level 3’s Latin American subsidiaries for separation pay, severance, commissions, pension benefits, unpaid vacation pay, breach of employment contracts, unpaid performance bonuses, property damages, moral damages and related statutory penalties, fines, costs and expenses (including accrued interest, attorneys' fees and statutorily mandated inflation adjustments) as a result of their separation from Level 3 or termination of service relationships. Level 3 is vigorously defending itself against the asserted claims, which aggregate to approximately $30 million at SeptemberJune 30, 2017.2018.

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Brazilian Tax Claims
In December 2004, March 2009, April 2009 and July 2014, the São Paulo state tax authorities issued tax assessments against one of Level 3’sour Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”) with respect to revenue from leasing movable propertiescertain assets (in the case of the December 2004, March 2009 and July 2014 assessments) and revenue from the provision of Internet access services (in the case of the April 2009 and July 2014 assessments), by treating such activities as the provision of communications services, to which the ICMS tax applies. During the third quarter of 2014, Level 3 released an accrual of $6 million for tax, penalty and associated interest corresponding to the ICMS applicable on the provision of Internet access services due to the expiration of the statute of limitations for the January 2008 to June 2009 tax periods. In September 2002, July 2009 and May 2012, the Rio de Janeiro state tax authorities issued tax assessments to the same Brazilian subsidiary on similar issues. Level 3 has
We have filed objections to these assessments, arguing that the lease of assets and the provision of Internet access are not communication services subject to ICMS. The objections to the September 2002, December 2004 and March 2009 assessments were rejected by the respective state administrative courts, and Level 3 haswe have appealed those decisions to the judicial courts. In October 2012 and June 2014, Level 3we received favorable rulings from the lower court on the December 2004 and March 2009 assessments regarding equipment leasing, but those rulings are subject to appeal by the state. No ruling has been obtained with respect to the September 2002 assessment. The objections to the April and July 2009 and May 2012 assessments are still pending final administrative decisions. The July 2014 assessment was confirmed during the fourth quarter of 2014 at the first administrative level, and Level 3we appealed this decision to the second administrative level. During the fourth quarter of 2014, Level 3 entered into an amnesty with the Rio de Janeiro state tax authorities with respect to potential ICMS liability for the 2008 tax period. As a result, Level 3 paid $5 million and released an accrual of $3 million of tax corresponding to the ICMS applicable on the provision of Internet access services in the fourth quarter of 2014.
Level 3 isWe are vigorously contesting all such assessments in both states and, in particular, viewsview the assessment of ICMS on revenue from equipment leasing movable properties to be without merit. Nevertheless, Level 3 believes it is reasonably possible that theseThese assessments, if upheld, could result in a loss of up to $54$35 million at SeptemberJune 30, 20172018 in excess of the accruals established for these matters.
Other Level 3 Matters
Level 3 has recently beenwas notified in late 2017 of a qui tam action pending against Level 3 Communications, Inc., certain former employees and others in the United States District Court for the Eastern District of Virginia, (Unitedcaptioned United States of America ex rel., Stephen Bishop v. Level 3 Communications, Inc. et al., Case No. 1:13-cv-1453). Certain statutes permit private citizens, called “relators,” to institute civil proceedings alleging violations of those statutes. These qui tam cases are typically sealed by the court at the time of filing. The original qui tam complaint was filed under seal on November 26, 2013, and an amended complaint was filed under seal on June 16, 2014. The court unsealed the complaints on October 26, 2017.
The amended complaint alleges that Level 3, principally through two former employees, submitted false claims and made false statements to the government in connection with two government contracts. The relator seeks damages in this lawsuit of approximately $50 million, subject to trebling, plus statutory penalties, pre-and-post judgment interest, and attorney’s fees. The case is currently stayed.
As Level 3 only recently been made aware of the content of the amended complaint, Level 3 is evaluating its defenses to the claims. At this time, Level 3 does not believe it is probable Level 3 will incur a material loss. If, contrary to its expectations, the plaintiff prevails in this matter and proves damages at or near $50 million, and is successful in having those damages trebled, the outcome could have a material adverse effect on itsour results of operations in the period in which a liability is recognized and on itsour cash flows for the period in which any damages are paid.
The two former Level 3 employees named in the qui tam amended complaint and others were also indicted in the United States District Court for the Eastern District of Virginia on October 3, 2017, and charged with, among other things, accepting kickbacks from a subcontractor, who was also indicted, for work to be performed under a prime government contract. Level 3 is fully cooperating in the government’s investigations in this matter.

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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 which are conditional commitments issued on our behalf in accordance with specified terms and conditions. As of both June 30, 2018, we had outstanding letters of credit or other similar obligations of approximately $131 million and $104 million, respectively.
Other Proceedings, Disputes and DisputesContingencies
From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, administrative hearings or proceedings of state public utility commissions relating primarily to our rates or services, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third partythird-party tort actions.
We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of which are seeking substantial recoveries. These cases have progressed to various stages and one or more may go to trial in the coming 24 months if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.
We are subject to various foreign, federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $100,000 in fines and penalties.
The outcome of these other proceedings 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 our financial position, results of operations or cash flows.
Hurricane Damage
During the third quarter of 2017, multiple hurricanes struck portions of United States, which caused damage to our facilities and disruption of our services in certain areas of multiple states. We are still in the process of assessing the full extent of the damage. However, based on our current assessment, we estimate that expenditures required for the restoration of our network and physical plant may range from $20 million to $25 million, including repairs and equipment replacement. In addition, Level 3 incurred damage to certain of its facilities from multiple hurricanes, and estimate expenditures required for the restoration of their network and physical plant of $6 million, including repairs and equipment replacement. These damage estimates are subject to many uncertainties and may change materially as we complete physical surveys.us.
The hurricanes did not have a significant impact on our financial condition or results of operations as of and for the three and nine months ended September 30, 2017, as the majority of the capital and repair expenditures will be recorded in the future periods as we incur the costs.
_________________
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 forward-looking statements appearinglisted above in this Note and proceedings currently viewed as immaterial by us may ultimately materially impact us.do not reflect all of our contingencies. For moreadditional information see “Risk Factors—Risks Relating to Legal and Regulatory Matters—Our pending legal proceedings could have a material adverse impact on our contingencies, See Note 16 to the financial condition and operating results, on the trading price of our securities and on our ability to access the capital markets”statements included in Item 1A8 of Part II of this report.our annual report on Form 10-K for the year ended December 31, 2017.            
(11)(13)  Other Financial Information
Other Current Assets
The following table presents details of other current assets in our consolidated balance sheets:
As of
September 30, 2017		 As of
December 31, 2016		June 30, 2018 December 31, 2017
(Dollars in millions)(Dollars in millions)
Prepaid expenses$245
 206
$329
 294
Income tax receivable427
 258
Materials, supplies and inventory131
 134
107
 128
Deferred activation and installation charges109
 101
95
 128
Deferred commissions148
 —
Other154
 106
154
 133
Total other current assets$639
 547
$1,260
 941

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Selected Current Liabilities
Current liabilities reflected in our consolidated balance sheets include accounts payable and other current liabilities as follows:
As of
September 30, 2017		 As of
December 31, 2016		June 30, 2018 December 31, 2017
(Dollars in millions)(Dollars in millions)
Accounts payable$939
 1,179
Other current liabilities:      
Accrued rent$32
 31
$30
 34
Legal contingencies36
 30
Litigation contingencies30
 45
Other148
 152
298
 265
Total other current liabilities$216
 213
$358
 344
Included in accounts payable at SeptemberJune 30, 20172018 and December 31, 2016,2017, were (i) $69$48 million and $56$36 million, respectively, representing book overdrafts and (ii) $165 million and $196 million, respectively, associated with capital expenditures.overdrafts.
(12)(14)  Accumulated Other Comprehensive Loss
Information Relating to 20172018
The tables below summarize changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the three and ninesix months ended SeptemberJune 30, 2017:
 Pension Plans 
Post-Retirement
Benefit Plans
 
Foreign Currency
Translation
Adjustment
and Other
 Total
 (Dollars in millions)
Balance at June 30, 2017$(1,836) (156) (58) (2,050)
Other comprehensive income (loss) before reclassifications—
 —
 18
 18
Amounts reclassified from accumulated other comprehensive income34
 4
 —
 38
Net current-period other comprehensive income34
 4
 18
 56
Balance at September 30, 2017$(1,802) (152) (40) (1,994)
2018:
 Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Total
 (Dollars in millions)
Balance at December 31, 2016$(1,895) (162) (60) (2,117)
Other comprehensive income (loss) before reclassifications—
 —
 20
 20
Amounts reclassified from accumulated other comprehensive income93
 10
 —
 103
Net current-period other comprehensive income93
 10
 20
 123
Balance at September 30, 2017$(1,802) (152) (40) (1,994)
 Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Total
 (Dollars in millions)
Balance at December 31, 2017$(1,731) (235) (29) (1,995)
Other comprehensive income before reclassifications—
 —
 (160) (160)
Amounts reclassified from accumulated other comprehensive income65
 7
 —
 72
Net current-period other comprehensive income65
 7
 (160) (88)
Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(375) (32) —
 (407)
Balance at June 30, 2018$(2,041) (260) (189) (2,490)

The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the three and ninesix months ended SeptemberJune 30, 2017:
Three Months Ended September 30, 2017 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
  (Dollars in millions)  
Amortization of pension & post-retirement plans(1)
    
Net actuarial loss $51
 Other income (expense), net
Prior service cost 3
 Other income (expense), net
Total before tax 54
  
Income tax benefit (16) Income tax expense
Net of tax $38
  
2018:
Nine Months Ended September 30, 2017 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
Three Months Ended June 30, 2018 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
 (Dollars in millions)   (Dollars in millions)  
Amortization of pension & post-retirement plans(1)
        
Net actuarial loss $154
 Other income (expense), net $46
 Other income (expense), net
Prior service cost 9
 Other income (expense), net 3
 Other income (expense), net
Total before tax 163
   49
  
Income tax benefit (60) Income tax expense (12) Income tax expense
Net of tax $103
   $37
  

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Six Months Ended June 30, 2018 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
  (Dollars in millions)  
Amortization of pension & post-retirement plans(1)
    
Net actuarial loss $90
 Other income (expense), net
Prior service cost 6
 Other income (expense), net
Total before tax 96
  
Income tax benefit (24) Income tax expense
Net of tax $72
  

(1)
See Note 6—8—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
Information Relating to 20162017
The tables below summarize changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the three and ninesix months ended SeptemberJune 30, 2016:2017:
 Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Total
 (Dollars in millions)
Balance at June 30, 2016$(1,663) (174) (44) (1,881)
Other comprehensive income (loss) before reclassifications—
 —
 (4) (4)
Amounts reclassified from accumulated other comprehensive income26
 4
 —
 30
Net current-period other comprehensive income26
 4
 (4) 26
Balance at September 30, 2016$(1,637) (170) (48) (1,855)
 Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Total
 (Dollars in millions)
Balance at December 31, 2015$(1,715) (180) (39) (1,934)
Other comprehensive income (loss) before reclassifications—
 —
 (9) (9)
Amounts reclassified from accumulated other comprehensive income78
 10
 —
 88
Net current-period other comprehensive income78
 10
 (9) 79
Balance at September 30, 2016$(1,637) (170) (48) (1,855)
 Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Total
 (Dollars in millions)
Balance at December 31, 2016$(1,895) (162) (60) (2,117)
Other comprehensive income before reclassifications—
 —
 2
 2
Amounts reclassified from accumulated other comprehensive income59
 6
 —
 65
Net current-period other comprehensive income59
 6
 2
 67
Balance at June 30, 2017$(1,836) (156) (58) (2,050)

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The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the three and ninesix months ended SeptemberJune 30, 2016:2017:
Three Months Ended September 30, 2016 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
  (Dollars in millions)  
Amortization of pension & post-retirement plans(1)
    
Net actuarial loss $44
 Other income (expense), net
Prior service cost 3
 Other income (expense), net
Total before tax 47
  
Income tax benefit (17) Income tax expense
Net of tax $30
  
Nine Months Ended September 30, 2016 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
Three Months Ended June 30, 2017 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
 (Dollars in millions)   (Dollars in millions)  
Amortization of pension & post-retirement plans(1)
        
Net actuarial loss $131
 Other income (expense), net $52
 Other income (expense), net
Prior service cost 9
 Other income (expense), net 3
 Other income (expense), net
Total before tax 140
   55
  
Income tax benefit (52) Income tax expense (23) Income tax expense
Net of tax $88
   $32
  

(1)
See Note 6—8—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
Six Months Ended June 30, 2017 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
  (Dollars in millions)  
Amortization of pension & post-retirement plans(1)
    
Net actuarial loss $103
 Other income (expense), net
Prior service cost 6
 Other income (expense), net
Total before tax 109
  
Income tax benefit (44) Income tax expense
Net of tax $65
  

(1)See Note 8—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
(13)(15)  Labor Union Contracts
As of SeptemberJune 30, 2017,2018, approximately 36%28% of our employees were members of various bargaining units represented by the Communication Workers of America ("CWA") and the International Brotherhood of Electrical Workers ("IBEW"). We believe that relations with our employees continue to be generally good. Less than 300 of our employees were subject to collective bargaining agreements that have expired as of June 30, 2018 and are currently being renegotiated. Approximately 6001% of our employees are subject to collective bargaining agreements that are scheduled to expire during the remainder of 2017. In mid-2017, we reached new agreements with the CWA District 7 and IBEW Local 206, which represented at September 30, 2017 approximately 10,000, or 25%, of our employees that were subject to collective bargaining agreements which expired on October 7, 2017. The new agreements were effective June 18, 2017 and will expire on March 28, 2020 and include terms substantially similar to those contained in the prior agreements.2018.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context requires otherwise, (i) references in this report to "CenturyLink," "we," "us" and "our" refer to CenturyLink, Inc. and its consolidated subsidiaries and (ii) references in this report to "Level 3" refer to Level 3 Communications, Inc. prior to our acquisition thereof and to its successor-in-interest Level 3 Parent, LLC after such acquisition.
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 last paragraphbeginning of this Item 2 of Part Ireport and "Risk Factors" in Item 1A of Part III of thisour annual report on Form 10-K for the year endedDecember 31, 2017 for a discussion of certain factors that could cause our actual results to differ from our anticipated results or otherwise impact our business, financial condition, results of operations, liquidity or prospects.
Overview
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with MD&A and the other information included in our annual report on Form 10-K for the year ended December 31, 20162017, 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 ninesix 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 integratedinternational facilities-based communications company engaged primarily in providing an integrated array of services to our residential and business customers. Our communications services include local and long-distance voice, broadband, Multi-Protocol Label Switchingvirtual private network ("MPLS"VPN"), data network, private line (including special access)access business data services), Ethernet, hosting (including cloud hosting and managed hosting), data integration, video, wavelength, network public access, Voice over Internet Protocol ("VoIP"), information technology, wavelength, broadband, colocation and data center services, managed services, professional and other services provided in connection with selling equipment, network security and various other ancillary services. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services.
At SeptemberJune 30, 2017,2018, we operated 10.5served 4.9 million access lines in 37 states and served 5.8 millionconsumer broadband subscribers. Our methodology for counting access lines andconsumer broadband subscribers, which is described further in the operational metrics table below under "Results of Operations", may not be comparable to those of other companies. We no longer report or discuss access lines as a key operating metric given the significant migration in our industry from legacy services to IP-enabled services.
Acquisition of Level 3
On November 1, 2017, CenturyLink, Inc. ("CenturyLink") acquired Level 3 through successive merger transactions, including a merger of Level 3 with and into a merger subsidiary, which survived such merger as our indirect wholly-owned subsidiary under the name of Level 3 Parent, LLC. As a result of the acquisition, Level 3 shareholders received $26.50 per share in cashWe entered into this transaction, among other things, to realize certain strategic benefits, including enhanced financial and 1.4286 shares of CenturyLink common stock, with cash paid in lieu of fractional shares, for each outstanding share of Level 3 common stock they owned at closing, subject to certain limited exceptions. Upon closing, CenturyLink shareholders owned approximately 51%operational scale, market diversification and Level 3 shareholders owned approximately 49% of theleveraged combined company. At closing, we assumed Level 3's long-term debt of approximately $11 billion.networks.
During the three and ninesix months ended SeptemberJune 30, 2017,2018, we recognized $68incurred $232 million and $96 million, respectively, of acquisition and integrationintegration-related expenses associated with our activities related to the pending Level 3 acquisition. We expect to recognize approximately $225also incurred during this period $1 million in merger-related transaction costs, including investment banker and legal fees in the fourth quarter of 2017 in connection with consummating the transaction. We expect to incur additional integration costs, including compensation expense comprised of severance and stock-based compensation for stock-based awards that will vest in connection with the acquisition. Most of these contingent expenses will be recognized in our
Our consolidated financial statements ininclude the fourth quarteraccounts of 2017, withCenturyLink and its majority owned subsidiaries, including Level 3 beginning on November 1, 2017. Due to the remainder recognized thereafter. Compensation expense related to retention bonuses is accrued from the datesignificant size of the offer through the date they are paid. The final amount of compensation expense to be recognized is partially dependent upon personnel decisions that will be made as partacquisition, direct comparison of our continuing integration planning. These amounts may be material.

results of operations for the periods ending on or after December 31, 2017 to prior periods are less meaningful than usual.
As a result of the acquisition, Level 3's assets and liabilities will behave been revalued and recorded at their preliminary estimated fair value. The assignment of estimated fair value will requirerequires a significant amount of judgment. The use of fair value measures will affectaffects the comparability of our post-acquisition financial information and may make it more difficult to predict earnings in future periods. For example,We expect to complete our final fair value determinations prior to the first anniversary of the acquisition. Our final fair value determinations may be significantly different than those preliminary values reflected in our consolidated balance sheet at June 30, 2018.
In the discussion that follows, we refer to the business that we operated prior to the Level 3 has certain deferred costsacquisition as "Legacy CenturyLink", and deferred revenues on its balance sheet associated with capacity leases. Based onwe refer to the accounting guidance forincremental business combinations, these existing deferred costs and deferred revenues are expected to be assigned little or no value inactivities that we now operate as a result of the purchase price allocation process and will thus be eliminated. See Note 2—Acquisition of Level 3 for additional information on the acquisition.acquisition as "Legacy Level 3."

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For additional information about our acquisition of Level 3, see (i) Note 2,2—Acquisition of Level 3 to our consolidated financial statements in Item 1 of Part I of this report, (ii) our current report on Form 8-K8-K/A filed by us with the Securities and Exchange Commission (the "SEC") on January 16, 2018, (iii) our current report on Form 8-K filed by us with the SEC on November 1, 2017 and (iii)(iv) the definitive joint proxy statement/prospectus filed by us with the SEC on February 13, 2017.
Sale of Data Centers and Colocation Business
On May 1, 2017, we sold our data centers and colocation business to a consortium led by BC Partners, Inc. and Medina Capital ("the Purchaser") in exchange for pre-tax cash proceeds of $1.8 billion and a minority stake in the limited partnership that owns the consortium's newly-formed global secure infrastructure company, Cyxtera Technologies ("Cyxtera").Technologies. As part of the transaction, the Purchaser acquired 57 of our data centers and assumed our capital lease obligations, which amounted to $294 million on May 1, 2017, related to the divested properties.
Our colocation business generated revenues (excluding revenue from affiliates) of approximately $210 million from January 1, 2017 throughto May 1, 2017, and approximately $470 million for the nine months ended September 30, 2016 (a small portion of which has been retained by us). We received pre-tax cash proceeds of $1.8 billion and a minority stake in Cyxtera.2017.
This transaction did not meet the accounting requirements for a sale-leaseback transaction as described in ASC 840-40, Leases - Sale-Leaseback Transaction. Under the failed-sale-leaseback accounting model, we are deemed under GAAP to still own certain real estate assets sold to Cyxtera. Based on our most current estimates, the failed-sale-leaseback accounting treatment increased net income by $1 million and decreased net income by $100 million on our consolidated results of operations for the three and nine months ended September 30, 2017, respectively.
After factoring in the costs to sell the data centers and colocation business, excluding the estimated impacts from the failed-sale-leaseback accounting treatment, the sale resulted in a $20 million gain as a result of the aggregate value of the proceeds we received exceeding the carrying value of the assets sold and liabilities assumed.under GAAP. Based on our most current estimates of the fair market values of the failed-sale-leaseback assets, the failed-sale-leaseback accounting treatment resulted in a loss of $102 million as a result of the requirement to treat a certain amount of the pre-tax cash proceeds from the sale of the assets as though it were the result of a financing obligation. The combined net loss of $82 million is included in selling, general and administrative expenses in our consolidated statement of operations for the nine monthsyear ended September 30,December 31, 2017. The sale also resulted in a significant capital loss carryforward, which will bewas entirely offset by a valuation allowance due to our determination that we are not likely to be able to utilize this carryforward prior to its expiration.
From May 1, 2017 through December 31, 2017 andFor all of 2018, we will be required by GAAP to record similar non-cash adjustments to our net income as those most current estimates listed above, other than our recording of a one-time loss on the sale of the business in the second quarter of 2017.income. Upon the January 1, 2019 implementation of the new accounting standard for Leases (ASU 2016-02), which was issued by the FASB in early 2016, this particular accounting treatment will no longer be applicable for thisto our May 1, 2017 divestiture transaction, and the above-described real estate assets and corresponding financing obligation will be derecognized from our consolidated balance sheet.
See Note 3—Sale of Data Centers and Colocation Business to our consolidated financial statements in Item 1 of Part I of this report for additional information.information on the sale.

Recent Changes inNew Organizational Structure
In Januaryconnection with our above-described acquisition of Level 3, effective November 1, 2017, we implemented a new organizationalorganization structure designed to further strengthenand began managing our ability to attain our operational, strategic and financial goals. Prior to this reorganization, we operated and reported asoperations in two segments,segments: business and consumer. As a result ofOur consumer segment remains substantially unchanged under this reorganization, we changed the name of the predecessorand our newly reorganized business segment toincludes the "enterprise"Legacy CenturyLink enterprise segment operations and the Legacy Level 3 operations. In addition, we reassigned our information technology, managed hosting, cloud hosting and hosting area network operations back into the business segment thereby eliminating a former non-reportable operating segment. At SeptemberJune 30, 2017,2018, we had the following two segments:
EnterpriseBusiness Segment.This segment consists generally of providing strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmentalgovernment customers, including other communication providers. Our strategic products and services offered to these customers include our MPLS, Ethernet, broadband, wavelength, VoIP and other ancillary services. Our legacy services offered to these customers primarily include local and long-distance voice, including the sale of unbundledVPN data network, elements ("UNEs"), which allow our wholesale customers to use all or part of our network to provide voice and data services to their customers, private line (including special access)business data services), switched accessEthernet, information technology, wavelength, broadband, colocation and data center services, managed services, professional and other ancillary services. Our data integration offerings include the sale of telecommunicationsservices provided in connection with selling equipment, located on customers' premisesnetwork security and related products and professionalvarious other ancillary services, all of which are described further below under the heading "Product and Service Categories""Operating Revenues"; and
Consumer Segment. This segment consists generally of providing strategic and legacy products and services to residential customers. Our strategic products and services offered to these customers include our broadband, video (including our Prism TV services) and other ancillary services. Our legacy services offered to these customers include local and long-distance voice, video and other ancillary services.
In connection with our January 2017 reorganization, we also reassigned our information technology, managed hosting, cloud hosting and hosting area network services from our former business segment to a new non-reportable operating segment.
In connection with our acquisition of Level 3 (discussed further in Note 2—Acquisition of Level 3), effective November 1, 2017 we began managing our operations in two segments: (i) business segment, which consists generally of providing strategic, legacy and data integration products and services (including information technology, managed hosting, cloud hosting and hosting area network services previously reflected in our above-mentioned non-reportable segment) to small, medium and enterprise businesses and wholesale and government customers, including other communication providers and (ii) consumer segment, which consists generally of providing strategic and legacy products and services to residential customers.
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Results of Operations
The following table summarizes the results of our consolidated operations for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016:2017:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 20162018 2017 2018 2017
(Dollars in millions except per share amounts)    
Operating revenues$4,034
 4,382
 12,333
 13,181
$5,902
 4,090
 11,847
 8,299
Operating expenses3,547
 3,789
 10,848
 11,253
5,135
 3,723
 10,330
 7,301
Operating income487
 593
 1,485
 1,928
767

367
 1,517
 998
Total other expense, net(348) (344) (999) (982)
Income tax expense47
 97
 214
 362
Interest expense and other (expense) income, net(530) (327) (1,044) (651)
Income tax (benefit) expense(55) 23
 66
 167
Net income$92
 152
 272
 584
$292

17
 407
 180
Basic earnings per common share$0.17
 0.28
 0.50
 1.08
$0.27
 0.03
 0.38
 0.33
Diluted earnings per common share$0.17
 0.28
 0.50
 1.08
$0.27
 0.03
 0.38
 0.33
The following table summarizes our access lines, broadband subscribers and number of employees:
As of September 30, 
Increase /
(Decrease)
 % ChangeAs of June 30, 
Increase /
(Decrease)
 % Change
2017 2016 2018 2017 
(in thousands)  (in thousands)  
Operational metrics:              
Total access lines(1)
10,506
 11,231
 (725) (6)%
Total broadband subscribers(1)
5,767
 5,950
 (183) (3)%
Total consumer broadband subscribers(1)
4,906
 5,226
 (320) (6)%
Total employees39.5
 42.5
 (3.0) (7)%47
 40
 7
 18 %

(1)
Access lines are lines reaching from the customers' premises to a connection with the public network andConsumer broadband subscribers are customers that purchase broadband connection service through their existing coppertelephone lines, stand-alone telephone lines, or fiber-optic cables. Our methodology for counting our access lines andconsumer broadband subscribers includes only those lines that we use to provide services to external customers and excludes lines used solely by us and our affiliates. It also excludes unbundled loops and includes stand-alone consumer broadband subscribers. We count lines when we install the service.
During the last decade, we have experienced revenue declines primarily due to declines in access lines, private line volume,customers, switched access rates and minutes of use. To mitigate these revenue declines, we remain focused on efforts to, among other things:
migrate customers from legacy analog voice, data and video communications services to IP-based voice, video and data communications services;
deliver safe, secure and reliable network communications technologies;
provide comprehensive bandwidth and associated services necessary for our business customers to deliver their products and services faster to market, to improve the quality of those products and services, and to lower our customers' operational costs;
provide security expertise and services topromote long-term relationships with our customers to protect their data communications;through bundling of integrated services;
increase the capacity, speed and usage of our networks;
provide a wide array of diverse services, including enhanced or additional services that may become available in the future due to, among other things, advances in technology or improvements in our infrastructure;
attempt to provide our premium services to a higher percentage of our customers;
pursue acquisitions of additional assets if available at attractive prices;
increase prices on our products and services if and when practicable;
seek increases in the capacity, speed and usage of our networks; and
market our products and services to new customers.

