Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File No. 001-7784
ctllogo1a04.jpgctl-20200930_g1.jpg
CENTURYLINK, INC.
(Exact name of registrant as specified in its charter)
Louisiana72-0651161
Louisiana72-0651161
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
100 CenturyLink Drive,
Monroe,Louisiana71203
(Address of principal executive offices)(Zip Code)
(318) (318) 388-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per shareLUMNNew York Stock Exchange
Preferred Stock Purchase RightsN/ANew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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☒Accelerated Filer☐Non-accelerated Filer☐Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐  No ☒
Securities registered pursuant to Section 12(b)On October 30, 2020, there were 1,097,131,230 shares of the Act:
common stock outstanding.
1

Table of Contents

TABLE OF CONTENTS

Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $1.00 per shareCTLNew York Stock Exchange
3
On October 31, 2019, there were 1,090,229,100 shares of common stock outstanding.

Table of Contents

TABLE OF CONTENTS


3
Item 1.
Consolidated Statements of Operations (Unaudited)
6
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
7
Consolidated Balance Sheets (Unaudited)
8
Consolidated Statements of Cash Flows (Unaudited)
910
Consolidated Statements of Stockholders' Equity (Unaudited)
1011
Notes to Consolidated Financial Statements (Unaudited)*
1112
Item 2.
4139
Item 3.
6661
Item 4.
6661
Item 1.
6762
Item 1A.
6762
Item 2.
6864
Item 6.
6965
Signature
7066
* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements.
2

Table of Contents

Special Note Regarding Name Change

On September 14, 2020, we announced the “Lumen” brand launch and effective September 18, 2020, began trading under the ticker symbol “LUMN”. As a result, CenturyLink, Inc. is referred to as “Lumen Technologies”, or simply “Lumen”. The legal name “CenturyLink, Inc.” is expected to be formally changed to “Lumen Technologies, Inc.” upon satisfying all applicable legal requirements.

Special Note Regarding Forward-Looking Statements

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

•statements regarding how the health and economic challenges raised by the COVID-19 pandemic may impact our business, operations, cash flows or financial position;

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

•statements concerning the anticipated impact of our transactions, investments, product development, participation in government programs, and other initiatives, including synergies or costs associated with our transformational initiatives, acquisitions or dispositions, and the impact of our participation in government programs;these initiatives;

•statements about our liquidity, profitability, profit margins, tax position, tax assets, tax rates, asset values, contingent liabilities, growth opportunities, growth rates, acquisition and divestiture opportunities, business prospects, regulatory and competitive outlook, market share, product capabilities, investment and expenditure plans, business strategies, dividend and securities repurchase plans, debt leverage, 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 such as “may,” “will,” “would,” “could,” “should,” “plan,” “believes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “likely,” “seeks,” “hopes,” or variations or similar expressions with respect to the future.

These forward-looking statements are based upon our judgment and assumptions as of the date such statements are made concerning future developments and events, many of which are beyond our control. These forward-looking statements, and the assumptions upon which they are based, (i) are not guarantees of future results, (ii) are inherently speculative and (iii) are subject to a number of risks and uncertainties. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us in those statements if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. All of our forward-looking statements are qualified in their entirety by reference to our discussion of 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 affect actual results include but are not limited to:

•uncertainties due to events outside of our control regarding the impact that COVID-19 health and economic disruptions will continue to have on our business, operations, employees, customers, suppliers, distribution channels, controls, regulatory environment, access to capital, operating or capital plans and corporate initiatives, and ultimately on our financial performance, financial position and cash flows;

•the effects of competition from a wide variety of competitive providers, including decreased demand for our more mature service offerings and increased pricing pressures;

•the effects of new, emerging or competing technologies, including those that could make our products less desirable or obsolete;

3

Table of Contents

•our ability to attain our key operating imperatives, including simplifying and consolidating our network, simplifying and automating our service support systems, strengthening our relationships with customers and attaining projected cost savings;

•our ability to safeguard our network, and to avoid the adverse impact 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, privacy 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;

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

Table of Contents•


our ability to successfully maintain the quality and profitability of our existing product and service offerings and to introduce profitable new offerings on a timely and cost-effective basis;

•our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt repayments, dividends, pension contributions and other benefits payments;

•our ability to successfully and timely implement our operating plans and corporate strategies, including our delevering strategies;strategy;

•changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, whether based upon COVID-19 disruptions, 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, regulations or regulations;disruptions caused by the COVID-19 pandemic;

•the potential negative impact of customer complaints, government investigations, security breaches or service outages impacting us or our industry;

•adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower debt credit ratings, unstable markets or otherwise;

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

•our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions;

•our ability to collect our receivables from, financially troubled customers;or continue to do business with, financially-troubled customers, including, but not limited to, those adversely impacted by the economic dislocations caused by the COVID-19 pandemic;

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

•our ability to obtain approvals to implement our new brand name change;
4

Table of Contents


•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;levels, including those that might occur after the U.S. elections on November 3, 2020;

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

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

•the potential adverse effects of material weaknesses or any other significant deficiencies identified inif our internal controls over financial reporting;reporting have weaknesses or deficiencies, or otherwise fail to operate as intended;

•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; and

•other risks set forth or referenced in "Risk Factors" in Item 1A of Part II of this report or other of our filings with the SEC.U.S. Securities and Exchange Commission (the "SEC").


Table of Contents

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.


5

Table of Contents

PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTURYLINK, INC.
(doing business as Lumen Technologies)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 20182020201920202019
(Dollars in millions, except per share amounts
and shares in thousands)
 (Dollars in millions, except per share amounts, and shares in thousands)
OPERATING REVENUE$5,606
 5,818
 16,831
 17,665
OPERATING REVENUE$5,167 5,350 15,587 16,152 
OPERATING EXPENSES       OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)2,590
 2,672
 7,556
 8,205
Cost of services and products (exclusive of depreciation and amortization)2,236 2,334 6,703 6,877 
Selling, general and administrative831
 967
 2,723
 3,191
Selling, general and administrative850 831 2,598 2,723 
Depreciation and amortization1,235
 1,285
 3,619
 3,858
Depreciation and amortization1,193 1,235 3,515 3,619 
Goodwill impairment—
 —
 6,506
 —
Goodwill impairment0 0 0 6,506 
Total operating expenses4,656
 4,924
 20,404
 15,254
Total operating expenses4,279 4,400 12,816 19,725 
OPERATING INCOME (LOSS)950
 894
 (3,573) 2,411
OPERATING INCOME (LOSS)888 950 2,771 (3,573)
OTHER (EXPENSE) INCOME       OTHER (EXPENSE) INCOME
Interest expense(496) (557) (1,537) (1,638)Interest expense(409)(496)(1,272)(1,537)
Other (loss) income, net(44) (8) (5) 29
Other income (loss), netOther income (loss), net1 (44)(73)(5)
Total other expense, net(540) (565) (1,542) (1,609)Total other expense, net(408)(540)(1,345)(1,542)
INCOME (LOSS) BEFORE INCOME TAXES410
 329
 (5,115) 802
INCOME (LOSS) BEFORE INCOME TAXES480 410 1,426 (5,115)
Income tax expense108
 57
 377
 123
Income tax expense114 108 369 377 
NET INCOME (LOSS)$302
 272
 (5,492) 679
NET INCOME (LOSS)$366 302 1,057 (5,492)
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE       BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
BASIC$0.28
 0.25
 (5.13) 0.64
BASIC$0.34 0.28 0.98 (5.13)
DILUTED$0.28
 0.25
 (5.13) 0.63
DILUTED$0.34 0.28 0.98 (5.13)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING       WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC1,072,543
 1,066,904
 1,070,921
 1,065,410
BASIC1,080,505 1,072,543 1,078,672 1,070,921 
DILUTED1,074,790
 1,072,351
 1,070,921
 1,069,726
DILUTED1,085,666 1,074,790 1,083,368 1,070,921 
See accompanying notes to consolidated financial statements.
6

Table of Contents

CENTURYLINK, INC.
(doing business as Lumen Technologies)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (Dollars in millions)
NET INCOME (LOSS)$302
 272
 (5,492) 679
OTHER COMPREHENSIVE (LOSS) INCOME:       
Items related to employee benefit plans:       
Change in net actuarial loss, net of ($13), ($11), ($41) and ($33) tax41
 34
 126
 101
Change in net prior service credit, net of ($1), $-, ($2) and ($2) tax2
 3
 5
 7
Unrealized holding loss on interest rate swaps, net of $3 and $17 tax(11) —
 (54) —
Foreign currency translation adjustment and other net of $22, ($1), $24 and $29 tax(112) (1) (115) (161)
Other comprehensive (loss) income(80) 36
 (38) (53)
COMPREHENSIVE INCOME (LOSS)$222
 308
 (5,530) 626
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in millions)
NET INCOME (LOSS)$366 302 1,057 (5,492)
OTHER COMPREHENSIVE INCOME (LOSS):    
Items related to employee benefit plans:    
Change in net actuarial loss, net of $(12), $(13), $(37) and $(41) tax38 41 115 126 
Change in net prior service cost, net of $0, $(1), $(1) and $(2) tax1 2 4 5 
Curtailment loss, net of $(1), $0 , $(1), and $0 tax3 0 3 0 
Reclassification of realized loss on interest rate swaps to net income, net of $(5), $—, $(10) and $0 tax15 0 31 0 
Unrealized holding gain (loss) on interest rate swaps, net of $0, $3, $28 and $17 tax1 (11)(87)(54)
Foreign currency translation adjustment and other, net of $(21), $22, $(2) and $24 tax49 (112)(181)(115)
Other comprehensive income (loss)107 (80)(115)(38)
COMPREHENSIVE INCOME (LOSS)$473 222 942 (5,530)
See accompanying notes to consolidated financial statements.
7

