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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 June 30, 2018March 31, 2019
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $1.00 per shareCTLNew York Stock Exchange
On AugustMay 3, 2018,2019, there were 1,080,123,2791,090,313,414 shares of common stock outstanding.
 

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Part I.
Financial Information
 
 
Special Note Regarding Forward-Looking Statements
3
Item 1.
Financial Statements
 
 
Consolidated Statements of Operations (Unaudited)
56
 
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
67
 
Consolidated Balance Sheets (Unaudited)
78
 
Consolidated Statements of Cash Flows (Unaudited)
89
 
Consolidated Statements of Stockholders' Equity (Unaudited)
910
 
Notes to Consolidated Financial Statements (Unaudited)*
1011
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
3836
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
5855
Item 4.
Controls and Procedures
5855
Part II.
Other Information
 
Item 1.
Legal Proceedings
5956
Item 1A.
Risk Factors
5956
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
6057
Item 6.
Exhibits
6158
Signature
6259
 
* 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
This report and other documents filed by us under the federal securities law include, and future oral or written statements other thanor press releases by us and our management may include, forward-looking statements of historical fact contained in this Quarterly Report on Form 10-Qabout our business, financial condition, operating results and prospects. These "forward-looking" statements are “forward-looking” statements, as defined by, (andand are subject to the “safe harbor”"safe harbor" protections under)under, the federal securities laws. When used herein,These statements include, among others:

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

statements concerning the anticipated impact of our transactions, investments, product development and other initiatives, including synergies or costs associated with our November 2017 combination with Level 3, the impact of our other acquisitions or dispositions, and the impact of our participation in government programs;

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

other similar statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts, many of which are highlighted by words “anticipates,such as “may,” “will,” “would,” “could,” “should,” “plan,” “believes,” “expects,” “believes,“anticipates,” “estimates,” “projects,” “intends,” “likely,” “seeks,” “hopes,” “intends,” “plans,” “projects,” “will” andor variations or similar words and expressions are intendedwith respect to identifythe future.

These forward-looking statements. Forward-looking statements are based on a number of judgmentsupon our judgment and assumptions as of the date such statements are made aboutconcerning future developments and events, many of which are beyond our control. These forward-looking statements, and the assumptions onupon which they are based, (i) are not guarantees of future events,results, (ii) are inherently speculative and (iii) are subject to significanta number of risks and uncertainties. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us in those statements if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. All of our forward-looking statements are qualified in their entirety by reference 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-lookingforward looking statements. Factors that could cause ouraffect actual results to differ materially from the expectations expressed in such forward-looking statements include but are not limited to the following:to:

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 ofattain our recently-completed combinationkey operating imperatives, including simplifying and consolidating our network, simplifying and automating our service support systems, strengthening our relationships with Level 3, including our ability to attain anticipatedcustomers and attaining projected 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;savings;

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;

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, special access, universal service, broadband deployment, data protection and net neutrality;

our ability to effectively adjust to changes in the communications industry, and changes in the composition of our markets and product mix;


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possible changes in the demand for our products and services, including our ability to effectively respond to increased demand for high-speed broadband service;data transmission services;

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;

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

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;

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

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, practices or practices,assumptions, including potentialchanges that could potentially require future impairment charges;

the effects of adverse weather, terrorism or other natural or man-made disasters;

adverse effects of material weaknesses or any other significant deficiencies identified in our internal controls over financial reporting;

the effects of more general factors such as changes in interest rates, in exchange rates, in operating costs, in public policy, in the views of financial analysts, or in general market, labor, economic or geo-political conditions, or in public policy;conditions; and

other risks identifiedreferenced in this report or other of our "Risk Factors" disclosures included in our annual report on Form 10-K forfilings with the year ended December 31, 2017.SEC.


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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 June 30, Six Months Ended June 30,Three Months Ended
March 31,
2018 2017 2018 20172019 2018
(Dollars in millions, except per share amounts
and shares in thousands)
(Dollars in millions, except per share amounts
and shares in thousands)
OPERATING REVENUES$5,902
 4,090
 11,847
 8,299
OPERATING REVENUE$5,647
 5,945
OPERATING EXPENSES          
Cost of services and products (exclusive of depreciation and amortization)2,730
 1,890
 5,533
 3,778
2,520
 2,803
Selling, general and administrative1,115
 884
 2,224
 1,694
932
 1,109
Depreciation and amortization1,290
 949
 2,573
 1,829
1,188
 1,283
Goodwill impairment6,506
 —
Total operating expenses5,135
 3,723
 10,330
 7,301
11,146
 5,195
OPERATING INCOME767
 367
 1,517
 998
OPERATING (LOSS) INCOME(5,499) 750
OTHER (EXPENSE) INCOME          
Interest expense(546) (320) (1,081) (638)(523) (535)
Other income (expense), net16
 (7) 37
 (13)
Other (expense) income, net(5) 21
Total other expense, net(530) (327) (1,044) (651)(528) (514)
INCOME BEFORE INCOME TAX EXPENSE237
 40
 473
 347
Income tax (benefit) expense(55) 23
 66

167
NET INCOME$292
 17
 407
 180
BASIC AND DILUTED EARNINGS PER COMMON SHARE       
INCOME (LOSS) BEFORE INCOME TAX EXPENSE(6,027) 236
Income tax expense138
 121
NET (LOSS) INCOME$(6,165) 115
BASIC AND DILUTED (LOSS) EARNINGS PER COMMON SHARE   
BASIC$0.27
 0.03
 0.38
 0.33
$(5.77) 0.11
DILUTED$0.27
 0.03
 0.38
 0.33
$(5.77) 0.11
DIVIDENDS DECLARED PER COMMON SHARE$0.54
 0.54
 1.08
 1.08
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING          
BASIC1,064,711
 541,361
 1,064,663
 540,909
1,068,878
 1,065,796
DILUTED1,068,819
 542,151
 1,068,414
 541,836
1,068,878
 1,069,183
See accompanying notes to consolidated financial statements.

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

 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$90
 53
 319
 247
 Three Months Ended March 31,
 2019 2018
 (Dollars in millions)
NET (LOSS) INCOME$(6,165) 115
OTHER COMPREHENSIVE (LOSS) INCOME:   
Items related to employee benefit plans:   
Change in net actuarial loss, net of ($14) and ($11) tax43
 33
Change in net prior service credit, net of ($1) and ($1) tax1
 2
Unrealized holding loss on interest rate swaps, net of $6 and $— tax(17) —
Foreign currency translation adjustment and other net of ($1) and ($14) tax5
 79
Other comprehensive income32
 114
COMPREHENSIVE (LOSS) INCOME$(6,133) 229
See accompanying notes to consolidated financial statements.

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CENTURYLINK, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2018 (Unaudited) December 31, 2017March 31, 2019 (Unaudited) December 31, 2018
(Dollars in millions
and shares in thousands)
(Dollars in millions
and shares in thousands)
ASSETS      
CURRENT ASSETS      
Cash and cash equivalents$700
 551
$441
 488
Restricted cash and securities5
 5
Accounts receivable, less allowance of $160 and $1642,471
 2,557
Restricted cash3
 4
Accounts receivable, less allowance of $156 and $1422,347
 2,398
Assets held for sale15
 140
3
 12
Other1,260
 941
1,026
 918
Total current assets4,451
 4,194
3,820
 3,820
Property, plant and equipment, net of accumulated depreciation of $25,872 and $24,35226,494
 26,852
Property, plant and equipment, net of accumulated depreciation of $27,385 and $26,85925,793
 26,408
GOODWILL AND OTHER ASSETS      
Goodwill30,715
 30,475
21,526
 28,031
Restricted cash and securities27
 31
Operating lease assets1,952
 —
Restricted cash30
 26
Customer relationships, net9,667
 10,876
8,580
 8,911
Other intangibles, net1,869
 1,897
1,929
 1,868
Other, net1,123
 1,286
1,158
 1,192
Total goodwill and other assets43,401
 44,565
35,175
 40,028
TOTAL ASSETS$74,346
 75,611
$64,788
 70,256
LIABILITIES AND STOCKHOLDERS' EQUITY      
CURRENT LIABILITIES      
Current maturities of long-term debt$437
 443
$632
 652
Accounts payable1,360
 1,555
1,481
 1,933
Accrued expenses and other liabilities      
Salaries and benefits929
 890
823
 1,104
Income and other taxes344
 370
386
 337
Current operating lease liabilities561
 —
Interest343
 363
352
 316
Other358
 344
297
 357
Current portion of deferred revenue750
 892
841
 832
Total current liabilities4,521
 4,857
5,373
 5,531
LONG-TERM DEBT36,878
 37,283
34,858
 35,409
DEFERRED CREDITS AND OTHER LIABILITIES      
Deferred income taxes, net2,407
 2,413
2,701
 2,527
Benefit plan obligations, net4,884
 5,178
4,265
 4,319
Noncurrent operating lease liabilities1,501
 —
Other2,667
 2,389
2,547
 2,642
Total deferred credits and other liabilities9,958
 9,980
11,014
 9,488
COMMITMENTS AND CONTINGENCIES (Note 12)
 

  
   
STOCKHOLDERS' EQUITY      
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
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 1,090,445 and 1,080,167 shares1,090
 1,080
Additional paid-in capital23,360
 23,314
22,575
 22,852
Accumulated other comprehensive loss(2,490) (1,995)(2,429) (2,461)
Retained earnings1,040
 1,103
Accumulated deficit(7,693) (1,643)
Total stockholders' equity22,989
 23,491
13,543
 19,828
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$74,346
 75,611
$64,788
 70,256
See accompanying notes to consolidated financial statements.

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CENTURYLINK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,Three Months Ended March 31,
2018 20172019 2018
(Dollars in millions)(Dollars in millions)
OPERATING ACTIVITIES      
Net income$407
 180
Adjustments to reconcile net income to net cash provided by operating activities:   
Net (loss) income$(6,165) 115
Adjustments to reconcile net (loss) income to net cash provided by operating activities:   
Depreciation and amortization2,573
 1,829
1,188
 1,283
Impairment of goodwill and other assets6,508
 27
Deferred income taxes400
 (126)126
 123
Loss on the sale of data centers and colocation business—
 119
Impairment of assets28
 11
Provision for uncollectible accounts83
 78
46
 47
Net (gain) loss on early retirement of debt(9) 1
Share-based compensation95
 43
33
 41
Changes in current assets and liabilities:      
Accounts receivable35
 71
5
 117
Accounts payable(173) (112)(239) (14)
Accrued income and other taxes(147) 29
45
 20
Other current assets and liabilities, net(276) (306)(336) (262)
Retirement benefits(195) (56)(14) (49)
Changes in other noncurrent assets and liabilities, net400
 (92)(4) 145
Other, net19
 74
(2) 73
Net cash provided by operating activities3,249
 1,742
1,182
 1,667
INVESTING ACTIVITIES      
Capital expenditures(1,576) (1,610)(931) (805)
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)
Proceeds from sale of property, plant and equipment25
 3
Other, net—
 34
Net cash used in investing activities(1,512) (94)(906) (768)
FINANCING ACTIVITIES      
Net proceeds from issuance of long-term debt130
 6,608
—
 130
Proceeds from financing obligation—
 378
Payments of long-term debt(123) (1,530)(153) (68)
Net payments on revolving line of credit(405) (370)
Net proceeds (payments) on revolving line of credit145
 (405)
Dividends paid(1,156) (590)(285) (580)
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
Other, net(27) (26)
Net cash used in financing activities(320) (949)
Net decrease in cash, cash equivalents and restricted cash(44) (50)
Cash, cash equivalents and restricted cash at beginning of period518
 587
Cash, cash equivalents and restricted cash at end of period$474
 537
Supplemental cash flow information:      
Income taxes refunded (paid), net$292
 (260)
Interest paid (net of capitalized interest of $28 and $41)$(1,061) (624)
Income taxes paid, net$(7) (2)
Interest paid (net of capitalized interest of $15 and $15)$(480) (491)

See accompanying notes to consolidated financial statements.

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

Six Months Ended June 30,Three Months Ended March 31,
2018 20172019 2018
(Dollars in millions)(Dollars in millions except per share amounts)
COMMON STOCK      
Balance at beginning of period$1,069
 547
$1,080
 1,069
Issuance of common stock through dividend reinvestment, incentive and benefit plans10
 3
10
 10
Balance at end of period1,079
 550
1,090
 1,079
ADDITIONAL PAID-IN CAPITAL      
Balance at beginning of period23,314
 14,970
22,852
 23,314
Change in common stock through dividend reinvestment, incentive and benefit plans(9) 3
(13) (6)
Shares withheld to satisfy tax withholdings(35) (15)(26) (25)
Share-based compensation and other, net94
 38
34
 33
Dividends declared—
 (359)(272) —
Acquisition of additional minority interest in a subsidiary(4) —
Balance at end of period23,360
 14,637
22,575
 23,316
ACCUMULATED OTHER COMPREHENSIVE LOSS      
Balance at beginning of period(1,995) (2,117)(2,461) (1,995)
Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(407) —
—
 (407)
Other comprehensive (loss) income(88) 67
Other comprehensive income32
 114
Balance at end of period(2,490) (2,050)(2,429) (2,288)
RETAINED EARNINGS   
RETAINED EARNINGS (ACCUMULATED DEFICIT)   
Balance at beginning of period1,103
 (1)(1,643) 1,103
Net income407
 180
Net (loss) income(6,165) 115
Cumulative effect of adoption of ASU 2016-02, Leases, net of $37 tax
115
 —
Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
407
 —
—
 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
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $101 tax
—
 297
Dividends declared(1,174) (233)—
 (586)
Balance at end of period1,040
 (51)(7,693) 1,336
TOTAL STOCKHOLDERS' EQUITY$22,989
 13,086
$13,543
 23,443
DIVIDENDS DECLARED PER COMMON SHARE$0.25
 0.54

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 context otherwise requires and except in Note 6 - 5—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 international 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, virtual private network ("VPN") data network, private line (including special access business data services), Ethernet, network access, 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 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, 2017,2018, 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 sixthree months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, 2017.2018.