Operating Revenues
From time to time, we change the categorization of our products and services, and we may make similar changes in the future. During the second quarter of 2017, we determined that certain of our legacy services, specifically our dark fiber network leasing, are more closely aligned with our strategic services than with our legacy services. As described in greater detail in Note 9—Segment Information, these operating revenues are now reflected as strategic services.
We categorize our products, services and revenues among the following fourfive categories:
StrategicIP and data services, which include primarily broadband, MPLS,VPN data networks, Ethernet, hosting (including cloud hosting and managed hosting),IP, video (including our facilities-based video services, CDN services and Vyvx broadcast services) and other ancillary services;

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Transport and infrastructure, which we offer in 16 markets)include broadband, private line (including business data services), data center facilities and services, including cloud, hosting and application management solutions, wavelength, VoIP, information technologyequipment sales and professional services, network security services, dark fiber services and other ancillary services;
Legacy servicesVoice and collaboration, which includeincludes primarily local and long-distance voice, including the sale of UNEs, private line (including special access), Integrated Services Digital Network ("ISDN") (which uses regular telephone lines to supportwholesale voice, video and data applications), switched access and other ancillary services;service;
Data integrationIT and managed services, which includes the sale of telecommunications equipment located on customers' premisesinclude information technology services and related products and professionalmanaged services, such aswhich may be purchased in conjunction with our other network management, installation and maintenance of data equipment, the building of proprietary fiber-optic broadband networks for our governmental and business customers and the reselling of software;services; and
Other operatingRegulatory revenues, which consists primarilyconsist of Universal Service Fund ("USF") and Connect America Fund ("CAF") support payments Universal Service Fund ("USF") support payments and USF surcharges.other operating revenues. We receive federal support payments from both Phase 1 and Phase 2 of the CAF program, and support payments from both federal and state USF programs. Theseprograms and from the federal CAF program. The USF and CAF support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services, including the costs of deploying, maintaining and operating voice and broadband infrastructure in high-cost rural areas where we are not able to fully recover our costs from our customers.services. We also collect USF surcharges based on specific services we list on our customers' invoices to fund the Federal Communications Commission's ("FCC") universal service programs. We also generate other operating revenues from the leasing and subleasing of space in our office buildings, warehouses and other properties.properties and from rental income associated with the failed-sale-leaseback. Because we centrally manage the activities that generate these other operatingregulatory revenues, these revenues are not included in our segment revenues.
The following tables summarizetable summarizes our consolidated operating revenues recorded under our fourfive revenue categories:
 Three Months Ended September 30, Increase /
(Decrease)		 % Change 
 2017 2016  
 (Dollars in millions)  
Strategic services$1,892
 2,027
 (135) (7)%
Legacy services1,705
 1,888
 (183) (10)%
Data integration134
 163
 (29) (18)%
Other303
 304
 (1) — %
Total operating revenues$4,034
 4,382
 (348) (8)%
 Three Months Ended June 30, Increase /
(Decrease)		 % Change 
 2018 2017  
 (Dollars in millions)  
IP and data services (1)
$1,833
 851
 982
 115%
Transport and infrastructure (2)
2,064
 1,480
 584
 39%
Voice and collaboration (3)
1,656
 1,414
 242
 17%
IT and managed services (4)
164
 162
 2
 1%
Regulatory revenues (5)
185
 183
 2
 1%
Total operating revenues$5,902
 4,090
 1,812
 44%
 Six Months Ended June 30, Increase /
(Decrease)		 % Change 
 2018 2017  
 (Dollars in millions)  
IP and data services (1)
$3,664
 1,711
 1,953
 114%
Transport and infrastructure (2)
4,142
 3,057
 1,085
 35%
Voice and collaboration (3)
3,348
 2,862
 486
 17%
IT and managed services (4)
325
 314
 11
 4%
Regulatory revenues (5)
368
 355
 13
 4%
Total operating revenues$11,847
 8,299
 3,548
 43%
_______________________________________________________________ 

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 Nine Months Ended September 30, Increase /
(Decrease)		 % Change 
 2017 2016  
 (Dollars in millions)  
Strategic services$5,820
 6,070
 (250) (4)%
Legacy services5,235
 5,790
 (555) (10)%
Data integration385
 402
 (17) (4)%
Other893
 919
 (26) (3)%
Total operating revenues$12,333
 13,181
 (848) (6)%

(1)Includes primarily VPN data network, Ethernet, IP, video, retail video revenues (including our facilities-based video revenues) and ancillary revenues.
(2)Includes primarily broadband, private line (including business data services), colocation and data centers, wavelength, equipment sales, professional services revenues and ancillary revenues.
(3)Includes local, long-distance and other ancillary revenues.
(4)Includes IT services and managed services revenues.
(5)Includes CAF Phase I, CAF Phase 2, federal and state USF support revenue, sublease rental income and failed-sale leaseback income.
Our total operating revenues decreasedincreased by $348 million,$1.812 billion, or 8%44%, and by $848 million,$3.548 billion, or 6%43%, for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, as compared to the three and ninesix months ended SeptemberJune 30, 2016.2017. The decreaseincrease in our total operating revenues was largely attributable to the acquisition of Level 3, which contributed operating revenues (net of intercompany eliminations) of $2.025 billion and $4.087 billion for both periodsthe three and six months ended June 30, 2018. This was partially offset by a decrease in Legacy CenturyLink transport and infrastructure and voice and collaboration revenue. The decrease in transport and infrastructure was primarily due to lower legacy services revenues, which decreased by $183 million, or 10%, and by $555 million, or 10%, for the three and nine months ended September 30, 2017, respectively, as compared to the three and nine months ended September 30, 2016. Our total operating revenues were also impacted from the sale of ourthe colocation and data centers and colocationcenter business which closed onin May 1, 2017 and resulteda decrease in a reduction of colocation revenues of $150 million and $250 million for the three and nine months ended September 30, 2017, respectively, as compared to the comparable prior year periods. Our colocation revenues are reported in our strategic services revenues.
The decline in our legacy services revenues for both periods reflects the continuing loss of access lines and loss of long-distance revenues primarily due to the displacement of traditional wireline telephone services by other competitive products and services, including data and wireless communication services, and reductions in the volume of our private line (including special access) services. We estimate that the rate of our access lines losses will be between 6.0% and 7.5% over the full year of 2017.
Excluding the above-referenced reduction in colocation revenues, our strategic services revenues increased by $15 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 primarily due to increased demand for our MPLS and cloud hosting services and an increase in information technology services as a result of recent business acquisitions. These increases were partially offset by declines in our satellite video services revenues due to the restructuring of one of our contractual agreements, the loss of broadband subscribers and reductions in wavelength and managed hostingresulting from lower volumes. Excluding the reduction in colocation revenues, our strategic services revenues were flat for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. On a comparable basis year over year, demand for our MPLS, cloud hosting and VOIP services increased, and we recognized an increase in information technology services as a result of recent business acquisitions. These increases were fully offset by the loss of broadband subscribers, reductions in wavelength and managed hosting volumes and declines in our satellite video services revenues due to the restructuring of one of our contractual agreements.
Data integration revenues, which are typically more volatile than our other sources of revenues, decreased by $29 million, or 18%, and by $17 million, or 4%, for the three and nine months ended September 30, 2017, respectively, as compared to the three and nine months ended September 30, 2016. The decrease in our data integration revenues for both periodsvoice and collaboration was primarily due to continued decreases in governmental and business sales.
Other operating revenues decreased by $1 million, or less than 1%, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 primarily due to lower federal USF surcharge revenues as a result of decreases in rates and reductions in CAF Phase 2 transitional revenues. These decreases were substantially offset by an increase in imputed rental income required to be reflected inrevenue from our consolidated statement of operations as a result of the application of failed-sale-leaseback accounting as further described in Note 3—Sale of Data Centers and Colocation Business. Other operating revenues decreased by $26 million, or 3%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily due to lower federal USF surcharge revenues as a result of decreases in rates and reductions in CAF Phase 2 transitional revenues. These decreases were partially offset by the increase in imputed rental income required to be reflected in our consolidated statement of operations as a result of the application of failed-sale-leaseback accounting.
Further analysis of our segment operating revenues and trends impacting our performance are provided below in "Segment Results."traditional voice telecommunications services.
Operating Expenses
The following tables summarize our consolidated operating expenses:
 Three Months Ended September 30, Increase /
(Decrease)		 % Change 
 2017 2016  
 (Dollars in millions)  
Cost of services and products (exclusive of depreciation and amortization)$1,927
 1,996
 (69) (3)%
Selling, general and administrative710
 798
 (88) (11)%
Depreciation and amortization910
 995
 (85) (9)%
Total operating expenses$3,547
 3,789
 (242) (6)%

Nine Months Ended September 30, Increase /
(Decrease)		 % Change Three Months Ended June 30, Increase /
(Decrease)		 % Change 
2017 2016 2018 2017 
(Dollars in millions)  (Dollars in millions)  
Cost of services and products (exclusive of depreciation and amortization)$5,705
 5,845
 (140) (2)%$2,730
 1,890
 840
 44%
Selling, general and administrative2,404
 2,450
 (46) (2)%1,115
 884
 231
 26%
Depreciation and amortization2,739
 2,958
 (219) (7)%1,290
 949
 341
 36%
Total operating expenses$10,848
 11,253
 (405) (4)%$5,135
 3,723
 1,412
 38%
 Six Months Ended June 30, Increase /
(Decrease)		 % Change 
 2018 2017  
 (Dollars in millions)  
Cost of services and products (exclusive of depreciation and amortization)$5,533
 3,778
 1,755
 46%
Selling, general and administrative2,224
 1,694
 530
 31%
Depreciation and amortization2,573
 1,829
 744
 41%
Total operating expenses$10,330
 7,301
 3,029
 41%
Cost of Services and Products (exclusive of depreciation and amortization)
Cost of services and products (exclusive of depreciation and amortization) decreasedincreased by $69$840 million, or 3%44%, and by $140 million,$1.755 billion, or 2%46%, for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2018, as compared to the three and ninesix months ended SeptemberJune 30, 2016.2017. The decreaseincrease in our costcosts of services and products (exclusive of depreciation and amortization) was attributable to the inclusion of $980 million and $1.978 billion in Legacy Level 3 costs (net of intercompany eliminations) in our consolidated costs of services and products (exclusive of depreciation and amortization) and an increase in facilities costs for the three and six months ended SeptemberJune 30, 2017 was primarily due to reductions in employee benefits from lower healthcare costs, real estate and power expenses from the sale of the colocation business and data centers, USF rates and customer premises equipment costs due to a decrease in sales of customer premises equipment, which2018. These were partially offset by increases in facility costs and network expense. Thea decrease in our costcosts of services and products (exclusive of depreciation and amortization) for Legacy CenturyLink of $140 million, or 7%, and $223 million, or 6%, for the ninethree and six months ended SeptemberJune 30, 20172018 as compared to the three and six months ended June 30, 2017. This was primarily due to reductions in salaries and wages and employee benefitsrelated expenses from lower headcount, reduced overtime and healthcare costs,lower real estate and power expenses from the 2017 sale of the colocation business andour data centers and USF rates, which were partially offset by increases in facility costs, network expense and costs related to Prism TV (resulting from higher programming rates).colocation business.

Table of Contents

Selling, General and Administrative
Selling, general and administrative expenses decreasedincreased by $88$231 million, or 11%26%, and by $530 million, or 31%, for the three and six months ended SeptemberJune 30, 20172018 as compared to the three and six months ended SeptemberJune 30, 2016. This decrease2017. The increase in our selling, general and administrative expenses was primarily due to reductions in salaries and wages from lower headcount, external commissions and a favorable adjustmentattributable to the loss associated withinclusion of $388 million and $732 million for the sale of the data centersthree and colocation business, which weresix months ended June 30, 2018, respectively, in Legacy Level 3 costs in our consolidated selling, general and administrative expenses. This was partially offset by increasesa decrease in marketing and advertising expenses and Level 3 acquisition and integration costs described above under "Acquisition of Level 3". Selling,Legacy CenturyLink's selling, general and administrative expenses decreased by $46of $157 million, or 2%18%, and $202 million, or 12%, for the ninethree and six months ended SeptemberJune 30, 2017 as2018 compared to the ninethree and six months ended SeptemberJune 30, 2016.2017. This decrease in our selling, general and administrative expenses was primarily due to reductions in salariescontract labor, marketing expenses and wages from lower headcount, external commissions and bad debt expense. These decreases were substantially offset by losses recognizedas well as third-party hosting cost reductions resulting from the sale of our data centers and colocation business and the related failed-sale-leaseback as further described in Note 3—Sale of Data Centers and Colocation Business and increases in Level 3 acquisition and integration costs associated with the Level 3 acquisition.business.
Depreciation and Amortization
The following tables provide detail of our depreciation and amortization expense:
 Three Months Ended September 30, Increase / (Decrease) % Change
 2017 2016  
 (Dollars in millions)  
Depreciation$641
 691
 (50) (7)%
Amortization269
 304
 (35) (12)%
Total depreciation and amortization$910
 995
 (85) (9)%
Nine Months Ended September 30, Increase / (Decrease) % ChangeThree Months Ended June 30, Increase / (Decrease) % Change
2017 2016 2018 2017 
(Dollars in millions)  (Dollars in millions)  
Depreciation$1,919
 2,028
 (109) (5)%$843
 673
 170
 25%
Amortization820
 930
 (110) (12)%447
 276
 171
 62%
Total depreciation and amortization$2,739
 2,958
 (219) (7)%$1,290
 949
 341
 36%

 Six Months Ended June 30, Increase / (Decrease) % Change
 2018 2017  
 (Dollars in millions)  
Depreciation$1,683
 1,278
 405
 32%
Amortization890
 551
 339
 62%
Total depreciation and amortization$2,573
 1,829
 744
 41%
Depreciation expense decreasedincreased by $50$170 million, or 7%25%, and by $109$405 million, or 5%32%, for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, as compared to the three and ninesix months ended SeptemberJune 30, 2016.2017. Depreciation expense is impacted by several factors, including changes in our depreciable cost basis, changes in our estimates of the remaining economic life of certain network assets, the addition of new plant and the sale of our data centers and colocation business. The depreciation expense related to our plant for the three and ninesix months ended SeptemberJune 30, 20172018 was lowerhigher than the depreciation expense for the three and ninesix months ended SeptemberJune 30, 20162017 due to full depreciation and retirementthe inclusion of certain plant placed in service prior to 2017. Additionally, we ceased depreciating property, plant and equipment assets of our data centers and colocation business when we entered into an agreement to sell that business. We estimate that we would have recorded additionalthe Legacy Level 3 depreciation expense of $54$231 million from January 1, 2017 through May 1, 2017 related toand $468 million for the property, plantthree and equipment sold to Cyxtera. These decreases weresix months ended June 30, 2018, respectively, which was partially offset by an increase inlower legacy CenturyLink depreciation expense attributable to new plant placed in service since September 30, 2016. As a result of not meeting sale-leaseback accounting requirements, we are deemed under GAAP to still own certain real estate assets sold to Cyxtera; therefore, we are required to reflect a portion of the real estate assets on our consolidated balance sheet and depreciate these assets over their useful lives. As further described in Note 3—Sale of Data Centers and Colocation Business, of the $73 million increase in depreciation expense on these real estate assets, $44 million will not recur in future periods.expense.
Amortization expense decreasedincreased by $35$171 million, or 12%62%, and by $110$339 million, or 12%62%, for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2018 as compared to the three and ninesix months ended SeptemberJune 30, 2016.2017, respectively. The decreaseincrease in amortization expense was primarily due to the useinclusion of accelerated amortization for a portion of our customer relationship assets and the sale of our data centers and colocation business. The effect of using an accelerated amortization method results in an incremental decline in expense each period as the intangible assets amortize. We ceased amortizing the intangible assets of our data centers and colocation business when we entered into the agreement to sell that business. We estimate that we would have recorded additionalLegacy Level 3 amortization expense of $13$202 million from January 1, 2017 through May 1, 2017, related toand $396 million for the intangible assets included in the colocation business sold to Cyxtera. In addition,three and six months ended June 30, 2018, which was partially offset by lower Legacy CenturyLink amortization of capitalized software was lowerexpense due to software becoming fully amortized faster than new software was acquired or developed.an accelerated method of amortization for certain intangible assets.
Further analysis of our segment operating expenses by segment is provided below in "Segment Results."

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Other Consolidated Results
The following tables summarize our total other expense, net and income tax expense:
 Three Months Ended September 30, Increase /
(Decrease)		 % Change
 2017 2016  
 (Dollars in millions)  
Interest expense$(362) (327) 35
 11 %
Other income (expense), net14
 (17) 31
 nm
Total other expense, net$(348) (344) 4
 1 %
Income tax expense$47
 97
 (50) (52)%
Nine Months Ended September 30, Increase /
(Decrease)		 % ChangeThree Months Ended June 30, Increase /
(Decrease)		 % Change
2017 2016 2018 2017 
(Dollars in millions)  (Dollars in millions)  
Interest expense$(1,000) (998) 2
 — %$(546) (320) 226
 71%
Other income (expense), net1
 16
 (15) (94)%16
 (7) 23
 nm
Total other expense, net$(999) (982) 17
 2 %$(530) (327) 203
 62%
Income tax expense$214
 362
 (148) (41)%
Income tax (benefit) expense$(55) 23
 (78) nm
 Six Months Ended June 30, Increase /
(Decrease)		 % Change
 2018 2017  
 (Dollars in millions)  
Interest expense$(1,081) (638) 443
 69 %
Other income (expense), net37
 (13) 50
 nm
Total other expense, net$(1,044) (651) 393
 60 %
Income tax expense$66
 167
 (101) (60)%

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

Interest Expense
Interest expense increased by $35$226 million, or 11%71%, for the three months ended SeptemberJune 30, 20172018 as compared to the three months ended SeptemberJune 30, 2016.2017. Interest expense increased by $443 million, or 69%, for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. The increase in interest expense for both periods was primarily due to the recognitionour issuance and assumption of imputed interest expense resulting from the failed-sale-leaseback as further describeddebt in Note 3—Sale of Data Centers and Colocation Business and interest on the $6 billion Term Loan B obtained in June 2017 for the purpose of providing funding for the Level 3 acquisition. These increases were partially offset by a reduction in the amount of coupon interest on senior notes and an increase in the amount of interest capitalized as a component of property, plant and equipment. Interest expense increased by $2 million, or less than 1%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This increase in interest expense was primarily due to the recognition of imputed interest expense resulting from the failed-sale-leaseback and interest on the $6 billion Term Loan B as noted above. These increases were partially offset by a reduction in the amount of coupon interest on senior notes, including a decrease in interest in connectionconjunction with the issuanceacquisition of $1 billion of new debt in April 2016, which was in advance of a debt maturity in June 2016 and an increase in the amount of interest capitalized as a component of property, plant and equipment.Level 3.
Other Income (Expense), Net
Other income (expense), net reflects certain items not directly related to our core operations, including our share of income from partnerships we do not control, interest income, gains and losses from non-operating asset dispositions, foreign currency gains and losses and components of net periodic pension and postretirement benefit costs. Other income (expense), net increasedchanged by $31$23 million and by $50 million, for the three and six months ended SeptemberJune 30, 20172018, respectively, as compared to the three and six months ended SeptemberJune 30, 2016. The increase in other income (expense), net was primarily2017 due to a reduction in the loss on early retirement of debt and an increase in interest income resulting from the Term Loan B funds held in escrow. The expected return on assets for ourdecreased pension and post-retirement plans was lower in 2017 as compared to 2016, which resulted in us recording pensionpost retirement charge and post-retirement expense in 2017 as compared to recording pension and post-retirement income in 2016. See Note 1—Background, "Recently Adopted Accounting Pronouncements" on our adoptionfavorable foreign exchange rates during the first six months of ASU 2017-07 and Note 6—Employee Benefits for additional information. Other income (expense), net decreased by $15 million, or 94%, for the nine months ended September 30, 2017, as2018 compared to the ninefirst six months of 2017. In addition, the three and six months ended SeptemberJune 30, 2016. The decrease in2018 included other income (expense), net was primarily dueattributable to the lower expected return on assets in 2017 for our pension and post-retirement plans as described above, which is partially offset by a reduction in the loss on early retirement of debt and an increase in interest income from the $6 billion Term Loan B funds held in escrow.Level 3.
Income Tax Expense
For the three months ended SeptemberJune 30, 20172018 and 2016,2017, our effective income tax rate was 33.8%(23.2)% and 39.0%57.5%, respectively. For the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, our effective income tax rate was 44.0%14.0% and 38.3%48.1%, respectively. The effective tax ratesrate for the three and ninesix months ended SeptemberJune 30, 2017 were2018 was significantly impacted by the saletax reform impact of filing tax accounting method changes relating to our 2017 Federal income tax return that significantly accelerated tax deductions into 2017, allowing a carryback claim to 2016 resulting in a tax benefit, net of uncertain positions, of $142 million, offset by purchase price accounting adjustments resulting from the Level 3 acquisition and related restructure actions we have taken with respect to the data centerstax reform impact on those adjustments of $76 million. The rate was further impacted by the enactment of the Tax Cuts and colocation business as describedJobs Act legislation in Note 3—Sale of Data CentersDecember 2017. See Recent Tax Changes in "Liquidity and Colocation Business. These restructure actions resulted inCapital Resources—Other Matters". The effective tax rate increases of 2.3% and 6.3% for the three and ninesix months ended SeptemberJune 30, 2017 respectively. Additionally, the effective tax rates for the three and nine months ended September 30, 2017 includeincludes the tax impact of certain employee stock-based compensation transactions, the releasetax impact of a reservethe sale and related to a prior acquisitioncorporate actions we have taken regarding certain subsidiaries involved in the data centers and the effectscolocation business.

Table of changes in state apportionment factors. The effective tax rates for the three and nine months ended September 30, 2016 include the effects of changes in state apportionment factors and research and development credits.Contents

Segment Results
General
For financial reporting purposes, we have determined that as of SeptemberJune 30, 20172018 we had two reportable segments, enterprisebusiness and consumer.
The results of our reportable segments, enterprisebusiness and consumer, are summarized below:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 20162018 2017 2018 2017
(Dollars in millions)(Dollars in millions)
Total reportable segment revenues$3,558
 3,916
 10,943
 11,776
Total reportable segment expenses1,913
 2,068
 5,720
 6,009
Total reportable segment income$1,645
 1,848
 5,223
 5,767
Total margin percentage46% 47% 48% 49%
       
Enterprise segment:       
Business segment:       
Revenues$2,171
 2,444
 6,742
 7,321
$4,365
 2,470
 8,748
 5,060
Expenses1,292
 1,425
 3,907
 4,116
2,524
 1,538
 5,094
 3,104
Income$879
 1,019
 2,835
 3,205
Adjusted EBITDA$1,841
 932
 3,654
 1,956
Margin percentage40% 42% 42% 44%42% 38% 42% 39%
Consumer segment:              
Revenues$1,387
 1,472
 4,201
 4,455
$1,352
 1,437
 2,731
 2,884
Expenses621
 643
 1,813
 1,893
569
 631
 1,181
 1,271
Income$766
 829
 2,388
 2,562
Adjusted EBITDA$783
 806
 1,550
 1,613
Margin percentage55% 56% 57% 58%58% 56% 57% 56%
AllocationFor additional information on our reportable segments, see Note 11—Segment Information.
Products and Services
In connection with our acquisition of Revenues and Expenses
Our segment revenues include all revenues fromLevel 3 on November 1, 2017, we revised the way we categorize our sale of strategic services, legacy services and data integration products and services as described in more detail above under "Operating Revenues." Segment revenues are based upon each customer's classification. Weand now report our segmentrelated revenues based upon allunder the following categories: IP and data services, providedtransport and infrastructure, voice and collaboration, IT and managed services and regulatory revenues. From time to that segment's customers. For information on howtime, we allocate expenseschange the categorization of our products and services, and we may make similar changes in the future.
We offer our customers the ability to bundle together several products and services. We believe our segments, as well as other additional information about our segments, see Note 9—Segment Information to our consolidated financial statements in Item 1customers value the convenience and price discounts associated with receiving multiple services through a single company.

Table of Part I of this report.Contents
Enterprise
Business Segment
The operations of our enterprisebusiness segment have been, and are expected to continue to be, impacted by several significant trends, including those described below:
Strategic services.Revenues. Our mix of total enterprisebusiness segment revenues continues to migrate from legacytraditional wireline voice services to strategicnewer, lower cost more technologically advanced products and services as our small, medium and enterprise business, wholesale and governmentalgovernment customers increasingly demand integrated communicationsdata, broadband, hosting and voice services. Competition is generally intense with respectOur Ethernet-based services in the wholesale market face competition from cable companies and competitive fiber-based telecommunications providers. We anticipate continued pricing pressure for our colocation services as our competitors continue to all of our strategicexpand their enterprise colocation operations. Sustained expansion in competitive cloud computing offerings by technology companies and other competitors has led to other increased pricing pressure, a migration towards lower-priced cloud-based services and particularly competitive with regardsenhanced competition for contracts, and we expect these trends to broadband, hosting, MPLS, Ethernet and wavelength services. We compete against other telecommunication providers, as well as other regional and national carriers, other data transport providers, cable companies, technology companies, cloud companies, wireless companies, CLECs and other enterprises, some of whom are substantially larger than us. Competition is based on price, bandwidth, quality and speed of service, promotions and bundled offerings.continue. Customers' demand for new technology has also increased the number of competitors offering strategic services similar to ours. Price compression resulting from each of these above-mentioned competitive pressures has negatively impacted the revenue trends and operating margins of our strategic services,certain business product and service offerings, and we expect this trend to continue. Operating costs also impact the operating margins of our strategic services, but to a lesser extent than price compressionOur traditional wireline products and customer disconnects. These operating costs include employee costs, sales commissions, software costs on selected services, installation costs and third-party facility costs. We believe increases in operating costs have generally had a greater impact on the operating margins of our strategic services as compared to our legacy services, principally because our strategic services rely more heavily upon the above-listed support functions.