Table of Contents

CENTURYLINK, INC.
(doing business as Lumen Technologies)
CONSOLIDATED BALANCE SHEETS

September 30, 2019 (Unaudited) December 31, 2018September 30, 2020 (Unaudited)December 31, 2019
(Dollars in millions
and shares in thousands)
 (Dollars in millions
and shares in thousands)
ASSETS   ASSETS  
CURRENT ASSETS   
CURRENT ASSETS  
Cash and cash equivalents$1,404
 488
Cash and cash equivalents$526 1,690 
Restricted cash3
 4
Accounts receivable, less allowance of $143 and $1422,290
 2,398
Assets held for sale8
 12
Accounts receivable, less allowance of $156 and $106Accounts receivable, less allowance of $156 and $1062,143 2,259 
Other884
 918
Other835 819 
Total current assets4,589
 3,820
Total current assets3,504 4,768 
Property, plant and equipment, net of accumulated depreciation of $28,760 and $26,85925,874
 26,408
Property, plant and equipment, net of accumulated depreciation of $30,921 and $29,346Property, plant and equipment, net of accumulated depreciation of $30,921 and $29,34626,290 26,079 
GOODWILL AND OTHER ASSETS   GOODWILL AND OTHER ASSETS  
Goodwill21,507
 28,031
Goodwill21,476 21,534 
Operating lease assets1,721
 —
Restricted cash24
 26
Customer relationships, net7,902
 8,911
Other intangibles, net1,977
 1,868
Other intangible assets, netOther intangible assets, net8,563 9,567 
Other, net1,134
 1,192
Other, net2,766 2,794 
Total goodwill and other assets34,265
 40,028
Total goodwill and other assets32,805 33,895 
TOTAL ASSETS$64,728
 70,256
TOTAL ASSETS$62,599 64,742 
LIABILITIES AND STOCKHOLDERS' EQUITY   LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES   CURRENT LIABILITIES  
Current maturities of long-term debt$1,744
 652
Current maturities of long-term debt$1,487 2,300 
Accounts payable1,712
 1,933
Accounts payable1,364 1,724 
Accrued expenses and other liabilities   Accrued expenses and other liabilities  
Salaries and benefits882
 1,104
Salaries and benefits898 1,037 
Income and other taxes388
 337
Income and other taxes378 311 
Current operating lease liabilities419
 —
Current operating lease liabilities401 416 
Interest328
 316
Interest278 280 
Other318
 357
Other335 386 
Current portion of deferred revenue798
 832
Current portion of deferred revenue738 804 
Total current liabilities6,589
 5,531
Total current liabilities5,879 7,258 
LONG-TERM DEBT33,381
 35,409
LONG-TERM DEBT31,105 32,394 
DEFERRED CREDITS AND OTHER LIABILITIES   DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net2,910
 2,527
Deferred income taxes, net3,232 2,918 
Benefit plan obligations, net4,140
 4,319
Benefit plan obligations, net4,345 4,594 
Noncurrent operating lease liabilities1,351
 —
Other2,683
 2,642
Other4,349 4,108 
Total deferred credits and other liabilities11,084
 9,488
Total deferred credits and other liabilities11,926 11,620 
COMMITMENTS AND CONTINGENCIES (Note 12)

 

COMMITMENTS AND CONTINGENCIES (Note 12)
   