The accompanying consolidated financial statements include our accounts and the accounts of our 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 reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenuesrevenue and expenses in our segment reporting. See Note 11—Segment Information for additional information. These changes had no impact on total operating revenues,revenue, total operating expenses or net (loss) income for any period.
Income Taxes
We have not completed our accounting for the tax effects of the Tax CutsIncluded in accounts payable at March 31, 2019 and Jobs Act (the "Act") which was signed into law in late December 2017. In order to complete our accounting for the impact of the Act, we continue to obtain, analyze31, 2018, were $2 million and interpret additional guidance as such guidance becomes available from the U.S. Treasury Department, the Internal Revenue Service (“IRS”), state taxing jurisdictions, the Financial Accounting Standards Board ("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 provision for income taxes in future periods.$86 million, respectively, representing book overdrafts.


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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 2018, weWe adopted Accounting Standards Update (“ASU”("ASU") 2014-09, “2016-02,Revenue from Contracts with Customers Leases (ASC 842)”, as of January 1, 2019, using the non-comparative transition option pursuant to ASU 2018-02, “Income Statement-Reporting Comprehensive Income: Reclassification2018-11.  Therefore, we have not restated comparative period financial information for the effects of Certain Tax Effects from Accumulated Other Comprehensive Income”ASC 842, and ASU 2016-16, “Intra-Entity Transferswe will not make the new required lease disclosures for comparative periods beginning before January 1, 2019. Instead, we will recognize ASC 842's cumulative effect transition adjustment (discussed below) as of Assets Other Than Inventory”.January 1, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things (i) allowed us to carry forward the historical lease classification; (ii) did not require us to reassess whether any expired or existing contracts are or contain leases under the new definition of a lease; and (iii) did not require us to reassess whether previously capitalized initial direct costs for any existing leases would qualify for capitalization under ASC 842. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. We did not elect the hindsight practical expedient regarding the likelihood of exercising a lessee purchase option or assessing any impairment of right-of-use assets for existing leases.
Each of these is described further below.
Revenue Recognition
On May 28, 2014,March 5, 2019, the FASB issued ASU 2014-092019-01 - Leases (ASC 842): Codification Improvements, effective for public companies for fiscal years beginning after December 15, 2019. The new ASU aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in ASC 842, with that of existing guidance.  As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in ASC 820, Fair Value Measurement) should be applied. More importantly, the ASU also exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which replaces virtually all existing generally accepted accounting principlesa company adopts the new leases standard. Early adoption permits public companies to adopt concurrent with the transition to ASC 842 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.
leases. We adopted ASU 2019-01 as of January 1, 2019.
Adoption of the new revenue recognition standard underresulted in the modified retrospective transition method. Onrecording of operating lease assets and operating lease liabilities of approximately $2.1 billion and $2.2 billion, respectively, as of January 1, 2018,2019. The difference is driven principally by the netting of our existing real estate restructure reserve against the corresponding operating lease right of use asset. In addition, we recorded a $115 million cumulative catch-up adjustment that increased our retained earnings by $297 million, netto accumulated deficit as 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 infor the period of adoption or retrospectively to each period (or periods) in which the effectimpact of the changenew accounting standard. The adjustment to accumulated deficit was driven by the derecognition of our prior failed sale leaseback transaction discussed in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We early adopted and applied ASU 2018-02our prior periodic reports. The standard did not materially impact our consolidated net earnings or our cash flows in the first quarter of 2018.2019.
Effective January 1, 2019, we adopted ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amends current guidance on accounting for hedges mainly to align more closely an entity’s risk management activities and financial reporting relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. In addition, amendments in ASU 2017-12 simplify the application of hedge accounting by allowing more time to prepare hedge documentation and perform effectiveness assessments on a qualitative basis after hedges are implemented.  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,this standard will be recognized in the period the asset is transferred versus the current deferralapplied prospectively 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 materialan impact on us. See Note 10—Derivative Financial Instruments to our consolidated financial statements.statements in Item 1 of Part I of this report for additional disclosure regarding our hedging arrangements.

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

OnIn 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.


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We are required to adopt the provisions of ASU 2016-13 effectiveno later than January 1, 2020. We expect to adopt ASU 2016-13 on January 1, 2020 but could elect to early adopt the provisions as of January 1, 2019. We expect toand recognize the impacts of adopting ASU 2016-13 through a cumulative adjustment to retained earningsaccumulated deficit 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 required 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 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 implementing 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 described therein will be 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 of 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, with the excess aggregate consideration recorded as goodwill. The final determination of the allocation of the aggregate consideration paid by CenturyLink in the combination will be based on the fair 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 valuation 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 2, 2017, which requires us to divest (i) certain Level 3 metro 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 exceeds the aggregate estimated fair value of the acquired assets and assumed liabilities by $11.1 billion, which we have recognized as goodwill. The goodwill is attributable to strategic benefits, including enhanced financial and operational scale, market diversification and leveraged combined networks that we expect to realize. None of the goodwill associated with this acquisition is deductible for income tax purposes.

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As of June 30, 2018, the following is our updated assignment of the preliminary estimated aggregate consideration:
 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 $23 million difference between the gross contractual value and the preliminary estimated fair value assigned represents our best estimate as of November 1, 2017 of contractual cash flows that will not be collected.
(2)
The preliminary estimate of the weighted-average amortization period for the acquired intangible assets is approximately 12.0 years.
(3)
All purchase price adjustments occurred during the six months ended June 30, 2018.
On the acquisition date, we assumed Level 3’s contingencies. For more information on our contingencies, see Note 12—Commitments and Contingencies.
Acquisition-Related Expenses
We have incurred acquisition-related expenses related to our acquisition of Level 3. The table below summarizes our acquisition-related expenses, which consist of integration-related expenses, including severance and retention compensation expenses, and transaction-related expenses:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (Dollars in millions)
Transaction-related expenses$—
 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. The total amounts of these expenses have been included in our selling, 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.
References to Acquired Businesses
In the discussion that follows, we refer to the incremental 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 related debt discount and debt issuance costs, (ii) the elimination of Level 3’s historical amortization of debt 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 long-term debt of Level 3 recognized on the acquisition date; and
the related income tax effects.
The pro forma information is presented for illustrative purposes only and does not necessarily reflect the actual results of operations 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 Level 3 during the quarterly periods presented above (which are further described above in this note) and does not reflect integration costs to be incurred by us in 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 the acquisition of Level 3's net operating losses ("NOL"s), we expect to significantly reduce our federal cash taxes for the 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.

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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 sheets and depreciate over the assets' remaining useful life. Under 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 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 estimate 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)
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 June 30, 2018.
(4)    Goodwill, Customer Relationships and Other Intangible Assets

Goodwill, customer relationships and other intangible assets consisted of the following:
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(Dollars in millions)(Dollars in millions)
Goodwill$30,715
 30,475
$21,526
 28,031
Customer relationships, less accumulated amortization of $7,803 and $7,096$9,667
 10,876
Customer relationships, less accumulated amortization of $8,825 and $8,492$8,580
 8,911
Indefinite-life intangible assets$269
 269
$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
Capitalized software, less accumulated amortization of $2,687 and $2,616$1,536
 1,468
Trade names and patents, less accumulated amortization of $69 and $61124
 131
Total other intangible assets, net$1,869
 1,897
$1,929
 1,868

We are required to perform impairment tests related to our goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs. Due to our January 2019 internal reorganization and the decline in our stock price, we incurred two events in the first quarter of 2019 that triggered impairment testing. Due to the impairment indicators noted as a result of these triggering events, we evaluated our goodwill for the internal reorganization in January, and again as of March 31, 2019 as a result of the decline in our stock price.

Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of multiple reporting units. For each reporting unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit. If the estimated fair value of the reporting unit is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the reporting unit is less than the carrying value, we record an impairment equal to the excess amount.

When we performed our October 31, 2018 annual impairment test, we estimated the fair value of our reporting units by considering both a market approach and a discounted cash flow method. The market approach method includes the use of multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting units beyond the cash flows from the discrete projection period. Because our low stock price was a trigger for impairment testing, we estimated the fair value of our operations using only the market approach. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple for each of our reporting units within this range. We reconciled the estimated fair values of the reporting units to our market capitalization as of the date of each of our triggering events during the first quarter and concluded that the indicated control premium of approximately 4.1% was reasonable based on recent transactions in the market place. For the three months ended March 31, 2019, based on our assessments performed with respect to the reporting units as described above, we concluded that the estimated fair value of certain of our reporting units was less than our carrying value of equity as of the date of each of our triggering events during the first quarter. As a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $6.5 billion for the three months ended March 31, 2019. 


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The following table shows the March 31, 2019 impairments at each of our reportable segments:

 Impairments
 (Dollars in millions)
International and Global Accounts                     $934
Enterprise1,471
Small and Medium Business896
Wholesale                                                        3,019
Consumer186
Total$6,506

The market multiples approach that we used incorporates significant estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of other cost synergies. In developing the market multiple, we also considered observed trends of our industry participants. Our failure to attain these forecasted results or changes in trends could result in future impairments. Our assessment included many qualitative factors that required significant judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the size of our impairments. Continued declines in our profitability, cash flows or the sustained, historically low trading prices of our common stock, may result in further impairment. 

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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acquired.

Total amortizationAmortization expense for intangible assets for the three and six months ended June 30,March 31, 2019 and 2018 totaled $447$429 million and $890 million, respectively, and for the three and six months ended June 30, 2017 totaled $276 million and $551$444 million, respectively. As of June 30, 2018,March 31, 2019, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $52.5$43.6 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, 20182019 through 20222023 will be as follows:
(Dollars in millions)(Dollars in millions)
2018 (remaining six months)$889
20191,691
2019 (remaining nine months)$1,260
20201,588
1,600
20211,156
1,158
2022979
978
2023900

In January 2019, Jeff Storey, our Chief Operating Decision Maker ("CODM"), announced a new organization structure and began managing our operations in the following five segments: international and global accounts, enterprise, small and medium business, wholesale and consumer. As a result of this decision, we reclassified certain prior period amounts to conform to the current period presentation.

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The following table shows the rollforward of goodwill assigned to our reportable segments from December 31, 20172018 through June 30, 2018:March 31, 2019:
 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.
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal
 (Dollars in millions)
As of December 31, 2018$3,595
5,222
5,193
6,437
7,584
28,031
  January 2019 reorganization—
987
(1,038)395
(344)—
  Effect of foreign currency rate change1
—
—
—
—
1
Impairments(934)(1,471)(896)(3,019)(186)(6,506)
As of March 31, 2019$2,662
4,738
3,259
3,813
7,054
21,526
(5)(3)     Revenue Recognition
We earn most
Refer to the Revenue Recognition section of Note 1—Background and Summary of Significant Accounting Policies and Note 5—Revenue Recognition in our consolidatedannual report on Form 10-K for the year ended December 31, 2018 for further information regarding our application of ASC 606, “Revenue from Contracts with Customers”, including practical expedients and judgments applied in determining the amounts and timing of revenue from contracts with customers, primarily through the provisioncustomers.

Reconciliation of telecommunications and other services.Total Revenue to Revenue from contractsContracts 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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Customers

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 showsprovides 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
standards:
(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.
 Three Months Ended
 March 31, 2019 March 31, 2018
 (Dollars in millions)
Total revenue$5,647
 5,945
Adjustments for non-ASC 606 revenue (1)
(358) (312)
Total revenue from contracts with customers$5,289
 5,633


Table(1) Includes regulatory revenue, lease revenue, sublease rental income, revenue from fiber capacity lease arrangements and failed sale leaseback income, which are not within the scope of Contents
ASC 606.

 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, 2018March 31, 2019 and January 1,December 31, 2018:
June 30, 2018 January 1, 2018March 31, 2019 December 31, 2018
(Dollars in millions)(Dollars in millions)
Customer receivables(1)
$2,414
 2,504
$2,286
 2,346
Contract assets134
 140
Contract liabilities553
 623
869
 860
Contract assets158
 255
(1) Gross customer receivables of $2.4 billion and $2.5 billion, net of allowance for doubtful accounts of $145 million and $132 million, at March 31, 2019 and December 31, 2018, respectively.

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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 or billed in advance of providing goods or services promised in the future. We defer recognizing 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.sheets.

The following table provides information about revenue recognized for the three months ended March 31, 2019 and 2018:
 Three Months Ended
 March 31, 2019 March 31, 2018
 (Dollars in millions)
Revenue recognized in the period from:   
Amounts included in contract liability at the beginning of the period (January 1, 2019 and 2018, respectively)$490
 523
Performance obligations satisfied in previous periods—
 —

Performance Obligations
A
As of March 31, 2019, our estimated revenue expected to be recognized in the future related to performance obligationobligations associated with customer contracts that are unsatisfied (or partially satisfied) is a promise in a contractapproximately $6.4 billion. We expect to recognize approximately 77% of this revenue through 2021, with a customer to provide a good or service to the customer. We recognize revenue for services when we satisfy our performance obligation as services are provided.balance recognized thereafter.

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 as 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, 2018Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
(Dollars in millions)(Dollars in millions)
Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment CostsAcquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs
Beginning of period balance$280
 105
 268
 88
$322
 187
 268
 133
Costs incurred47
 29
 99
 59
57
 34
 52
 29
Amortization(41) (18) (81) (31)(50) (23) (39) (12)
End of period balance$286
 116
 286
 116
$329
 198
 281
 150

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 commissionsacquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of 30 months for consumer customers and 12 to 49 months.60 months for business customers. Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amountsamount 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 sheets. We recognize incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets is less than one year. The amount of deferred costs expected to be amortized beyond the next twelve months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.

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(4) Leases
Effective January 1, 2019, we adopted ASC 842 using the non-comparative transition option of applying the new standard at the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard. This allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of additional operating lease right of use assets and operating lease liabilities of approximately $2.1 billion and $2.2 billion, respectively, as of January 1, 2019. The difference is driven principally by the netting of our existing real estate restructure reserve against the corresponding operating lease right of use asset. In addition, we recorded a quarterly basis.$115 million cumulative adjustment, net of deferred taxes, to accumulated deficit as of January 1, 2019, for the impact of the new accounting standard. The adjustment to accumulated deficit was driven by the derecognition of our prior failed sales leaseback transaction discussed in our prior periodic reports. The standard did not materially impact our consolidated net earnings or our cash flows in the first quarter of 2019. Financial position for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance.

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

We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

Some of our lease arrangements contain lease components (including fixed payments including rent, real estate taxes and insurance costs) and non-lease components (including common-area maintenance costs). We generally account for each component separately based on the estimated standalone price of each component. For colocation leases, we account for the lease and non-lease components as a single lease component.