Legacy services. Our legacy services revenues have been, and we expect they will continue to be, adversely affected by access line losses and price compression. In particular, our access, local services and long-distance revenues have been, and we expect will continue to be, adversely affected by customer migration to more technologically advanced services, offered by us and our competitors, ana substantial increase in the use of non-voice communications, and a related decrease in the demand for traditional voice services, industry consolidation and rate reductionsprice compression caused by changes in regulation and competition.various factors. For example, many of our enterprisebusiness segment customers are substituting cable, wireless and VoIPVoice over Internet Protocol ("VoIP") services for traditional voice telecommunications services, resulting in continued declines of our legacy services revenues.access revenue loss. Demand for our private line services (including special access)business data services) continues to decline due to our customers' optimization of their networks, industry consolidation and technological migration to higher-speed services. Although our legacytraditional wireline services generally face fewer direct competitors than certain of our strategicnewer, lower cost more advanced products and services, customer migration and, to a lesser degree, price compression from competitive pressures have negatively impacted our legacytraditional wireline revenues and the operating margins of our legacythese services. We expect this trend to continue. Operating costs, such as installation costs and third-party facility costs, have also negatively impacted the operating margins of our legacy services, but to a lesser extent than customer loss, customer migration and price compression. Operating costs also tend to impact our legacy services to a lesser extent than strategic services as noted above.
Data integration.We expect both data integrationequipment sales and professional services revenue and the related costs will fluctuate from year to year as this offering tends to be more sensitive than others to changes in the economy and in spending trends of our federal, state and local governmentalgovernment customers, many of whom have experienced substantial budget cuts over the past several years, with the possibility of additional future budget cuts.
Expenses. Our data integrationoperating costs also impact the operating margins are typically smaller than mostof all of our other offerings.above-mentioned services, but to a lesser extent than price compression and customer disconnects. These operating costs include employee costs, sales commissions, software costs on selected services, installation costs and third-party facility costs. We believe increases in operating costs have generally had a greater impact on the operating margins of some of our newer, more technologically advanced services as compared to our traditional wireline services, principally because those newer services rely more heavily upon the above-listed support functions. Operating costs, such as installation costs and third-party facility costs, have also negatively impacted the operating margins of our traditional wireline products and services, but to a lesser extent than customer migration and price compression.
Operating efficiencies.Efficiencies. We continue to evaluate our segment operating structure and focus. This involves balancing our workforce in response to our workload requirements, productivity improvements and changes in industry, competitive, technological and regulatory conditions, while achieving operational efficiencies and improving our processes through automation. However, our ongoing efforts to increase revenue will continue to require that we incur higher costs in some areas. We also expect our enterprisebusiness segment to benefit indirectly from enhanced efficiencies in our company-wide network operations.


Table of Contents

The following tables summarize the results of operations from our enterprisebusiness segment:
 Enterprise Segment
 Three Months Ended September 30, Increase /
(Decrease)		 %Change
 2017 2016 
 (Dollars in millions)  
Segment revenues:       
Strategic services       
High-bandwidth data services (1)$767
 744
 23
 3 %
Other strategic services (2)182
 334
 (152) (46)%
Total strategic services revenues949
 1,078
 (129) (12)%
Legacy services       
Voice services (3)551
 601
 (50) (8)%
Low-bandwidth data services (4)289
 339
 (50) (15)%
Other legacy services (5)252
 265
 (13) (5)%
Total legacy services revenues1,092
 1,205
 (113) (9)%
Data integration130
 161
 (31) (19)%
Total revenues2,171
 2,444
 (273) (11)%
        
Segment expenses1,292
 1,425
 (133) (9)%
Segment income$879
 1,019
 (140) (14)%
Segment margin percentage40% 42%  
  
 Business Segment
 Three Months Ended June 30, Increase /
(Decrease)		 %Change
 2018 2017 
 (Dollars in millions)  
Segment revenues:       
IP and data services (1)
$1,748
 744
 1,004
 135%
Transport and infrastructure (2)
1,342
 797
 545
 68%
Voice and collaboration (3)
1,111
 767
 344
 45%
IT and managed services (4)
164
 162
 2
 1%
Total segment revenues4,365
 2,470
 1,895
 77%
        
Segment expenses:       
Total expenses2,524
 1,538
 986
 64%
Segment adjusted EBITDA$1,841
 932
 909
 98%
Segment margin percentage42% 38%  
  
____________________________________________________________________________________________________________________________________ 
(1)Includes MPLS,primarily VPN data network, Ethernet, IP, video and wavelength revenueancillary revenues.
(2)Includes primarily broadband, private line (including business data services), colocation broadband, VOIP, video and fiber lease revenuedata centers, wavelength and ancillary revenues.
(3)Includes local, long-distance and long-distance voice revenueother ancillary revenues.
(4)Includes private line (including special access) revenue
(5)Includes UNEs, public access, switched accessIT services and other ancillary revenuemanaged services revenues.

 Business Segment
 Six Months Ended June 30, Increase /
(Decrease)		 %Change
 2018 2017 
 (Dollars in millions)  
Segment revenues:       
IP and data services (1)
$3,485
 1,501
 1,984
 132%
Transport and infrastructure (2)
2,691
 1,691
 1,000
 59%
Voice and collaboration (3)
2,247
 1,554
 693
 45%
IT and managed services (4)
325
 314
 11
 4%
Total segment revenues8,748
 5,060
 3,688
 73%
        
Segment expenses:       
Total expenses5,094
 3,104
 1,990
 64%
Segment adjusted EBITDA$3,654
 1,956
 1,698
 87%
Segment margin percentage42% 39%  
  
_________________________________________________________________ 
 Enterprise Segment
 Nine Months Ended September 30, Increase /
(Decrease)		 %Change
 2017 2016 
 (Dollars in millions)  
Segment revenues:       
Strategic services       
High-bandwidth data services (1)$2,296
 2,235
 61
 3 %
Other strategic services (2)735
 989
 (254) (26)%
Total strategic services revenues3,031
 3,224
 (193) (6)%
Legacy services       
Voice services (3)1,682
 1,834
 (152) (8)%
Low-bandwidth data services (4)905
 1,056
 (151) (14)%
Other legacy services (5)754
 809
 (55) (7)%
Total legacy services revenues3,341
 3,699
 (358) (10)%
Data integration370
 398
 (28) (7)%
Total revenues6,742
 7,321
 (579) (8)%
        
Segment expenses3,907
 4,116
 (209) (5)%
Segment income$2,835
 3,205
 (370) (12)%
Segment margin percentage42% 44%  
  
____________________________________________________________________ 
(1)Includes MPLS,primarily VPN data network, Ethernet, IP, video and wavelength revenueancillary revenues.
(2)Includes primarily broadband, private line (including business data services), colocation broadband, VOIP, video and fiber lease revenuedata centers, wavelength and ancillary revenues.
(3)Includes local, long-distance and long-distance voice revenueother ancillary revenues.
(4)Includes private line (including special access) revenue
(5)Includes UNEs, public access, switched accessIT services and other ancillary revenuemanaged services revenues.

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Segment Revenues
EnterpriseBusiness segment revenues decreasedincreased by $273 million,$1.895 billion, or 11%77%, for the three months ended SeptemberJune 30, 20172018 as compared to the three months ended SeptemberJune 30, 20162017 and increased by $579 million,$3.688 billion, or 8%,73% for the ninesix months ended SeptemberJune 30, 20172018 as compared to the ninesix months ended SeptemberJune 30, 2016.2017. The increase in our total operating revenues was largely attributable to the acquisition of Level 3, which contributed operating revenues (net of intercompany eliminations) of $2.025 billion and $4.087 billion for the three and six months ended June 30, 2018. This was partially offset by a decrease in enterprise segment revenues for both periodsLegacy CenturyLink transport and infrastructure and voice and collaboration revenue. The transport and infrastructure decrease was primarily due to declines in our legacy services revenues and a reduction of $150 million and $250 million for the three and nine months ended September 30, 2017, respectively, in our colocation revenues resulting from the sale of our colocation businessthe collocation and data centers oncenter business in May 1, 2017. The colocation revenues are included2017 while the decrease in other strategic services in the tables listed above. The decline in legacy services revenuesvoice and collaboration was attributable to a reduction in local service access lines and lower volumes of long-distance and access services resulting from the competitive and technological factors noted above and to reductions in the volume of private line (including special access) services. Excluding the reduction in colocation revenues, our strategic services revenues for the three and nine months ended September 30, 2017 increased by $21 million and $57 million, respectively, primarily due to increasescontinued decreases in MPLS unit growth and higher VOIP volumes. For both periods, these increases were partially offset by reductions in wavelength volumes and losses of broadband subscribers.

revenue from our traditional voice telecommunications services.
Segment Expenses
EnterpriseBusiness segment expenses decreasedincreased by $133$986 million, or 9%64%, for the three months ended SeptemberJune 30, 20172018 as compared to the three months ended SeptemberJune 30, 20162017 and increased by $209 million,$1.990 billion, or 5%64%, for the ninesix months ended SeptemberJune 30, 20172018 as compared to the ninesix months ended SeptemberJune 30, 2016.2017. The decreaseincrease in our enterprisebusiness segment expenses for the three months ended September 30, 2017 was primarily due to decreases in salaries and wages and employee benefits from lower headcount, real estate and power costs due to the saleinclusion of the colocation business and data centers and customer premises equipment and maintenance costs, which were partially offset by increases in facility costs and professional fees. The decrease in our enterprise segmentLevel 3 expenses for the ninefirst six months ended September 30, 2017 was primarily due to decreases in salaries and wages and employee benefits from lower headcount, real estate and power costs due to the sale of the colocation business and data centers and marketing and advertising expenses, which were partially offset by increases in facility costs.2018.
Segment IncomeAdjusted EBITDA
EnterpriseBusiness segment income decreasedadjusted EBITDA increased by $140$909 million, or 14%98%, for the three months ended SeptemberJune 30, 20172018 as compared to the three months ended SeptemberJune 30, 20162017 and increased by $370 million,$1.698 billion, or 12%87%, for the ninesix months ended SeptemberJune 30, 20172018 as compared to the ninesix months ended SeptemberJune 30, 2016.2017. The declineincrease in our enterprisebusiness segment income for both periodsadjusted EBITDA was due predominantly to the loss of customers, lower service volumes in our legacy services and the loss of income generated from our colocation business.items mentioned above.
Consumer Segment
The operations of our consumer segment have been, and are expected to continue to be, impacted by several significant trends, including those described below:
Strategic services.Revenues. In order to remain competitive and attract additional residential broadband subscribers, we believe it is important to continually increase our broadband network's scope and connection speeds. As a result, we continue to invest in our broadband network, which allows for the delivery of higher-speed broadband services to a greater number of customers. We compete in a maturing broadband market in which most consumers already have broadband services and growth opportunities are limited.rates in new subscribers have slowed or declined. Moreover, as described further in Item 1A of Part III of thisour annual report on Form 10-K for the year ended December 31, 2017, certain of our competitors continue to provide broadband services at higher average transmission speeds than ours or through advanced wireless data service offerings, both of which we believe have impacted the competitiveness of certain of our broadband offerings. Our associated content costs continue to increase and the video business has become more competitive as more options become available to customers to access video services through new technologies. The demand for new technology has increased the number of competitors offering strategic services similar to ours. Price compression and new technology from our competitors have negatively impacted the operating marginsofferings in certain of our strategic services, and we expect this trend to continue. Operating costs also impact the operating margins of our strategic services. These operating costs include employee costs, marketing and advertising expenses, sales commissions, Prism TV content costs and installation costs. We believe increases in operating costs have generally had a greater impact on our operating margins of our strategic services as compared to our legacy services, principally because our strategic services rely more heavily upon the above-listed support functions.
Legacy services.markets. Our voice revenues have been, and we expect they will continue to be, adversely affected by access line losses and lower long-distance voice service volumes. Intense competition and product substitution continue to drive our access line losses. For example, many consumers are substituting cable and wireless voice services and electronic mail, texting and social networking non-voice services for traditional voice telecommunications services. We expect our video revenues to continue to decline, particularly due to our decision to discontinue active marketing of our facilities-based video services in light of competitive pressures and escalating content costs. The demand for new technology has increased the number of competitors offering services similar to ours. Price compression and new technology from our competitors have negatively impacted the operating margins of our newer, more technologically advanced products and services. We expect that these factors and trends will continue to negatively impact our consumer business. As a result of the expected loss of higher margin services associated with access lines, we continue to offer our customers service bundling and other product promotions to help mitigate this trend, as described below. Customer migration and price compression from competitive pressures have not only negatively impacted our legacytraditional wireline services revenues, but they have also negatively impacted the operating margins of our legacythese services and we expect this trend to continue.

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Expenses. Operating costs also impact the operating margins of these services. These operating costs include employee costs, marketing and advertising expenses, sales commissions, TV content costs and installation costs. We believe increases in operating costs have generally had a greater impact on our operating margins of our newer, more technologically advanced products and services as compared to our traditional wireline services, principally because our newer, more technologically advanced products and services rely more heavily upon the above-listed operating expenses. Operating costs, such as installation costs and facility costs, have also negatively impacted the operating margins of our legacytraditional wireline products and services, but to a lesser extent than customer migration and price compression. Operating costs also tend to impact our legacytraditional wireline products and services margins to a lesser extent than our strategicnewer, more technologically advanced products and services margins as noted above.
Service bundling and product promotions.We offer our customers the ability to bundle multiple products and services. These customers can bundle broadband services with other services such as local voice, video long-distance and wireless.long-distance. While we believe our bundled service offerings can help retain customers, they also tend to lower our profit margins in the consumer segment due to the related discounts.

Operating efficiencies. We continue to evaluate our segment operating structure and focus. This involves balancing our workforce in response to our workload requirements, productivity improvements and changes in industry, competitive, technological and regulatory conditions. We also expect our consumer segment to benefit indirectly from enhanced efficiencies in our company-wide network operations.
The following tables summarize the results of operations from our consumer segment:
 Consumer Segment
 Three Months Ended September 30, 
Increase /
(Decrease)
 % Change
 2017 2016 
 (Dollars in millions)  
Segment revenues:       
Strategic services       
Broadband services (1)$673
 674
 (1) — %
Other strategic services (2)101
 115
 (14) (12)%
Total strategic services revenues774
 789
 (15) (2)%
Legacy services       
Voice services (3)541
 605
 (64) (11)%
Other legacy services (4)72
 78
 (6) (8)%
Total legacy services revenues613
 683
 (70) (10)%
Total revenues1,387
 1,472
 (85) (6)%
        
Segment expenses621
 643
 (22) (3)%
Segment income$766
 829
 (63) (8)%
Segment margin percentage55% 56%  
  
 Consumer Segment
 Three Months Ended June 30, 
Increase /
(Decrease)
 % Change
 2018 2017 
 (Dollars in millions)  
Segment revenues:       
IP and data services (1)
$85
 107
 (22) (21)%
Transport and infrastructure (2)
722
 683
 39
 6 %
Voice and collaboration (3)
545
 647
 (102) (16)%
Total segment revenues1,352
 1,437
 (85) (6)%
        
Segment expenses:       
Total expenses569
 631
 (62) (10)%
Segment adjusted EBITDA$783
 806
 (23) (3)%
Segment margin percentage58% 56%  
  
___________________________________________________________________ 
(1)Includes broadband and related services revenueretail video revenues (including our facilities-based video revenues).
(2)Includes videoprimarily broadband and other revenueequipment sales and professional services revenues.
(3)Includes local, and long-distance voice revenue
(4)Includesand other ancillary revenuerevenues.

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 Consumer Segment
 Nine Months Ended September 30, 
Increase /
(Decrease)
 % Change
 2017 2016 
 (Dollars in millions)  
Segment revenues:       
Strategic services       
Broadband services (1)$1,995
 2,023
 (28) (1)%
Other strategic services (2)311
 340
 (29) (9)%
Total strategic services revenues2,306
 2,363
 (57) (2)%
Legacy services       
Voice services (3)1,678
 1,854
 (176) (9)%
Other legacy services (4)216
 237
 (21) (9)%
Total legacy services revenues1,894
 2,091
 (197) (9)%
Data integration1
 1
 —
 nm
Total revenues4,201
 4,455
 (254) (6)%
        
Segment expenses1,813
 1,893
 (80) (4)%
Segment income$2,388
 2,562
 (174) (7)%
Segment margin percentage57% 58%  
  
 Consumer Segment
 Six Months Ended June 30, 
Increase /
(Decrease)
 % Change
 2018 2017 
 (Dollars in millions)  
Segment revenues:       
IP and data services (1)
$179
 210
 (31) (15)%
Transport and infrastructure (2)
1,451
 1,366
 85
 6 %
Voice and collaboration (3)
1,101
 1,308
 (207) (16)%
Total segment revenues2,731
 2,884
 (153) (5)%
        
Segment expenses:       
Total expenses1,181
 1,271
 (90) (7)%
Segment adjusted EBITDA$1,550
 1,613
 (63) (4)%
Segment margin percentage57% 56%  
  
_______________________________________________________________________________________________________________________________________ 
nm-Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
(1)Includes broadband and related services revenueretail video revenues (including our facilities-based video revenues).
(2)Includes videoprimarily broadband and other revenueequipment sales and professional services revenues.
(3)Includes local, and long-distance voice revenue
(4)Includesand other ancillary revenuerevenues.
Segment Revenues
Consumer segment revenues decreased by $85 million, or 6%, and by $153 million, or 5%, for the three and six months ended SeptemberJune 30, 20172018, as compared to the three and six months ended SeptemberJune 30, 2016 and by $254 million, or 6%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.2017. The decrease in our strategic servicesconsumer segment revenues for the three months ended September 30, 2017 was primarily due to a reductiondecrease in our satellite video services revenuesVoice revenue due to the restructuring of onecontinued decline in usage of our contractual agreements. The decrease in our strategic services revenues for the nine months ended September 30, 2017 was primarily due to a decline in the number of broadband subscribers and a reduction in our satellite video services revenues due to the restructuring of one of our contractual agreements. The decrease in our legacy services revenues for both periods was primarily due to lower local and long-distancetraditional voice service volumes associated with access line losses resulting from the competitive and technological factors noted above.telecommunications services.
Segment Expenses
Consumer segment expenses decreased by $22$62 million, or 10%, for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 and decreased by $90 million, or 7% for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. The decrease in our consumer segment expenses was primarily due to a reduction in headcount, decreases in marketing expenses and lower network expense in response to a smaller customer base.
Segment Adjusted EBITDA
Consumer segment adjusted EBITDA decreased by $23 million, or 3%, for the three months ended SeptemberJune 30, 20172018 as compared to the three months ended SeptemberJune 30, 20162017 and decreased by $80$63 million, or 4%, for the ninesix months ended SeptemberJune 30, 20172018 as compared to the ninesix months ended SeptemberJune 30, 2016.2017. The decrease in our consumer segment expenses for the three months ended September 30, 2017adjusted EBITDA was primarily due predominantly to decreases in salaries and wages and employee benefits from lower headcount and external commissions, which were partially offset by increases in marketing and advertising expenses. The decrease in our consumer segment expenses for the nine months ended September 30, 2017 was primarily due to decreases in salaries and wages and employee benefits from lower headcount, external commissions, facility costs, customer equipment costs for broadband and Prism TV installations and bad debt expense, which were partially offset by increases in Prism TV programming costs and marketing and advertising expenses.items mentioned above.

Segment IncomeTable of Contents
Consumer segment income decreased by $63 million, or 8%, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and by $174 million, or 7%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease for both periods was primarily due to loss of customers for our strategic and legacy services.

Liquidity and Capital Resources
Overview of Sources and Uses of Cash
At September 30,We are a holding company that is dependent on the capital resources of our subsidiaries to satisfy our parent company liquidity requirements. Several of our significant operating subsidiaries have borrowed funds either on a standalone basis or as part of a separate restricted group with certain of their respective subsidiaries or affiliates. The terms of the instruments governing the indebtedness of these borrowers or borrowing groups may restrict our ability to access their accumulated cash. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations and other factors.
Our acquisition of Level 3 on November 1, 2017,, we held resulted in significant changes in our consolidated financial position, our debt structure and our future cash and cash equivalents of $160 million, and we had $2 billion of borrowing capacity available under our then existing revolving credit facility. At September 30, 2017, cash and cash equivalents of $60 million were held in foreign bank accounts for the purpose of funding our foreign operations. Due to various factors, our access to foreign cash is generally much more restricted than our access to domestic cash.requirements.
Our executive officers and our Board of Directors periodically review our sources and potential uses of cash, particularly in connection with our annual budgeting process.processes. Generally speaking, our principal funding source is cash from operating activities, and our principal cash requirements include operating expenses, capital expenditures, income taxes, debt repayments, dividends, periodic stock repurchases, periodic pension contributions and other benefits payments. As discussed further below, the amount of cash we paid during the first nine months of 2017 for income taxes increased substantially compared to prior periods, but weWe currently expect our cash income taxestax payments will be lower duringin 2018 due to lower income tax rates and the fourth quarter of 2017. Additionally, the amount of cash we paid during the first nine months of 2017 for retiree healthcare benefits increased substantially compared to prior periods, and we expect these spending levels to remain at higher levels during the fourth quarter of 2017. The impactutilization of the sale of our data centers and colocation business and our acquisition ofNOLs acquired in the Level 3 are further described below.acquisition.
Based on our current capital allocation objectives, (which include the capital investment objectives of Level 3 from November 1, 2017), during the last three monthsremainder of 20172018, we anticipateproject expending approximately $600 million16% of revenue for cash for capital investment in property, plant and equipment and approximately $573$577 million of cash for dividends per quarter on our common stock (based on the assumptions described below under "Dividends"). During the remainder of 2017,At June 30, 2018, we have no debt maturities of $174 million, scheduled debt principal payments of $39$164 million and capital lease and other fixed payments of $18$99 million, which includes liabilities that we assumed on November 1, 2017 in connection witheach due during the consummationnext twelve months. Each of the Level 3 acquisition.expenditures is described further below.
At June 30, 2018, we held cash and cash equivalents of $700 million, and we had $2.168 billion of borrowing capacity available under our revolving credit facility. We had approximately $126 million of cash and cash equivalents outside the United States at June 30, 2018. We currently believe we have the ability to repatriate cash and cash equivalents into the United States without paying or accruing U.S. taxes.
We will continue to monitor our future sources and uses of cash, and anticipate that we will make adjustments to our capital allocation strategies when, as and if determined by our Board of Directors. We typically use our revolving credit facility as a source of liquidity for operating activities and our other cash requirements.
For additional information, see "Risk Factors".
Impact of the Sale ofFactors—Risks Affecting Our Data CentersLiquidity and Colocation Business
As discussed in Note 3—Sale of Data Centers and Colocation Business to our consolidated financial statementsCapital Resources" in Item 11A of Part I of thisour annual report we sold our data centers and colocation business on May 1, 2017 and received in exchange pre-tax cash proceeds of $1.8 billion and a minority stake in Cyxtera. Based on our most current estimates, the cumulative current tax impact of this transaction is $65 million, of which $18 million was recognized as current tax expense in 2016 and $47 million in 2017. The 2016 current tax expense amount impacted our cash taxes paid in the second quarter of 2017, while the 2017 current tax expense amount is expected to impact our cash taxes paid in the fourth quarter of 2017. The tax amounts were triggered by the sale and certain corporate restructuring actions we took regarding certain subsidiaries involved in the colocation business. In addition to no longer receiving the cash flows generated by the colocation business, we also make ongoing rent payments to lease back a portion of the data center space from Cyxtera to provide data hosting services to our customers, thereby, reducing our future profitability and liquidity.

Impact of the Acquisition of Level 3
Following the completion of the acquisition of Level 3 on November 1, 2017 in the manner discussed in Note 2—Acquisition of Level 3 to our consolidated financial statements in Item 1 of Part I of this report, our operations, financial position and cash flows will be significantly impacted. As discussed in greater detail in Note 4—Long-Term Debt and Credit Facilities, we borrowed a significant amount of new debt to finance the Level 3 acquisition and assumed approximately $11 billion of Level 3's outstanding debt upon consummation of the acquisition. This increase in debt will significantly increase our future interest expense. We project that our capital expenditures will increase significantly. In connection with the consummation of the acquisition, we paid approximately $9.6 billion of cash and issued approximately 517 million shares of our common stock to Level 3 stockholders (including cash and shares of CenturyLink common stock issued in exchange for outstanding Level 3 equity awards that were converted into merger consideration at closing), based on the number of Level 3 shares held of record on October 31, 2017. Based on our current quarterly common stock dividend rate of $0.54 per share, this issuance of additional CenturyLink shares is expected to increase our dividend payment approximately $279 million per quarter. Also, we continue to expect our upcoming cash payments for transaction and integration costs to be material following the closing of the transaction. These above factors may result in a net cash outflowForm 10-K for the period of 2017 following the closing. However, we expect we will have sufficient liquidity to substantially offset the impact of the net cash outflows. As noted below under "Debt and Other Financing Arrangements," the Level 3 transaction resulted in downgrades of certain of our credit ratings.year ended December 31, 2017.
Capital Expenditures
We incur capital expenditures on an ongoing basis in order to enhance and modernize our networks, compete effectively in our markets and expand and improve our service offerings. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations (such as our CAF Phase 2 infrastructure buildout requirements). Based on current circumstances, we estimate that our total capital expenditures for the last three months of 20172018 will be approximately $600 million,16% of our consolidated revenue, inclusive of CAF Phase 2 related capital expenditures and of additional capital expenditures with respect to Level 3's operations that were acquired on November 1, 2017.integration capital.
Our capital expenditures continue to be focused on our strategic services.keeping the network operating efficiently and supporting new service developments. For more information on our capital spending, see "Historical Information—Investing Activities" below and Item 1 of Part I of our annual report on Form 10-K for the year ended December 31, 2016.2017.
Debt and Other Financing Arrangements
Subject to market conditions, we expect to continue to issue debt securities from time to time in the future to refinance a substantial portion of our maturing debt, including issuing Qwest Corporation debt securities to refinance its maturing debt and issuing Level 3 Financing, Inc. debt securities to refinance itstheir maturing debt in each case to the extent feasible. The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned by credit rating agencies, among other factors.

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Following the closing of our acquisition of Level 3 in late 2017, the rating agencies took action on the ratings of the debt in the table below. Generally, the agencies downgraded ratings of the CenturyLink, Inc. debt were downgraded from previous levels as they indicated bythey intended to at the agencies attime of the announcement of the transaction. Additionally, Standard and Poor's and Moody's Investors Service, Inc. placed such ratings on negative outlook while Standard and Poor's and Fitch Ratings placed them on stable outlook. As for the Level 3 debt, Moody's Investors Service, Inc. upgraded the unsecured debt and affirmed the rating of the secured debt, with all ratings placed on negative outlook. Standard and Poor's affirmed all previous Level 3 ratings with negative outlook, and Fitch Ratings affirmed all previous Level 3 ratings with stable outlook.