STOCKHOLDERS' EQUITY   STOCKHOLDERS' EQUITY  
Preferred stock—non-redeemable, $25.00 par value, authorized 2,000 and 2,000 shares, issued and outstanding 7 and 7 shares—
 —
Preferred stock—non-redeemable, $25.00 par value, authorized 2,000 and 2,000 shares, issued and outstanding 7 and 7 shares0 0 
Common stock, $1.00 par value, authorized 2,200,000 and 1,600,000 shares, issued and outstanding 1,090,326 and 1,080,167 shares1,090
 1,080
Common stock, $1.00 par value, authorized 2,200,000 and 2,200,000 shares, issued and outstanding 1,097,237 and 1,090,058 sharesCommon stock, $1.00 par value, authorized 2,200,000 and 2,200,000 shares, issued and outstanding 1,097,237 and 1,090,058 shares1,097 1,090 
Additional paid-in capital22,101
 22,852
Additional paid-in capital21,130 21,874 
Accumulated other comprehensive loss(2,499) (2,461)Accumulated other comprehensive loss(2,795)(2,680)
Accumulated deficit(7,018) (1,643)Accumulated deficit(5,743)(6,814)
Total stockholders' equity13,674
 19,828
Total stockholders' equity13,689 13,470 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$64,728
 70,256
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$62,599 64,742 
See accompanying notes to consolidated financial statements.
8

Table of Contents

CENTURYLINK, INC.
(doing business as Lumen Technologies)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended September 30,
 2019 2018
 (Dollars in millions)
OPERATING ACTIVITIES   
Net (loss) income$(5,492) 679
Adjustments to reconcile net (loss) income to net cash provided by operating activities:   
Depreciation and amortization3,619
 3,858
Impairment of goodwill and other assets6,516
 46
Deferred income taxes350
 486
Provision for uncollectible accounts116
 119
Net (gain) loss on early retirement of debt(70) 30
Share-based compensation114
 144
Changes in current assets and liabilities:   
Accounts receivable(7) (8)
Accounts payable(265) (151)
Accrued income and other taxes131
 217
Other current assets and liabilities, net(323) (42)
Retirement benefits(24) (639)
Changes in other noncurrent assets and liabilities, net72
 324
Other, net34
 (27)
Net cash provided by operating activities4,771
 5,036
INVESTING ACTIVITIES   
Capital expenditures(2,688) (2,260)
Proceeds from sale of property, plant and equipment and other assets54
 125
Other, net(37) (61)
Net cash used in investing activities(2,671) (2,196)
FINANCING ACTIVITIES   
Net proceeds from issuance of long-term debt988
 130
Payments of long-term debt(1,459) (1,539)
Net proceeds on revolving line of credit150
 185
Dividends paid(829) (1,735)
Other, net(37) (48)
Net cash used in financing activities(1,187) (3,007)
Net increase (decrease) in cash, cash equivalents and restricted cash913
 (167)
Cash, cash equivalents and restricted cash at beginning of period518
 587
Cash, cash equivalents and restricted cash at end of period$1,431
 420
Supplemental cash flow information:   
Income taxes refunded, net$54
 674
Interest paid (net of capitalized interest of $50 and $42)$(1,506) (1,571)
    
Cash, cash equivalents and restricted cash:   
Cash and cash equivalents$1,404
 390
Restricted cash - current3
 3
Restricted cash - noncurrent24
 27
Total$1,431
 420

 Nine Months Ended September 30,
 20202019
 (Dollars in millions)
OPERATING ACTIVITIES  
Net income (loss)$1,057 (5,492)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
Depreciation and amortization3,515 3,619 
Impairment of goodwill0 6,516 
Deferred income taxes315 350 
Provision for uncollectible accounts137 116 
Net loss (gain) on early retirement of debt78 (70)
Share-based compensation120 114 
Changes in current assets and liabilities:
Accounts receivable(34)(7)
Accounts payable(325)(265)
Accrued income and other taxes90 131 
Other current assets and liabilities, net(408)(323)
Retirement benefits(96)(24)
Changes in other noncurrent assets and liabilities, net287 72 
Other, net106 34 
Net cash provided by operating activities4,842 4,771 
INVESTING ACTIVITIES  
Capital expenditures(2,971)(2,688)
Proceeds from sale of property, plant and equipment and other assets119 54 
Other, net12 (37)
Net cash used in investing activities(2,840)(2,671)
FINANCING ACTIVITIES  
Net proceeds from issuance of long-term debt3,257 988 
Payments of long-term debt(6,334)(1,459)
Net proceeds from revolving line of credit825 150 
Dividends paid(837)(829)
Other, net(83)(37)
Net cash used in financing activities(3,172)(1,187)
Net (decrease) increase in cash, cash equivalents and restricted cash(1,170)913 
Cash, cash equivalents and restricted cash at beginning of period1,717 518 
Cash, cash equivalents and restricted cash at end of period$547 1,431 
Supplemental cash flow information:  
Income taxes refunded, net$51 54 
Interest paid (net of capitalized interest of $60 and $42)$(1,254)(1,506)
Cash, cash equivalents and restricted cash:
Cash and cash equivalents$526 1,404 
Restricted cash included in Other current assets3 3 
Restricted cash included in Other, net noncurrent assets18 24 
Total$547 1,431 
See accompanying notes to consolidated financial statements.
9