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Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease expense consisted of the following:
 Three Month Ended March 31, 2019
 (Dollars in millions)
Operating and short-term lease cost$169
Finance lease cost: 
   Amortization of right-of-use assets12
   Interest on lease liability4
Total finance lease cost16
Total lease cost$185
Supplemental unaudited consolidated balance sheet information and other information related to leases:
  March 31,
Leases (millions)Classification on the Balance Sheet2019
Assets  
Operating lease assetsOperating lease assets$1,952
Finance lease assetsProperty, plant and equipment, net of accumulated depreciation$271
Total leased assets $2,223
   
Liabilities  
Current  
   OperatingOther current liabilities$561
   FinanceCurrent portion of long-term debt$36
Noncurrent  
   OperatingNoncurrent operating lease liabilities$1,501
   FinanceLong-term debt$190
Total lease liabilities $2,288
   
Weighted-average remaining lease term (years) 
   Operating leases 8.1
   Finance leases 11.1
Weighted-average discount rate  
   Operating leases 6.73%
   Finance leases 5.45%
Supplemental unaudited consolidated cash flow statement information related to leases:

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 Three Month Ended March 31, 2019
 (Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities: 
   Operating cash flows from operating leases$182
   Operating cash flows from finance leases3
   Finance cash flows from finance leases8

As of March 31, 2019, maturities of lease liabilities were as follows:
 Operating Leases Finance Leases
 (Dollars in millions)
2019 (remaining nine months)$463
 38
2020462
 35
2021381
 22
2022301
 20
2023260
 19
Thereafter878
 179
Total lease payments2,745
 313
   Less: interest(683) (87)
Total$2,062
 226
Less: current portion(561) (36)
Long-term portion$1,501
 190

As of March 31, 2019, we had no material operating or finance leases that had not yet commenced.
Operating Lease Income

CenturyLink leases various IRUs, office facilities, switching facilities and other network sites to third parties under operating leases. Lease and sublease income is included in operating revenue in the consolidated statements of operations.

For the three months ended March 31, 2019 and 2018, our gross rental income was $199 million and $219 million, respectively.

We adopted ASU 2016-02 on January 1, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption.


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The future annual minimum payments under capital lease agreements as of December 31, 2018 were as follows:
 (Dollars in millions)
Capital lease obligations: 
2019$51
202036
202123
202221
202320
2024 and thereafter183
Total minimum payments334
Less: amount representing interest and executory costs(100)
Present value of minimum payments234
Less: current portion(38)
Long-term portion$196

At December 31, 2018, our future rental commitments for Right-of-Way agreements and operating leases were as follows:
 Right-of-Way Agreements Operating Leases Total
 (Dollars in millions)
2019$157
 675
 832
2020134
 443
 577
2021112
 355
 467
2022120
 279
 399
2023115
 241
 356
2024 and thereafter755
 969
 1,724
Total future minimum payments (1)
$1,393
 2,962
 4,355

(1)Minimum payments have not been reduced by minimum sublease rentals of $101 million due in the future under non-cancelable subleases.


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(6)(5) Long-Term Debt and Credit Facilities

The following chart reflects the consolidated long-term debt of CenturyLink, Inc. and its subsidiaries, including unamortized discounts and premiums and unamortized debt issuance costs, but excluding intercompany debt:
Interest Rates(1)
 Maturities June 30, 2018 December 31, 2017
Interest Rates(1)
 Maturities March 31, 2019 December 31, 2018
    (Dollars in millions)    (Dollars in millions)
Senior Secured Debt:(2)        
CenturyLink, Inc.        
2017 Revolving Credit Facility(2)
4.844% 2022 $—
 405
5.234% - 5.237% 2022 $695
 550
Term Loan A(3)4.844% 2022 1,664
 1,575
LIBOR + 2.75% 2022 1,600
 1,622
Term Loan A-1(3)4.844% 2022 361
 370
LIBOR + 2.75% 2022 347
 351
Term Loan B(3)4.844% 2025 5,970
 6,000
LIBOR + 2.75% 2025 5,925
 5,940
Subsidiaries:        
Level 3 Financing, Inc.        
Tranche B 2024 Term Loan (3)(4)
LIBOR + 2.25% 2024 4,611
 4,611
LIBOR + 2.25% 2024 4,611
 4,611
Embarq Corporation subsidiaries        
First mortgage bonds7.125% - 8.375% 2023 - 2025 138
 151
7.125% - 8.375% 2023 - 2025 138
 138
Senior Notes and Other Debt:              
CenturyLink, Inc.        
Senior notes5.625% - 7.650% 2019 - 2042 8,125
 8,125
5.625% - 7.650% 2019 - 2042 8,010
 8,036
Subsidiaries:        
Level 3 Financing, Inc.        
Senior notes5.125% - 6.125% 2021 - 2026 5,315
 5,315
5.125% - 6.125% 2021 - 2026 5,315
 5,315
Level 3 Parent, LLC        
Senior notes5.750% 2022 600
 600
5.750% 2022 600
 600
Qwest Corporation        
Senior notes6.125% - 7.750% 2021 - 2057 7,294
 7,294
6.125% - 7.750% 2021 - 2057 5,956
 5,956
Term loan4.100% 2025 100
 100
4.500% 2025 100
 100
Qwest Capital Funding, Inc.        
Senior notes6.5% - 7.750% 2018 - 2031 981
 981
6.875% - 7.750% 2021 - 2031 637
 697
Embarq Corporation and subsidiary        
Senior note7.995% 2036 1,485
 1,485
7.995% 2036 1,460
 1,485
Other9.000% 2019 150
 150
9.000% 2019 150
 150
Capital lease and other obligationsVarious Various 844
 891
Unamortized premiums and other, net    11
 23
Finance lease and other obligationsVarious Various 231
 801
Unamortized discounts and other, net    (11) (8)
Unamortized debt issuance costs (334) (350) (274) (283)
Total long-term debt    37,315
 37,726
    35,490
 36,061
Less current maturities    (437) (443)    (632) (652)
Long-term debt, excluding current maturities    $36,878
 37,283
    $34,858
 35,409
______________________________________________________________________ 
(1)
As of June 30, 2018.March 31, 2019.
(2)
The aggregate amount outstandingFor information on our revolving line of credit borrowings atDecember 31, 2017 was$405 million, with a weighted-average interest rate of 4.186%. At June 30, 2018, we had no borrowings outstanding under our revolving line of credit. These amounts typically change on a regular basis.
certain parent or subsidiary guarantees and liens securing this debt, see "Other" below.
(3)The TrancheTerm Loans A, A-1 and B 2024 Term Loan is a secured obligationhave interest rates of 5.249% and is guaranteed by Level 3 Parent, LLC5.272% as of March 31, 2019 and certain other subsidiaries. December 31, 2018, respectively.
(4)The Tranche B 2024 Term Loan had an interest rate of 4.3341%4.736% as of June 30, 2018March 31, 2019 and 3.557%4.754% as of December 31, 2017. The interest rate on the Tranche B 2024 Term Loan is set with a minimum London Interbank Offered Rate ("LIBOR") of zero percent.2018.

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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)
(Dollars in millions)(1)
2018 (remaining six months)$303
2019638
2019 (remaining nine months)$556
20201,194
1,189
20213,110
3,115
20224,757
5,428
2023 and thereafter27,136
20232,095
2024 and thereafter23,392
Total long-term debt$37,138
$35,775

(1)In Note 3—Sale of Data Centers and Colocation Business, we describe an imputed financing obligation. The amount outstanding on that 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 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.
(1) 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.
Repayments

During the three months ended March 31, 2019, CenturyLink and its affiliates repurchased approximately $111 million of their respective debt securities. 

Covenants

Certain of our debt instruments of CenturyLink, Inc. and its subsidiaries contain affirmative and negative covenants. Debt at CenturyLink, Inc., Level 3 Parent, LLC, and Level 3 Financing, Inc. contain more extensive covenants including, among other things and subject to certain exceptions, restrictions on their ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with their affiliates, including CenturyLink and its other subsidiaries, dispose of assets and merge or consolidate with any other person. Also, Level 3 Parent, LLC, as well as Level 3 Financing,CenturyLink, Inc., and certain of its affiliates will be required to offer to purchase certain of its long-termtheir respective outstanding debt securities under certain circumstances in connection with acertain specified "change of control" of Level 3 Parent, LLC.transactions.

Certain of theour 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 June 30, 2018, we believe weMarch 31, 2019, CenturyLink, Inc. believes it and its subsidiaries were in compliance with the provisions and financial covenants in ourtheir respective material debt agreements.agreements in all material respects.

Other

In February 2019, we entered into five variable-to-fixed interest rate swap agreements to hedge the interest payments on $2.5 billion notional amount of floating rate debt, see Note 10—Derivative Financial Instruments.

For additional information on our long-term debt and credit facilities, see Note 56—Long-Term Debt and Credit Facilities 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, 2017.2018.

(7)(6)  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 have

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Under prior GAAP, we had previously 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. At June 30, 2018,In accordance with transitional guidance under the current and noncurrent portionsnew lease standard (ASC 842), the existing lease obligation of $110 million as of January 1, 2019 has been netted against the operating lease right of use assets at adoption. For additional information, see Note 4—Leases to our leased real estate accrual were $21 million and $92 million, respectively. The remaining lease terms range from 0.26 years to 12.5 years, with a weighted-averageconsolidated financial statements in Item 1 of 7.2 years.

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this report.

Changes in our accrued liabilities for severance expenses and leased real estate were as follows:
Severance Real EstateSeverance
(Dollars in millions)(Dollars in millions)
Balance at December 31, 2017$33
 64
Balance at December 31, 2018$87
Accrued to expense111
 57
4
Payments, net(107) (8)(31)
Balance at June 30, 2018$37
 113
Balance at March 31, 2019$60

(8)(7)  Employee Benefits

Net periodic benefit (income) expense for our qualified and non-qualifiedcombined pension plans includedplan includes the following components:
Pension PlansCombined Pension Plan
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
(Dollars in millions)(Dollars in millions)
Service cost$16
 14
 32
 31
$14
 16
Interest cost98
 105
 197
 206
110
 100
Expected return on plan assets(171) (167) (342) (333)(156) (173)
Recognition of prior service credit(2) (2) (4) (4)(2) (2)
Recognition of actuarial loss46
 52
 90
 103
57
 44
Net periodic pension benefit (income) expense$(13) 2
 (27) 3
Net periodic pension benefit expense (income)$23
 (15)
Net periodic benefit expense for our post-retirement benefit plans includedincludes the following components:
Post-Retirement Benefit PlansPost-Retirement Benefit Plans
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
(Dollars in millions)(Dollars in millions)
Service cost$5
 5
 9
 9
$4
 4
Interest cost25
 25
 49
 50
27
 24
Expected return on plan assets—
 (1) —
 (1)
Recognition of prior service cost5
 5
 10
 10
4
 5
Net periodic post-retirement benefit expense$35
 34
 68
 68
$35
 33
Service costs are included in the cost of services and products and selling, general and administrative line items on the Statement of Operations and all other costs listed above are included in the other (expense) income, net line item on the Statement of Operations. Benefits paid by our qualified pension plan are paid through a trust that holds all planof 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 remainder2019. The amount of 2018. However,required contributions to our qualified pension plan in 2020 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. Based on current circumstances, we madedo not anticipate making 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 2018.2019.


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(9)(8) (Loss) Earnings Per Common Share

Basic and diluted (loss) earnings per common share were calculated as follows:
 Three Months Ended March 31,
 2019 2018
 (Dollars in millions, except per share amounts, shares in thousands)
(Loss) Income (Numerator):   
Net (loss) income$(6,165) 115
Net (loss) income applicable to common stock for computing basic earnings per common share(6,165) 115
Net (loss) income as adjusted for purposes of computing diluted earnings per common share$(6,165) 115
Shares (Denominator):   
Weighted-average number of shares:   
Outstanding during period1,083,588
 1,073,560
Non-vested restricted stock(14,710) (7,764)
Weighted-average shares outstanding for computing basic earnings per common share1,068,878
 1,065,796
Incremental common shares attributable to dilutive securities:   
Shares issuable under convertible securities—
 10
Shares issuable under incentive compensation plans—
 3,377
Number of shares as adjusted for purposes of computing diluted (loss) earnings per common share1,068,878
 1,069,183
Basic (loss) earnings per common share$(5.77) 0.11
Diluted (loss) earnings per common share (1)
$(5.77) 0.11
______________________________________________________________________ 
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
 (Dollars in millions, except per share amounts, shares in thousands)
Income (Numerator):       
Net income$292
 17
 407
 180
Earnings applicable to non-vested restricted stock—
 —
 —
 —
Net income applicable to common stock for computing basic earnings per common share292
 17
 407
 180
Net income as adjusted for purposes of computing diluted earnings per common share$292
 17
 407
 180
Shares (Denominator):       
Weighted-average number of shares:       
Outstanding during period1,078,986
 549,100
 1,076,273
 548,359
Non-vested restricted stock(14,275) (7,739) (11,610) (7,450)
Weighted-average shares outstanding for computing basic earnings per common share1,064,711
 541,361
 1,064,663
 540,909
Incremental common shares attributable to dilutive securities:       
Shares issuable under convertible securities10
 10
 10
 10
Shares issuable under incentive compensation plans4,098
 780
 3,741
 917
Number of shares as adjusted for purposes of computing diluted earnings per common share1,068,819
 542,151
 1,068,414
 541,836
Basic earnings per common share$0.27
 0.03
 0.38
 0.33
Diluted earnings per common share$0.27
 0.03
 0.38
 0.33
(1)For the three months ended March 31, 2019, we excluded from the calculation of diluted loss per share 3.3 million shares potentially issuable under incentive compensation plans or convertible securities, as their effect, if included, would have been anti-dilutive.
Our calculation of diluted (loss) 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 anti-dilutiveantidilutive as a result of unrecognized compensation cost. Such shares averaged 3.15.4 million and 3.14.3 million for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively, and averaged 3.7 million and 3.7 million for the six months ended June 30, 2018 and 2017, respectively.

(10)(9)  Fair Value of Financial Instruments

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Input Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Input Level 2 refers to fair values estimated using significant other observable inputs and Input Level 3 includes fair values estimated using significant unobservable inputs.