As of the date of this report, the credit ratings for the senior unsecured debt of CenturyLink, Inc., Qwest Corporation, Level 3 Parent, LLC and Level 3 Financing, Inc. were as follows:
Borrower Moody's Investors Service, Inc. Standard & Poor's Fitch Ratings
CenturyLink, Inc.:      
Unsecured B2 B+ BB
Secured Ba3 BBB- BB+
       
Qwest Corporation:      
Unsecured Ba2 BBB- BB+
       
Level 3 Parent, LLC:      
Unsecured B1 B+ BB-
       
Level 3 Financing, Inc.      
Unsecured Ba3 BB BB
Secured Ba1 BBB- BBB-
Our credit ratings are reviewed and adjusted from time to time by the rating agencies. Any future downgrades of the senior unsecured or secured debt ratings of us or our subsidiaries could impact our access to debt capital or further raise our borrowing costs. See "Risk Factors—Risks Affecting our Liquidity and Capital Resources" in Item 1A of Part II of this report.
Net Operating Loss Carryforwards
In recent years, we have been using Net Operating Loss ("NOL") carryforwards to offset a large portionI of our federal taxable income. annual report on Form 10-K for the year ended December 31, 2017.
Cash Income Taxes
As of December 31, 2016,2017, CenturyLink had approximately $9.1 billion of net operating loss carryforwards. ("NOLs"), which for U.S. federal income tax purposes can be used to offset future taxable income. These NOLs are primarily related to federal NOLs we had substantially utilized our federal NOL carryforwards. The remaining portion of these federal NOL carryforwards isacquired through the Level 3 acquisition on November 1, 2017, and are subject to theprior limitations imposed by sectionunder Section 382 of the Internal Revenue Code ("Code"). As and related U.S. Treasury Department regulations. Additionally, these NOLs are subject to a current Section 382 limitation as a result of the substantial utilizationour acquisition of our federal NOL carryforwards in prior years and the limitations imposed on the remaining federal NOL carryforwards,Level 3. Prior to this acquisition, the amounts of our cash flows dedicated to or required for the payment of federal taxes increased substantially during the portion of 2017 preceding November 1, 2017, whenin 2017. We cannot assure you that we acquired additional federalwill be able to use these NOL carryforwards in connection withfully.
As a result of the completion of the Level 3 acquisition, as described further below.we expect to significantly reduce our federal cash taxes for the next several years. Additionally, we requested a $314 million refund of federal income taxes related to 2017 that was received in the second quarter of 2018. Further, we accelerated a significant amount of tax deductions into 2017. The accelerated tax deductions resulted in a 2017 net operating loss for tax purposes, a portion of which was carried back to 2016 to generate a cash refund of $392 million which was received in the third quarter of 2018. The amounts of our near-term future tax payments will depend upon many factors, including our future earnings and tax circumstances and results of any corporate tax reform. Based on current laws and our current estimates of 2017 earnings, we estimate our cash income tax liability related to 2017 will be between $325 million to $375 million, exclusive of (i) our preliminary estimatethe implementation of the cumulative currentrecent federal tax impactsreform.

Table of $65 million (of which $18 million was recognized in 2016) relating to the sale of our data centers and colocation business and (ii) the impact of acquiring Level 3.Contents
As of December 31, 2016, Level 3 had approximately $9.0 billion of NOL carryforwards. We cannot assure you that we will be able to use these NOL carryforwards fully. See "Risk Factors—Risk Relating to Our Recently-Completed Acquisition of Level 3—We cannot assure you, whether, when or in what amounts we will be able to use Level 3's net operating loss carryforwards" in Item 1A of Part II of this report.
Dividends
We currently expect to continue our current practice of paying quarterly cash dividends in respect of our common stock subject to our Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.54 per share, as approved by our Board of Directors, which we believe is a dividend rate per share that giveswhich enables us the flexibility to balance our multiple objectives of managing our business, paying our fixed commitments and returning a substantial portion of our cash to our shareholders. WeAssuming continued payment during 2018 at this rate of $0.54 per share, our average total dividend paid an average of almost $294each quarter would be approximately $577 million of dividends during each ofbased on the first three quarters of 2017. In lightnumber of our issuance ofoutstanding shares in connection with the Level 3 acquisition on November 1, 2017, we expect this amount to increase in the fourth quarter of 2017 to approximately $573 million. See "Impact of the Acquisition of Level 3" aboveat June 30, 2018.
Revolving Facilities and "Risk Factors—Risks Affecting Our Business" in Item 1A of Part II of this report.

2017 Credit AgreementOther Debt Instruments
To substantially fund our recent acquisition of Level 3, on June 19, 2017, one of our affiliates entered into a credit agreement (the "Credit"2017 CenturyLink Credit Agreement") providing for $9.945 billion in senior secured credit facilities, consisting of a new $2.0 billion revolving credit facility (which replaced our 2012 credit facility upon consummation of the Level 3 acquisition) and $7.945 billion of term loan facilities, of which approximately $6.0 billion were funded into escrow on such date, and $1.945 billion of which were funded upon the closing of the acquisition on November 1, 2017. On November 1, 2017, CenturyLink, Inc. also, among other things, (i) assumed all rights and obligations under the 2017 CenturyLink Credit Agreement, (ii) borrowed $400 million under the new $2.0 billion revolving credit facility and (iii) received $6.0 billion of Term Loan B loan proceeds from escrow. On January 29, 2018, the 2017 CenturyLink Credit Agreement was amended to increase the borrowing capacity of the new revolving credit facility from $2.0 billion to $2.168 billion, and to increase the borrowing capacity under one of the term loan tranches by $132 million. In July 2018, we received the final regulatory approval necessary to fully implement the guarantees contemplated under the 2017 CenturyLink Credit Agreement. For additional information, see (i) Note 4—5—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 1 of Part I of this report, (ii) our current report on Form 8-K filed with the SEC on June 20, 2017, including a copy of the 2017 CenturyLink Credit Agreement filed therewith, and (iii) our current report on Form 8-K filed with the SEC on November 1, 2017.
Revolving Letter of Credit Facility
On November 1, 2017, we also amended our uncommitted revolving letter of credit facility to secure the facility and to permit us to draw up to $225 million of letters of credit thereunder. At SeptemberJune 30, 2017,2018, we had $97$131 million of letters of credit outstanding under this facility.
For information on the terms and conditions of other debt instruments of ours and our subsidiaries, including financial and operating covenants, see Note 5—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 1 of Part I of this report.
Pension and Post-retirement Benefit Obligations
We are subject to material obligations under our existing defined benefit pension plans and post-retirement benefit plans. At December 31, 2016,2017, the accounting unfunded status of our qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was $2.409$2.062 billion and $3.360$3.352 billion, respectively. SeeFor additional information about our pension and post-retirement benefit arrangements, see "Critical Accounting Policies and Estimates-Pensions and Post-Retirement Benefits" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2017 and see Note 9—Employee Benefits to our consolidated financial statements in Item 8 of Part II of our annual report on Form 10-K for the year ended December 31, 2016 for additional information about our pension and post-retirement benefit arrangements.same report.
Benefits paid by our qualified pension plan are paid through a trust that holds all of the plan's assets. Based on current laws and circumstances, we do not expect any contributions to be required for our qualified pension plan during the remainder of 2017.2018. The amount of required contributions to our qualified pension plan in 20182019 and beyond will depend on a variety of factors, most of which are beyond our control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations. We occasionally make voluntary contributions in addition to required contributions. We made a voluntary contribution of $100 million to the trust for our qualified pension plan induring the second quarter of 2018 and a $400 million voluntary contribution during the third quarter of 2017.2018.

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Substantially all of our post-retirement health care and life insurance benefits plans are unfunded. Several trusts hold assets that have been used to help cover the health care costs of certain retirees. As of December 31, 2016,2017, assets in the post-retirement trusts had been substantially depleted and had a fair value of $53$23 million (a portion of which was comprised of investments with restricted liquidity), which has significantly limited our ability to continue paying benefits from the trusts; however, we will continue to pay certain benefits through the trusts. Benefits not paid from the trusts are expected to be paid directly by us with available cash. As described further in Note 6—Employee Benefits to our consolidated financial statements in Item 8 of Part II of our most recent annual report on Form 10-K, aggregate benefits paid by us under these plans (net of participant contributions and direct subsidy receipts) were $237 million, $129 million $116 million and $88$116 million for the years ended December 31, 2017, 2016 2015 and 2014,2015, respectively, while the amounts paid from the trust were $31 million, $145 million $163 million and $219$163 million, respectively. For additional information on our expected future benefits payments for our post-retirement benefit plans, please see Note 9—Employee Benefits to our consolidated financial statements in Item 8 of Part II of our annual report Form 10-K.10-K for the year ended December 31, 2017.
For 2017,2018, our estimated annual long-term rates of return, net of administrative costs, are 6.5% and 5.0%4.0% for the pension plan trust assets and post-retirement plans trust assets, respectively, based on the assets currently held. However, actual returns could be substantially different.
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, 2016.2017.
Connect America Fund
As a result of accepting CAF Phase 2 support payments, we must meet certain specified infrastructure buildout requirements in 33 states over the next several years. In order to meet these specified infrastructure buildout requirements, we may be obligated to makeanticipate making substantial capital expenditures. See "Capital Expenditures" above.

For additional information on the FCC's CAF order and the USF program, see "Business—Regulation" in Item 1 of Part I of our annual report on Form 10-K for the year ended December 31, 20162017 and see "Risk Factors—Risks Affecting our Liquidity and Capital Resources" in Item 1A of Part III of this report.our annual report on Form 10-K for the year ended December 31, 2017.

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Historical Information
The following table summarizes our consolidated cash flow activities:
Nine Months Ended September 30,  Increase /
(Decrease)		Six Months Ended June 30,  Increase /
(Decrease)
2017 2016 2018 2017 
(Dollars in millions)(Dollars in millions)
Net cash provided by operating activities$2,700
 3,512
 (812)$3,249
 1,742
 1,507
Net cash used in investing activities(850) (2,012) (1,162)(1,512) (94) 1,418
Net cash provided by (used in) financing activities4,090
 (1,486) 5,576
Net cash (used in) provided by financing activities(1,590) 4,485
 6,075
Operating Activities
Net cash provided by operating activities decreasedincreased by $812 million$1.507 billion for the ninesix months ended SeptemberJune 30, 20172018 as compared to the ninesix months ended SeptemberJune 30, 20162017 primarily due to negative variancesthe increase in net income adjusted for non-cash items and the positive impact from changes in other currentnoncurrent assets and other noncurrent liabilities, net, partially offset by the decrease in accrued income and other taxes and retirement benefits. Cash provided by operating activities is subject to variability period over period as a result of the timing of the collection of receivables and payments related to interest expense, accounts payable, which were partially offset with a positive variance in accounts receivable. Our net cash flows from operating activities were significantly impacted by the increase in cash tax payments and our decline in earnings in 2017, as well as the sale of the data center and colocation business, which reduced cash generated from our operations and impacted the change in other current assets and liabilities.bonuses.
Investing Activities
Net cash flows used in our investing activities decreasedincreased by $1.162$1.418 billion for the ninesix months ended SeptemberJune 30, 20172018 as compared to the ninesix months ended SeptemberJune 30, 20162017 substantially due to the cash proceeds received from the May 2017 sale of our data centers and colocation business, which was partially offset by an increase in payments for property, plant and equipment and capitalized software.
Financing Activities
Net cash flows from our financing activities increased by $5.576 billion for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 substantially due to our receipt of escrowed proceeds pursuant to a term loan associated with our acquisition of Level 3, which was offset by an increase in other net debt paydowns. For more information, see Note 4—Long-Term Debt and Credit Facilities. Also, as discussed in Note 3—Sale of Data Centers and Colocation Business to our consolidated financial statements in Item 1 of Part 1 of this report, GAAP requires us to treat $378 million of cash proceeds received from the sale of our data centers and colocation business which occurred in the six months ended June 30, 2017.
Financing Activities
Net cash used in our financing activities decreased by $6.075 billion for the six months ended June 30, 2018 as a financing obligation.compared to the six months ended June 30, 2017 substantially due to net proceeds received from issuance of long-term debt which occurred in the six months ended June 30, 2017 and an increase in dividends paid. For more information, see Note 6—Long-Term Debt and Credit Facilities.
On August 1,January 29, 2018, the 2017 subsidiariesCenturyLink Credit Agreement was amended to:
Add a lender to the 2017 Revolving Credit Facility and to increase CenturyLink, Inc.’s borrowing capacity thereunder to approximately $2.168 billion; and
Add a lender to the Term Loan A credit facility and to increase CenturyLink, Inc.’s borrowing capacity thereunder to approximately $1.707 billion.
In connection with this amendment, the new lender provided approximately $132 million of Term Loan A loan proceeds, which CenturyLink used, together with available cash, to reduce its borrowings under the 2017 Revolving Credit Facility.
On January 21, 2018, a subsidiary of Embarq Corporation paid at maturity the $72 million principal amount and accrued and unpaid interest due under their 8.77% Notes.
On June 19, 2017, CenturyLink Escrow, LLC entered into a $6 billion term loan, net of an original issue discount of 0.5%.
On June 15, 2017, CenturyLink, Inc. paid at maturity the $350 million principal and accrued and unpaid interest due under its 5.15% Notes.
On May 9, 2017, Qwest Corporation redeemed $125 million aggregate principal amount of the remaining $288all $13 million of its 7.5%8.77% Notes due 2051,2019, which resulted in an immaterial loss.
On May 4, 2017, Qwest Corporation redeemed all $500 million of its 6.5% Notes due 2017, which resulted in an immaterial loss.
On April 27, 2017, Qwest Corporation issued $575 million aggregate principal amount of 6.75% Notes due 2057 and, on May 5, 2017, issued an additional $85 million aggregate principal amount of such notes pursuant to an over-allotment option in exchange for aggregate net proceeds, after deducting underwriting discounts and other expenses, of $638 million. All of the 6.75% Notes are senior unsecured obligations and may be redeemed by Qwest Corporation, in whole or in part, on or after June 15, 2022, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.

On April 3, 2017, CenturyLink, Inc. paid at maturity the $500 million principal and accrued and unpaid interest due under its 6.00% Notes.
See Note 4—6—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 1 of Part I of this report for additional information on our outstanding debt securities.
Other Matters
In February 2015,We are subject to various legal proceedings and other contingent liabilities that individually or in the FCC adopted new regulations that regulate broadband services as a public utility service under Title IIaggregate could materially affect our financial condition, future results of operations or cash flows. See Note 12—Commitments, Contingencies and Other Items for additional information.

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Recent Tax Changes
We have not completed our accounting for the tax effects of the Communications Act.Tax Cuts and Jobs Act (the "Act"), which was signed into law in late December 2017. In light of pending litigation and substantial changes inorder to complete our accounting for the composition of the FCC, we believe it is premature for us to determine the ultimate impact of the new regulations onAct, we continue to obtain, analyze and interpret additional guidance as such guidance becomes available from the U.S. Treasury Department, the Internal Revenue Service (“IRS”), state taxing jurisdictions, the FASB, and other standard-setting and regulatory bodies. Guidance issued by these bodies to date does not allow us to definitively calculate the taxes created by the Act. New guidance or interpretations may materially impact our operations. For additionalprovision for income taxes in future periods.
Additional information see “Risk Factors—Risks Relatingthat is needed to Legalcomplete the analysis but is currently unavailable includes, but is not limited to, the amount of earnings of foreign subsidiaries, the final determination of certain net deferred tax assets subject to remeasurement due to purchase accounting adjustments and Regulatory Matters” in Item 1Aother matters, and the tax treatment of Part II of this report.
CenturyLink, Inc. has cash management arrangements with certain of its principal subsidiaries, in which substantial portionssuch provisions of the subsidiaries' cash is regularly advancedAct by various state tax authorities. We have provisionally recognized the tax impacts related to it. Although CenturyLink, Inc. periodically repays these advancesthe re-measurement of deferred tax assets and liabilities. The ultimate impact may differ from our current provisional estimate due to fundadditional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the subsidiaries' cash requirements throughoutAct. The change from our current provisional estimates will be reflected in our future statements of operations and could be material. We expect to complete the accounting in the fourth quarter of 2018.
The Act reduced the U.S. corporate income tax rate from a maximum of 35% to 21% for all C corporations, effective January 1, 2018, introduced further limitations on the deductibility of interest expense, made certain changes to the tax treatment of capital expenditures and various other items, and imposed a one-time repatriation tax on certain earnings of certain foreign subsidiaries. In addition, the Act introduces additional base-broadening measures, including Global Intangible Low-Taxed Income (“GILTI”) and the Base-Erosion Anti-Abuse Tax (“BEAT”). As a result of the reduction in the U.S. corporate income tax rate from 35% to 21%, we provisionally re-measured our net deferred tax liabilities at December 31, 2017 and recognized a tax benefit of approximately $1.1 billion in our consolidated statement of operations for the year atended December 31, 2017. During the first six months of 2018, we reduced this $1.1 billion tax benefit of tax reform by $76 million due to changes in certain purchase accounting adjustments related to the Level 3 acquisition, which was reflected in income tax expense. Additionally, this provisional benefit was further reduced by $208 million by the net deferred tax impact of certain tax accounting method changes filed with our 2017 Federal income tax return that significantly accelerated certain tax deductions into 2017.
During the second quarter of 2018, we continued to evaluate and analyze the tax impacts of the Act. While we have not finalized our analysis, we do not expect the provisions of the Act, exclusive of the rate reduction, to materially impact us during the remainder of 2018. However, we cannot provide any given point in time it may owe a substantial sum to its subsidiaries under these advances. In addition, certainassurance that, upon completion of our subsidiariesanalysis, the impact will not be material or that there will not be material tax impacts in future years. Accordingly, other than as noted above, we have lent substantial sumsnot made any additional adjustments related to us or other of our subsidiaries. In accordance with generally accepted accounting principles, these advances or loans are eliminatedthe Act in consolidation and therefore not recognized on our consolidated balance sheets.
CenturyLink and its subsidiaries are involved in various legal proceedings or are exposed to other potential liabilities that could substantially impact our consolidated financial position orstatements.
As noted above, we accelerated a significant amount of tax deductions into 2017. The accelerated tax deductions resulted in a 2017 net operating loss for tax purposes, a portion of which was carried back to 2016 to generate a cash refund of $392 million. Additionally, we received a $314 million refund in the second quarter of 2018 related to 2017 federal income taxes. Because of our net operating loss carryforwards, we do not expect to experience a further material near term reduction in the amount of cash income taxes paid by us from the Act. However, we anticipate that the provisions of the Act may reduce our cash income taxes in future financial performance. See Note 10—Commitments and Contingencies to our consolidated financial statements in Item 1 of Part I of this report for the current status of such legal proceedings.years.
Market Risk
As of SeptemberJune 30, 2017,2018, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations and fluctuations in certain foreign currencies. We seek to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates.
Management periodically reviews our exposure to interest rate fluctuations and periodically implements strategies to manage the exposure. From time to time, we have used derivative instruments to (i) lock-in or swap our exposure to changing or variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. As of SeptemberJune 30, 2017,2018, we had no such instruments outstanding. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. As of SeptemberJune 30, 2017,2018, we did not hold or issue derivative financial instruments for trading or speculative purposes.
As further discussed in Note 4—6—Long-Term Debt and Credit Facilities, on June 19, 2017, and on November 1, 2017, we borrowed substantial sums under a credit agreement dated June 19, 2017 with various lending institutions to provide a substantial amount of the funding for the Level 3 acquisition. As further noted in Note 4—6—Long-Term Debt and Credit Facilities, loans under the term loan facilities and new revolving credit facility under the June 19, 2017 credit agreement bear interest at floating rates.

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By operating internationally, we are exposed to the risk of fluctuations in the foreign currencies used by our international subsidiaries, primarilyincluding the British Pound, and secondarilythe Euro, the Brazilian Real, the Canadian Dollar, the Japanese Yen, the Hong Kong Dollar and the Singapore Dollar, in each case as of SeptemberJune 30, 2017. Although the percentages2018. Approximately 5% of our consolidated revenues and costs that are denominated in these currencies, are currently immaterial,and our consolidated results of operations could be adversely impacted by volatility in exchange rates or an increaserates. Argentina is expected to be hyperinflationary in 2018. However, the number of foreign currency transactions, which substantially increased upon the consummation of our acquisition of Level 3 discussed elsewhere herein.
Upon consummation of the Level 3 acquisition, the new term loan facilities discussed above increased our market risk arising from changesCompany already accounts for Argentina in interest rates. We do not believe that there were any material changes to market risks arising from changes fluctuations in foreign currencies for the nine months ended September 30, 2017, when compared to the disclosures provided in our annual report on Form 10-K for the year ended December 31, 2016.U.S. Dollars, its functional currency.
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 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 SeptemberJune 30, 2017.2018.

Off-Balance Sheet Arrangements
As of the date of this report,June 30, 2018, we had no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support and we did not engage in leasing, hedging, or other similar activities that expose us to any significant liabilities that are not (i) reflected on the face of the consolidated financial statements, (ii) disclosed in Note 16—Commitments and Contingencies to our consolidated financial statements in Item 8 of Part II of our annual report on Form 10-K for the year ended December 31, 2016,2017, or in the Future Contractual Obligations table included in Item 7 of Part II of the same report, or (iii) discussed under the heading "Market Risk" above.
Other Information
Our website is www.centurylink.com. We routinely post important investor information in the "Investor Relations" section of our website at ir.centurylink.com. The information contained on, or that may be accessed through, our website is not part of this quarterly report. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports in the "Investor Relations" section of our website (ir.centurylink.com) under the heading "SEC Filings." These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. From time to time, we also use our website to webcast our earnings calls and certain of our meetings with investors or other members of the investment community.

In addition to historical information, this quarterly report includes certain forward-looking statements that are based upon our judgment and assumptions as

Table of the date of this report concerning future developments and events, many of which are beyond our control. These forward-looking statements, and the assumptions upon which they are based, are not guarantees of future results, are inherently speculative and 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 underlying assumptions prove incorrect. Factors that could affect actual results include but are not limited to: the effects of competition from a wide variety of competitive providers, including decreased demand for our legacy offerings and increased pricing pressures; the effects of new, emerging or competing technologies, including those that could make our products less desirable or obsolete; the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, interconnection obligations, access charges, universal service, broadband deployment, data protection and net neutrality; our ability to timely realize the anticipated benefits of our recently-completed Level 3 business combination, including our ability to attain anticipated cost savings, to use Level 3’s net operating losses in the amounts projected, to retain key personnel and to avoid unanticipated integration disruptions; our ability to effectively adjust to changes in the communications industry and changes in the composition of our markets and product mix; possible changes in the demand for our products and services, including our ability to effectively respond to increased demand for high-speed broadband service; our ability to successfully maintain the quality and profitability of our existing product and service offerings, to provision them efficiently to our customers, and to introduce new offerings on a timely and cost-effective basis; the adverse impact on our business and network from possible equipment failures, service outages, security breaches or similar events impacting our network; our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, periodic share repurchases, dividends, debt repayments, pension contributions and other benefits payments, changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, whether based upon changes in our cash flows, cash requirements, financial performance, financial position, market conditions or otherwise; our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; increases in the costs of our pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations; adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower debt credit ratings, unstable markets or otherwise; our ability to maintain favorable relations with our key business partners, customers, suppliers, vendors, landlords and financial institutions; our ability to effectively manage our network buildout project and our other expansion opportunities; our ability to collect our receivables from financially troubled customers; any adverse developments in legal or regulatory proceedings involving us; changes in tax, communications, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels; the effects of changes in accounting policies or practices, including potential future impairment charges; the effects of adverse weather or other natural or man-made disasters; the effects of more general factors such as changes in interest rates, in operating costs, in general market, labor, economic or geo-political conditions, or in public policy; and other risks referenced in Item 1A or elsewhere in this quarterly report or other of our filings with the SEC. You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on the business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. Given these uncertainties, we caution investors not to unduly rely upon our forward-looking statements. 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 this report, 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 dividend or stock repurchase plans) at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Liquidity and Capital Resources—resources—Market Risk" in Item 2 of Part I above for quantitative and qualitative disclosures about market risk.above.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintainsWe maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer, Glen F. Post, III,Jeff K. Storey, and our Chief Financial Officer, Sunit S. Patel, evaluated the effectiveness of the Company’s disclosure controls and procedures as of SeptemberJune 30, 2017.2018. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, as of SeptemberJune 30, 2017,2018, in providing reasonable assurance that the information required to be disclosed by us in this report was accumulated and communicated in the manner provided above.
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.
Changes in Internal Control Over Financial Reporting
ThereBeginning January 1, 2018, we adopted Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the new accounting standard related to revenue recognition on our consolidated financial statements.

CenturyLink completed the acquisition of Level 3, Inc. on November 1, 2017. The Company is currently integrating policies, processes, people, technology, and operations of the combined company. Management will continue to evaluate the Company's internal controls over financial reporting as it continues the integration of Level 3. Other than the internal controls related to the adoption of ASC 606 referenced above, there were no changes in ourthe Company's internal control over financial reporting that occurred during the thirdsecond quarter of 20172018 that have materially affected, or that we believe are reasonably likely to materially affect, ourthe Company's internal control over financial reporting.


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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 10—12—Commitments and Contingencies and Other Items included in Item 1 of Part I of this quarterly report on Form 10-Q is incorporated herein by reference.
ITEM 1A. RISK FACTORS
The following discussion identifies the most significantOur operations and financial results are subject to various risks orand uncertainties, thatwhich could (i) materially and adversely affect our business, financial condition results of operations, liquidity or prospects or (ii) cause our actual results to differ materially from our anticipated results or other expectations. The following information should be read in conjunction with the other portions of this report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part 1 and our consolidated financial statements and related notes in Item 1 of Part 1. Please note that the following discussion is not intended to comprehensively list all risks or uncertainties faced by us. Our operations or actual results could also be similarly impacted by additional risks and uncertainties that are not currently known to us, that we currently deem to be immaterial, that arise in the future or that are not specific to us, such as general economic conditions.
Risks Affecting Our Incumbent Business
We may not be able to compete successfully against current or future competitors.
Each of our offerings to our residential and business customers face increasingly intense competition from a variety of sources under evolving market conditions. We expect these trends will continue.results. In addition to competition from larger national telecommunications providers, we are facing increasing competition from severalthe other sources, including cable and satellite companies, wireless providers, technology companies, cloud companies, broadband providers, device providers, resellers, sales agents and facilities-based providers using their own networks as well as those leasing partsinformation set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A of our network. In particular, (i) intense competition from wireless and other communications providers has led to a long-term systemic decline in the number of our wireline voice customers, (ii) strong competition from cable companies and others has impacted the growth of our broadband operations and (iii) aggressive competition from a wide range of technology companies and other market entrants has limited the prospects for our hosting operations. For more detailed information, see "Business—Competition" in Item 1 of Part I of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2016.
Some of our current and potential competitors (i) offer products or services that are substitutes for our legacy wireline voice services, including wireless voice and non-voice communication services, (ii) offer a more comprehensive range of communications products and services, (iii) offer products or services with features that we cannot readily match in some or all of our markets, (iv) offer shorter installation intervals, allowing customers to begin receiving services sooner after ordering, (v)2017. There have greater marketing, engineering, research, development, technical, financial and other resources, (vi) have larger or more diverse networks with greater transmission capacity, (vii) conduct operations or raise capital at a lower cost than us, (viii) are subject to less regulation, which we believe enables such competitors to operate more flexibly than us with respect to certain offerings, (ix) offer services nationally or internationally to a larger geographic area or larger base of customers, (x) have substantially stronger brand names, which may provide them with greater pricing power than ours, or (xi) have larger operations than ours, which may enable them to compete more successfully in recruiting top talent, entering into operational or strategic partnerships or acquiring companies. Consequently, these competitors may be better equipped to provide more attractive offerings, to charge lower prices for their products and services, to develop and expand their communications and network infrastructure more quickly, to adapt more swiftly to changes in technologies or customer requirements, to devote greater resources to the marketing and sale of their products and services, to provide more comprehensive customer service, to provide greater resources to research and development initiatives and to take advantage of business or other opportunities more readily. In the past, several of our competitors and their operations have grown through acquisitions and aggressive product development. The continued growth of our competitors could further enhance their competitive positions.
Competition could adversely impact us in several ways, including (i) the loss of customers and market share, (ii) the possibility of customers terminating or reducing their usage of our services or shifting to less profitable services, (iii) reduced traffic on our networks, (iv) our need to expend substantial time or money on new capital improvement projects, (v) our need to lower prices or increase marketing expenses to remain competitive and (vi) our inability to diversify by successfully offering new products or services.
We are continually taking steps to respond to these competitive pressures, but these efforts may not be successful. Our operating results and financial condition would be adversely affected if these initiatives are unsuccessful or insufficient. If this occurred, our ability to pay our debt and other obligations and to re-invest in the business would also be adversely affected.