Table of Contents

CENTURYLINK, INC.
(doing business as Lumen Technologies)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)

 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (Dollars in millions except per share amounts)
COMMON STOCK       
Balance at beginning of period$1,090
 1,079
 1,080
 1,069
Issuance of common stock through dividend reinvestment, incentive and benefit plans—
 2
 10
 12
Balance at end of period1,090
 1,081
 1,090
 1,081
ADDITIONAL PAID-IN CAPITAL       
Balance at beginning of period22,342
 23,360
 22,852
 23,314
Change in common stock through dividend reinvestment, incentive and benefit plans(1) 7
 (15) (2)
Shares withheld to satisfy tax withholdings(6) (15) (35) (50)
Share-based compensation and other, net38
 47
 115
 137
Dividends declared(272) —
 (816) —
Balance at end of period22,101
 23,399
 22,101
 23,399
ACCUMULATED OTHER COMPREHENSIVE LOSS       
Balance at beginning of period(2,419) (2,491) (2,461) (1,995)
Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
—
 —
 —
 (407)
Other comprehensive (loss) income(80) 36
 (38) (53)
Balance at end of period(2,499) (2,455) (2,499) (2,455)
RETAINED EARNINGS (ACCUMULATED DEFICIT)       
Balance at beginning of period(7,321) 1,040
 (1,643) 1,103
Net income (loss)302
 272
 (5,492) 679
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
Cumulative effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of ($17) and ($117) tax—
 49
 —
 346
Dividends declared1
 (584) 2
 (1,758)
Balance at end of period(7,018) 777
 (7,018) 777
TOTAL STOCKHOLDERS' EQUITY$13,674
 22,802
 13,674
 22,802
DIVIDENDS DECLARED PER COMMON SHARE$0.25
 0.54
 0.75
 1.62

 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in millions except per share amounts)
COMMON STOCK
Balance at beginning of period$1,097 1,090 1,090 1,080 
Issuance of common stock through dividend reinvestment, incentive and benefit plans0 0 7 10 
Balance at end of period1,097 1,090 1,097 1,090 
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period21,376 22,342 21,874 22,852 
Shares withheld to satisfy tax withholdings(4)(6)(39)(35)
Share-based compensation and other, net33 38 132 115 
Dividends declared(275)(273)(837)(831)
Balance at end of period21,130 22,101 21,130 22,101 
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period(2,902)(2,419)(2,680)(2,461)
Other comprehensive income (loss)107 (80)(115)(38)
Balance at end of period(2,795)(2,499)(2,795)(2,499)
ACCUMULATED DEFICIT
Balance at beginning of period(6,109)(7,321)(6,814)(1,643)
Net income (loss)366 302 1,057 (5,492)
Cumulative effect of adoption of ASU 2016-02, Leases, net $37 tax
— — — 115 
Cumulative effect of adoption of ASU 2016-13, Measurement of Credit losses, net of $2 tax
— — 9 — 
Other0 1 5 2 
Balance at end of period(5,743)(7,018)(5,743)(7,018)
TOTAL STOCKHOLDERS' EQUITY$13,689 13,674 13,689 13,674 
DIVIDENDS DECLARED PER COMMON SHARE$0.25 0.25 0.75 0.75 
See accompanying notes to consolidated financial statements.
10

Table of Contents

CENTURYLINK, INC.
(doing business as Lumen Technologies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

References in the Notes to "CenturyLink,"Lumen Technologies" or "Lumen," "we," "us" and "our" refer to CenturyLink, Inc. (doing business as Lumen Technologies) and its consolidated subsidiaries, unless the context otherwise requires and except in Note 5—Long-Term Debt and Credit Facilities, where such references refer solely to CenturyLink, Inc. References in the Notes to "Level 3" refer toLevel 3 Parent, LLC and its predecessor 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., which we acquired on November 1, 2017.