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The following table presents the carrying amounts and estimated fair values of CenturyLink, Inc.'s financial liabilities as of March 31, 2019 and December 31, 2018:
   March 31, 2019 December 31, 2018
 
Input
Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
   (Dollars in millions)
Long-term debt, excluding finance lease and other obligations2 $35,259
 35,069
 35,260
 32,915
Interest rate swap contracts (see Note 10)2 $23
 23
 —
 —

(10) Derivative Financial Instruments
From time to time, CenturyLink, Inc. uses derivative financial instruments, primarily interest rate swaps, to manage our exposure to fluctuations in interest rates. Our primary objective in managing interest rate risk is to decrease the volatility of our earnings and cash flows affected by changes in the underlying rates. We have floating rate long-term debt excluding capital lease(see Note 5—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 1 of Part I of this report). These obligations expose us to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. We have designated our interest rate swap agreements as cash flow hedges. Swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the lives of the agreements without exchange of the underlying notional amount. The change in the fair value of the interest rate swap agreements is reflected in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings, due to the fact that the interest rate swap agreements qualify as effective cash flow hedges. We do not use derivative financial instruments for speculative purposes.
In February 2019, we entered into five variable-to-fixed interest rate swap agreements to hedge the interest payments on $2.5 billion notional amount of floating rate debt. The five interest rate swap agreements are with different counterparties; one for $700 million and the other obligations,four for $450 million each. The transactions were effective beginning March 31, 2019 and mature March 31, 2022. Under the terms of the interest rate swap transactions, we receive interest payments based on one month floating LIBOR terms and pay interest at the fixed rate of 2.48%. We evaluate the effectiveness of the hedges qualitatively on a quarterly basis.
CenturyLink, Inc. is exposed to credit related losses in the event of non-performance by counterparties. The counterparties to any of the financial derivatives we enter into are major institutions with investment grade credit ratings. We evaluate counterparty credit risk before entering into any hedge transaction and continue to closely monitor the financial market and the risk that our counterparties will default on their obligations. This credit risk is generally limited to the unrealized losses in such contracts, should any of these counterparties fail to perform as contracted.
Amounts accumulated in AOCI related to derivatives are indirectly recognized in earnings as periodic settlements occur throughout the term of the swaps, when the related interest payments are made on our variable-rate debt.

The table below presents the fair value of our derivative financial instruments as well as their classification on the input level used to determine the fair values indicated below:consolidated balance sheets as follows (in millions):
   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
 Liability Derivatives
 March 31, 2019 
Derivatives designated asBalance Sheet Location Fair Value 
Cash flow hedging contractsOther current and noncurrent liabilities $23
 


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The amount of losses recognized in AOCI consists of the following (in millions):
Derivatives designated as hedging instruments 2019
  Cash flow hedging contracts  
     Three months ended March 31, $23

Amounts currently included in AOCI will be reflected as earnings prior to the settlement of these cash flow hedging contracts in 2022. We estimate that $2.3 million of net losses on the interest rate swaps (based on the estimated LIBOR curve as of March 31, 2019) will be reflected as earnings within the next twelve months. Our interest rate swap agreements designated as cash flow hedging contracts qualify as effective hedge relationships.
(11)  Segment Information
Segment Data
In connection withJanuary 2019, Jeff Storey, our acquisition of Level 3 (discussed further in Note 2—Acquisition of Level 3), effective November 1, 2017, we implementedCODM, announced a new organization structure and began managing our operations in twothe following five segments: businessInternational and consumer. Our consumer segment remains substantially unchanged under this reorganization,Global Accounts Management, Enterprise, Small and Medium Business, Wholesale and Consumer. In addition, our newly reorganized business segment includessegments are managed based on the Legacy CenturyLink enterprise segmentdirect costs of providing services to their customers and the associated selling, general and administrative costs (primarily salaries and commissions). Shared costs that were previously reported in segments are managed separately and included in operations and other. We reclassified certain prior period amounts to conform to 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. current period presentation.

At June 30, 2018,March 31, 2019, we had the following twofive reportable segments:
BusinessInternational and Global Accounts Management ("IGAM") Segment. ThisUnder our IGAM segment, consists generallywe provide our products and services to approximately 200 global enterprise customers and to enterprises and carriers in three operating regions: Asia Pacific, Latin America, Europe Middle East and Africa. IGAM is responsible for working with large multinational organizations in support of providingtheir business and IT transformation strategies.  We provide a portfolio of services inclusive of dark fiber; content delivery; private and public networking; hybrid IT solutions including private and public cloud services as well as consulting and professional services; and security services; all of which are described further under "Products and Services Categories"; and
Enterprise Segment. Under our enterprise segment, we provide our products and services to large and medium domestic and global enterprises, federal, state and local governments. Our products and services offered to these customers include our IP and Data Services suite of products, which includes VPN and hybrid networking, Ethernet and IP services; Transport and Infrastructure, which includes wavelengths and private line, dark fiber, colocation and data center services, and professional services; Voice Services, which includes local, long-distance, toll-free and unified communications services; and IT and Managed services, all of which are described further under "Products and Services Categories"; and
Small and Medium Business ("SMB") Segment. Under our SMB segment, we provide our products and services to small and medium businesses directly and enterprise business,through our indirect channel partners. We designate businesses as small or medium based on company employee count. Our products and services offered to these customers include our IP and Data Services suite of products, primarily VPN, IP and Ethernet services; Transport and Infrastructure, which includes broadband, wavelengths and private line services; Voice Services, which includes local, long-distance, national public access, VoIP and toll-free services; and IT and Managed services, all of which are described further under "Products and Services Categories"; and
Wholesale Segment. Under our wholesale segment, we provide our products and government customers, includingservices to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors. Customers range from large global telecom providers to small regional providers. Our products and services offered to these customers include our localIP and long-distance voice,Data Services suite of products, primarily Ethernet, VPN data network,and IP services; Transport and Infrastructure, which includes private line, (including business data services), Ethernet, information technology, wavelength, broadband,wavelengths, UNE, dark fiber, colocation and data center, services, managed services, professional and other services provided in connection with selling equipment, network securitywholesale broadband services; and various other ancillaryVoice Services, which includes long-distance, local, toll-free and contact center, and intercarrier tandem services, all of which are described further under "Products and Services Categories"; and
Consumer Segment. ThisUnder our consumer segment, consists generally of providingwe provide our 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. Additionally, Universal Service Fund ("USF") federal and state support payments, Connect America Fund ("CAF") federal support revenue, and other revenue from leasing and subleasing including prior year rental income associated with the 2017 failed-sale-leaseback is reported in our consumer segment as regulatory revenue in 2018.
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
We categorize our products and services and revenuesrevenue among the following five categories:four categories for the International and Global Accounts Management, Enterprise, Small and Medium Business and Wholesale segments:
IP and data servicesData Services, which includeincludes primarily VPN data networks, Ethernet, IP, video (including our facilities-based video services, CDN services and Vyvx broadcast services) and other ancillary services;

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Transport and infrastructureInfrastructure, which includeincludes 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 collaborationCollaboration, which includes primarily local and long-distance voice, including wholesale voice, and other ancillary service;services;

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IT and managed servicesManaged Services, which includeincludes information technology services and managed services, which may be purchased in conjunction with our other network services; and
We categorize our products and services revenue among the following four categories for the consumer segment:
Broadband, which includes consumer broadband revenue; and
Voice, which includes consumer local and long-distance revenue; and
Regulatory revenues,Revenue, which consists of (i) Universal Service Fund, ("USF") and Connect America Fund ("CAF")and other support payments and other operating revenues. We receive federal support payments from both federal and state USF programs 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. We generateservices and (ii) other operating revenuesrevenue from the leasing and subleasing of space inspace; and
Other, which includes consumer retail video revenue (including our office buildings, warehousesfacilities-based video revenue), professional services and other properties and from rental income associated with the failed-sale-leaseback. Because we centrally manage the activities that generate these regulatory revenues, these revenues are not included inancillary services.
The following table summarizes our segment revenues.
Ourresults and operating revenue detail for our productsproduct and services consisted offor 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 March 31, 2019.
(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 and equipment sales and professional services revenues.
(7)Includes CAF Phase I, CAF Phase 2, federal and state USF support revenue, sublease rental income and failed-sale leaseback income.

Three Months Ended March 31, 2019

International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal

(Dollars in millions)
Revenue:



 



  

IP and Data Services$420
688
300
341
—
1,749
—
1,749
Transport and Infrastructure320
364
107
499
—
1,290
—
1,290
Voice and Collaboration94
397
336
196
—
1,023
—
1,023
IT and Managed Services57
74
12
1
—
144
—
144
Broadband—
—
—
—
722
722
—
722
Voice—
—
—
—
489
489
—
489
Regulatory—
—
—
—
159
159
—
159
Other—
—
—
—
71
71
—
71
Total Revenue$891
1,523
755
1,037
1,441
5,647
—
5,647
Expenses:




 

Cost of Services and Products259
496
153
141
87
1,136
1,384
2,520
Selling, general and administrative68
149
132
20
109
478
454
932
Less: Share-based compensation—
—
—
—
—
—
(33)(33)
Total expense327
645
285
161
196
1,614
1,805
3,419
Total adjusted EBITDA$564
878
470
876
1,245
4,033
(1,805)2,228


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The following table summarizes our segment results and operating revenue detail for our product and services for the three months ended March 31, 2018.
 Three Months Ended March 31, 2018
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Revenue: 







  

IP and Data Services$440
665
291
339
—
1,735
—
1,735
Transport and Infrastructure321
399
110
538
—
1,368
—
1,368
Voice and Collaboration101
410
369
231
—
1,111
—
1,111
IT and Managed Services73
73
14
2
—
162
—
162
Broadband—
—
—
—
712
712
—
712
Voice—
—
—
—
557
557
—
557
Regulatory—
—
—
—
183
183
—
183
Other—
—
—
—
117
117
—
117
Total Revenue$935
1,547
784
1,110
1,569
5,945
—
5,945
Expenses:




   
Cost of Services and Products272
514
153
176
158
1,273
1,530
2,803
Selling, general and administrative68
152
127
24
135
506
603
1,109
Less: Share-based compensation—
—
—
—
—
—
(41)(41)
Total expense340
666
280
200
293
1,779
2,092
3,871
Total adjusted EBITDA$595
881
504
910
1,276
4,166
(2,092)2,074

We recognize revenuesrevenue 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 $229to $248 million and $133$246 million for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively, and $476 million and $263 million for the six months ended June 30, 2018 and 2017, respectively. These USF surcharges, where we record revenue and transaction taxes, are assigned to the productsproduct and servicesservice categories of each segmentssegment based on the underlying revenues.revenue. 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 RevenuesRevenue and Expenses

Our segment revenues includerevenue includes all revenuesrevenue from our businessInternational and consumerGlobal Accounts Management, Enterprise, Small and Medium Business, Wholesale and Consumer segments as described in more detail above. Our segment revenues arerevenue is based upon each customer's classification. We report our segment revenuesrevenue based upon all services provided to that segment's customers. Our segment expenses include specific cost of service 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 activitiesactivities. Network expenses not incurred as a direct result of providing services and (ii) allocated expenses, which include network expenses, facilities expensesproducts to segment customers and othercentrally managed expenses such as fleetOperations, Finance, Human Resources, Legal, Marketing, Product Management and real estate expenses.IT are not assigned to segments as they are managed separately; they are reported as "Operations and Other". 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")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. OtherStock-based compensation and 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 adjusted EBITDA to net (loss) income:
 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
 Three Months Ended March 31,
 2019 2018
 (Dollars in millions)
Total segment adjusted EBITDA$4,033
 4,166
Depreciation and amortization(1,188) (1,283)
Impairment of goodwill(6,506) —
Other operating expenses(1,805) (2,092)
Stock-based compensation(33) (41)
Operating (loss) income(5,499) 750
Total other expense, net(528) (514)
Income (loss) before income tax expense(6,027) 236
Income tax expense(138) (121)
Net (loss) income$(6,165) 115

(12) Commitments and Contingencies and Other Items

We are subject to various claims, legal proceedings and other contingent liabilities, including the matters described below, thatwhich individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. As a matter of course, we are prepared to both litigate these matters to judgment as needed, as well as to evaluate and consider reasonable settlement opportunities.

Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for suchour litigation and non-income tax contingencies at June 30, 2018 aggregateMarch 31, 2019 aggregated to approximately $138$121 million and are included in “Other”other current liabilities and “Other Liabilities”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.


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Principal Proceedings

Shareholder Class Action SuitSuits

CenturyLink and certain 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. 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. In January 2019,
the court approved the settlement and entered final judgment. An objector filed an appeal, and that appeal is
pending. The proposed settlement is subject to court approval, among other conditions, and the amountcosts of the settlement isare not material to our consolidated financial statements.

CenturyLink and certain CenturyLink board members and officers were named as defendants in a putative shareholder class action lawsuit filed on June 12, 2018 in the Boulder County District Court of the state of Colorado, captioned Houser et al. v. CenturyLink, et al. The complaint asserts claims on behalf of a putative class of former Level 3 shareholders who became CenturyLink shareholders as a result of the transaction. It alleges that the proxy statement provided to the Level 3 shareholders failed to disclose material information of several kinds, including information about strategic revenue, customer loss rates, and customer account issues, among other items. The complaint seeks damages, costs and fees, rescission, rescissory damages, and other equitable relief.

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 IXCs
affiliates of Verizon Communications Inc. ("Verizon"), 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.devices that are routed
through an IXC. Some of these IXCs seekhave asserted claims seeking 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' claims undercontention that federal law and entered final judgments against the IXCs on the LECs' claims for unpaid
prohibits these particular access charges, and for late payment charges. The cases are now on appeal beforealso allowed the U.S. CourtIXCs to refile state-law claims. Since then, many of Appeals for
the Fifth Circuit.LECs and IXCs have filed revised pleadings and additional motions, which remain pending. Separately, some of
the defendants, including CenturyLink, Inc.'s LECs, have petitioned the FCC to address these issues on an
industry-wide basis.
As

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Our subsidiaries include both an IXCIXCs and a LEC, we bothLECs which respectively 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.

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 in a number of proceedings filed in the Circuit Court of St. Louis County, Missouri. These municipalities are seeking, among other things, declaratory relief regarding the application of business license and gross receipts taxes and back taxes from 2007 to the present, plus penalties and interest. In a February 2017 ruling in connection with one of these pending cases, the court entered an order awarding plaintiffs $4 million and broadening the tax base on a going-forward basis. We have appealed that ruling. In a June 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. In due course, we plan to appeal that decision. We continue to vigorously defend against these claims.