Rapid technological changes could significantly impact our competitive and financial position.
The communications industry has been and continues to be impacted by significant technological changes, which in general are enhancing wireless services and enabling a broader array of companies to compete with us. Many of these technological changes are (i) enabling customers to reduce or bypass use of our networks, (ii) displacing or reducing demand for our services, or (iii) enabling the development of competitive products or services. For years, improvements in wireless and Internet-based voice communications technologies have reduced demand for our legacy voice services, and these trends continue. More recently, continuous improvements in wireless data technologies have enabled wireless carriers to offer competing products, and we expect this trend to continue as technological advances enable these carriers to carry greater amounts of data faster and with less latency. Technological advancements have also permitted cable companies and other of our competitors to deliver faster average broadband transmission speeds than ours. Rapid changes in technology have also placed competitive pressures on our video, cloud and hosting businesses, and enabled new competitors to enter our markets. To enhance the competitiveness of certain of our services, we will likely be required to spend additional capital to install more fiber optic cable or to augment the capabilities of our copper-based services.
We may not be able to accurately predict or respond to changes in technology or industry standards, or to the introduction of newly-offered services. Any of these developments could make some or all of our offerings less desirable or even obsolete, which would place downward pressure on our market share and revenues. These developments could also require us to (i) expend capital or other resources in excess of currently contemplated levels, (ii) forego the development or provision of products or services that others can provide more efficiently, or (iii) make otherno material changes to our operating plans, corporate strategies or capital allocation plans, any of which could be contrary to the expectations ofrisk factors since our security holders or could adversely impact our operations. Our inability to effectively respond to technological changes could adversely affect our operating results and financial condition, as well as our ability to service debt and fund other commitments or initiatives.
Even if we succeed in adapting to changes in technology or industry standards by developing new products or services, there is no assurance that the new products or services would have a positive impact on our profit margins or financial performance.
In addition to introducing new technologies and offerings, we may need, from time to time, to phase out outdated and unprofitable technologies and services. If we are unable to do so on a cost-effective basis, we could experience reduced profits.
For additional information on the risks of increased expenditures, see “Risk Factors—Risks Affecting our Liquidity and Capital Resources—Our business requires us to incur substantial capital and operating expenses, which reduces our available free cash flow.”
Our legacy services continue to experience declining revenues, and our efforts to offset these declines may not be successful.
Primarily as a result of the competitive and technological changes discussed above, we have experienced a prolonged systemic decline in our local voice, long-distance voice, network access, private line and other legacy revenues. Consequently, we have experienced lower consolidated revenues in each of our last several years.
We have taken a variety of steps to counter these declines in our legacy services revenues, including:
an increased focus on selling a broader range of higher-growth strategic services, which are described in detail elsewhere in this report;
an increased focus on serving a broader range of business, governmental and wholesale customers;
greater use of service bundles; and
acquisitions to increase our scale, enhance our enterprise segment and strengthen our product offerings.
However, for the reasons described elsewhere in this report, most of our strategic services generate lower profit margins than our legacy services, and some can be expected to experience slowing growth as increasing numbers of our existing or potential customers subscribe to our newer strategic product and service offerings. Moreover, we cannot assure you that the revenues generated from our new offerings will offset revenue losses associated with our legacy services. In addition, our reliance on third parties to provide certain of these strategic services could constrain our flexibility, as described further below.

Our failure to develop new products and services could adversely impact our competitive position.
In order to compete effectively and respond to the changing communication needs of our customers, we continuously develop, test and introduce new products and services. Our ability to successfully introduce new product or service offerings on a timely and cost-effective basis could be constrained by a range of factors, including network limitations, support system limitations, limited capital, an inability to attract key personnel with the necessary skills, intellectual property constraints, testing delays, technological limits or an inability to act as quickly or efficiently as other competitors. In addition, new product or service offerings may not be widely accepted by our customers. Our business could be materially adversely affected if we are unable to timely and successfully develop and introduce new products or services.
Our failure to continuously develop effective service support systems could adversely impact our competitive position.
For many of our services, we can effectively compete only if we can quickly and efficiently (i) quote and accept customer orders, (ii) provision and initiate ordered services, (iii) provide customers with adequate means to manage their services and (iv) accurately bill for our services. Development of systems designed to support these tasks is a significant undertaking that continuously requires our personnel and third-party vendors to adjust to changes in our offerings and customers' preferences, to eliminate inconsistencies between the practices of our legacy operations and newly-acquired operations, to eliminate older support systems that are costly or obsolete, to develop uniform practices and procedures, and to automate them as much as possible. Our failure to continuously develop service support systems that are satisfactory to our current and potential customers and capable of being utilized by our workforce could adversely impact our competitive position.
We may not be able to successfully adjust to changes in our industry, our markets and our product mix.
Ongoing changes in the communications industry have fundamentally changed consumers’ communications expectations and requirements. In response to these changes, we have substantially altered our product and service offerings through acquisitions and internal product development. Many of these changes have placed a higher premium on sales, marketing and product development functions, and necessitated ongoing changes in our processes and operating protocols, as well as periodic reorganizations of our sales and leadership teams. In addition, we now offer a more complex range of products and services, operate larger and more complex networks and serve a much larger and more diverse set of customers. Consequently, we now face greater challenges in effectively managing and administering our operations and allocating capital and other resources to our various offerings. For all these reasons, we cannot assure you that our efforts to adjust to these changes will be timely or successful.
Our revenues and cash flows may not be adequate to fund all of our current objectives.
As noted in the risk factor disclosures appearing above and below, changes in competition, technology, regulation and demand for our legacy services continue to place downward pressure on our consolidated revenues and cash flows. During each of 2016, 2015, 2014 and 2013, we experienced declines in revenues and net cash provided by operating activities as compared to prior periods. Our cash flows will be further impacted by other changes discussed herein, including anticipated increases in our cash tax payments prior to acquisition of Level 3 on November 1, 2017 and additional post-retirement health care payments as a result of the depletion in 2016 of substantially all of the post-retirement benefit plan trust assets.
We rely upon our consolidated revenues and cash flows to fund our commitments and business objectives, including without limitation, funding our capital expenditures, operating costs, debt repayments, dividends, periodic share repurchases, periodic pension contributions and other benefits payments. We cannot assure you that our future cash flows will be sufficient to fund all of our cash requirements in the manner currently contemplated. Our inability to fund certain of these payments could have an adverse impact on our business, operations or competitive position or on the value of our securities.

We could be harmed by security breaches, damages or other significant disruptions or failures of our networks, information technology infrastructure or related systems, or of those we operate for certain of our customers.
We are materially reliant upon our networks, information technology infrastructure and related technology systems (including our billing and provisioning systems) to provide products and services to our customers and to manage our operations and affairs. We face the risk, as does any company, of a security breach or significant disruption of our information technology infrastructure and related systems. As a communications company that transmits large amounts of information over communications networks, we face an added risk that a security breach or other significant disruption of our public networks or information technology infrastructure and related systems that we develop, install, operate and maintain for certain of our business customers (which includes our wholesale and governmental customers) could lead to material interruptions or curtailments of service. Moreover, in connection with processing and storing sensitive and confidential customer data, we face a heightened risk that a security breach or disruption could result in unauthorized access to our customers’ proprietary information on our public networks or internal systems or the systems that we operate and maintain for certain of our customers.
We strive to maintain the security and integrity of information and systems under our control, and maintain contingency plans in the event of security breaches or other system disruptions. Nonetheless, we cannot assure you that our security efforts and measures will prevent unauthorized access to our systems, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service, computer viruses, malware, ransomware, distributed denial-of-service attacks, or other forms of cyber-attacks or similar events. These threats may derive from human error, hardware or software vulnerabilities, fraud, malice or sabotage on the part of employees, third parties or foreign nations, or could result from aging equipment or accidental technological failure. These threats may also arise from failure or breaches of systems owned, operated or controlled by other unaffiliated operators to the extent we rely on such other systems to deliver services to our customers.
Similar to other large telecommunications companies, we are a constant target of cyber-attacks of varying degrees. Although some of these attacks have resulted in security breaches, to date, none of these breaches have resulted in a material adverse effect on our operating results or financial condition. You should be aware, however, that defenses against cyber-attacks currently available to U.S. companies are unlikely to prevent intrusions by a highly-determined, highly-sophisticated hacker. Consequently, you should assume that we will be unable to implement security barriers or other preventative measures that repel all future cyber-attacks. Any such future security breaches or disruptions could materially adversely affect our business, results of operations or financial condition, especially in light of the growing frequency, scope and well-documented sophistication of cyber-attacks and intrusions.
Although we maintain insurance coverage that may, subject to policy terms and conditions (including self-insured deductibles, coverage restrictions and monetary coverage caps), cover certain aspects of our cyber risks, such insurance coverage may be unavailable or insufficient to cover our losses.
Additional risks to our network, infrastructure and related systems include:
power losses or physical damage, whether caused by fire, flood, adverse weather conditions, terrorism, sabotage, vandalism or otherwise;
capacity or system configuration limitations, including those resulting from changes in our customer's usage patterns, the introduction of new technologies or products, or incompatibilities between our newer and older systems;
theft or failure of our equipment;
software or hardware obsolescence, defects or malfunctions;
deficiencies in our processes or controls;
our inability to hire and retain personnel with the requisite skills to adequately maintain our systems;
programming, processing and other human error; and
service failures of our third-party vendors and other disruptions that are beyond our control.

Due to these factors, from time to time in the ordinary course of our business we experience disruptions in our service, and could experience more significant disruptions in the future.
Disruptions, security breaches and other significant failures of the above-described networks and systems could:
disrupt the proper functioning of these networks and systems, which could in turn disrupt (i) our operational or administrative functions or (ii) the operations of certain of our customers who rely upon us to provide services critical to their operations;
result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, classified or otherwise valuable information of ours, our customers or our customers’ end users, including trade secrets, which others could use for competitive, disruptive, destructive or otherwise harmful purposes and outcomes;
require significant management attention or financial resources to remedy the resulting damages or to change our systems, including expenses to repair systems, add new personnel or develop additional protective systems;
require us to notify customers, regulatory agencies or the public of data breaches;
require us to provide credits for future service under certain service level commitments we have provided contractually to our customers or to offer expensive incentives to retain customers;
subject us to claims for damages, fines, penalties, termination or other remedies under our customer contracts or service standards set by state regulatory commissions, which in certain cases could exceed our insurance coverage; or
result in a loss of business, damage our reputation among our customers and the public generally, subject us to additional regulatory scrutiny or expose us to prolonged litigation.
We could experience difficulties in expanding and updating our technical infrastructure.
Our ability to expand and update our systems and information technology infrastructure in response to our growth and changing business needs is important to our ability to maintain and develop attractive product and service offerings. As discussed further under “Business—Network Architecture” in Item 1 of Part I of our annual report on Form 10-K for year ended December 31, 2016, we are currently undertaking several complex, costly and time-consuming projects to simplify and modernize our network, which combines our legacy network and the networks of companies we have acquired in the past. Unanticipated delays in the completion of these projects may lead to increased project costs or operational inefficiencies. In addition, there may be issues related to our expanded or updated infrastructure that are not identified by our testing processes, and which may only become evident after we have started to fully utilize the redesigned systems. Our failure to modernize and upgrade our technology infrastructure could have adverse consequences, including the delayed implementation of new service offerings, decreased competitiveness of existing service offerings, network instabilities, increased operating or acquisition integration costs, service or billing interruptions or delays, service offering inconsistencies and the diversion of development resources.
Any or all of the foregoing developments could have a negative impact on our business, results of operations, financial condition and cash flows.
Negative publicity may adversely impact us.
Outages, customer complaints or other service failures of networks operated by us or other operators could cause substantial adverse publicity affecting us specifically or our industry generally. In either case, media coverage and public statements that insinuate improper actions by us or other operators, regardless of their factual accuracy or truthfulness, may result in negative publicity, litigation, governmental investigations or additional regulations. Addressing negative publicity and any resulting litigation or investigations may distract management, increase costs and divert resources. Negative publicity may have an adverse impact on our reputation and the morale of our employees, which could adversely affect our business, results of operations, financial condition and cash flows.
Market prices for many of our services have decreased in the past, and any similar price decreases in the future will adversely affect our revenues and margins.
Over the past several years, a range of competitive and technological factors, including robust network construction and intense competition, have lowered market prices for many of our products and services. If these market conditions persist, we may need to continue to reduce prices to retain customers and revenue. If future price reductions are necessary, our operating results will suffer unless we are able to offset these reductions by reducing our operating expenses or increasing our sales volumes.

Our future growth potential will depend in part on the continued development and expansion of the Internet.
Our future growth potential will depend in part upon the continued development and expansion of the Internet as a communication medium and marketplace for the distribution of data, video and other products by businesses, consumers, and governments. The use of the Internet for these purposes may not grow and expand at the rate anticipated by us or others, or may be restricted by factors outside of our control, including (i) actions by other carriers or governmental authorities that restrict us from delivering traffic over other parties' networks, (ii) changes in regulations, (iii) technological stagnation or (iv) changes in consumers' preferences or data usage.
If we fail to hire and retain qualified executives, managers and employees, our operating results could be harmed.
Our future success depends on our ability to identify, hire, train and retain executives, managers and employees with technological, engineering, product development, operational, provisioning, marketing, sales, administrative, managerial and other key skills. There is a shortage of qualified personnel in several of these fields. We compete with several other companies for this limited pool of potential employees. As our industry increasingly becomes more competitive, it could become especially difficult to attract and retain top personnel with skills in high demand. Our workforce reduction initiatives over the past couple of years have further increased the challenges of attracting and retaining talented individuals. In addition, subject to limited exceptions, none of our executives or domestic employees have long-term employment agreements. For all these reasons, there is no assurance that our efforts to recruit and retain qualified personnel will be successful.
Increases in broadband usage may cause network capacity limitations, resulting in service disruptions, reduced capacity or slower transmission speeds for our customers.
Video streaming services, gaming and peer-to-peer file sharing applications use significantly more bandwidth than other Internet activity such as web browsing and email. As use of these newer services continues to grow, our broadband customers will likely use much more bandwidth than in the past. If this occurs, we could be required to make significant capital expenditures to increase network capacity in order to avoid service disruptions, service degradation or slower transmission speeds for our customers. Alternatively, we could choose to implement network management practices to reduce the network capacity available to bandwidth-intensive activities during certain times in market areas experiencing congestion, which could negatively affect our ability to retain and attract customers in affected markets. While we believe demand for these services may drive broadband customers to pay for faster broadband speeds, competitive or regulatory constraints may preclude us from recovering the costs of the necessary network investments. This could result in an adverse impact to our operating margins, results of operations, financial condition and cash flows.
We have been accused of infringing the intellectual property rights of others and will likely face similar accusations in the future, which could subject us to costly and time-consuming litigation or require us to seek third-party licenses.
Like other communications companies, we have increasingly in recent years received a number of notices from third parties or have been named in lawsuits filed by third parties claiming we have infringed or are infringing upon their intellectual property rights. We are currently responding to several of these notices and claims and expect this industry-wide trend will continue. Responding to these claims may require us to expend significant time and money defending our use of the applicable technology, and divert management’s time and resources away from other business. In certain instances, we may be required to enter into licensing agreements requiring royalty payments. In the case of litigation, we could be required to pay damages or cease using the applicable technology. If we are required to take one or more of these actions, our profit margins may decline or our operations could be impaired. In addition, in responding to these claims, we may be required to stop selling or redesign one or more of our products or services, which could significantly and adversely affect our business, results of operations, financial condition and cash flows.
Similarly, from time to time, we may need to obtain the right to use certain patents or other intellectual property from third parties to be able to offer new products and services. If we cannot license or otherwise obtain rights to use any required technology from a third party on reasonable terms, our ability to offer new products and services may be prohibited, restricted, made more costly or delayed.

We may not be successful in protecting and enforcing our intellectual property rights.
We rely on various patents, copyrights, trade names, trademarks, service marks, trade secrets and other similar intellectual property rights, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights. The steps we have taken, however, may not prevent unauthorized use or the reverse engineering of our technology. Others may independently develop technologies that are substantially equivalent, superior to, or otherwise competitive to the technologies we employ in our services or that infringe on our intellectual property. We may be unable to prevent competitors from acquiring proprietary rights that are similar to or infringe upon our proprietary rights, or to prevent our current or former employees from using or disclosing to others our proprietary information. Enforcement of our intellectual property rights may depend on initiating legal actions against parties who infringe or misappropriate our proprietary information, but these actions may not be successful, even when our rights have been infringed. If we are unsuccessful in protecting or enforcing our intellectual property rights, our business, competitive position, results of operations and financial condition could be adversely affected.
Our operations, financial performance and liquidity are materially reliant on various third parties.
Reliance on other communications providers. To offer certain services in certain of our markets, we must either purchase services or lease network capacity from, or interconnect our network with the infrastructure of, other communications carriers or cloud companies who typically compete against us in those markets. Our reliance on these supply or interconnection arrangements limits our control over the quality of our services and exposes us to the risk that our ability to market our services could be adversely impacted by changes in the plans or properties of the carriers upon which we are reliant. In addition, we are exposed to the risk that the other carriers may be unwilling to continue or renew these arrangements in the future on terms favorable to us, or at all. This risk is heightened when the other carrier is a competitor of ours and may benefit from terminating the agreement. If we lose these arrangements and cannot timely replace them, our ability to provide services to our customers and conduct our business could be materially adversely affected.
Conversely, certain of our operations carry a significant amount of voice or data traffic for other communications providers. Their reliance on our services exposes us to the risk that they may transfer all or a portion of this traffic from our network to networks built, owned or leased by them, thereby reducing our revenues. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Trends” included in Item 2 of Part I of this report.
We also rely on reseller and sales agency arrangements with other communications companies to provide some of the services that we offer to our customers, including video services and wireless products and services. As a reseller or sales agent, we do not control the availability, retail price, design, function, quality, reliability, customer service or branding of these products and services, nor do we directly control all of the marketing and promotion of these products and services. Similar to the risks described above regarding our reliance upon other carriers, we could be adversely affected if these communication companies fail to maintain competitive products or services, or fail to continue to make them available to us on attractive terms, or at all.
Our operations and financial performance could be adversely affected if our relationships with any of these other communications companies are disrupted or terminated for any other reason, including if such other companies:
become bankrupt or experience substantial financial difficulties;
suffer work stoppages or other labor strife;
challenge our right to receive payments or services under applicable regulations or the terms of our existing contractual arrangements; or
are otherwise unable or unwilling to make payments or provide services to us.
Reliance on other key suppliers and vendors. We depend on a limited number of suppliers and vendors for equipment and services relating to our network infrastructure. Our local exchange carrier networks consist of central office and remote sites, all with advanced digital switches. If any of these suppliers experience interruptions or other problems delivering or servicing these network components on a timely basis, our operations could suffer significantly. To the extent that proprietary technology of a supplier is an integral component of our network, we may have limited flexibility to purchase key network components from alternative suppliers and may be adversely affected if third parties assert patent infringement claims against our suppliers or us. We also rely on a limited number of (i) software vendors to support our business management systems, (ii) content suppliers to provide programming to our video operations, and (iii) contractors to assist us in connection with our network construction and maintenance activities. In the event it becomes necessary to seek alternative suppliers and vendors, we may be unable to obtain satisfactory replacement supplies, services, utilities or programming on economically attractive terms, on a timely basis, or at all, which could increase costs or cause disruptions in our services.

Reliance on utility providers and landlords. Our energy costs can fluctuate significantly or increase for a variety of reasons, including changes in legislation and regulation. Several pending proposals designed to reduce greenhouse emissions could substantially increase our energy costs, which we may not be able to pass on to our customers.
We lease many of our office facilities. Although the majority of these leases provide us with the opportunity to renew the lease, many of these renewal options provide that rent for the renewal period will be equal to the fair market rental rate at the time of renewal. Any resulting increases in our rent costs could have a negative impact on our financial results.
Reliance on governmental payments. We receive a material amount of revenue or government subsidies under various government programs, which are further described under the heading “Risk Factors—Risks Relating to Legal and Regulatory Matters." We also provide products or services to various federal, state and local agencies. Our failure to comply with complex governmental regulations and laws applicable to these programs, or the terms of our governmental contracts, could result in us being suspended or disbarred from future governmental programs or contracts for a significant period of time. Moreover, certain governmental agencies frequently reserve the right to terminate their contracts for convenience. If our governmental contracts are terminated for any reason, or if we are suspended or debarred from governmental programs or contracts, our results of operations and financial condition could be materially adversely affected.
Reliance on financial institutions. We rely on a number of financial institutions to provide us with short-term liquidity under our credit facilities. If one or more of these lenders default on their funding commitments, our access to credit could be adversely affected.
Rising costs, changes in consumer behaviors and other industry changes may adversely impact our video business.
The costs of purchasing video programming have risen significantly in recent years and continue to rise. Moreover, an increasing number of consumers are receiving access to video content through video streaming or other services pursuant to new technologies for a nominal or no fee, which will likely reduce demand for more traditional video products, such as the satellite TV services that we resell and our Prism TV services.
New technologies are also affecting consumer behavior in ways that are changing how content is delivered and viewed. Increased access to various media through wireless devices has the potential to reduce the viewing of our content through traditional distribution outlets. These new technologies have increased the number of entertainment choices available to consumers and intensified the challenges posed by audience fragmentation. Some of these newer technologies also give consumers greater flexibility to watch programming on a time-delayed or on-demand basis. All of these changes, coupled with changing consumer preferences and other related developments, could reduce demand for our video products and services.
If we fail to extend or renegotiate our collective bargaining agreements with our labor unions as they expire from time to time, or if our unionized employees were to engage in a strike or other work stoppage, our business and operating results could be materially harmed.
As of September 30, 2017, approximately 36% of our employees were members of various bargaining units represented by the Communications Workers of America or the International Brotherhood of Electrical Workers. From time to time, our labor agreements with unions expire. Although we typically are able to negotiate new bargaining agreements, we cannot predict the outcome of our future negotiations of these agreements. We may be unable to reach new agreements, and union employees may engage in strikes, work slowdowns or other labor actions, which could materially disrupt our ability to provide services and result in increased cost to us. In addition, new labor agreements may impose significant new costs on us, which could impair our financial condition or results of operations in the future. To the extent they contain benefit provisions, these agreements may also limit our flexibility to change benefits in response to industry or competitive changes. In particular, post-employment benefits provided under these agreements could cause us to incur costs not faced by many of our competitors, which could ultimately hinder our competitive position.

Portions of our property, plant and equipment are located on property owned by third parties.
We rely on rights-of-way, colocation agreements and other authorizations granted by governmental bodies, railway companies, carriers and other third parties to locate our cable, conduit and other network equipment on or under their respective properties. A significant number of these authorizations are scheduled to lapse over the next five to ten years, unless we are able to extend or renew them. Our operations could be adversely affected if any of these authorizations terminate or lapse, or if the landowner requests price increases.
Over the past few years, certain utilities, cooperatives and municipalities in certain of the states in which we operate have requested significant rate increases for attaching our plant to their facilities. To the extent that these entities are successful in increasing the amount we pay for these attachments, our future operating costs will increase.
Our business customers may seek to shift risk to us.
We furnish to and receive from our business customers indemnities relating to damages caused or sustained by us in connection with certain of our operations. Our customers’ changing views on risk allocation could cause us to accept greater risk to win new business or could result in us losing business if we are not prepared to take such risks. To the extent that we accept such additional risk, and seek to insure against it, our insurance premiums could rise.
Our international operations expose us to various regulatory, currency, tax, legal and other risks.
Our international operations are subject to U.S. and other laws and regulations regarding operations in foreign jurisdictions in which we provide services. These numerous and sometimes conflicting laws and regulations include anti-corruption laws, anti-competition laws, trade restrictions, tax laws, immigration laws, privacy laws and accounting requirements. Many of these laws are complex and change frequently. Regulations that require the awarding of contracts to local contractors or the employment of local citizens may adversely affect our flexibility or competitiveness in these jurisdictions. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions. There is a risk that these laws or regulations may materially restrict our ability to deliver services in various foreign jurisdictions or could be breached through inadvertence or mistake, fraudulent or negligent behavior of our employees or agents, failure to comply with certain formal documentation or technical requirements, or otherwise. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us or our personnel, or prohibitions on the conduct of our business or our ability to operate in one or more countries, any of which could have a material adverse effect on our business, reputation, results of operations, financial condition or prospects.
Many foreign laws and regulations relating to communications services are more restrictive than U.S. laws and regulations, particularly those relating to privacy rights and data retention. For example, all 28 member states of the European Union have adopted new European data protection laws that we believe could impact our operations in Europe and could potentially expose us to an increased risk of litigation or significant regulatory fines. Moreover, national regulatory frameworks that are consistent with the policies and requirements of the World Trade Organization have only recently been, or are still being, enacted in many countries. Accordingly, many countries are still in the early stages of providing for and adapting to a liberalized telecommunications market. As a result, in these markets we may encounter more protracted and difficult procedures to obtain licenses necessary to provide the full set of products and services we seek to offer.
In addition to these international regulatory risks, some of the other risks inherent in conducting business internationally include:
tax, licensing, political or other business restrictions or requirements;
uncertainty concerning import and export restrictions, including the risk of fines or penalties assessed for violations;
longer payment cycles and problems collecting accounts receivable;
domestic and foreign regulation of overseas operations, including regulation under the Foreign Corrupt Practices Act, or FCPA, as well as other anti-corruption laws;
economic, social and political instability, with the attendant risks of terrorism, kidnapping, extortion, civic unrest and potential seizure or nationalization of assets;
currency and exchange controls, repatriation restrictions and fluctuations in currency exchange rates;
challenges in securing and maintaining the necessary physical and telecommunications infrastructure;
the inability in certain jurisdictions to enforce contract rights either due to underdeveloped legal systems or government actions that result in a deprivation of contract rights;

increased risk of cyber-attacks or similar events to our network as we expand our network or interconnect our network with other networks internationally;
the inability in certain jurisdictions to adequately protect intellectual property rights;
laws, policies or practices that restrict with whom we can contract or otherwise limit the scope of operations that can legally or practicably be conducted within any particular country;
potential submission of disputes to the jurisdiction of a foreign court or arbitration panel;
reliance on third parties, including those with which we have limited experience;
limitations in the availability, amount or terms of insurance coverage;
the imposition of unanticipated or increased taxes, increased communications or privacy regulations or other forms of public or governmental regulation that increase our operating expenses; and
challenges in staffing and managing foreign operations.
Many of these risks are beyond our control, and we cannot predict the nature or the likelihood of the occurrence or corresponding effect of any such events, each of which could have an adverse effect on our financial condition and results of operations.
We do business and may in the future do additional business in certain countries or regions in which corruption is a serious problem. Moreover, in order to effectively compete in certain foreign jurisdictions, it is frequently necessary or required to establish joint ventures, strategic alliances or marketing arrangements with local operators, partners or agents. In certain instances, these local operators, partners or agents may have interests that are not always aligned with ours. Reliance on local operators, partners or agents could expose us to the risk of being unable to control the scope or quality of our overseas services or products, or being held liable under the FCPA or other anti-corruption laws for actions taken by our strategic or local partners or agents even though these partners or agents may not themselves be subject to the FCPA or other applicable anti-corruption laws. Any determination that we have violated the FCPA or other anti-corruption laws could have a material adverse effect on our business, results of operations, reputation or prospects.
We may not be able in the future to acquire new businesses on attractive terms.
Historically, much of our growth has been attributable to acquisitions. Our future ability to grow through additional acquisitions could be limited by several factors, including our leverage, debt covenants and inability to identify attractively-priced target companies. Moreover, we generally must devote significant management attention and resources to evaluate acquisition opportunities, which could preclude us from evaluating acquisition opportunities during periods when management is committed to other opportunities, tasks or activities. Accordingly, we cannot assure you that we will be able to attain future growth through acquisitions. See "Risks Relating to Our Recently-Completed Acquisition of Level 3" for a discussion of certain specific risks raised by our acquisition of Level 3 on November 1, 2017 and see the next risk factor immediately below for a discussion of certain general risks raised by acquisitions.