(1) Background

General

We are an international facilities-based communications company engaged primarily in providing a broad array of integrated services to our residentialbusiness and businessresidential customers. Our specific products and services are detailed in Note 11—Segment Information

Basis of Presentation

Our consolidated balance sheet as of December 31, 2018,2019, 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").SEC. However, in our opinion, the disclosures made therein 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 nine months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual reportAnnual Report on Form 10-K for the year ended December 31, 2018.2019.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which we have a controlling interest. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated.

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,loss, net, (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable to noncontrolling interests in other, net, under financing activities.

We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and expenses in our segment reporting. See Note 11—Segment Information for additional information. These changes had no impact on total operating revenue, total operating expenses or net income (loss) for any period.

IncludedOperating lease assets are included in Other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in Other under deferred credits and other liabilities on our consolidated balance sheets.

There were 0 book overdrafts included in accounts payable at September 30, 2019 and2020. Included in accounts payable at December 31, 2018, were $22019 was $106 million and $86 million, respectively, representing book overdrafts.
11

Table of Contents


Summary of Significant Accounting Policies

The significant accounting policy below is in addition to the significant accounting policies described in Note 1 — Background and Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II, Item 8 of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2018.2019.


Table of Contents

Derivatives and Hedging

Change in Accounting Policy
We may use derivative instruments
During the first quarter of 2020, we elected to hedge exposurechange the presentation for taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, including federal and certain state Universal Service Fund (USF) regulatory fees, to interest rate risks arising from fluctuation in interest rates. We account for derivative instruments in accordance with Accounting Standards Codification ("ASC") 815, Derivatives andHedging, which establishes accounting and reporting standards for derivative instruments. We do not use derivative financial instruments for speculative purposes.
Derivatives are recognized in the consolidated balance sheets at their fair values. When we become a party to a derivative instrument and intend to apply hedge accounting, we formally document the hedge relationship and the risk management objective for undertaking the hedge which includes designating the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, orpresent all such taxes on a net investment hedge.
basis in our consolidated statements of operations. Prior to the first quarter of 2020, we assessed whether we were the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business. The previous policy resulted in presenting such USF fees on a gross basis within operating revenue and cost of services and products, and all other significant taxes on a net basis. We entered into 5 variable-to-fixed interest rate swap agreementsapplied this change in accounting policy retrospectively during the first quarter of 2020. As a result, we have decreased both operating revenue and cost of services and products by $253 million and $256 million for the three months ended September 30, 2020 and 2019, respectively, and $672 million and $679 million for the nine months ended September 30, 2020 and 2019, respectively. The change has no impact on operating income (loss), net income (loss), or earnings (loss) per share in our consolidated statements of operations. Refer to our Form 8-K filing dated April 30, 2020 for further information.
We changed our policy to present such taxes on the net basis and believe the new policy is preferable because of the historical and potential future regulatory rate changes outside of our control resulting in significant variability in tax and fee revenue that are not indicative of our operating performance. We believe the net presentation provides the most useful and transparent financial information and improves comparability and consistency of financial results.
Operating Lease Income

Lumen Technologies leases various dark fiber, office facilities, switching facilities and other network sites to third parties under operating leases. Lease and sublease income are included in operating revenue in our consolidated statements of operations.

For the three months ended September 30, 2020 and 2019, our gross rental income was $332 million and $202 million, respectively, which represents approximately 6% and 4%, respectively, of our operating revenue for the three months ended September 30, 2020 and 2019 and 6 variable-to-fixed interest rate swap agreements duringfor the second quarternine months ended September 30, 2020 and 2019, our gross rental income was $998 million and $606 million, respectively, which we designated as cash-flow hedges. We evaluaterepresents 6% and 4%, respectively, of our operating revenue for the effectiveness of these hedges qualitatively on a quarterly basis. The change in the fair value of the interest rate swaps is reflected in Accumulated Other Comprehensive Income (Loss) (“AOCI”)nine months ended September 30, 2020 and is subsequently reclassified into earnings in the period the hedged transaction affects earnings, due to the fact that the interest rate swaps qualify as effective cash flow hedges. For more information see Note 10—Derivative Financial Instruments.2019.