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 putative consumer class action, was filed against us in the U.S. District Court for the Central District of California alleging that we charged 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 asserting federal securities law claims. A number of other 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 as In Re: CenturyLink Sales Practices and Securities Litigation.

Beginning June 2017, we also received several shareholder derivative demands addressing related 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. In 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 Louisiana state court in the Fourth Judicial District Court for the Parish of Ouachita; four others, Ault v. Post, Barbree v. Post, Flanders v. Post, and Palkon v. Boulet,Ouachita. The remaining derivative cases were filed in Louisiana federal court in the Monroe Division of the Western District of Louisiana.
Louisiana and Minnesota. These cases have been brought on behalf of CenturyLink against certain current and
former officers and directors of the Company and seek damages for alleged breaches of fiduciary duties.

The consumer putative class actions, the securities investor putative class actions, and the federal derivative
actions have been transferred to the U.S. District Court for the District of Minnesota for coordinated and
consolidated pretrial proceedings as In Re: CenturyLink Sales Practices and Securities Litigation.

In July 2017, the Minnesota state attorney general filed State of Minnesota v. CenturyTel Broadband Services LLC, et al. in the AsokaAnoka 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 and responded to information requests and inquiries from other states.

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of our Peruvian subsidiaries asserting $26 million, of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, we believe the total amount of our exposure is $13$10 million at June 30, 2018.March 31, 2019.


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

In October 2013, the Tribunal decided the central issue underlying the 2001 assessments in SUNAT’s favor. We appealed that decision to the first judicial level in Peru, which decided the central issue in favor of SUNAT. In June 2017, we filed an appeal with the court of appeal. In November 2017, the court of appeals issued a decision affirming the first judicial level and we filed an appeal of the decision to the Supreme Court of Justice. That appeal is 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 June 30, 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 our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”) with respect to revenue from leasing certain 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. 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.

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 we have appealed those decisions to the judicial courts. In October 2012 and June 2014, we 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 we appealed this decision to the second administrative level.

We are vigorously contesting all such assessments in both states and, in particular, view the assessment of ICMS on revenue from equipment leasing to be without merit. These assessments, if upheld, could result in a loss of up to $35$37 million at June 30, 2018March 31, 2019 in excess of the accruals established for these matters.
Other Level 3 Matters
Qui Tam Action

Level 3 was 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, captioned United States of America ex rel., Stephen Bishop v. Level 3 Communications, Inc. et al. 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.

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 our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.
The

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Several people, including 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. Of the two former employees, one entered into a plea agreement, and the other is deceased. 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 Contingencies

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 individually is reasonably expected to exceed $100,000 in fines and penalties.

The outcome of these other proceedings described under this heading is not predictable. However, based on
current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering
available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.

The ultimate outcome of the above-described matters listedmay differ materially from the outcomes anticipated,
estimated, projected or implied by us in certain of our statements appearing above in this Note, do not reflect alland proceedings
currently viewed as immaterial by us may ultimately materially impact us.

Environmental Contingencies

In connection with our largely historical operations, we have responded to or been notified of our contingencies. For additional information on our contingencies, See Note 16potential
environmental liability at approximately 200 properties. We are engaged in addressing or have liquidated
environmental liabilities at many of those properties. We could potentially be held liable, jointly, or severally, and
without regard to the financial statements included in Item 8 of Part II of our annual report on Form 10-Kfault, for the year ended December 31, 2017.            costs of investigation and remediation of these sites. The discovery of additional
environmental liabilities or changes in existing environmental requirements could have a material adverse effect on
our business.


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(13)  Other Financial Information

Other Current Assets

The following table presents details of other current assets reflected in our consolidated balance sheets:
 June 30, 2018 December 31, 2017
 (Dollars in millions)
Prepaid expenses$329
 294
Income tax receivable427
 258
Materials, supplies and inventory107
 128
Deferred activation and installation charges95
 128
Deferred commissions148
 —
Other154
 133
Total other current assets$1,260
 941

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 March 31, 2019 December 31, 2018
 (Dollars in millions)
Prepaid expenses$386
 307
Income tax receivable69
 82
Materials, supplies and inventory154
 120
Contract assets58
 52
Contract acquisition costs173
 167
Contract fulfillment costs88
 82
Other98
 108
Total other current assets$1,026
 918

Selected Current Liabilities
Current liabilities reflected in our consolidated balance sheets include other current liabilities as follows:
 June 30, 2018 December 31, 2017
 (Dollars in millions)
Other current liabilities:   
Accrued rent$30
 34
Litigation contingencies30
 45
Other298
 265
Total other current liabilities$358
 344
Included in accounts payable at June 30, 2018 and December 31, 2017, were $48 million and $36 million, respectively, representing book overdrafts.
(14)  Accumulated Other Comprehensive Loss

Information Relating to 20182019

The tablestable below summarizesummarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheetssheet by component for the sixthree months ended June 30, 2018:
March 31, 2019:
 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)
 Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Interest Rate Hedges Total
 (Dollars in millions)
Balance at December 31, 2018$(2,173) (58) (230) —
 (2,461)
Other comprehensive income (loss) before reclassifications—
 —
 5
 (17) (12)
Amounts reclassified from accumulated other comprehensive income41
 3
 —
 —
 44
Net current-period other comprehensive income (loss)41
 3
 5
 (17) 32
Balance at March 31, 2019$(2,132) (55) (225) (17) (2,429)

The tablestable below presentpresents further information about our reclassifications out of accumulated other comprehensive loss by component for the three and six months ended June 30, 2018:
March 31, 2019:
Three 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 $46
 Other income (expense), net
Prior service cost 3
 Other income (expense), net
Total before tax 49
  
Income tax benefit (12) Income tax expense
Net of tax $37
  

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Six Months Ended June 30, 2018 Decrease (Increase)
in Net Income		 Affected Line Item in Consolidated Statement of
Operations
Three Months Ended March 31, 2019 Decrease (Increase)
in Net Loss		 Affected Line Item in Consolidated Statement of Operations
 (Dollars in millions)   (Dollars in millions)  
Amortization of pension & post-retirement plans(1)
        
Net actuarial loss $90
 Other income (expense), net $57
 Other income (expense), net
Prior service cost 6
 Other income (expense), net 2
 Other income (expense), net
Total before tax 96
   59
  
Income tax benefit (24) Income tax expense (15) Income tax expense
Net of tax $72
   $44
  

(1)See Note 8—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
Information Relating to 2017
The tables below summarize changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the six months ended June 30, 2017:
 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 six months ended June 30, 2017:
Three 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 $52
 Other income (expense), net
Prior service cost 3
 Other income (expense), net
Total before tax 55
  
Income tax benefit (23) Income tax expense
Net of tax $32
  

(1)See Note 8—7—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.

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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
  

Information Relating to 2018

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the three months ended March 31, 2018:
 Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Total
 (Dollars in millions)
Balance at December 31, 2017$(1,731) (235) (29) (1,995)
Other comprehensive income before reclassifications—
 —
 79
 79
Amounts reclassified from accumulated other comprehensive income31
 4
 —
 35
Net current-period other comprehensive income31
 4
 79
 114
Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income(375) (32) —
 (407)
Balance at March 31, 2018$(2,075) $(263) $50
 (2,288)

The table below presents further information about our reclassifications out of accumulated other comprehensive loss by component for the three months ended March 31, 2018:
Three Months Ended March 31, 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 $44
 Other income (expense), net
Prior service cost 3
 Other income (expense), net
Total before tax 47
  
Income tax benefit (12) Income tax expense
Net of tax $35
  

(1)See Note 8—7—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
(15)  Labor Union Contracts

As of June 30, 2018,March 31, 2019, approximately 28%26% 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 300Approximately 80 of our employees were subject to collective bargaining agreements that have expired as of June 30, 2018on or prior to March 31, 2019 and are currently being renegotiated. Approximately 1%6% of our union employees are subject to collective bargaining agreements that are scheduled to expire in 2018.2019.


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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 beginning of this report and "Risk Factors" in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 20172018 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, 2017,2018, and with the consolidated financial statements and related notes in Item 1 of Part I of this report. The results of operations and cash flows for the first sixthree months of the year are not necessarily indicative of the results of operations and cash flows that might be expected for the entire year.

We are an international facilities-based communications company engaged primarily in providing an integrateda broad array of integrated services to our residential and business customers. OurWe believe we are among the largest providers of communications services include localto domestic and long-distance voice, virtual private network ("VPN") data network, private line (including special access business data services), Ethernet, network access, information technology, wavelength, broadband, colocationglobal enterprise customers and data centerthe third largest wireline telecommunications company in the United States. We provide services managed services, professional and other services provided in connectionover 60 countries, with selling equipment, network security and various other ancillary services. We strive to maintainmost of our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services.revenue being derived in the United States.
At June 30, 2018,March 31, 2019, we served 4.94.8 million consumer broadband subscribers. Our methodology for counting consumer 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.
AcquisitionSegments

At March 31, 2019, we had the following five segments:
International and Global Accounts Management ("IGAM") Segment. Under our IGAM segment, we provide our products and services to approximately 200 global enterprise customers and three operating regions: Asia Pacific, Latin America, Europe Middle East and Africa. Our international network presence spans and connects over 60 countries and conducts business in 25 languages. IGAM is responsible for working with large multinational organizations in support of Level 3their business and IT transformation strategies.  We provide a portfolio of services inclusive of dark fiber; content delivery; private and public networking; hybrid IT solutions including private and public cloud services as well as consulting and professional services; and security services; and
On November 1, 2017, CenturyLink, Inc. ("CenturyLink") acquired Level 3 through successive merger transactions, including a merger
Enterprise Segment. Under our enterprise segment, we provide our products and services to large and medium domestic and global enterprises, federal, state and local governments. Our products and services offered to these customers include our IP and Data Services suite of Level 3 withproducts, which includes VPN and into a merger subsidiary,hybrid networking, Ethernet and IP services; Transport and Infrastructure, which survived such merger as our indirect wholly-owned subsidiaryincludes wavelengths and private line, dark fiber, colocation and data center services, and professional services; Voice Services, which includes local, long-distance, toll-free and unified communications services; and IT and Managed services, all of which are described further under the name of Level 3 Parent, LLC. We entered into this transaction, among other things, to realize certain strategic benefits, including enhanced financial"Products and operational scale, market diversificationServices"; and leveraged combined networks.
During the six months ended June 30, 2018, we incurred $232 million of integration-related expenses associated with our activities related to the Level 3 acquisition. We also incurred during this period $1 million in merger-related transaction costs, including investment banker and legal fees in connection with consummating the transaction.
Our consolidated financial statements include the accounts of CenturyLink and its majority owned subsidiaries, including Level 3 beginning on November 1, 2017. Due to the significant size of the acquisition, direct comparison of our 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 have been revalued and recorded at their preliminary estimated fair value. The assignment of estimated fair value requires a significant amount of judgment. The use of fair value measures affects the comparability of our post-acquisition financial information and may make it more difficult to predict earnings in future periods. 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 acquisition as "Legacy CenturyLink", and we refer to the incremental business activities that we now operate as a result of the Level 3 acquisition as "Legacy Level 3."

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For additional information about
Small and Medium Business ("SMB") Segment. Under our acquisition of Level 3, see (i) Note 2—Acquisition of Level 3 toSMB segment, we provide our consolidated financial statements in Item 1 of Part I of this report, (ii) our current report on Form 8-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 (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. 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 to May 1, 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.
After factoring in the costs to sell the data centers and colocation business, excluding the impacts from the failed-sale-leaseback accounting treatment, the sale resulted in a $20 million gain under GAAP. Based on 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 year ended December 31, 2017. The sale also resulted in a significant capital loss carryforward, which was 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.
For all of 2018, we will be required by GAAP to record similar non-cash adjustments to our net 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 to 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 on the sale.
New Organizational Structure
In connection with our above-described acquisition of Level 3, effective November 1, 2017, we implemented a new organization structure and began managing our operations in two segments: business and consumer. Our consumer segment remains substantially unchanged under this reorganization, and our newly reorganized business segment includes the 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 June 30, 2018, we had the following two segments:
Business Segment. This segment consists generally of providing products and services to small and medium businesses directly and enterprise business,through our indirect channel partners. Small and medium distinction is based on company employee count. Our products and services offered to these customers include our IP and Data Services suite of products, primarily VPN, IP and Ethernet services; Transport and Infrastructure, which includes broadband, wavelengths and private line services; Voice Services, which includes local, long-distance, national public access, VoIP and toll-free services; and IT and Managed services, all of which are described further under "Products and Services"; and
Wholesale Segment. Under our wholesale segment, we provide our products and government customers, includingservices to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors. Customers range from large global telecom providers to small regional providers. Our products and services offered to these customers include our localIP and long-distance voice,Data Services suite of products, primarily Ethernet, VPN data network,and IP services; Transport and Infrastructure, which includes private line, (including business data services), Ethernet, information technology, wavelength, broadband,wavelengths, UNE, dark fiber, colocation and data center, services, managed services, professional and other services provided in connection with selling equipment, network securitywholesale broadband services; and various other ancillaryVoice Services, which includes long-distance, local, toll-free and contact center, and intercarrier tandem services, all of which are described further under "Operating Revenues""Products and Services"; and
Consumer Segment. ThisUnder our consumer segment, consists generally of providingwe provide our 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. Additionally, Universal Service Fund ("USF") federal and state support payments, Connect America Fund ("CAF") federal support revenue, and other revenue from leasing and subleasing including prior year rental income associated with the 2017 failed-sale-leaseback is reported in our consumer segment as regulatory revenue.