Any additional future acquisitions by us would subject us to additional business, operating and financial risks, the impact of which cannot presently be evaluated, and could adversely impact our capital structure or financial position.
In an effort to implement our business strategies, we may from time to time in the future pursue other acquisition or expansion opportunities, including strategic investments. These transactions could involve acquisitions of entire businesses or investments in start-up or established companies, and could take several forms, including mergers, joint ventures, investments in new lines of business, or the purchase of equity interests or assets. These types of transactions may present significant risks and uncertainties, including the difficulty of identifying appropriate companies to acquire or invest in on acceptable terms, distraction of management from current operations, insufficient revenue acquired to offset liabilities assumed, unexpected expenses, inadequate return of capital, regulatory or compliance issues, potential infringements, potential violations of covenants in our debt instruments and other unidentified issues not discovered in due diligence. To the extent we acquire part or all of a business that is financially unstable or is otherwise subject to a high level of risk, we may be affected by currently unascertainable risks of that business. Accordingly, there is no current basis for you to evaluate the possible merits or risks of the particular business or assets that we may acquire. Moreover, we cannot guarantee that any such transaction will ultimately result in the realization of the benefits of the transaction originally anticipated by us or that any such transaction will not have a material adverse impact on our financial condition or results of operations. In particular, we can provide no assurances that we will be able to successfully integrate the technology systems, billing systems, accounting processes, sales force, cost structure, product development and service delivery processes, standards, controls, policies, strategies and culture of the acquired company with ours. In addition, the financing of any future acquisition completed by us could adversely impact our capital structure as any such financing would likely include the issuance of additional securities or the borrowing of additional funds.
Except as required by law or applicable securities exchange listing standards, we do not expect to ask our shareholders to vote on any proposed acquisition. Moreover, we generally do not announce our acquisitions until we have entered into a preliminary or definitive agreement.
Unfavorable general economic conditions could negatively impact our operating results and financial condition.
Unfavorable general economic conditions, including unstable economic and credit markets, could negatively affect our business. Worldwide economic growth has been sluggish since 2008, and many experts believe that a confluence of global factors may result in a prolonged period of economic stagnation, slow growth or economic uncertainty. While it is difficult to predict the ultimate impact of these general economic conditions, they could adversely affect demand for some of our products and services and could cause customers to shift to lower priced products and services or to delay or forego purchases of our products and services. These conditions impact, in particular, our ability to sell discretionary products or services to business customers that are under pressure to reduce costs or to governmental customers that have suffered substantial budget cuts in recent years. Any one or more of these circumstances could continue to depress our revenues. Also, our customers may encounter financial hardships or may not be able to obtain adequate access to credit, which could negatively impact their ability to make timely payments to us. In addition, as discussed further below, unstable economic and credit markets may preclude us from refinancing maturing debt at terms that are as favorable as those from which we previously benefited, at terms that are acceptable to us, or at all. For these reasons, among others, if current economic conditions persist or decline, our operating results, financial condition, and liquidity could be adversely affected.
For additional information about our business and operations, see "Business" in Item 1 of Part I of our annual report on Form 10-K for year ended December 31, 2016.
Risks Relating to Our Recently-Completed Acquisition of Level 3
We expect to continue to incur substantial expenses related to the Level 3 acquisition.
 As noted elsewhere herein, we have incurred substantial expenses in connection with completing the acquisition of Level 3 on November 1, 2017, and we expect to continue to incur substantial expenses in connection with integrating our business, operations, networks, systems, technologies, policies and procedures with those of Level 3. There are a large number of systems that will likely be integrated, including management information, purchasing, accounting and finance, sales, payroll and benefits, fixed asset, lease administration and regulatory compliance systems. While we have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of our integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Due to these factors, the transaction and integration expenses associated with the acquisition are likely in the near term to exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses. As a result of these expenses, we expect to take charges against our earnings before and after the completion of the acquisition. The charges taken after the acquisition are expected to be significant, although the timing of such charges is uncertain at present.

We may be unable to integrate successfully our incumbent business and Level 3’s business and realize the anticipated benefits of the acquisition.
The transaction combined two companies which previously operated as independent public companies. The combined company will be required to devote significant management attention and resources to integrating the business practices and operations of CenturyLink and Level 3. Potential difficulties we may encounter in the integration process include the following:
the inability to successfully combine our incumbent business and Level 3’s business in a manner that permits us to achieve the cost savings and operating synergies anticipated to result from the acquisition, which would result in the anticipated benefits of the acquisition not being realized in the time frame currently anticipated or at all;
lost sales and customers as a result of certain customers of either of the two companies deciding to terminate or reduce their business with the combined company;
the complexities associated with managing the combined businesses out of several different locations and integrating personnel from the two companies, while at the same time attempting to provide consistent, high quality products and services under a unified culture;
the additional complexities of combining two companies with different histories, regulatory restrictions, operating structures and markets;
the failure to retain key employees of either of the two companies;
potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the acquisition; and
performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the acquisition and integrating the companies’ operations.
For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of management, the disruption of our ongoing business or inconsistencies in our products, services, standards, controls, procedures and policies, any of which could adversely affect the ability of the combined company to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits of the acquisition, or could otherwise adversely affect our business and financial results. 
We may be unable to retain key employees.
Our success following the November 1, 2017 acquisition will depend in part upon our ability to retain key Level 3 and CenturyLink employees. Key employees may depart because of issues relating to uncertainty, changes in workplace responsibilities or demands, or difficulty of integration. Accordingly, we cannot assure you that we will be able to retain key employees to the same extent as in the past. 
In connection with the Level 3 acquisition, we incurred and assumed a substantial amount of indebtedness, and the agreements governing such indebtedness contain various covenants and other provisions that impose restrictions on our ability to operate.
As a result of borrowing funds for the Level 3 acquisition and assuming Level 3's existing consolidated indebtedness in connection with the acquisition, we are more indebted. This could have material adverse consequences for us, including those listed below under the heading "Risks Affecting Our Liquidity and Capital Resources—Our high debt levels expose us to a broad range of risks."

The agreements governing the indebtedness incurred or assumed by us in connection with the acquisition contain certain affiliate guarantees, all or most of which are secured by a first priority security interest in substantially all assets directly owned by them, subject to certain exceptions and limitations. These finance agreements contain various affirmative and negative covenants that may, subject to certain significant exceptions, restrict the ability of us and certain of our subsidiaries to, among other things, pledge property, incur additional indebtedness, enter into sale and lease-back transactions, make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to equity interests, merge or consolidate with any other person or sell or convey certain assets, among various other things. In particular, certain covenants contained in Level 3's indebtedness to be assumed by us may restrict our ability to receive cash from Level 3, to distribute cash from Level 3 to other of our affiliated entities, or enter into other transactions among our wholly owned subsidiaries. In addition, the agreement we have entered into that governs the debt financing, as well as the finance agreements we have assumed, contain financial covenants that require us and certain of our subsidiaries to maintain certain financial ratios. The ability of us and our subsidiaries to comply with these provisions may be affected by events beyond our and their control. Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could accelerate our debt repayment obligations. Certain of our debt instruments have cross-default or cross-acceleration provisions. When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument. For additional information, see "Risks Affecting Our Liquidity and Capital Resources" and Note 4—Long-Term Debt and Credit Facilities.
We plan to conduct rebranding initiatives that are likely to involve substantial costs and may not be favorably received by customers.
Prior to the Level 3 acquisition, CenturyLink and Level 3 marketed their respective products and services using the “CenturyLink” and “Level 3” brand names and logos. Following the acquisition, “CenturyLink” will be the brand name of the combined company. As a result, we expect to incur substantial costs in rebranding the combined company’s products and services in those markets that previously used the "Level 3" name, and may incur write-offs associated with the discontinued use of Level 3's brand names. We cannot assure you that customers will be receptive to our proposed rebranding efforts. The failure of any of these initiatives could adversely affect our ability to attract and retain customers after the acquisition, resulting in reduced revenues.
Consummation of the Level 3 acquisition has increased our exposure to the risk of operating internationally.
Consummation of the Level 3 acquisition has generally increased our exposure to the risks of operating overseas, including the risks described under the heading "Risks Effecting Our Business—Our international operations expose us to various regulatory, currency, tax, legal and other risks." In particular, we expect that our acquisition of Level 3 will increase our exposure to currency exchange rate risks and currency transfer restrictions. Moreover, the acquisition of Level 3's Latin American operations will expose CenturyLink to the economic and political risks of operating in those markets.
Counterparties to certain significant agreements with Level 3 may exercise contractual rights to terminate such agreements following the Level 3 acquisition.
Level 3 is a party to certain agreements that may give the counterparty a right under certain conditions to terminate the agreement following a "change in control" of Level 3. In addition, certain Level 3 customer contracts, including those with state or federal government agencies, allow the customer to terminate the contract at any time for convenience. Any such counterparty may request modifications of their respective agreements as a condition to foregoing exercise of their termination rights. There is no assurance that such agreements will not be terminated as materially modified after the acquisition.
We may be unable to obtain security clearances necessary to perform certain Level 3 government contracts.
Certain Level 3 legal entities and officers have security clearances required for Level 3's performance of customer contracts with various government entities. We have discussed and continue to discuss with appropriate governmental representatives arrangements that will permit us or our officers to continue to perform these Level 3 contracts. Although we expect these efforts will be successful, we cannot assure you of this.

We cannot assure you whether, when or in what amounts we will be able to use Level 3’s net operating loss carryforwards.
As of December 31, 2016, Level 3 had approximately $9.0 billion of net operating loss carryforwards, ("NOLs"), which for U.S. federal income tax purposes can be used to offset future taxable income, subject to certain limitations under Section 382 of the Code and related Treasury regulations. Our ability to use these NOLs following the Level 3 acquisition would likely be further limited by Section 382 if Level 3 is deemed to undergo an ownership change as a result of the acquisition or CenturyLink is deemed to undergo an ownership change following the acquisition, either of which could restrict use of a material portion of the NOLs. Determining the limitations under Section 382 is technical and highly complex. Although the parties, based on their review to date, currently believe that Level 3 will undergo an ownership change as a result of the acquisition, neither company has definitively completed the analysis necessary to confirm this. Moreover, issuances or sales of our stock following the acquisition (including certain transactions outside of our control) could result in an ownership change of CenturyLink under Section 382, which may further limit its use of the NOLs. For these and other reasons, we cannot assure you that we will be able to use Level 3's NOLs in the amounts we project.
Our acquisition of Level 3 raises other risks.
 Our acquisition of Level 3 on November 1, 2017 raises additional risks not described above. For additional information, see (i) the definitive joint proxy statement/prospectus filed with the SEC by us on February 13, 2017 and (ii) Level 3's most recently filed annual report on Form 10-K, as updated by its subsequent quarterly reports on Form 10-Q.
Risks Relating to Legal and Regulatory Matters
We operate in a highly regulated industry and are therefore exposed to restrictions on our operations and a variety of claims relating to such regulation.
General. We are subject to significant regulation by, among others, (i) the Federal Communications Commission (“FCC”), which regulates interstate communications, (ii) state utility commissions, which regulate intrastate communications, and (iii) various foreign governments and international bodies, which regulate our international operations. Generally, we must obtain and maintain certificates of authority or licenses from these bodies in most territories where we offer regulated services. We cannot assure you that we will be successful in obtaining or retaining all licenses necessary to carry out our business plan, and, even if we are, the prescribed service standards and conditions imposed on us in connection with obtaining or acquiring control of these licenses may impose on us substantial costs and limitations. We are also subject to numerous requirements and interpretations under various international, federal, state and local laws, rules and regulations, which are quite detailed and occasionally in conflict with each other. Accordingly, we cannot ensure that we are always considered to be in compliance with all these requirements at any single point in time. The agencies responsible for the enforcement of these laws, rules and regulations may initiate inquiries or actions based on customer complaints or on their own initiative. Even if we are ultimately found to have complied with applicable regulations, such actions or inquiries could create adverse publicity that negatively impacts our business.
Regulation of the telecommunications industry continues to change, and the regulatory environment varies substantially from jurisdiction to jurisdiction. A substantial portion of our local voice services revenue remains subject to FCC and state utility commission pricing regulation, which periodically exposes us to pricing or earnings disputes and could expose us to unanticipated price declines. In addition, from time to time carriers or other third parties refuse to pay for certain of our services, challenge our rights to receive certain service payments, file complaints requesting rate reductions or take other similar actions that have the potential to reduce our revenues. Our future revenues, costs, and capital investment could be adversely affected by material changes to or decisions regarding the applicability of government requirements, including, but not limited to, changes in rules governing intercarrier compensation, state and federal USF support, competition policies, pricing limitations or operational restrictions. There can be no assurance that future regulatory, judicial or legislative activities will not have a material adverse effect on our operations, or that regulators or third parties will not raise material issues with regard to our compliance or noncompliance with applicable regulations.
Changes in the composition and leadership of the FCC, state commissions and other agencies that regulate our business could have significant impacts on our revenues, expenses, competitive position and prospects. Changes in the composition and leadership of these agencies are often difficult to predict, and make future planning more difficult.

Risks associated with recent changes in regulation. Changes in regulation can have a material impact on our business, revenues or financial performance. Recent changes in federal regulations have substantially impacted our operations. In October 2011, the FCC adopted an order providing for a multi-year transition to a regulatory structure that reduces intercarrier compensation charges, redeploys universal service funding to newer technologies, and increases certain end-user charges. These changes, coupled with our participation in the new FCC support programs, has significantly impacted various aspects of our operations, financial results and capital expenditures, including the amount of revenues we collect from our wholesale customers and our receipt of federal support payments. We expect these impacts will continue in the future. For more information, see "Business—Regulation" in Item 1 of Part I of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2016, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this report.
In addition, during the last few years Congress or the FCC has initiated various other changes, including various broadband and Internet regulation initiatives and actions that will restrict our ability to discontinue or reduce certain services, even if unprofitable. Many of the FCC’s regulations adopted in recent years remain subject to judicial review and additional rulemakings, thus increasing the difficulty of determining the ultimate impact of these changes on us and our competitors.
Certain states have recently taken steps that could reduce the amount of their universal service support payments to incumbent local exchange companies. If these trends continue, we would suffer a reduction in our revenues from state support programs.
Risks of higher costs. Regulations continue to create significant operating and capital costs for us. Challenges to our tariffs by regulators or third parties or delays in obtaining certifications and regulatory approvals could cause us to incur substantial legal and administrative expenses, and, if successful, such challenges could adversely affect the rates that we are able to charge our customers.
Our business also may be impacted by legislation and regulation imposing new or greater obligations related to regulations or laws related to regulating broadband services, storing records, bolstering homeland security or cyber security, increasing disaster recovery requirements, minimizing environmental impacts, enhancing privacy, restricting data collection, protecting intellectual property rights of third parties, or addressing other issues that impact our business, including (i) the Communications Assistance for Law Enforcement Act, which requires communications carriers to ensure that their equipment, facilities, and services are able to facilitate authorized electronic surveillance, (ii) the USA Freedom Act, which requires communication companies to store records of communications of their customers, and (iii) laws that have significantly enhanced our responsibilities relating to data security in certain jurisdictions. We expect our compliance costs to increase if future laws or regulations continue to increase our obligations.
Increased risks of fines. We have recently paid certain regulatory fines associated with network or service outages, particularly with respect to outages impacting the availability of emergency - 911 services. Over the past couple of years, we believe that regulators have assessed substantially higher fines than in the past for these types of incidents, and it is possible this trend will continue.
Risks of reduced flexibility. As a diversified full service incumbent local exchange carrier in many of our key operating markets, we have traditionally been subject to significant regulation that does not apply to many of our competitors. This regulation in many instances restricts our ability to change rates, to compete and to respond rapidly to changing industry conditions. In particular, cable television companies in recent years have been able to exploit differences in regulatory oversight, which we believe has helped them to develop service offerings competitive with ours. As our business becomes increasingly competitive, regulatory disparities between us and our competitors could increasingly impede our ability to compete.
Risks posed by other regulations. All of our operations are also subject to a variety of environmental, safety, health and other governmental regulations. We monitor our compliance with federal, state and local regulations governing the management, discharge and disposal of hazardous and environmentally sensitive materials. Although we believe that we are in compliance with these regulations in all material respects, our management, discharge or disposal of hazardous and environmentally sensitive materials might expose us to claims or actions that could potentially have a material adverse effect on our business, financial condition and operating results. For a discussion of regulatory risks associated with our international operations, see “Risk Factors—Risks Affecting Our Business—Our international operations expose us to various regulatory, currency, tax, legal and other risks."

Our participation in the FCC's Connect America Fund ("CAF") Phase 2 support program poses certain risks.
Our participation in the FCC's CAF Phase 2 support program subjects us to certain financial risks. If we fail to attain certain specified infrastructure buildout requirements, the FCC could withhold future CAF support payments until these shortcomings are rectified. In addition, if we are not in compliance with FCC measures by the end of the CAF Phase 2 program, we would incur substantial penalties. To comply with the FCC's buildout requirements, we believe we will need to dedicate a substantial portion of our future capital expenditure budget to the construction of new infrastructure. The CAF-related expenditures could reduce the amount of funds we are willing or able to allocate to other initiatives or projects.
Regulation of the Internet could limit our ability to operate our broadband business profitably and to manage our broadband facilities efficiently.
In order to continue to provide quality broadband service at attractive prices, we believe we need the continued flexibility to respond to changing consumer demands, to manage bandwidth usage efficiently for the benefit of all customers and to invest in our networks. In 2015, the FCC adopted new regulations that regulate broadband services as a public utility under Title II of the Communications Act. The ultimate impact of the new regulations will depend on several factors, including the manner in which the new regulations are implemented and enforced and whether those regulations are altered by the newly-constituted FCC or Congress. Although it is premature for us to determine the ultimate impact of the new regulations upon our operations, we currently anticipate that implementation of the proposed rules could hamper our ability to operate our data networks efficiently, restrict our ability to implement network management practices necessary to ensure quality service, increase the cost of network extensions and upgrades, and otherwise negatively impact our current operations. Our service offerings could become subject to additional laws and regulations as they are adopted or applied to the Internet. As the significance of the Internet expands, federal, state, local or foreign governments may adopt new laws or regulations, or apply existing laws and regulations to the Internet. We cannot predict the outcome of any such changes.
We may be liable for the material that content providers distribute over our network.
Although we believe our liability for third party information stored on or transmitted through our networks is limited, the liability of private network operators is impacted both by changing technology and evolving legal principles that remain unsettled in many jurisdictions. As a private network provider, we could be exposed to legal claims relating to third party content stored or transmitted on our networks. Such claims could involve, among others, allegations of defamation, invasion of privacy, copyright infringement, or aiding and abetting restricted activities such as online gambling or pornography. If we decide to implement additional measures to reduce our exposure to these risks, or if we are required to defend ourselves against these kinds of claims, our operations and financial results could be negatively affected.
Our pending legal proceedings could have a material adverse impact on our financial condition and operating results, the trading price of our securities and our ability to access the capital markets.
There are several material proceedings pending against us, as described in Note 10—Commitments and Contingencies to our consolidated financial statements included in Item 1 of Part I of this report. Results of these legal proceedings cannot be predicted with certainty. Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. For each of these reasons, any of the proceedings described in Note 10, as well as current litigation not described therein or future litigation, could have a material adverse effect on our business, reputation, financial position, operating results, the trading price of our securities and our ability to access the capital markets. We can give you no assurances as to the ultimate impact of these matters on us.
We are subject to franchising requirements that could impede our expansion opportunities or result in potential fines or penalties.
We may be required to obtain from municipal authorities operating franchises to install or expand certain facilities related to our fiber transport operations, our competitive local exchange carrier operations, and our facilities-based video services. Some of these franchises may require us to pay franchise fees. Many of our franchise agreements have compliance obligations and failure to comply may result in fines or penalties. In some cases, certain franchise requirements could delay us in expanding our operations or increase the costs of providing these services.

We are exposed to risks arising out of recent legislation affecting U.S. public companies.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, and related regulations implemented thereunder, have increased our legal and financial compliance costs and made some activities more time consuming. Any failure to successfully or timely complete annual assessments of our internal controls required by Section 404 of the Sarbanes-Oxley Act could subject us to sanctions or investigation by regulatory authorities. Any such action could adversely affect our financial results or our reputation with investors, lenders or others.
Changes in any of the above-described laws or regulations may limit our ability to plan, and could subject us to further costs or constraints.
From time to time, the laws or regulations governing us or our customers, or the government’s policy of enforcing those laws or regulations, have changed frequently and materially. The variability of these laws could hamper the ability of us and our customers to plan for the future or establish long-term strategies. Moreover, future changes in these laws or regulations could further increase our operating or compliance costs, or further restrict our operational flexibility, any of which could have a material adverse effect on our results of operations, competitive position, financial condition or prospects.
For a more thorough discussion of the regulatory issues that may affect our business, see "Business—Regulation" in Item 1 of Part I of our annual report on Form 10-K for year ended December 31, 2016.
Risks Affecting Our Liquidity and Capital Resources
Our high debt levels expose us to a broad range of risks.
We continue to carry significant debt. As of September 30, 2017, the aggregate principal amount of our consolidated long-term debt, excluding unamortized discounts, net, unamortized debt issuance costs and capital lease and other obligations, was $24.605 billion (excluding the additional debt that we incurred and assumed on November 1, 2017). As of the date of this report, $1.907 billion aggregate principal amount of this long-term debt is scheduled to mature prior to September 30, 2020 (excluding debt that we assumed upon acquiring Level 3). While we currently believe we will have the financial resources to meet or refinance our obligations when they come due, we cannot fully anticipate our future performance or financial condition, the future condition of the credit markets or the economy generally.
Our significant levels of debt can adversely affect us in several other respects, including:
limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions, refinancings or other general corporate purposes, particularly if, as discussed further in the risk factor disclosure below, (i) the ratings assigned to our debt securities by nationally recognized credit rating organizations are revised downward or (ii) we seek capital during periods of turbulent or unsettled market conditions;
requiring us to dedicate a substantial portion of our cash flow from operations to the payment of interest and principal on our debt, thereby reducing the funds available to us for other purposes, including acquisitions, capital expenditures, strategic initiatives, dividends, stock repurchases, marketing and other potential growth initiatives;
hindering our ability to capitalize on business opportunities and to plan for or react to changing market, industry, competitive or economic conditions;
increasing our future borrowing costs;
increasing the risk that third parties will be unwilling or unable to engage in hedging or other financial or commercial arrangements with us;
making us more vulnerable to economic or industry downturns, including interest rate increases;
placing us at a competitive disadvantage compared to less leveraged competitors;
increasing the risk that we will need to sell securities or assets, possibly on unfavorable terms, or take other unfavorable actions to meet payment obligations; or
increasing the risk that we may not meet the financial covenants contained in our debt agreements or timely make all required debt payments, either of which could result in the acceleration of some or all of our outstanding indebtedness.
The effects of each of these factors could be intensified if we increase our borrowings.

Any failure to make required debt payments could, among other things, adversely affect our ability to conduct operations or raise capital.
Our current debt agreements and the debt agreements of our subsidiaries allow us to incur additional debt, which could exacerbate the other risks described in this report.
The current terms of our debt instruments and the debt instruments of our subsidiaries permit us to incur additional indebtedness. Additional debt may be necessary for many reasons, including those discussed above. Incremental borrowings that impose additional financial risks could exacerbate the other risks described in this report.
We expect to periodically require financing, and we cannot assure you that we will be able to obtain such financing on terms that are acceptable to us, or at all.
We have a significant amount of indebtedness that we intend to refinance over the next several years, principally through the issuance of debt securities of CenturyLink, Inc., Qwest Corporation or Level 3 Financing, Inc. Our ability to arrange additional financing will depend on, among other factors, our financial position, performance, and credit ratings, as well as prevailing market conditions and other factors beyond our control. Global financial markets continue to be unpredictable and volatile. Prevailing market conditions could be adversely affected by (i) general market conditions, such as disruptions in domestic or overseas sovereign or corporate debt markets, geo-political instabilities, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad and (ii) specific conditions in the communications industry. Volatility in the global markets could limit our access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that are as favorable as those from which we previously benefited, on terms that are acceptable to us, or at all. Any such failure to obtain additional financing could jeopardize our ability to repay, refinance or reduce our debt obligations.
We may also need to obtain additional financing under a variety of other circumstances, including if:
revenues and cash provided by operations decline;
economic conditions weaken, competitive pressures increase or regulatory requirements change;
we engage in additional acquisitions or undertake substantial capital projects or other initiatives that increase our cash requirements;
we are required to contribute a material amount of cash to our pension plans;
we are required to begin to pay other post-retirement benefits earlier than anticipated;
our payments of federal income taxes increase faster or in greater amounts than currently anticipated; or
we become subject to significant judgments or settlements, including in connection with one or more of the matters discussed in Note 10—Commitments and Contingencies to our consolidated financial statements included elsewhere in this report.
For all the reasons mentioned above, we can give no assurance that additional financing for any of these purposes will be available on terms that are acceptable to us, or at all.
In addition, our ability to borrow funds in the future will depend in part on the satisfaction of the covenants in our credit facilities and other debt instruments. If we are unable to satisfy the covenants contained in those instruments, or are unable to generate cash sufficient to make required debt payments, the parties to whom we are indebted could accelerate the maturity of some or all of our outstanding indebtedness. Certain of our debt instruments have cross-default or cross-acceleration provisions. When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument.
As noted above, if we are unable to make required debt payments or refinance our debt, we would likely have to consider other options, such as selling assets, issuing additional securities, reducing or terminating our dividend payments, cutting costs or otherwise reducing our cash requirements, or negotiating with our lenders to restructure our applicable debt. Our current and future debt instruments may restrict, or market or business conditions may limit, our ability to do some of these things on favorable terms, or at all.