Recently Adopted Accounting Pronouncements

We adopted Accounting Standards Update ("ASU") 2016-02, "Leases (ASC 842)", as of January 1, 2019, using the non-comparative transition option pursuant to ASU 2018-11.  Therefore, we have not restated comparative period financial information for the effects of ASC 842, and we will not make the new required lease disclosures for comparative periods beginning before January 1, 2019. Instead, we recognized ASC 842's cumulative effect transition adjustment (discussed below) as of 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.
On March 5, 2019,In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2019-01, "Leases (ASC 842): Codification Improvements", effective for public companies for fiscal years beginning after December 15, 2019. The new ASU aligns the guidance in ASC 842 for determining fair value of the underlying asset by lessors that are not manufacturers or dealers, 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 ValueMeasurement") 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 a company adopts the new leases standard. Early adoption permits public companies to adopt concurrent with the transition to ASC 842 on leases. We adopted ASU 2019-01 as of January 1, 2019.
Adoption of the new standards resulted in the recording of operating lease 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 $115 million cumulative adjustment (net of tax) to accumulated deficit as of January 1, 2019, for the impact of the new accounting standards. The adjustment to accumulated deficit was driven by the derecognition of our prior failed sale leaseback transaction discussed in our prior periodic reports. Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new guidance, as discussed above, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. The standards did not materially impact our consolidated net earnings or our cash flows in the nine months ended September 30, 2019.

Table of Contents

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 this standard will be applied prospectively and did not have an impact on us. See Note 10—Derivative Financial Instruments to our consolidated financial statements in Item 1 of Part I of this report for additional disclosure regarding our hedging arrangements.

Recently Issued Accounting Pronouncements

Financial Instruments

In June 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 teamus to estimate the total credit losses expected on the portfolio of financial instruments.

We are evaluating the potential impact adopted ASU 2016-13 will have on our financial assets measured at amortized cost including, but not limited to, customer receivables and contract asset balances.

Over the fourth quarter we will complete our evaluation of the impact to our accounting and internal controls over financial reporting as a result of ASU 2016-13. We expect to adopt ASU 2016-13 on January 1, 2020, and recognize the impacts throughrecognized a cumulative adjustment to our accumulated deficit as of the date of adoption.adoption of $9 million, net of tax effect. Please refer to Note 4—Credit Losses on Financial Instruments for more information.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)" ("ASU 2019-12"). ASU 2019-12 removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 will become effective for us in the first quarter of fiscal 2021 and early adoption is permitted. We do not believe the adoption will have a significant impact on our consolidated financial statements.
12

Table of Contents


In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period. Subject to certain criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications and hedging accounting relationships made until December 31, 2022. We are evaluating ASU 2020-04's applicability to relevant transactions referencing the London Inter-bank Offering Rate ("LIBOR") or another reference rate expected to be discontinued and the resulting impact on our consolidated financial statements.

(2) Goodwill, Customer Relationships and Other Intangible Assets

Goodwill, customer relationships and other intangible assets consisted of the following:
September 30, 2019 December 31, 2018September 30, 2020December 31, 2019
(Dollars in millions)(Dollars in millions)
Goodwill$21,507
 28,031
Goodwill$21,476 21,534 
Customer relationships, less accumulated amortization of $9,481 and $8,492$7,902
 8,911
Indefinite-life intangible assets$269
 269
Indefinite-life intangible assets$278 269 
Other intangible assets subject to amortization:   Other intangible assets subject to amortization: 
Capitalized software, less accumulated amortization of $2,858 and $2,616$1,599
 1,468
Trade names and patents, less accumulated amortization of $83 and $61109
 131
Customer relationships, less accumulated amortization of $10,742 and $9,809Customer relationships, less accumulated amortization of $10,742 and $9,8096,633 7,596 
Capitalized software, less accumulated amortization of $3,232 and $2,957Capitalized software, less accumulated amortization of $3,232 and $2,9571,567 1,599 
Trade names and patents, less accumulated amortization of $113 and $91Trade names and patents, less accumulated amortization of $113 and $9185 103 
Total other intangible assets, net$1,977
 1,868
Total other intangible assets, net$8,563 9,567 


Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired.

We assess our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to performwrite down the value of goodwill only when our assessment determines the carrying value of equity of any of our reporting units exceeds its fair value. Our annual impairment tests related to ourassessment date for goodwill annually, which we perform as ofis October 31, or sooner if an indicator ofat which date we assess our reporting units. Our annual impairment occurs. Both our January 2019 internal reorganization and the decline in our stock price triggered impairment testing in the first quarter of 2019. Consequently, we evaluated ourassessment date for indefinite-lived intangible assets other than goodwill for the internal reorganization in January 2019 and again as of March 31, 2019, which led to the first quarter 2019 impairment charges described below. In our judgment, there were no additional triggering events during the second or third quarter of 2019.is December 31.

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 difference.