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Results of Operations

The following table summarizes the results of our consolidated operations for the three and six months ended June 30, 2018 and 2017:
March 31, 2019:
 Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
     
Operating revenues$5,902
 4,090
 11,847
 8,299
Operating expenses5,135
 3,723
 10,330
 7,301
Operating income767

367
 1,517
 998
Interest expense and other (expense) income, net(530) (327) (1,044) (651)
Income tax (benefit) expense(55) 23
 66
 167
Net income$292

17
 407
 180
Basic earnings per common share$0.27
 0.03
 0.38
 0.33
Diluted earnings per common share$0.27
 0.03
 0.38
 0.33
 Three Months Ended March 31,
 2019 2018
 (Dollars in millions, except per share amounts)
Operating revenue$5,647
 5,945
Operating expenses11,146
 5,195
Operating (loss) income(5,499)
750
Total other expense, net(528) (514)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE(6,027) 236
Income tax expense138
 121
Net (loss) income$(6,165)
115
Basic (loss) earnings per common share$(5.77) 0.11
Diluted (loss) earnings per common share$(5.77) 0.11
The following table summarizes our broadband subscribers and number of employees:
 As of June 30, 
Increase /
(Decrease)
 % Change
 2018 2017 
 (in thousands)  
Operational metrics:       
Total consumer broadband subscribers(1)
4,906
 5,226
 (320) (6)%
Total employees47
 40
 7
 18 %

(1)Consumer broadband subscribers are customers that purchase broadband connection service through their existing telephone lines, stand-alone telephone lines, or fiber-optic cables. Our methodology for counting our consumer 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 lastFor over a decade, we have experienced revenue declines, excluding the impact of acquisitions, primarily due to declines in access lines,voice and private line customers, switched access rates and minutes of use. More recently, we have experienced declines in revenue derived from the sale of certain of our business products and services. To partially mitigate these revenue declines, we remain focused on efforts to, among other things:
promote long-term relationships with our customers 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;
provide our premium services to a higher percentage of our customers;
pursue acquisitions of additional assets if available at attractive prices;

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increase prices on our products and services if and when practicable; and
market our products and services to new customers.
Operating RevenuesRevenue
We categorize our products and services and revenuesrevenue among the following five categories:four categories for the International and Global Accounts Management, Enterprise, Small and Medium Business and Wholesale segments:
IP and data servicesData Services, which include primarily VPN data networks, Ethernet, IP, video (including our facilities-based video services, CDN services and Vyvx broadcast services) and other ancillary services;

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Transport and infrastructureInfrastructure, 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 collaborationCollaboration, which includes primarily local and long-distance voice, including wholesale voice, and other ancillary service;services;
IT and managed servicesManaged Services, which include information technology services and managed services, which may be purchased in conjunction with our other network services; and
We categorize our products and services revenue among the following four categories for the consumer segment:
Broadband, which include consumer broadband revenue; and
Voice, which include consumer local and long-distance revenue; and
Regulatory revenues,Revenue, which consist of (i) Universal Service Fund ("USF") and, Connect America Fund ("CAF") support payments and other operating revenues. We receive federal support payments from both federal and state USF programs 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. We generateservices and (ii) other operating revenuesrevenue from the leasing and subleasing of space inspace; and
Other, which include consumer retail video revenue (including our office buildings, warehousesfacilities-based video revenue), professional services and other properties and from rental income associated with the failed-sale-leaseback. Because we centrally manage the activities that generate these regulatory revenues, these revenues are not included in our segment revenues.ancillary services.
The following table summarizes our consolidated operating revenuesrevenue recorded under each of our fiveeight above described revenue categories:
 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%
 Three Months Ended March 31, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
IP and Data Services$1,749
 1,735
 14
 1 %
Transport and Infrastructure1,290
 1,368
 (78) (6)%
Voice and Collaboration1,023
 1,111
 (88) (8)%
IT and Managed Services144
 162
 (18) (11)%
Broadband722
 712
 10
 1 %
Voice489
 557
 (68) (12)%
Regulatory159
 183
 (24) (13)%
Other71
 117
 (46) (39)%
Total operating revenue$5,647
 5,945
 (298) (5)%

 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%
_______________________________________________________________ Our total operating revenue decreased by $298 million, or 5%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 primarily due to decreases in six of the eight revenue categories. Voice revenue under our Consumer segment, transport and infrastructure revenue under our Wholesale and Enterprise segments and voice and collaboration revenue under our Wholesale and Small and Medium Business segments experienced our largest decreases.

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Operating Expenses

The following table summarizes our consolidated operating expenses:
 Three Months Ended March 31, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Cost of services and products (exclusive of depreciation and amortization)$2,520
 2,803
 (283) (10)%
Selling, general and administrative932
 1,109
 (177) (16)%
Depreciation and amortization1,188
 1,283
 (95) (7)%
Goodwill impairment6,506
 —
 6,506
 nm
Total operating expenses$11,146
 5,195
 5,951
 115 %

(1)nmIncludes primarily VPN data network, Ethernet, IP, video, retail video revenues (including our facilities-based video revenues)Percentages greater than 200% and ancillary revenues.
(2)Includes primarily broadband, private line (including business data services), colocationcomparisons between positive 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.negative values or to/from zero values are considered not meaningful.
Our total operating revenues increased by $1.812 billion, or 44%, and by $3.548 billion, or 43%, for the three and six months ended June 30, 2018, respectively, as compared to the three and six months ended June 30, 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 Legacy CenturyLink transport and infrastructure and voice and collaboration revenue. The decrease in transport and infrastructure was primarily due to the sale of the colocation and data center business in May 2017 and a decrease in private line business resulting from lower volumes. The decrease in voice and collaboration was due to continued decreases in revenue from our traditional voice telecommunications services.
Operating Expenses
The following tables summarize our consolidated operating expenses:
 Three Months Ended June 30, Increase /
(Decrease)		 % Change 
 2018 2017  
 (Dollars in millions)  
Cost of services and products (exclusive of depreciation and amortization)$2,730
 1,890
 840
 44%
Selling, general and administrative1,115
 884
 231
 26%
Depreciation and amortization1,290
 949
 341
 36%
Total operating expenses$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) increaseddecreased by $840$283 million, or 44%, and by $1.755 billion, or 46%10%, for the three and six months ended June 30, 2018,March 31, 2019 as compared to the three and six months ended June 30, 2017.March 31, 2018. The increasedecrease in costs 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 June 30, 2018. These were partially offset by a decrease in costs of services and products (exclusive of depreciation and amortization) for Legacy CenturyLink of $140 million, or 7%, and $223 million, or 6%, for the three and six months ended June 30, 2018 as compared to the three and six months ended June 30, 2017. This was primarily due to reductions inlower salaries and wages and employee related expenses from lower headcount, reduced overtimecustomer premises equipment costs, a decline in content costs for Prism TV, lower network expense and USF rates and lower real estatespace and power expenses, which were slightly offset by higher right of way and dark fiber expenses.

Selling, General and Administrative

Selling, general and administrative expenses decreased by $177 million, or 16% for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The decrease in selling, general and administrative expenses was attributable to lower salaries and wages and employee related expenses from the 2017 salelower headcount, a decline in contract labor costs, lower professional fees and hardware and software expenses and a reduction in marketing and advertising expenses, which were slightly offset by higher internal commissions.

Depreciation and Amortization

The following table provides detail of our data centersdepreciation and colocation business.amortization expense:
 Three Months Ended March 31, Increase/(Decrease) % Change
 2019 2018  
 (Dollars in millions)  
Depreciation$759
 839
 (80) (10)%
Amortization429
 444
 (15) (3)%
Total depreciation and amortization$1,188
 1,283
 (95) (7)%
Depreciation expense decreased by $80 million, or 10%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 primarily due to a net decline in depreciable assets of $47 million, the impact of annual rate depreciable life changes of $27 million and the discontinuation of depreciation on failed sale leaseback assets of $17 million, partially offset by increases associated with purchase price depreciation adjustments of $13 million.


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Selling, General and Administrative
Selling, general and administrative expenses increasedAmortization expense decreased by $231$15 million, or 26%, and by $530 million, or 31%3%, for the three and six months ended June 30, 2018March 31, 2019 as compared to the three and six months ended June 30, 2017. The increase in selling, general and administrative expenses was attributableMarch 31, 2018 primarily due to decreases associated with the inclusionuse of $388accelerated amortization methods for a portion of the customer intangibles of $18 million, decreases associated with purchase price amortization adjustments of $6 million and $732decreases associated with software amortization of $6 million, for the three and six months ended June 30, 2018, respectively, in Legacy Level 3 costs in our consolidated selling, general and administrative expenses. This was partially offset by a decreasenet growth in Legacy CenturyLink's selling, general and administrative expensesamortizable assets of $157 million, or 18%, and $202 million, or 12%, for the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017. This was primarily due to reductions in contract labor, marketing expenses and external commissions as well as third-party hosting cost reductions resulting from the sale of our data centers and colocation business.$17 million.
Depreciation and Amortization
The following tables provide detail of our depreciation and amortization expense:
 Three Months Ended June 30, Increase / (Decrease) % Change
 2018 2017  
 (Dollars in millions)  
Depreciation$843
 673
 170
 25%
Amortization447
 276
 171
 62%
Total depreciation and amortization$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 increased by $170 million, or 25%, and by $405 million, or 32%, for the three and six months ended June 30, 2018, respectively, as compared to the three and six months ended June 30, 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 six months ended June 30, 2018 was higher than the depreciation expense for the six months ended June 30, 2017 due to the inclusion of the Legacy Level 3 depreciation expense of $231 million and $468 million for the three and six months ended June 30, 2018, respectively, which was partially offset by lower legacy CenturyLink depreciation expense.
Amortization expense increased by $171 million, or 62%, and by $339 million, or 62%, for the three and six months ended June 30, 2018 as compared to the three and six months ended June 30, 2017, respectively. The increase in amortization expense was primarily due to the inclusion of the Legacy Level 3 amortization expense of $202 million and $396 million for the three and six months ended June 30, 2018, which was partially offset by lower Legacy CenturyLink amortization expense due to an accelerated method of amortization for certain intangible assets.
Further analysis of our segment operating expenses by segment is provided below in "Segment Results."

Goodwill Impairments

TableWe are required to perform impairment tests related to our goodwill annually, which we perform as of ContentsOctober 31, or sooner if an indicator of impairment occurs. Due to our January 2019 internal reorganization and the decline in our stock price, we incurred two events in the first quarter of 2019 that triggered impairment testing. Due to the impairment indicators noted as a result of these triggering events, we evaluated our goodwill for the internal reorganization in January, and again as of March 31, 2019 as a result of the decline in our stock price.

Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of multiple reporting units. For each reporting unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit. If the estimated fair value of the reporting unit is equal or greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the reporting unit is less than the carrying value, we record an impairment equal to the excess amount.

When we performed our October 31, 2018 annual impairment test, we estimated the fair value of our reporting units by considering both a market approach and a discounted cash flow method. The market approach method includes the use of multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting units beyond the cash flows from the discrete projection period. Because our low stock price was a trigger for impairment testing, we estimated the fair value of our operations using only the market approach. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple for each of our reporting units within this range. We reconciled the estimated fair values of the reporting units to our market capitalization as of the date of each of our triggering events during the first quarter and concluded that the indicated control premium of approximately 4.1% was reasonable based on recent transactions in the market place. For the three months ended March 31, 2019, based on our assessments performed with respect to the reporting units as described above, we concluded that the estimated fair value of certain of our reporting units was less than our carrying value of equity as of the date of each of our triggering events during the first quarter. As a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $6.5 billion for the three months ended March 31, 2019. 

Other Consolidated Results

The following tables summarize our total other expense, net and income tax expense:
Three Months Ended June 30, Increase /
(Decrease)		 % ChangeThree Months Ended March 31, Increase/(Decrease) % Change
2018 2017 2019 2018 
(Dollars in millions)  (Dollars in millions)  
Interest expense$(546) (320) 226
 71%$(523) (535) (12) (2)%
Other income (expense), net16
 (7) 23
 nm
Other (expense) income, net(5) 21
 (26) nm
Total other expense, net$(530) (327) 203
 62%$(528) (514) 14
 3 %
Income tax (benefit) expense$(55) 23
 (78) nm
Income tax expense$138
 121
 17
 14 %

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

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Interest Expense

Interest expense increaseddecreased by $226$12 million, or 71%2%, for the three months ended June 30, 2018March 31, 2019 as compared to the three months ended June 30, 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.March 31, 2018. The increasedecrease in interest expense for both periods was primarily due to our issuance and assumptionnot recording, during the first quarter of debt in conjunction2019, interest associated with the acquisitionfailed sale leaseback that was derecognized as of Level 3.January 1, 2019 upon implementation of ASC 842 (new leasing standard).

Other (Expense) Income, (Expense), Net

Other (expense) 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 changeddecreased by $23 million and by $50$26 million for the three and six months ended June 30, 2018, respectively,March 31, 2019 as compared to the three and six months ended June 30, 2017March 31, 2018. The decrease in other income, net was primarily due to a decreasedincreased pension and post retirement charge and favorable foreign exchange rates duringpostretirement net periodic expense, which was partially offset by gain on the first six monthsearly extinguishment of 2018 compared to the first six months of 2017. In addition, the three and six months ended June 30, 2018 included other income attributable to Level 3.debt.

Income Tax Expense

For the three months ended June 30,March 31, 2019 and 2018, and 2017, our effective income tax rate was (23.2)%(2.3%) and 57.5%, respectively. For the six months ended June 30, 2018 and 2017, our effective income tax rate was 14.0% and 48.1%51.3%, respectively. The effective tax rate for the sixthree months ended June 30,March 31, 2019 was primarily due to the goodwill impairment. Without the goodwill impairment, the rate would be 28.8%. The effective tax rate for the three months ended March 31, 2018 was significantly impacted by the tax 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 the tax reform impact on those adjustments of $76 million. The rate was further impacted by the enactment of the Tax Cuts and Jobs Act legislation in December 2017. See Recent Tax Changes2017 which resulted in "Liquiditya re-measurement of our deferred tax assets and Capital Resources—Other Matters". The effectiveliabilities at the new federal corporate tax rate for the six months ended June 30, 2017 includes the tax impact of certain employee stock-based compensation transactions, the tax impact of the sale and related corporate actions we have taken regarding certain subsidiaries involved in the data centers and colocation business.rate.

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Segment Results

General

For financial reporting purposes, we have determined that as of June 30, 2018March 31, 2019 we had twofive reportable segments.

We have four segments business and consumer.
The results of our 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)
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%
For additional information on our reportable segments, see Note 11—Segment Information.
Products and Services
In connectionassociated with our acquisition of Level 3 on November 1, 2017, we revised the waybusiness customers: International and Global Accounts Management, Enterprise, Small and Medium Business and Wholesale. For our four segments associated with our business customers, we categorize our products and services and now report our related revenuesrevenue under the following categories: IP and data services, transport and infrastructure, voice and collaboration and IT and managed services. For our Consumer segment, we categorize our products and services and report our related revenue under the following categories: broadband, voice, regulatory revenues.revenue and other. From time to time, we change 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 customers value the convenience and price discounts associated with receiving multiple services through a single company.