Any downgrade in the credit ratings of us or our affiliates could limit our ability to obtain future financing, increase our borrowing costs and adversely affect the market price of our existing debt securities or otherwise impair our business, financial condition and results of operations.
Nationally recognized credit rating organizations have issued credit ratings relating to CenturyLink, Inc.'s long-term debt and the long-term debt of several of its subsidiaries. Most of these ratings are below “investment grade”, which results in higher borrowing costs than "investment grade" debt as well as reduced marketability of our debt securities. There can be no assurance that any rating assigned to any of these debt securities will remain in effect for any given period of time or that any such ratings will not be lowered, suspended or withdrawn entirely by a rating agency if, in that rating agency’s judgment, circumstances so warrant.
A downgrade of any of these credit ratings could:
adversely affect the market price of some or all of our outstanding debt or equity securities;
limit our access to the capital markets or otherwise adversely affect the availability of other new financing on favorable terms, if at all;
trigger the application of restrictive covenants in certain of our debt agreements or result in new or more restrictive covenants in agreements governing the terms of any future indebtedness that we may incur;
increase our cost of borrowing; and
impair our business, financial condition and results of operations.
Following the acquisition of Level 3, the three principal domestic credit rating organizations either downgraded or reaffirmed CenturyLink's and Qwest Corporation's unsecured senior debt ratings, assigned ratings to CenturyLink's new secured debt ratings and reassessed Level 3's unsecured and secured senior debt ratings. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Debt and Other Financing Arrangements” in Item 2 of Part I of this report.
Under certain circumstances upon a change of control, we will be obligated to offer to repurchase certain of our outstanding debt securities, which could have certain adverse ramifications.
If the credit ratings relating to certain of our currently outstanding long-term debt securities are downgraded in the manner specified thereunder in connection with a “change of control” of CenturyLink, Inc., then we will be required to offer to repurchase such debt securities. If, due to lack of cash, legal or contractual impediments, or otherwise, we fail to offer to repurchase such debt securities, such failure could constitute an event of default under such debt securities, which could in turn constitute a default under other of our agreements relating to our indebtedness outstanding at that time. Moreover, the existence of these repurchase covenants may in certain circumstances render it more difficult or discourage a sale or takeover of us, or the removal of our incumbent directors.
Our business requires us to incur substantial capital and operating expenses, which reduce our available free cash flow.
Our business is capital intensive, and we anticipate that our capital requirements will continue to be significant in the coming years.
We expect to invest additional capital to expand and enhance our network infrastructure as a result of several factors, including:
our regulatory commitments, including infrastructure construction requirements arising out of our participation in the FCC's CAF Phase 2 program, which are discussed further herein;
increased demands by customers to transmit larger amounts of data at faster speeds;
changes in customers' service requirements;
technological advances of our competitors; or
the development and launch of new services.
We may be unable to expand or adapt our network infrastructure to respond to these developments in a timely manner, at a commercially reasonable cost or on terms producing satisfactory returns on our investment.

In addition to investing in expanded networks, new products or new technologies, we must from time to time invest capital to (i) replace some of our aging equipment that supports many of our legacy services that are experiencing revenue declines or (ii) convert older systems to simplify and modernize our network. While we believe that our currently planned level of capital expenditures will meet both our maintenance and core growth requirements, this may not be the case if demands on our network continue to accelerate or other circumstances underlying our expectations change. Increased spending could, among other things, adversely affect our operating margins, cash flows, results of operations and financial position.
Similarly, we continue to anticipate incurring substantial operating expenses to support our incumbent services and growth initiatives. We may be unable to sufficiently manage or reduce these costs, even if revenues in some of our lines of business are decreasing. If so, our operating margins will be adversely impacted.
Our senior notes are unsecured and will be effectively subordinated to any secured indebtedness.
Our currently outstanding senior notes are unsecured and are effectively subordinated to any of our existing or future secured indebtedness, to the extent of the value of the assets securing such indebtedness. In the event of a bankruptcy or similar proceeding, collateral for any secured indebtedness would generally be available to satisfy our obligations under such secured indebtedness, and would not be expected to be available to satisfy other claims.
As a holding company, we rely on payments from our operating companies to meet our obligations.
As a holding company, substantially all of our income and operating cash flow is dependent upon the earnings of our subsidiaries and their distribution of those earnings to us in the form of dividends, loans or other payments. As a result, we rely upon our subsidiaries to generate the funds necessary to meet our obligations, including the payment of amounts owed under our long-term debt. Our subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts owed by us or, subject to limited exceptions for tax-sharing or cash management purposes, to make any funds available to us to repay our obligations, whether by dividends, loans or other payments. State law applicable to each of our subsidiaries restricts the amount of dividends that they may pay. Restrictions that have been or may be imposed by state regulators (either in connection with obtaining necessary approvals for our acquisitions or in connection with our regulated operations), and restrictions imposed by credit instruments or other agreements applicable to certain of our subsidiaries may limit the amount of funds that our subsidiaries are permitted to transfer to us, including the amount of dividends that may be paid to us. Moreover, our rights to receive assets of any subsidiary upon its liquidation or reorganization will be effectively subordinated to the claims of creditors of that subsidiary, including trade creditors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included elsewhere in this report for further discussion of these matters.
We cannot assure you that we will continue paying dividends at the current rates, or at all.
For the reasons noted below, we cannot assure you that we will continue periodic dividends on our capital stock at the current rates, or at all.
As noted in the immediately preceding risk factor, because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends will depend on the earnings and cash flow of our subsidiaries and their ability to furnish funds to us in the form of dividends, loans or other payments.
Any quarterly dividends on our common stock and our outstanding shares of preferred stock will be paid from funds legally available for such purpose when, as and if declared by our Board of Directors. Decisions on whether, when and in which amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of our Board of Directors, which reserves the right to change or terminate our dividend practices at any time and for any reason without prior notice, including without limitation any of the following:
our supply of cash or other liquid assets is anticipated to remain under pressure due to declining cash flows from operating activities, increased payments of post-retirement benefits and might be further negatively impacted by any of the potential adverse events or developments described in this report, including (i) changes in competition, regulation, federal and state support, technology, taxes, capital markets, operating costs or litigation costs, or (ii) the impact of any liquidity shortfalls caused by the below-described restrictions on the ability of our subsidiaries to lawfully transfer cash to us;
our cash requirements or plans might change for a wide variety of reasons, including changes in our capital allocation plans (including a desire to retain or accumulate cash), capital spending plans, stock purchase plans, acquisition strategies, strategic initiatives, debt payment plans (including a desire to maintain or improve credit ratings on our debt securities), pension funding payments, or financial position;

our ability to service and refinance our current and future indebtedness and our ability to borrow or raise additional capital to satisfy our capital needs;
the amount of dividends that we may distribute to our shareholders is subject to restrictions under Louisiana law and restrictions imposed by our existing or future credit facilities, debt securities, outstanding preferred stock securities, leases and other agreements, including restricted payment and leverage covenants; and
the amount of cash that our subsidiaries may make available to us, whether by dividends, loans or other payments, may be subject to the legal, regulatory and contractual restrictions described in the immediately preceding risk factor.
Based on its evaluation of these and other relevant factors, our Board of Directors may, in its sole discretion, decide not to declare a dividend on our common stock or our outstanding shares of preferred stock for any period for any reason without prior notice, regardless of whether we have funds legally available for such purposes. Holders of our equity securities should be aware that they have no contractual or other legal right to receive dividends.
Similarly, holders of our common stock should be aware that repurchases of our common stock under any repurchase plan then in effect are completely discretionary, and may be suspended or discontinued at any time for any reason regardless of our financial position.
Our current dividend practices could limit our ability to deploy cash for other beneficial purposes.
The current practice of our Board of Directors to pay common share dividends reflects a current intention to distribute to our shareholders a substantial portion of our cash flow. As a result, we may not retain a sufficient amount of cash to apply to other transactions that could be beneficial to our shareholders or debtholders, including stock buybacks, debt prepayments or capital expenditures that strengthen our business. In addition, our ability to pursue any material expansion of our business through acquisitions or increased capital spending may depend more than it otherwise would on our ability to obtain third party financing.
We cannot assure you whether, when or in what amounts we will be able to use our state net operating loss carryforwards, or when they will be depleted.
At December 31, 2016, we had state NOL carryforwards of approximately $11.9 billion. A significant portion of the state NOL carryforwards are generated in states where separate company income tax returns are filed and our subsidiaries that generated the losses may not have the ability to generate income in sufficient amounts to realize these losses. In addition, certain of these state NOL carryforwards will be limited by state laws related to ownership changes. As a result, we expect to utilize only a small portion of the state NOL carryforwards, and consequently have determined that as of December 31, 2016, these state NOL carryforwards, net of federal benefit, had a net tax benefit (after giving effect to our valuation allowance) of $131 million. Additionally, at December 31, 2016, Level 3 had state NOL carryforwards of approximately $9.4 billion and foreign NOL carryforwards of approximately $5.3 billion. We expect to utilize only a small portion of the state NOL carryforwards, and consequently have determined that as of December 31, 2016, these state and foreign NOL carryforwards, net of federal benefit, had a net tax benefit (after giving effect to the valuation allowances) of approximately $250 million and $200 million, respectively.
Increases in costs for pension and healthcare benefits for our active and retired employees may reduce our profitability and increase our funding commitments.
As of December 31, 2016, we had approximately 36,000 active employees participating in our company sponsored benefit plans, approximately 72,000 active and retired employees and surviving spouses eligible for post-retirement benefits, approximately 68,000 pension retirees and approximately 14,000 former employees with vested pension benefits participating in our benefit plans. The cost to fund the pension and healthcare benefit plans for our active and retired employees has a significant impact on our profitability. Our costs of maintaining our pension and healthcare plans, and the future funding requirements for these plans, are affected by several factors, most of which are outside our control, including:
decreases in investment returns on funds held by our pension and other benefit plan trusts;
changes in prevailing interest rates and discount rates or other factors used to calculate the funding status of our pension and other post-retirement plans;
increases in healthcare costs generally or claims submitted under our healthcare plans specifically;
increasing longevity of our employees and retirees;
the impact of the continuing implementation, modification or potential repeal of current federal healthcare legislation and regulations promulgated thereunder;

increases in the number of retirees who elect to receive lump sum benefit payments;
increases in insurance premiums we are required to pay to the Pension Benefit Guaranty Corporation, an independent agency of the United States government that must cover its own underfunded status by collecting premiums from an ever shrinking population of pension plans that are qualified under the U.S. tax code;
changes in plan benefits; and
changes in funding laws or regulations.
Increased costs under these plans could reduce our profitability and increase our funding commitments to our pension plans. Any future material cash contributions could have a negative impact on our liquidity by reducing our cash flows available for other purposes. Similarly, depletion of assets placed in trust by us to fund these benefits, such as those discussed elsewhere herein, will similarly reduce our liquidity by reducing our cash flows available for other purposes.
As of December 31, 2016, our pension plans and our other post-retirement benefit plans were substantially underfunded from an accounting standpoint. See Note 9—Employee Benefits to our consolidated financial statements included in Item 8 of our annual report on Form 10-K for the year ended December 31, 2016. For more information on our obligations under our defined benefit pension plans and other post-retirement benefit plans, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Pension and Post-retirement Benefit Obligations” included in Item 2 of Part I of this report.
For additional information concerning our liquidity and capital resources, see Item 2 of Part I of this report. For a discussion of certain currency and liquidity risks associated with our international operations, see "Risk Factors—Risks Affecting Our Business—Our international operations expose us to various regulatory, currency, tax, legal and other risks."
Other Risks
We face risks from natural disasters, which can disrupt our operations and cause us to incur substantial additional capital and operating costs.
A substantial number of our facilities are located in Florida, Alabama, Louisiana, Texas, North Carolina, South Carolina and other coastal states, which subjects them to the risks associated with severe tropical storms, hurricanes and tornadoes, including downed telephone lines, flooded facilities, power outages, fuel shortages, damaged or destroyed property and equipment, and work interruptions. These risks will intensify if and to the extent that climate change renders these adverse weather events more frequent or powerful. Although we maintain property and casualty insurance on our property (excluding our above ground outside plant) and may, under certain circumstances, be able to seek recovery of some additional costs through increased rates, only a portion of our additional costs directly related to such natural disasters have historically been recoverable. We cannot predict whether we will continue to be able to obtain insurance for catastrophic hazard-related damages or, if obtainable and carried, whether this insurance will be adequate to cover our losses. In addition, we expect any insurance of this nature to be subject to substantial deductibles, retentions and coverage exclusions, and the premiums to be based on our loss experience. For all these reasons, any future hazard-related costs and work interruptions could adversely affect our operations and our financial condition.
If conditions or assumptions differ from the judgments, assumptions or estimates used in our critical accounting policies, our consolidated financial statements and related disclosures could be materially affected.
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in Item 7 of Part II of our annual report on Form 10-K for the year ended December 31, 2016, describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that are considered “critical” because they require judgments, assumptions and estimates that materially impact our consolidated financial statements and related disclosures. As a result, if future events or assumptions differ significantly from the judgments, assumptions and estimates in our critical accounting policies, these events or assumptions could have a material impact on our consolidated financial statements and related disclosures.

While frequently presented with numeric specificity, the guidance and other forward-looking statements that we disseminate from time to time is based on numerous variables and assumptions (including, but not limited to, those related to industry performance and competition and general business, economic, market and financial conditions and additional matters specific to our business, as applicable) that are inherently subjective and speculative and are largely beyond our control. As a result, actual results may differ materially from our guidance or other forward-looking statements. For additional information, see "Special Note Regarding Forward-Looking Statements and Related Matters" in Item 1 of Part I of our annual report on Form 10-K for the year ended December 31, 2016.
Lapses in disclosure controls and procedures or internal control over financial reporting could materially and adversely affect our operations, profitability or reputation.
There can be no assurance that our disclosure controls and procedures will be effective in the future or that we will not experience a material weakness or significant deficiency in internal control over financial reporting. Any such lapses or deficiencies may materially and adversely affect our business, operating results or financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the lapses or deficiencies, expose us to regulatory or legal proceedings, including litigation brought by private individuals, subject us to fines, penalties or judgments, harm our reputation, or otherwise cause a decline in investor confidence and our stock price.
If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings and reduce our stockholders' equity.
As of September 30, 2017, approximately 46% of our total consolidated assets reflected on the consolidated balance sheet included in this report consisted of goodwill, customer relationships and other intangible assets. Under U.S. generally accepted accounting principles, most of these intangible assets must be tested for impairment on an annual basis or more frequently whenever events or circumstances indicate that their carrying value may not be recoverable. From time to time (most recently for the third quarter of 2013), we have recorded large non-cash charges to earnings in connection with required reductions of the value of our intangible assets. If our intangible assets are determined to be impaired in the future, we may be required to record additional significant, non-cash charges to earnings during the period in which the impairment is determined to have occurred. Any such charges could, in turn, have a material adverse effect on our results of operation, financial condition or ability to comply with financial covenants in our debt instruments.
Tax audits or changes in tax laws could adversely affect us.
Like all large businesses, we are subject to frequent and regular audits by the Internal Revenue Service as well as state and local tax authorities. These audits could subject us to tax liabilities if adverse positions are taken by these tax authorities.
We believe that we have adequately provided for tax contingencies. However, our tax audits and examinations may result in tax liabilities that differ materially from those that we have recognized in our consolidated financial statements. Because the ultimate outcomes of all of these matters are uncertain, we can give no assurance as to whether an adverse result from one or more of them will have a material effect on our financial results.
Legislators and regulators at all levels of government may from time to time change existing tax laws or regulations or enact new laws or regulations that could negatively impact our operating results or financial condition. The new U.S. Presidential administration and congressional leaders have recently proposed comprehensive tax reform. We are currently in the process of analyzing the proposals and will continue to monitor any changes. At this time we are unable to predict the final outcome of the proposals. However, if ultimately passed, the impact on our business could be material.
Our agreements and organizational documents and applicable law could limit another party’s ability to acquire us.
A number of provisions in our agreements and organizational documents and various provisions of applicable law may delay, defer or prevent a future takeover of CenturyLink unless the takeover is approved by our Board of Directors. These provisions could deprive our shareholders of any related takeover premium. For additional information, please see our Registration Statement on Form 8-A/A filed with the SEC on March 2, 2015.2017.



Table of Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table contains information about shares of our previously-issued common stock that we withheld from employees upon vesting of their stock-based awards during the thirdsecond quarter of 20172018 to satisfy the related minimum tax withholding obligations:
 
Total Number of
Shares Withheld
for Taxes
 
Average Price Paid
Per Share
Period   
July 20178,831
 $23.78
August 201731,946
 22.47
September 20175,067
 19.97
Total45,844
  
 
Total Number of
Shares Withheld
for Taxes
 
Average Price Paid
Per Share
Period   
April 2018211,749
 $16.81
May 2018254,893
 18.61
June 2018171,594
 18.23
Total638,236
  



Table of Contents

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
Agreement and Plan of Merger, dated as of October 31, 2016, by and among CenturyLink, Inc., Level 3 Communications, Inc., Wildcat Merger Sub 1 LLC and WWG Merger Sub LLC (incorporated by reference to Exhibit 2.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on November 3, 2016).
3.1
Amended and Restated Articles of Incorporation of CenturyLink, Inc., as amended through May 23, 2012 (incorporated by reference to Exhibit 3.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on May 30, 2012).
3.2
Bylaws of CenturyLink, Inc., as amended and restated through August 24, 2017 (incorporated by reference to Exhibit 3.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on August 24, 2017).
4.1
Form of common stock certificate (incorporated by reference to Exhibit 4.10 of CenturyLink, Inc.'s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on March 2, 2012 (Registration No. 333-179888)).
4.2Instrument relating to Credit Agreement assumed by CenturyLink, Inc. on November 1, 2017.
a.
Credit Agreement, dated as of June 19, 2017, by and among CenturyLink Escrow, LLC and the lenders and agents named therein (incorporated by reference to Exhibit 10.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on June 20, 2017).
4.3Instruments relating to CenturyLink, Inc.'s Revolving Credit Facility.
a.
Amended and Restated Credit Agreement, dated as of April 6, 2012, by and among CenturyLink, Inc. and the lenders and agents named therein (incorporated by reference to Exhibit 4.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on April 11, 2012, as amended by the First Amendment to Amended and Restated Credit Agreement, dated as of December 3, 2014, among CenturyLink, Inc. and the lenders and agents named therein (incorporated by reference to Exhibit 4.3 of CenturyLink's Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on December 5, 2014).
b.
Guarantee Agreement, dated as of April 6, 2012, by and among the original guarantors named therein (incorporated by reference to Exhibit 4.2 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on April 11, 2012), as assumed by two additional guarantors under an assumption agreement, dated as of May 23, 2013 (incorporated by reference to Exhibit 4.2(b) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2013 (File No. 001-07784) filed with the Securities and Exchange Commission on August 8, 2013), as amended by the Amendment to Guarantee Agreement and Reaffirmation Agreement, dated as of December 3, 2014, among CenturyLink, Inc. and the affiliated guarantors named therein (incorporated by reference to Exhibit 4.4 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on December 5, 2014).
4.4Instruments relating to CenturyLink, Inc.'s Term Loan.
a.
Credit Agreement, dated as of April 18, 2012, by and among CenturyLink, Inc., the several banks and other financial institutions or entities from time to time parties thereto, and CoBank, ACB, as administrative agent (incorporated by reference to Exhibit 4.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on April 20, 2012), as amended by the amendment dated as of March 13, 2015, (incorporated by reference to Exhibit 4.3(a) of CenturyLink's Quarterly Report on Form 10-Q for the period ended March 31, 2015 (File No. 001-07784) filed with the Securities and Exchange Commission on May 6, 2015).

Exhibit
Number
Description
b.
Guarantee Agreement, dated as of April 18, 2012, by and among the original guarantors named therein (incorporated by reference to Exhibit 4.2 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on April 20, 2012), as assumed by two additional guarantors under an assumption agreement, dated as of May 23, 2013 (incorporated by reference to Exhibit 4.3(b) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2013 (File No. 001-07784) filed with the Securities and Exchange Commission on August 8, 2013), as amended by the amendment dated as of March 13, 2015, (incorporated by reference to Exhibit 4.3(b) of CenturyLink's Quarterly Report on Form 10-Q for the period ended March 31, 2015 (File No. 001-07784) filed with the Securities and Exchange Commission on May 6, 2015).
4.5
Instruments relating to CenturyLink, Inc.'s public senior debt.(1)
a.Indenture, dated as of March 31, 1994, by and between Century Telephone Enterprises, Inc. (currently named CenturyLink, Inc.) and Regions Bank (successor-in-interest to First American Bank & Trust of Louisiana), as Trustee.
(i).Form of 7.2% Senior Notes, Series D, due 2025 (incorporated by reference to Exhibit 4.27 of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 1995 (File No. 001-07784) filed with the Securities and Exchange Commission on March 18, 1996).
(ii).Form of 6.875% Debentures, Series G, due 2028, (incorporated by reference to Exhibit 4.9 of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 1997 (File No. 001-07784) filed with the Securities and Exchange Commission on March 16, 1998).
b.
Fifth Supplemental Indenture, dated as of September 21, 2009, by and between CenturyTel, Inc. (currently named CenturyLink, Inc.) and Regions Bank, as Trustee, designating and outlining the terms and conditions of CenturyLink's 7.60% Senior Notes, Series P, due 2039 and 6.15% Senior Notes, Series Q, due 2019 (incorporated by reference to Exhibit 4.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on September 22, 2009).
(i).
Form of 7.60% Senior Notes, Series P, due 2039 and 6.15% Senior Notes, Series Q, due 2019 (incorporated by reference to Exhibit A to Exhibit 4.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on September 22, 2009).
c.
Sixth Supplemental Indenture, dated as of June 16, 2011, by and between CenturyLink, Inc. and Regions Bank, as Trustee, designating and outlining the terms and conditions of CenturyLink's 5.15% Senior Notes, Series R, due 2017 and 6.45% Senior Notes, Series S, due 2021 (incorporated by reference to Exhibit 4.2 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on June 16, 2011).
(i).
Form of 5.15% Senior Notes, Series R, due 2017 and 6.45% Senior Notes, Series S, due 2021 (incorporated by reference to Exhibit A to Exhibit 4.2 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on June 16, 2011).
d.
Seventh Supplemental Indenture, dated as of March 12, 2012, by and between CenturyLink, Inc. and Regions Bank, as Trustee, designating and outlining the terms and conditions of CenturyLink's 5.80% Senior Notes, Series T, due 2022 and 7.65% Senior Notes, Series U, due 2042 (incorporated by reference to Exhibit 4.1 of CenturyLink's Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on March 12, 2012).
(i).
Form of 5.80% Senior Notes, Series T, due 2022 and 7.65% Senior Notes, Series U, due 2042 (incorporated by reference to Exhibit A to Exhibit 4.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on March 12, 2012).
e.
Eighth Supplemental Indenture, dated as of March 21, 2013, by and between CenturyLink, Inc. and Regions Bank, as Trustee, designating and outlining the terms and conditions of CenturyLink's 5.625% Senior Notes, Series V, due 2020 (incorporated by reference to Exhibit 4.1 of CenturyLink's Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on March 21, 2013).
(i).
Form of 5.625% Senior Notes, Series V, due 2020 (incorporated by reference to Exhibit A to Exhibit 4.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on March 21, 2013).
f.
Ninth Supplemental Indenture, dated as of November 27, 2013, by and between CenturyLink, Inc. and Regions Bank, as Trustee, designating and outlining the terms and conditions of CenturyLink's 6.75% Senior Notes, Series W, due 2023 (incorporated by reference to Exhibit 4.1 of CenturyLink's Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on November 27, 2013).

Exhibit
Number
Description
(i).
Form of 6.75% Senior Notes, Series W, due 2023 (incorporated by reference to Exhibit A to Exhibit 4.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on November 27, 2013).
g.
Tenth Supplemental Indenture, dated as of March 19, 2015, by and between CenturyLink, Inc. and Regions Bank, as Trustee, designating and outlining the terms and conditions of CenturyLink's 5.625% Senior Notes, Series X, due 2025 (incorporated by reference to Exhibit 4.2 of CenturyLink's Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on March 19, 2015).
(i).
Form of 5.625% Senior Notes, Series X, due 2025 (incorporated by reference to Exhibit A to Exhibit 4.2 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on March 19, 2015).
h.
Eleventh Supplemental Indenture, dated as of April 6, 2016, by and between CenturyLink, Inc. and Regions Bank, as Trustee, designating and outlining the terms and conditions of CenturyLink's 7.5% Senior Notes, Series Y, due 2024 (incorporated by reference to Exhibit 4.2 of CenturyLink's Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on April 6, 2016).
(i).
Form of 7.5% Senior Notes, Series Y, due 2024 (incorporated by reference to Exhibit A to Exhibit 4.2 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on April 6, 2016).
4.6
Instruments relating to indebtedness of Qwest Communications International, Inc. and its subsidiaries.(1)
a.
Indenture, dated as of April 15, 1990, by and between The Mountain States Telephone and Telegraph Company (currently named Qwest Corporation) and The First National Bank of Chicago (incorporated by reference to Exhibit 4.2 of Qwest Corporation's annual report on Form 10-K for the year ended December 31, 2002 (File No. 001-03040) filed with the Securities and Exchange Commission on January 13, 2004).
(i).
First Supplemental Indenture, dated as of April 16, 1991, by and between U S WEST Communications, Inc. (currently named Qwest Corporation) and The First National Bank of Chicago (incorporated by reference to Exhibit 4.3 of Qwest Corporation's annual report on Form 10-K for the year ended December 31, 2002 (File No. 001-03040) filed with the Securities and Exchange Commission on January 13, 2004).
b.
Indenture, dated as of April 15, 1990, by and between Northwestern Bell Telephone Company (predecessor to Qwest Corporation) and The First National Bank of Chicago (incorporated by reference to Exhibit 4.5(b) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2012 (File No. 001-07784) filed with the Securities and Exchange Commission on May 10, 2012).
(i).
First Supplemental Indenture, dated as of April 16, 1991, by and between U S WEST Communications, Inc. (currently named Qwest Corporation) and The First National Bank of Chicago (incorporated by reference to Exhibit 4.3 of Qwest Corporation's annual report on Form 10-K for the year ended December 31, 2002 (File No. 001-03040) filed with the Securities and Exchange Commission on January 13, 2004).
c.Indenture, dated as of June 29, 1998, by and among U S WEST Capital Funding, Inc. (currently named Qwest Capital Funding, Inc.), U S WEST, Inc. (predecessor to Qwest Communications International Inc.) and The First National Bank of Chicago, as trustee (incorporated by reference to Exhibit 4(a) of U S WEST, Inc.'s Current Report on Form 8-K (File No. 001-14087) filed with the Securities and Exchange Commission on November 18, 1998).
(i).
First Supplemental Indenture, dated as of June 30, 2000, by and among U S WEST Capital Funding, Inc. (currently named Qwest Capital Funding, Inc.), U S WEST, Inc. (predecessor to Qwest Communications International Inc.) and Bank One Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.10 of Qwest Communications International Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2000 (File No. 001-15577) filed with the Securities and Exchange Commission on August 11, 2000).
d.Indenture, dated as of October 15, 1999, by and between US West Communications, Inc. (currently named Qwest Corporation) and Bank One Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4(b) of Qwest Corporation's annual report on Form 10-K for the year ended December 31, 1999 (File No. 001-03040) filed with the Securities and Exchange Commission on March 3, 2000).
(i).
Eighth Supplemental Indenture, dated as of September 21, 2011, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.9 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on September 20, 2011).