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The results of our reportable segments are summarized below:
 Three Months Ended March 31, 2019
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Revenue:        
IP and Data Services$420
688
300
341
—
1,749
—
1,749
Transport and Infrastructure320
364
107
499
—
1,290
—
1,290
Voice and Collaboration94
397
336
196
—
1,023
—
1,023
IT and Managed Services57
74
12
1
—
144
—
144
Broadband—
—
—
—
722
722
—
722
Voice—
—
—
—
489
489
—
489
Regulatory—
—
—
—
159
159
—
159
Other—
—
—
—
71
71
—
71
Total Revenue$891
1,523
755
1,037
1,441
5,647
—
5,647
Expenses:        
Cost of Services and Products259
496
153
141
87
1,136
1,384
2,520
Selling, general and administrative68
149
132
20
109
478
454
932
Less: Share-based compensation—
—
—
—
—
—
(33)(33)
Total expense327
645
285
161
196
1,614
1,805
3,419
Total adjusted EBITDA$564
878
470
876
1,245
4,033
(1,805)2,228


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 Three Months Ended March 31, 2018
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Revenue:        
IP and Data Services$440
665
291
339
—
1,735
—
1,735
Transport and Infrastructure321
399
110
538
—
1,368
—
1,368
Voice and Collaboration101
410
369
231
—
1,111
—
1,111
IT and Managed Services73
73
14
2
—
162
—
162
Broadband—
—
—
—
712
712
—
712
Voice—
—
—
—
557
557
—
557
Regulatory—
—
—
—
183
183
—
183
Other—
—
—
—
117
117
—
117
Total Revenue$935
1,547
784
1,110
1,569
5,945
—
5,945
Expenses:        
Cost of Services and Products272
514
153
176
158
1,273
1,530
2,803
Selling, general and administrative68
152
127
24
135
506
603
1,109
Less: Share-based compensation—
—
—
—
—
—
(41)(41)
Total expense340
666
280
200
293
1,779
2,092
3,871
Total adjusted EBITDA$595
881
504
910
1,276
4,166
(2,092)2,074


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The following table summarized the variances for our segments for the three months ended March 31, 2019 to the three months ended March 31, 2018:
 Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Revenue:        
IP and Data Services$(20)23
9
2
—
14
—
14
Transport and Infrastructure(1)(35)(3)(39)—
(78)—
(78)
Voice and Collaboration(7)(13)(33)(35)—
(88)—
(88)
IT and Managed Services(16)1
(2)(1)—
(18)—
(18)
Broadband—
—
—
—
10
10
—
10
Voice—
—
—
—
(68)(68)—
(68)
Regulatory—
—
—
—
(24)(24)—
(24)
Other—
—
—
—
(46)(46)—
(46)
Total Revenue$(44)(24)(29)(73)(128)(298)—
(298)
Expenses:




   
Cost of Services and Products(13)(18)—
(35)(71)(137)(146)(283)
Selling, general and administrative—
(3)5
(4)(26)(28)(149)(177)
Less: Share-based compensation—
—
—
—
—
—
8
8
Total expense(13)(21)5
(39)(97)(165)(287)(452)
Total adjusted EBITDA$(31)(3)(34)(34)(31)(133)287
154

For additional information on our reportable segments and product and services categories, see Note 11—Segment Information to our consolidated financial statements in Item 1 of Part I of this report.





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International and Global Accounts Management, Enterprise, Small and Medium Business Segmentand Wholesale segments
The operations of our business segmentthese four segments have been, and are expected to continue to be, impacted by several significant trends, including those described below:

RevenuesRevenue. Our mix of total business segment revenues continuesrevenue from these segments continue to migrate from traditional wireline voice services to newer, lower cost more technologically advanced products and services as our small, medium and enterprise business, wholesale and governmentsegment customers increasingly demand integrated data, broadband, hosting and voice services. Our Ethernet-based services in the wholesale market face competition from cable companies and competitive fiber-based telecommunications providers. Demand for our private lines services (including business data services) continues to decline due to our customers' optimization of their networks, industry consolidation and technology migration to higher-speed services. We anticipate continued pricing pressure for our colocation services as our competitors continue to expand 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 enhanced competition for contracts, and we expect these trends to continue. Customers' demand for new technology has also increased the number of competitors offering services similar to ours. Price compression from each of these above-mentioned competitive pressures has negatively impacted the operating margins of certain business product and service offerings, and we expect this trend to continue. Our traditional wireline products and services revenues haverevenue has 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 revenuesrevenue have been, and we expect will continue to be, adversely affected by customer migration to more technologically advanced services, a substantial increase in the use of non-voice communications, industry consolidation and price compression caused by various factors. For example, many of our business segment customers are substituting cable, wireless and Voice over Internet Protocol ("VoIP") services for traditional voice telecommunications services, resulting in continued access revenue loss. Demand for our private line services (including 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 traditional wireline services generally face fewer direct competitors than certain of our newer, lower cost more advanced products and services, customer migration and, to a lesser degree, price compression from competitive pressures have negatively impacted our traditional wireline revenuesrevenue and the operating margins of these services. We expect this trend to continue. We expect both equipment 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 government customers, many of whom have experienced substantial budget cuts over the past several years, with the possibility of additional future budget cuts.

Expenses. Our operating costs also impact the operating margins of all of our 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. 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 business segmentsegments to benefit indirectly from any enhanced efficiencies in our company-wide network operations.


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The following tables summarize the results of operations from our business segment:
 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 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.
 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%  
  
_________________________________________________________________ 
(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.

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International and Global Accounts Segment Revenue

Segment Revenues
BusinessInternational and global accounts segment revenues increasedrevenue decreased by $1.895 billion,$44 million, or 77%5%, for the three months ended June 30, 2018March 31, 2019 as compared to the three months ended June 30, 2017 and increasedMarch 31, 2018. Segment revenue decreased by $3.688 billion,$27 million, or 73%3%, for the sixthree months ended June 30, 2018March 31, 2019 as compared to the sixthree months ended June 30, 2017.March 31, 2018 after adjustment for foreign exchange fluctuations. The increasedecrease in segment operating revenue was largely attributable to lower revenue associated with IP and data services, IT and managed services and voice and collaboration. Foreign currency was a factor in the year-over-year decline and IP and data services declined mostly due to reduced rates and lower traffic; IT and managed services declined due to a large contract that was renegotiated in the second quarter of 2018, and voice declines are in line with broader market trends as customers move away from time-division multiplexing (“TDM”).

International and Global Accounts Segment Expenses

International and global accounts segment expenses decreased by $13 million, or 4%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The decrease in our international and global accounts segment expenses was primarily due to a direct cost of revenue decline commensurate with the revenue decline.

International and Global Accounts Segment Adjusted EBITDA

International and global accounts segment adjusted EBITDA decreased by $31 million, or 5%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. Adjusted EBITDA as a percentage of revenue was 63% for the three months ended March 31, 2019 as compared to 64% for the three months ended March 31, 2018. The decrease in our international and global accounts segment adjusted EBITDA was due predominantly to the reduction of revenue.

Enterprise Segment Revenue

Enterprise segment revenue decreased by $24 million, or 2%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The decrease in our total operating revenuesrevenue 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 Legacy CenturyLinklower transport and infrastructure and voice and collaboration revenue, partially offset by increased IP and data services revenue. The transportTransport and infrastructure decrease wasInfrastructure declines are primarily due todriven by seasonal decreases in equipment and professional services revenue, coupled with the saleimpact of the collocationFederal Government shut down. Voice and collaboration declines are driven by a combination of customer churn of legacy voice TDM products and lower rates on customers transitioning to VoIP. Increases in IP and data center business in May 2017 while the decrease in voiceservices revenue offset some of these declines, driven mainly by customers migrating off traditional wireline services and collaboration was due to continued decreases in revenue from our traditional voice telecommunications services.onto more technologically advanced products.

Enterprise Segment Expenses
Business
Enterprise segment expenses increaseddecreased by $986$21 million, or 64%3%, for the three months ended June 30, 2018March 31, 2019 as compared to the three months ended June 30, 2017 and increased by $1.990 billion, or 64%, for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017.March 31, 2018. The increasedecrease in our businessEnterprise segment expenses was primarily due to the inclusionlower equipment, professional services and voice expenses, partially offset by increases in cost of Level 3 expensessales for the first six months of 2018.IP and data services.

Enterprise Segment Adjusted EBITDA
Business
Enterprise segment adjusted EBITDA increaseddecreased by $909$3 million, or 98%less than 1%, for the three months ended June 30, 2018March 31, 2019 as compared to the three months ended June 30, 2017 and increased by $1.698 billion, or 87%,March 31, 2018. Adjusted EBITDA as a percentage of revenue was 58% for the sixthree months ended June 30, 2018March 31, 2019 as compared to 57% for the sixthree months ended June 30, 2017.March 31, 2018. The increasedecrease in our businessenterprise segment adjusted EBITDA was due predominantly to items mentioned above.


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Small and Medium Business Segment Revenue

Small and medium business segment revenue decreased by $29 million, or 4%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The decrease in segment operating revenue was largely attributable to lower voice and collaboration revenue partially offset by increased IP and data services revenue.

Small and Medium Business Segment Expenses

Small and medium business segment expenses increased by $5 million, or 2%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The increase in our small and medium business segment expenses was primarily due to higher external commissions paid to partners, partially offset by lower employee compensation due to lower headcount.

Small and Medium Business Segment Adjusted EBITDA

Small and medium business segment adjusted EBITDA decreased by $34 million, or 7%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. Adjusted EBITDA as a percentage of revenue was 62% for the three months ended March 31, 2019 as compared to 64% for the three months ended March 31, 2018. The decrease in our small and medium business segment adjusted EBITDA was due predominantly to the reduction of revenue.

Wholesale Segment Revenue

Wholesale segment revenue decreased by $73 million, or 7%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The decrease in segment operating revenue was largely attributable to lower revenue associated with transport and infrastructure and voice and collaboration services. Transport declines are primarily driven by customer churn and network consolidation and grooming.  Voice product declines are driven by a combination of market rate compression and customer volume losses resulting from insourcing and industry consolidation.

Wholesale Segment Expenses

Wholesale segment expenses decreased by $39 million, or 20%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The decrease in our wholesale segment expenses was primarily due to a direct cost of revenue decline commensurate with the revenue decline, network grooming, and operating synergies.

Wholesale Segment Adjusted EBITDA

Wholesale segment adjusted EBITDA decreased by $34 million, or 4%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. Adjusted EBITDA as a percentage of revenue was 84% for the three months ended March 31, 2019 as compared to 82% for the three months ended March 31, 2018. The decrease in our wholesale segment adjusted EBITDA was due predominantly to items mentioned above. A combination of changing product mix and realized cost savings resulted in improved adjusted EBITDA as a percent of revenue.

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:

Revenues.Revenue. 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 connectiontransmission 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 rates in new subscribers have slowed or declined. Moreover, as described further in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2017,2018, certain of our competitors continue to provide broadband services at higher average transmission speeds than ours or through advanced

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wireless data service offerings, both of which we believe have impacted the competitiveness of certain of our broadband offerings in certain of our markets. Our voice revenues haverevenue has 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 revenuesrevenue 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. Customer migration and price compression from competitive pressures have not only negatively impacted our traditional wireline services revenues,revenue, but they have also negatively impacted the operating margins of these 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 and 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 traditional wireline products and services, but to a lesser extent than customer migration and price compression. Operating costs also tend to impact our traditional wireline products and services operating margins to a lesser extent than our newer, more technologically advanced products and services 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 and 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. Following a review of our retail customers’ order preferences, we elected to close during the fourth quarter of 2018 substantially all of our remaining retail stores, which we believe will enable us to reduce operating costs and to redeploy capital to higher growth initiatives. We also expect our consumer segment to benefit indirectly from any 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 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 retail video revenues (including our facilities-based video revenues).
(2)Includes primarily broadband and equipment sales and professional services revenues.
(3)Includes local, long-distance and other ancillary revenues.

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 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%  
  
__________________________________________________________________ 
(1)Includes retail video revenues (including our facilities-based video revenues).
(2)Includes primarily broadband and equipment sales and professional services revenues.
(3)Includes local, long-distance and other ancillary revenues.
Segment RevenuesRevenue

Consumer segment revenuesrevenue decreased by $85$128 million, or 6%, and by $153 million, or 5%8%, for the three and six months ended June 30, 2018,March 31, 2019, as compared to the three and six months ended June 30, 2017.March 31, 2018. The decrease in our consumer segment revenuesrevenue was primarily due to a decreasedecreases in our Voicevoice, other and regulatory revenue duedriven by continued churn and active discontinuance of video services marketing, in addition to the continuedderecognition of our prior failed sales leaseback, partially offset by an increase in broadband revenue. We continue to experience a decline in usage of our traditional voice telecommunications services.services for the reasons described above.

Segment Expenses

Consumer segment expenses decreased by $62$97 million, or 10%33%, for the three months ended June 30, 2018March 31, 2019 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.March 31, 2018. The decrease in our consumer segment expenses was primarily due to a reduction in headcount costs, decreases in marketing expenses and lower network expense in response to a smaller customer base.TV content costs.

Segment Adjusted EBITDA

Consumer segment adjusted EBITDA decreased by $23$31 million, or 3%2%, for the three months ended June 30, 2018March 31, 2019 as compared to the three months ended June 30, 2017 and decreased by $63 million, or 4%March 31, 2018. Adjusted EBITDA as a percentage of revenue was 86% for the sixthree months ended June 30, 2018March 31, 2019 as compared to 81% for the sixthree months ended June 30, 2017.March 31, 2018. The decrease in our consumerConsumer segment adjusted EBITDA was due predominantly to items mentioned above.


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Liquidity and Capital Resources

Overview of Sources and Uses of Cash

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, resulted in significant changes in our consolidated financial position, our debt structure and our future cash requirements.
Our executive officers and our Board of Directors periodically review our sources and potential uses of cash, particularly in connection with our budgeting 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 pension contributions and other benefits payments. We currently expect our cash income tax payments will be lower in 2018 due to lower income tax rates and the utilization of the NOLs acquired in the Level 3 acquisition.

Based on our current capital allocation objectives, during the remainder of 2018,2019 we project expending approximately 16%$3.5 billion to $3.8 billion (excluding integration and transformation capital) of revenue for cash for capital investment in property, plant and equipment and approximately $577$271 million of cash for dividends per quarter on our common stock (based on the assumptions described below under "Dividends"). At June 30, 2018,March 31, 2019, we havehad debt maturities of $174$429 million,, scheduled debt principal payments of $164 million and capitalfinance lease and other fixed payments of $99$39 million, each due during the next twelve months. Each of the expenditures is described further below.

At June 30, 2018,March 31, 2019, we held cash and cash equivalents of $700$441 million, and we had $2.168approximately $1.5 billion of borrowing capacity available under our revolving credit facility. We had approximately $126$96 million of cash and cash equivalents outside the United States at June 30, 2018.March 31, 2019. We currently believe we have the ability to repatriate cash and cash equivalents into the United States without paying or accruing U.S. taxes.taxes (subject to complying with applicable currency, repatriation or similar laws or limitations).

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.corporate purposes.

For additional information, see "Risk Factors—Risks Affecting Our Liquidity and Capital Resources" in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2017.2018.

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.offerings and comply with regulatory requirements. 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 2II infrastructure buildout requirements). Based on current circumstances, we estimate that our total capital expenditures for 20182019 will be approximately 16% of our consolidated revenue,$3.5 billion to $3.8 billion, inclusive of CAF Phase 2II related capital expenditures, but excluding integration and integrationtransformation capital.

Our capital expenditures continue to be focused on keepingmaintaining the network operating efficientlyefficiency of our network 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, 2017.2018.

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Debt and Other Financing Arrangements

Subject to market conditions, we expect to continue to issue debt securitiesinstruments from time to time in the future to refinance a substantial portion of our maturing debt, including issuing Qwest Corporation and Level 3 Financing, Inc. debt securitiesinstruments to refinance their maturing debt to the extent we deem appropriate and 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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Also subject to market conditions, we expect from time to time to retire debt securities prior to their maturity.

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 from previous levels as they indicated they intended to at the time of the announcement of the transaction. Additionally,On February 14, 2019, Standard and Poor's and Moody's Investors Service,revised its outlook on all CenturyLink, Inc. placed suchcredit ratings onfrom negative outlook while 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.
to stable. As of the date of this report,March 31, 2019, the credit ratings for the senior unsecured debt and senior secured debt of CenturyLink, Inc., Qwest Corporation, Level 3 Parent, LLC and Level 3 Financing, Inc., as well as the senior unsecured debt of Qwest Corporation and Level 3 Parent, LLC 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-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 I of our annual report on Form 10-K for the year ended December 31, 2017.2018.
Cash Income Taxes
Net Operating Losses

As of December 31, 2017,2018, CenturyLink had approximately $9.1$7.3 billion of federal net operating loss carryforwards.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 acquired through the Level 3 acquisition on November 1, 2017, and are subject to prior limitations under Section 382 of the Internal Revenue Code ("Code") and related U.S. Treasury Department regulations. Additionally,On February 13, 2019, we entered into a Section 382 rights agreement designed to safeguard our ability to use those NOLs. Assuming that we can continue using these NOLs are subject to a current Section 382 limitation as a result of our acquisition of Level 3. Prior to this acquisition,in the amounts of our cash flows dedicated to or required for the payment of federal taxes increased substantially in 2017. We cannot assure you that we will be able to use these NOL carryforwards fully.
As a result of the completion of the Level 3 acquisition,projected, 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 the implementationresults of the recent federalany corporate tax reform.

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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$0.25 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing our business, paying our fixed commitments and returning a substantial portion of our cash to our shareholders. Assuming continued payment during 20182019 at this rate of $0.54$0.25 per share, our average total dividend paid each quarter would be approximately $577$271 million based on the number of our outstanding shares at June 30, 2018.March 31, 2019.

Revolving Facilities and Other 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 "2017 CenturyLink Credit Agreement") providingwhich provides for $9.945$10.2 billion in senior secured credit facilities. These facilities consisting ofincluded a new $2.0$2.2 billion revolving credit facility (which replaced our 2012 credit facility upon consummationwith $695 million outstanding as of the Level 3 acquisition)March 31, 2019 and $7.945an $8.0 billion of term loan facilities with $7.9 billion outstanding as 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.March 31, 2019. For additional information, see (i) Note 5—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 1 of Part I of this report and (ii) Note 5—Long-Term Debt and Credit Facilities in Item 8 of Part II of our current reportAnnual Report on Form 8-K filed with10-K for 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.year ended December 31, 2018.

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 June 30, 2018,March 31, 2019, we had $131$84 million of letters of credit outstanding under this facility.

Additionally, as of March 31, 2019, we had outstanding letters of credit or other similar obligations of approximately $30 million of which $24 million is collateralized by cash that is reflected on the consolidated balance sheets in restricted cash and securities.

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, 2017,2018, the accounting unfunded status of our qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was $2.062$1.6 billion and $3.352$3.0 billion, respectively. For additional information about our pension and post-retirement benefit arrangements, see "Critical Accounting Policies and Estimates-PensionsEstimates - Pensions and Post-Retirement Benefits" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20172018 and see Note 9—10—Employee Benefits to our consolidated financial statements in Item 8 of Part II of the 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 2018.2019. The amount of required contributions to our qualified pension plan in 20192020 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 madeHowever, based on current circumstances, we do not anticipate making a voluntary contribution of $100 million to the trust for our qualified pension plan during the second quarter of 2018 and a $400 million voluntary contribution during the third quarter of 2018.in 2019.


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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, 2017,2018, assets in the post-retirement trusts had been substantially depleted and had a fair value of $23only $18 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 willplan to 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—10—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 $249 million, $237 million $129 million and $116$129 million for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively, while the amounts paid from the trust were $4 million, $31 million $145 million and $163$145 million, respectively. For additional information on our expected future benefits payments for our post-retirement benefit plans, please see Note 9—10—Employee Benefits to our consolidated financial statements in Item 8 of Part II of our annual report Form 10-K for the year ended December 31, 2017.2018.

For 2018,2019, our estimated annual long-term rates of return, net of administrative costs, are 6.5% and 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, 2017.2018.

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 anticipate makingmay be obligated to make 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, 20172018 and see "Risk Factors—Risks Affecting our Liquidity and Capital Resources" in Item 1A of Part I of ourthe same annual report on Form 10-K for the year ended December 31, 2017.

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report.

Historical Information

The following table summarizes our consolidated cash flow activities:
Six Months Ended June 30,  Increase /
(Decrease)		Three Months Ended March 31, Change
2018 2017 2019 2018 
(Dollars in millions)(Dollars in millions)
Net cash provided by operating activities$3,249
 1,742
 1,507
$1,182
 1,667
 (485)
Net cash used in investing activities(1,512) (94) 1,418
(906) (768) (138)
Net cash (used in) provided by financing activities(1,590) 4,485
 6,075
Net cash used in financing activities(320) (949) 629

Operating Activities

Net cash provided by operating activities increaseddecreased by $1.507 billion$485 million for the sixthree months ended June 30, 2018March 31, 2019 as compared to the sixthree months ended June 30, 2017March 31, 2018, primarily due to the increasea decrease in net income adjusted for non-cash items and the positive impact from changes in other noncurrent assetsaccounts payable and other noncurrent liabilities, net,accrued expenses partially offset by the decreaseincrease in accruedoperating income and other taxes and retirement benefits.excluding goodwill impairment. 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, and bonuses.

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Investing Activities

Net cash used in our investing activities increased by $1.418 billion$138 million for the sixthree months ended June 30, 2018March 31, 2019 as compared to the sixthree months ended June 30, 2017March 31, 2018 substantially due to the cash proceeds received from the sale of our data centers and colocation business which occurredincrease in the six months ended June 30, 2017.capital expenditures.

Financing Activities

Net cash used in our financing activities decreased by $6.075 billion$629 million for the sixthree months ended June 30, 2018March 31, 2019 as compared to the sixthree months ended June 30, 2017 substantiallyMarch 31, 2018, primarily due to net proceeds received on the revolving line of credit for the three months ended March 31, 2019 compared to payments for the three months ended March 31, 2018. In addition, we decreased our dividends paid for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The decrease in dividends reflect the decrease of the per share dividend amount to $0.25 for the three months ended March 31, 2019 from the $0.54 per share amount for the three months ended March 31, 2018. These decreases were partially offset by an increase in payments on long-term debt and lower net proceeds from issuance of long-term debt which occurred infor the sixthree months ended June 30, 2017 and an increase in dividends paid. For more information, see Note 6—Long-Term Debt and Credit Facilities.March 31, 2019 as compared to three months ended March 31, 2018.
On January 29, 2018, the 2017 CenturyLink 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 redeemed all $13 million of its 8.77% Notes due 2019, which resulted in an immaterial loss.
See Note 6—5—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

We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. See Note 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 Tax Cuts and Jobs Act (the "Act"), which was signed into law in late December 2017. In order to complete our accounting for the impact of the Act, 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 provision for income taxes in future periods.
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.
Market Risk

As of June 30, 2018,March 31, 2019, 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 June 30, 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.

On February 15, 2019, we executed swap transactions that reduced our exposure to floating rates with respect to $2.5 billion principal amount of floating rate debt. See Note 10—Derivative Financial Instruments to our consolidated financial statements in Item 1 of Part I of this report for additional disclosure regarding the Company’s hedging arrangements.

As of June 30, 2018,March 31, 2019, we did not holdhad approximately $13.3 billion floating rate debt exposed to changes in the London InterBank Offered Rate (LIBOR). A hypothetical increase of 100 basis points in LIBOR relative to this debt would decrease our annual pre-tax earnings by $133 million.

We conduct a portion of our business in currencies other than the U.S. dollar, the currency in which our consolidated financial statements are reported. Accordingly, our operating results could be adversely affected by foreign currency exchange rate volatility relative to the U.S. dollar. Our European subsidiaries and certain Latin American subsidiaries use the local currency as their functional currency, as the majority of their revenue and purchases are transacted in their local currencies. Certain Latin American countries previously designated as highly inflationary economies use the U.S. dollar as their functional currency. Although we continue to evaluate strategies to mitigate risks related to the effect of fluctuations in currency exchange rates, we will likely continue to recognize gains or issue derivative financial instruments for trading or speculative purposes.losses from international transactions. Changes in foreign currency rates could adversely affect our operating results.
As discussed in Note 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 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, including the British Pound, the Euro, the Brazilian Real, the Canadian Dollar, the Japanese Yen, the Hong Kong Dollar and the Singapore Dollar, in each case as of June 30, 2018. Approximately 5% of our consolidated revenues are denominated in these currencies, and our consolidated results of operations could be adversely impacted by volatility in exchange rates. Argentina is expected to be hyperinflationary in 2018. However, the Company already accounts for Argentina in 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 June 30, 2018.March 31, 2019.

Off-Balance Sheet Arrangements

As of June 30, 2018,March 31, 2019, 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—17—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, 2017,2018, 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.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Liquidity and Capital resources—Market Risk" in Item 2 of Part I above.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed by 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, Jeff K. Storey, and our Executive Vice President and Chief Financial Officer, Sunit S. Patel,Indraneel Dev, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2018.March 31, 2019. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective, as of June 30,March 31, 2019, due to the material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the fiscal year ended in December 31, 2018.

Remediation Plans

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, in providing reasonable assurancewe began implementing remediation plans to address the material weaknesses mentioned above. The weaknesses will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the information requiredremediation of the material weaknesses will be completed prior to the end of fiscal 2019.

Changes in Internal Control Over Financial Reporting

During the three months ended March 31, 2019, we implemented new processes and internal controls in response to the adoption of ASU No. 2016-02, "Leases (Topic 842)". These implementations resulted in a material change in a component of our internal control over financial reporting. The operating effectiveness of these changes to our internal control over financial reporting will be disclosed by us in this report was accumulatedevaluated as part of our annual assessment of the effectiveness of internal control over financial reporting for the year ended December 31, 2019.

Other than with respect to the remediation efforts described above and communicatedchanges related to the adoption of ASU 2016-02, there have been no changes in the manner provided above.Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the Company’s first fiscal quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations of Internal Controls
The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. By their nature, our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management's control objectives.
Changes in Internal Control Over Financial Reporting
Beginning 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 the Company's internal control over financial reporting that occurred during the second quarter of 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

The information contained in Note 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. The ultimate outcome of the matters described in Note 12 may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing in such Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us. For more information, see “Risk Factors—Risks Relating to Legal and Regulatory Matters—Our pending legal proceedings could have a material adverse impact on our financial condition and operating results, on the trading price of our securities and on our ability to access the capital markets” in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2018.

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition or future results. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2017.


2018.

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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 secondfirst quarter of 20182019 to satisfy the related minimum tax withholding obligations:
 
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
  
 
Total Number of
Shares Withheld
for Taxes
 
Average Price Paid
Per Share
Period   
January 201921,109
 $17.59
February 20191,340,600
 14.16
March 2019672,677
 12.70
Total2,034,386
  



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ITEM 6. EXHIBITS

Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference. All other exhibits are provided as part of this electronic submission.
Exhibit
Number
Description
10.1CenturyLink, Inc. 2018 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to CenturyLink, Inc.'s Registration Statement on Form S-8 (Registration No. 333-225154) filed with the SEC on May 23, 2018).
a.*
Form of Restricted Stock Agreement for outside directors (for use in 2018 and later years).
b.*
Form of Restricted Stock Unit Agreement for Annual Grants of Time-Based Awards to CEO Jeff K. Storey (for use in 2018 and later years).
c.*
Form of Restricted Stock Unit Agreement for Annual Grants of Performance-Based Awards to CEO Jeff K. Storey (for use in 2018 and later years).
d.*
Restricted Stock Agreement for Time-Based Portion of 2018 Promotion Grant to Jeff 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, 2018.
10.2
Amended and Restated Offer Letter between CenturyLink, Inc. and CEO Jeff K. Storey, effective May 23, 2018 (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 May 25, 2018).
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 2002.
31.2*
Certification of the Chief Financial Officer of CenturyLink, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*
Certification of the Chief Executive Officer and Chief Financial Officer of CenturyLink, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
Financial statements from the Quarterly Report on Form 10-Q of CenturyLink, Inc. for the period ended June 30, 2018,March 31, 2019, formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive (Loss) 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.



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 AugustMay 9, 2018.2019.

 CENTURYLINK, INC.
 By:/s/ Eric J. Mortensen
 
Eric J. Mortensen
Senior Vice President - Controller
 (Principal Accounting Officer)

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