Exhibit
Number
Description
(ii).
Ninth Supplemental Indenture, dated as of October 4, 2011, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Qwest Corporation's Current Report on Form 8-K (File No. 001-03040) filed with the Securities and Exchange Commission on October 4, 2011).
(iii).
Tenth Supplemental Indenture, dated as of April 2, 2012, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.11 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on March 30, 2012).
(iv).
Eleventh Supplemental Indenture, dated as of June 25, 2012, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.12 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on June 22, 2012).
(v).
Twelfth Supplemental Indenture, dated as of May 23, 2013, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.13 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on May 22, 2013).
(vi).
Thirteenth Supplemental Indenture, dated as of September 29, 2014, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.14 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on September 26, 2014).
(vii).
Fourteenth Supplemental Indenture, dated as of September 21, 2015, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.15 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on September 21, 2015).
(viii).
Fifteenth Supplemental Indenture, dated as of January 29, 2016, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.16 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on January 29, 2016).
(ix).
Sixteenth Supplemental Indenture, dated as of August 22, 2016, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.17 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with Securities and Exchange Commission on August 22, 2016).
(x).
Seventeenth Supplemental Indenture dated as of April 27, 2017, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.18 of Qwest Corporation’s Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on April 27, 2017.
e.
Credit Agreement, dated as of February 20, 2015, by and among Qwest Corporation, the several lenders from time to time parties thereto, and CoBank, ACB, as administrative agent (incorporated by reference to Exhibit 4.5 of Qwest Corporation's Annual Report on Form 10-K for the year ended December 31, 2014 (File No. 001-03040) filed with the Securities and Exchange Commission on February 27, 2015).
4.7
Instruments relating to indebtedness of Embarq Corporation.(1)
a.
Indenture, dated as of May 17, 2006, by and between Embarq Corporation and J.P. Morgan Trust Company, National Association, a national banking association, as trustee (incorporated by reference to Exhibit 4.1 of Embarq Corporation's Current Report on Form 8-K (File No. 001-32732) filed with the Securities and Exchange Commission on May 18, 2006).
b.
7.995% Global Note due 2036 of Embarq Corporation (incorporated by reference to Exhibit 4.4 to Embarq Corporation's annual report on Form 10-K for the year ended December 31, 2006 (File No. 001-32372) filed with the Securities and Exchange Commission on March 9, 2007).
4.8
Instruments relating to indebtedness of Level 3 Communications, Inc. and its subsidiaries.(1)
a.
Indenture, dated as of November 14, 2013, by and between Level 3 Communications, Inc., as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 6.125% Senior Notes due 2021 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 18, 2013).

Exhibit
Number
Description
(i).
Supplemental Indenture, dated as of March 14, 2014, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Level 3 Communications, LLC’s unconditioned, unsecured guarantee of the 6.125% Senior Notes due 2021 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on March 17, 2014).
(ii).
Supplemental Indenture, dated as of March 14, 2014, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the subordination in any bankruptcy, liquidation or winding up proceeding of the guarantee by Level 3 Communications, LLC of the 6.125% Senior Notes due 2021 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.2 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on March 17, 2014).
(iii).
Supplemental Indenture, dated as of November 22, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, amending the Indenture dated as of November 14, 2013, governing the 6.125% Senior notes due 2021 (incorporated by reference to Exhibit 4.7 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 28, 2016).
b.
Indenture, dated as of November 26, 2013, by and between Level 3 Communications, Inc., as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the Floating Rate Senior Notes due 2018 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 27, 2013).
(i).
Supplemental Indenture, dated as of March 14, 2014, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Level 3 Communications, LLC’s unconditioned, unsecured guarantee of the Floating Rate Senior Notes due 2018 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.3 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on March 17, 2014).
(ii).
Supplemental Indenture, dated as of March 14, 2014, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the subordination in any bankruptcy, liquidation or winding up proceeding of the guarantee by Level 3 Communications, LLC of the Floating Rate Senior Notes due 2018 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.4 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on March 17, 2014).
c.
Indenture, dated as of August 12, 2014, by and between Level 3 Escrow II, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 5.375% Senior Notes due 2022 of Level 3 Escrow II, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on August 14, 2014).
(i).
Securities Assumption Supplemental Indenture, dated as of October 31, 2014, by and between Level 3 Escrow II, Inc., Level 3 Financing, Inc., Level 3 Communications, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Level 3 Financing, Inc.’s unconditional assumption of all of Level 3 Escrow II, Inc.’s obligations under the 5.375% Senior Notes due 2022 (incorporated by reference to Exhibit 4.2 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 5, 2014).
(ii).
Supplemental Indenture, dated as of October 31, 2013, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the subordination in any bankruptcy, liquidation or winding up proceeding of the guarantee by Level 3 Communications, LLC of the 5.375% Senior Notes due 2022 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.3 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 5, 2014).

Exhibit
Number
Description
(iii).
Supplemental Indenture, dated as of November 22, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, amending the Indenture dated as of August 12, 2014, governing the 5.375% Senior Notes due 2022 (incorporated by reference to Exhibit 4.6 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 28, 2016).
d.
Indenture, dated as of December 1, 2014, by and between Level 3 Communications, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 5.75% Senior Notes due 2022 of Level 3 Communications, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on December 2, 2014).
(i).
Supplemental Indenture, dated as of November 22, 2016, by and between Level 3 Communications, Inc., and The Bank of New York Mellon Trust Company, N.A., amending the Indenture dated as of December 1, 2014, governing the 5.75% Senior Notes due 2022 (incorporated by reference to Exhibit 4.8 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 28, 2016).
e.
Indenture, dated as of January 29, 2015, by and between Level 3 Communications, Inc., as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 5.625% Senior Notes due 2023 of Level Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on January 30, 2015).
(i).
Supplemental Indenture, dated as of June 3, 2015, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Level 3 Communications, LLC’s unconditioned, unsecured guarantee of the 5.625% Senior Notes due 2023 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on June 4, 2015).
(ii).
Supplemental Indenture, dated as of June 3, 2015, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the subordination in any bankruptcy, liquidation or winding up proceeding of the guarantee by Level 3 Communications, LLC of the 5.625% Senior Notes due 2023 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.2 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on June 4, 2015).
(iii).
Supplemental Indenture, dated as of November 22, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, amending the Indenture dated as of January 29, 2015 governing the 5.625% Senior Notes due 2023 (incorporated by reference to Exhibit 4.5 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 28, 2016).
f.
Indenture, dated as of April 28, 2015, by and between Level 3 Communications, Inc., as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 5.125% Senior Notes due 2023 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on April 30, 2015).
(i).
Supplemental Indenture, dated as of September 1, 2015, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Level 3 Communications, LLC’s unconditioned, unsecured guarantee of the 5.125% Senior Notes due 2023 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on September 2, 2015).

Exhibit
Number
Description
(ii).
Supplemental Indenture, dated as of September 1, 2015, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the subordination in any bankruptcy, liquidation or winding up proceeding of the guarantee by Level 3 Communications, LLC of the 5.125% Senior Notes due 2023 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.3 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on September 2, 2015).
(iii).
Supplemental Indenture, dated as of November 22, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, amending the Indenture dated as of April 28, 2015 governing the 5.125% Senior Notes due 2023 (incorporated by reference to Exhibit 4.3 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 28, 2016).
g.
Indenture, dated as of April 28, 2015, by and between Level 3 Communications, Inc., as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 5.375% Senior Notes due 2025 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.2 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on April 30, 2015).
(i).
Supplemental Indenture, dated as of September 1, 2015, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Level 3 Communications, LLC’s unconditioned, unsecured guarantee of the 5.375% Senior Notes due 2025 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.2 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on September 2, 2015).
(ii).
Supplemental Indenture, dated as of September 1, 2015, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the subordination in any bankruptcy, liquidation or winding up proceeding of the guarantee by Level 3 Communications, LLC of the 5.375% Senior Notes due 2025 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.4 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on September 2, 2015).
(iii).
Supplemental Indenture, dated as of November 22, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, amending the Indenture dated as of April 28, 2015 governing the 5.375% Senior Notes due 2025 (incorporated by reference to Exhibit 4.4 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 28, 2016).
h.
Indenture, dated as of November 13, 2015, by and between Level 3 Communications, Inc., as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 5.375% Senior Notes due 2024 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 13, 2015).
(i).
Supplemental Indenture, dated as of February 8, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Level 3 Communications, LLC’s unconditioned, unsecured guarantee of the 5.375% Senior Notes due 2024 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on February 8, 2016).
(ii).
Supplemental Indenture, dated as of February 8, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the subordination in any bankruptcy, liquidation or winding up proceeding of the guarantee by Level 3 Communications, LLC of the 5.375% Senior Notes due 2024 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.2 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on February 8, 2016).

Exhibit
Number
Description
(iii).
Supplemental Indenture, dated as of November 22, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, amending the Indenture dated as of November 13, 2015 governing the 5.375% Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 28, 2016).
i.
Indenture, dated as of March 22, 2016, by and between Level 3 Communications, Inc., as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 5.25% Senior Notes due 2026 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on March 22, 2016).
(i).
Supplemental Indenture, dated as of September 16, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to Level 3 Communications, LLC’s unconditioned, unsecured guarantee of the 5.25% Senior Notes due 2026 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 to Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on September 16, 2016).
(ii).
Supplemental Indenture, dated as of September 16, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the subordination in any bankruptcy, liquidation or winding up proceeding of the guarantee by Level 3 Communications, LLC of the 5.25% Senior Notes due 2026 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.2 to Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on September 16, 2016).
(iii).
Supplemental Indenture, dated as of November 22, 2016, by and between Level 3 Communications, Inc., as guarantor, Level 3 Communications, LLC, as guarantor, Level 3 Financing, Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee, amending the Indenture dated as of March 22, 2016 governing the 5.25% Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on November 28, 2016).
j.
Twelfth Amendment Agreement to the Amended and Restated Credit Agreement, dated as of February 22, 2017, by and between Level 3 Communications, Inc., Level 3 Financing, Inc., the Lenders party thereto and Merrill Lynch Capital Corporation (incorporated by reference to Exhibit 10.1 of Level 3 Communications, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on February 27, 2017).
4.9Certain intercompany debt instruments.
a.
Revolving Promissory Note, dated as of April 2, 2012 pursuant to which Embarq Corporation may borrow from an affiliate of CenturyLink, Inc. up to $2.5 billion on a revolving basis (incorporated by reference to Exhibit 4.7(a) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2012 (File No. 001-07784) filed with the Securities and Exchange Commission on August 9, 2012), as amended and restated by the Amended and Restated Revolving Promissory Note, dated as of September 30, 2017, by and between Embarq Corporation and an affiliate of CenturyLink, Inc.*
b.
Revolving Promissory Note, dated as of April 18, 2012, pursuant to which Qwest Corporation may borrow from an affiliate of CenturyLink, Inc. up to $1.0 billion on a revolving basis (incorporated by reference to Exhibit 4.7(b) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2012 (File No. 001-07784) filed with the Securities and Exchange Commission on August 9, 2012), as amended and restated by the Amended and Restated Revolving Promissory Note, dated as of September 30, 2017, by and between Qwest Corporation and an affiliate of CenturyLink, Inc.*
c.
Revolving Promissory Note, dated as of September 27, 2012, pursuant to which Qwest Communications International, Inc. may borrow from an affiliate of CenturyLink, Inc. up to $3.0 billion on a revolving basis (incorporated by reference to Exhibit 4.8 of Qwest Communications International Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2012 (File No. 001-15577) filed with the Securities and Exchange Commission on November 13, 2012), as amended and restated by the Amended and Restated Revolving Promissory Note, dated as of September 30, 2017, by and between Qwest Communications International Inc. and an affiliate of CenturyLink, Inc.*

Exhibit
Number
Description
10.1
CenturyLink, 2011Inc. 2018 Equity Incentive Plan as amended through May 18, 2016, (incorporated by reference to Appendix A ofExhibit 99.1 to CenturyLink, Inc.'s ProxyRegistration Statement for its 2016 Annual Meeting of Shareholders (Fileon Form S-8 (Registration No. 001-07784)333-225154) filed with the Securities and Exchange CommissionSEC on April 5, 2016)May 23, 2018).
 (i).a.*
Form of Restricted Stock Agreement for non-managementoutside directors used since 2011 (incorporated by reference to Exhibit 10.1(a) (ii) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2011 (File No. 001-07784) filed with the Securities(for use in 2018 and Exchange Commission on August 9, 2011)later years).
 (ii).b.*
Form of Restricted Stock Unit Agreement for executive officers used for annual recurring grants since May 2013 (incorporated by referenceAnnual Grants of Time-Based Awards to Exhibit 10.2(i) (iii) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2013 (File No. 001-07784) filed with the SecuritiesCEO Jeff K. Storey (for use in 2018 and Exchange Commission on August 8, 2013)later years).
 (iii).c.*
Form of Restricted Stock Unit Agreement for special retention award grants madeAnnual Grants of Performance-Based Awards to certain executive officers on June 1, 2017 (incorporated by reference to Exhibit 10.1(iii) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2017 (File No. 001-07784) filed with the SecuritiesCEO Jeff K. Storey (for use in 2018 and Exchange Commission on August 8, 2017)later years)..
 (iv).d.*
Form of Restricted Stock Agreement for special integration award grants madeTime-Based Portion of 2018 Promotion Grant to certain executive officersJeff K. Storey, entered into on May 24, 2018.
e.*
Restricted Stock Agreement for Performance-Based Portion of 2018 Promotion Grant to Jeff K. Storey, entered into on May 24, 2018.
f.*
Restricted Stock Agreement for 2018 Performance-Based Retention Grant to Sunit S. Patel, entered into on June 1, 2017 (incorporated by reference to Exhibit 10.1(iv) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2017 (File No. 001-07784) filed with the Securities and Exchange Commission on August 8, 2017)2018..
10.2
Key Employee Incentive Compensation Plan, dated as of January 1, 1984, as amendedAmended and restated as of November 16, 1995 (incorporated by reference to Exhibit 10.1(f) ofRestated Offer Letter between CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 1995 (File No. 001-07784) filed with the Securities and Exchange Commission on March 18, 1996) and amendment thereto dated as of November 21, 1996 (incorporated by reference to Exhibit 10.1(f) of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 1996 (File No. 001-07784) filed with the Securities and Exchange Commission on March 17, 1997), amendment thereto dated as of February 25, 1997 (incorporated by reference to Exhibit 10.2 of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 1997 (File No. 001-07784) filed with the Securities and Exchange Commission onCEO Jeff K. Storey, effective May 8, 1997), amendment thereto dated as of April 25, 2001 (incorporated by reference to Exhibit 10.2 of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2001 (File No. 001-07784) filed with the Securities and Exchange Commission on May 15, 2001),amendment thereto dated as of April 17, 2000 (incorporated by reference to Exhibit 10.3(a) of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2001 (File No. 001-07784) filed with the Securities and Exchange Commission on March 15, 2002)and amendment thereto dated as of February 27, 200723, 2018 (incorporated by reference to Exhibit 10.1 of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2007 (File No. 001-07784) filed with the Securities and Exchange Commission on August 8, 2007).
10.3
Supplemental Dollars & Sense Plan, 2008 Restatement, effective January 1, 2008, (incorporated by reference to Exhibit 10.3(c) of CenturyLink, Inc.'s annualcurrent report on Form 10-K for the year ended December 31, 2007 (File No. 001-07784) filed with the Securities and Exchange Commission on February 29, 2008)and amendment thereto dated as of November 20, 2008 (incorporated by reference to Exhibit 10.3(c) of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2008 (File No. 001-07784) filed with the Securities and Exchange Commission on February 27, 2009)and amendment thereto dated as of December 27, 2010 (incorporated by reference to Exhibit 10.4 of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2010 (File No. 001-07784) filed with the Securities and Exchange Commission on March 1, 2011).
10.4
Supplemental Defined Benefit Pension Plan, effective as of January 1, 2012 (incorporated by reference to Exhibit 10.5 of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2011 (File No. 001-07784) filed with the Securities and Exchange Commission on February 28, 2012).
10.5Amended and Restated Salary Continuation (Disability) Plan for Officers, dated as of November 26, 1991 (incorporated by reference to Exhibit 10.16 of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 1991).
10.6
2015 Executive Officer Short-Term Incentive Program (incorporated by reference to Appendix A of CenturyLink's 2015 Proxy Statement on Form 14A (File No. 001-07784) filed with the Securities and Exchange Commission on April 8, 2015).
10.7
Form of Indemnification Agreement entered into between CenturyLink, Inc. and each of its directors as of February 24, 2016 (incorporated by reference to Exhibit 10.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on February 29, 2016).
10.8
Form of Indemnification Agreement entered into between CenturyLink, Inc. and each of its officers as of February 24, 2016 (incorporated by reference to Exhibit 10.2 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on February 29, 2016).

Exhibit
Number
Description
10.9
Change of Control Agreement, effective January 1, 2011, by and between Glen F. Post, III and CenturyLink, Inc. (incorporated by reference to Exhibit 10.11 of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2010 (File No. 001-07784) filed with the Securities and Exchange Commission on March 1, 2011).
10.10
Form of Change of Control Agreement, effective January 1, 2011 between CenturyLink, Inc. and each of its other executive officers (incorporated by reference to Exhibit 10.12 of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2010 (File No. 001-07784) filed with the Securities and Exchange Commission on March 1, 2011).
10.11
CenturyLink Executive Severance Plan (incorporated by reference to Exhibit 10.13 of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2014 (File No. 001-07784) filed with the Securities and Exchange Commission on February 24, 2015.)
10.12
Amended and Restated CenturyLink, Inc. Bonus Life Insurance Plan for Executive Officers, dated as of April 3, 2008 (incorporated by reference to Exhibit 10.4 of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2008 (File No. 001-07784) filed with the Securities and Exchange Commission on May 7, 2008)and First Amendment thereto (incorporated by reference to Exhibit 10.13 of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2010 (File No. 001-07784) filed with the Securities and Exchange Commission on November 5, 2010)25, 2018).
10.13
Form of integration award grant letter, dated June 1, 2017, entered into between CenturyLink, Inc. and certain officers (incorporated by reference to Exhibit 10.1 of CenturyLink, Inc.’s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on June 1, 2017).
10.14
Offer letter between CenturyLink, Inc. and Jeffrey K. Storey, effective April 27, 2017 (incorporated by reference to Exhibit 10.1 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on November 1, 2017).
10.15
Offer letter between CenturyLink, Inc. and Sunit S. Patel, effective June 1, 2017 (incorporated by reference to Exhibit 10.2 of CenturyLink, Inc.'s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on November 1, 2017).
10.16Certain Material Agreements and Plans of Key Subsidiaries
a.
Embarq Corporation 2006 Equity Incentive Plan, as amended and restated (incorporated by reference to Exhibit 99.1 of the Registration Statement on Form S-8 filed by CenturyLink, Inc. (File No. 001-07784) filed with the Securities and Exchange Commission on July 1, 2009).
b.
Form of 2007 Award Agreement for executive officers of Embarq Corporation (incorporated by reference to Exhibit 10.1 of Embarq Corporation's Current Report on Form 8-K (File No. 001-32372) filed with the Securities and Exchange Commission on February 27, 2007).
c.
Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.3 of Embarq Corporation's Current Report on Form 8-K (File No. 001-32372) filed with the Securities and Exchange Commission on March 4, 2008).
d.
Embarq Supplemental Executive Retirement Plan, as amended and restated as of January 1, 2009 (incorporated by reference to Exhibit 10.27 of Embarq Corporation's annual report on Form 10-K for the year ended December 31, 2008 (File No. 001-32372) filed with the Securities and Exchange Commission on February 13, 2009), amendment thereto dated as of December 27, 2010 (incorporated by reference to Exhibit 10.14(o) of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2010 (File No. 001-07784) filed with the Securities and Exchange Commission on March 1, 2011)and second amendment thereto as of dated as of November 15, 2011 (incorporated by reference to Exhibit 10.14(k) of CenturyLink, Inc.'s annual report on Form 10-K for the year ended December 31, 2011 (File No. 001-07784) filed with the Securities and Exchange Commission on February 28, 2012).
e.
Equity Incentive Plan, as amended and restated (incorporated by reference to Annex A of Qwest Communications International Inc.'s Proxy Statement for the 2007 Annual Meeting of Stockholders (File No. 001-15577) filed with the Securities and Exchange Commission on March 29, 2007).

Exhibit
Number
Description
f.
Forms of restricted stock, performance share and option agreements used under Equity Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.2 of Qwest Communications International Inc.'s Current Report on Form 8-K (File No. 001-15577) filed with the Securities and Exchange Commission on October 24, 2005; Exhibit 10.2 of Qwest Communication International Inc.'s annual report on Form 10-K for the year ended December 31, 2005 (File No. 001-15577) filed with the Securities and Exchange Commission on February 16, 2006; Exhibit 10.2 of Qwest Communication International Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2006 (File No. 001-15577) filed with the Securities and Exchange Commission on May 3, 2006; Exhibit 10.2 of Qwest Communication International Inc.'s annual report on Form 10-K for the year ended December 31, 2006 (File No. 001-15577) filed with the Securities and Exchange Commission on February 8, 2007; Exhibit 10.3 of Qwest Communication International Inc.'s Current Report on Form 8-K (File No. 001-15577) filed with the Securities and Exchange Commission on September 15, 2008; Exhibit 10.2 of Qwest Communication International Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2009 (File No. 001-15577) filed with the Securities and Exchange Commission on April 30, 2009; and Exhibit 10.2 of Qwest Communication International Inc.'s annual report on Form 10-K for the year ended December 31, 2010 (File No. 001-15577) filed with the Securities and Exchange Commission on February 15, 2011).
g.
Deferred Compensation Plan for Nonemployee Directors, as amended and restated, Amendment to Deferred Compensation Plan for Nonemployee Directors (incorporated by reference to Exhibit 10.2 of Qwest Communications International Inc.'s Current Report on Form 8-K (File No. 001-15577) filed with the Securities and Exchange Commission on December 16, 2005and Exhibit 10.8 to Qwest Communication International Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2008 (File No. 001-15577) filed with the Securities and Exchange Commission on October 29, 2008)and Amendment No. 2011-1 to Deferred Compensation Plan for Nonemployee Directors (incorporated by reference to Exhibit 10.15(c) of CenturyLink, Inc.'s annual report for the year ended December 31, 2011 (File No. 001-07784) filed with the Securities and Exchange Commission on February 28, 2012).
h.
Qwest Nonqualified Pension Plan (incorporated by reference to Exhibit 10.9 of Qwest Communications International Inc.'s annual report on Form 10-K for the year ended December 31, 2009 (File No. 001-15577) filed with the Securities and Exchange Commission on February 16, 2010).
i.
SAVVIS, Inc. Amended and Restated 2003 Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 of SAVVIS, Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2006 (File No. 000-29375) filed with the Securities and Exchange Commission on May 5, 2006), as amended by Amendment No. 1 (incorporated by reference to Exhibit 10.6 of SAVVIS, Inc.'s annual report on Form 10-K for the year ended December 31, 2006 (File No. 000-29375) filed with the Securities and Exchange Commission on February 26, 2007); Amendment No. 2 (incorporated by reference to Exhibit 10.1 of SAVVIS, Inc.'s Current Report on Form 8-K (File No. 000-29375) filed with the Securities and Exchange Commission on May 15, 2007); Amendment No. 3 (incorporated by reference to Exhibit 10.3 of SAVVIS, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2007 (File No. 000-29375) filed with the Securities and Exchange Commission on July 31, 2007; Amendment No. 4 (incorporated by reference to Exhibit 10.1 of SAVVIS, Inc.'s Current Report on Form 8-K (file No. 000-29375) filed with the Securities and Exchange Commission on May 22, 2009); and Amendment No. 5 (incorporated by reference to Exhibit 10.2 of SAVVIS, Inc.'s Current Report on Form 8-K (File No. 000-29375) filed with the Securities and Exchange Commission on May 22, 2009).
j.
Level 3 Communications, Inc. Stock Incentive Plan, as amended and restated through October 31, 2017 (incorporated by reference to Exhibit 10.3 of CenturyLink, Inc.’s Current Report on Form 8-K (File No. 001-07784) filed with the Securities and Exchange Commission on November 1, 2017)
12*
Ratio of Earnings to Fixed Charges
31.1*
Certification of the Chief Executive Officer of CenturyLink, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002..
31.2*
Certification of the Chief Financial Officer of CenturyLink, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002..
32*
Certification of the Chief Executive Officer and Chief Financial Officer of CenturyLink, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002..
101*
Financial statements from the Quarterly Report on Form 10-Q of CenturyLink, Inc. for the period ended SeptemberJune 30, 2017,2018, formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders' Equity and (vi) the Notes to Consolidated Financial Statements.

*Exhibit filed herewith.

(1)
Certain of the items in Sections 4.5, 4.6, 4.7 and 4.8 (i) omit supplemental indentures or other instruments governing debt that has been retired, or (ii) refer to trustees who may have been replaced, acquired or affected by similar changes. In accordance with Item 601(b) (4) (iii) (A) of Regulation S-K, copies of certain instruments defining the rights of holders of certain of our long-term debt are not filed herewith. Pursuant to this regulation, we hereby agree to furnish a copy of any such instrument to the SEC upon request.



Table of Contents

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 NovemberAugust 9, 2017.2018.

 CENTURYLINK, INC.
 By:/s/ DAVID D. COLEEric J. Mortensen
 
David D. ColeEric J. Mortensen
ExecutiveSenior Vice President - Controller and Assistant Secretary
 (ChiefPrincipal Accounting Officer)

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