Table of Contents


 Whenexcess amount. Depending on the facts and circumstances, we performed our October 31, 2018 annual impairment test, we estimatedtypically estimate the fair value of our reporting units by considering either or both of (i) a market approach, and a discounted cash flow method. The market approach methodwhich includes the use of multiples of publicly tradedpublicly-traded companies whose services are comparable to ours. Theours, and (ii) a discounted cash flow method, which is based on the present value of projected cash flows and a terminal value, equal towhich represents the present value of allexpected normalized cash flows afterof the reporting units beyond the cash flows from the discrete projection period.period.

Both our January 2019 internal reorganization and the decline in our stock price triggered impairment testing in the first quarter of 2019. Because our low stock price was a key trigger for impairment testing in earlyduring the first quarter of 2019, we estimated the fair value of our operations in such quarter using only the market approach in the quarter ended March 31, 2019.approach. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values derived from annualized revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) 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 of 2019 and concluded that the indicated control premium of approximately
13

Table of Contents

4.5% and 4.1% was reasonable based on recent transactions in the market place.transactions. In the quarter 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 in the quarter ended March 31, 2019.

The market multiples approach that we used in the quarter ended March 31, 2019 incorporated significant estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of othercertain 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

During 2020, we observed a decline in our profitability or cash flows or continued sustained low trading pricesstock price as a result of events occurring after the end of 2019, including the COVID-19 pandemic. We evaluated whether such events would indicate the fair value of our common stock may result in further impairment. 

Amortization expense for intangible assets forreporting units were below their carrying values. We believe these events have impacted the three monthsglobal economy more directly than us and, when considered with other factors, we have concluded it is not more likely than not that the fair values of our reporting units were less than their carrying values as of the period ended September 30, 20192020. In light of the negative impacts of COVID-19 on the global economy, we will continue to evaluate the general economic trends which could have an impact on our assessment of whether it is more likely than not that the fair value of one or more reporting units is less than its carrying amount. Future changes could cause one or more of our reporting unit fair values to be less than its carrying value, resulting in potential impairments of our goodwill, which could have a material effect on our results of operations and 2018 totaled $438 millionfinancial condition. The extent of the impact, if any, will depend on future developments, including the length and $446 million, respectively,severity of the pandemic and forits long-term impacts on the nine months ended September 30, 2019 and 2018 totaled $1.3 billion and $1.3 billion, respectively. As of September 30, 2019, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $43.8 billion.overall economy.

We estimate that total amortization expense for intangible assets for the years ending December 31, 2019 through 2023 will be as follows:
 (Dollars in millions)
2019 (remaining three months)$427
20201,647
20211,212
2022983
2023898


In January 2019, Jeff Storey, our Chief Operating Decision Maker ("CODM"), announced a new organization structure and began managing our operations in the following 5 segments: international and global accounts management, 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.

Table of Contents

The following table shows the rollforward of goodwill assigned to our reportable segments from December 31, 20182019 through September 30, 2019:2020:
 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 change and other(18)—
—
—
—
(18)
Impairments(934)(1,471)(896)(3,019)(186)(6,506)
As of September 30, 2019$2,643
4,738
3,259
3,813
7,054
21,507
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal
 (Dollars in millions)
As of December 31, 2019$2,670 4,738 3,259 3,813 7,054 21,534 
Effect of foreign currency exchange rate change and other(51)0 (7)0 0 (58)
As of September 30, 2020$2,619 4,738 3,252 3,813 7,054 21,476 

Total amortization expense for intangible assets for the three months ended September 30, 2020 and 2019 totaled $443 million and $438 million, respectively, and for both the nine months ended September 30, 2020 and 2019 totaled $1.3 billion. As of September 30, 2020, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $44.1 billion.

We estimate that total amortization expense for intangible assets for the years ending December 31, 2020 through 2024 will be as follows:
 (Dollars in millions)
2020 (remaining three months)$418 
20211,252 
20221,019 
2023934 
2024867 

14

Table of Contents

(3) Revenue Recognition

Refer to the Revenue Recognition section of Note 1—Background and Summary of Significant Accounting Policies and Note 5—Revenue Recognition in our annual 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.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following table provides the amount of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 20182020201920202019
(Dollars in millions) (Dollars in millions)
Total revenue$5,606
 5,818
 16,831
 17,665
Total revenue$5,167 5,350 15,587 16,152 
Adjustments for non-ASC 606 revenue (1)
(355) (312) (1,069) (947)
Adjustments for non-ASC 606 revenue (1)
(481)(355)(1,443)(1,069)
Total revenue from contracts with customers$5,251
 5,506
 15,762
 16,718
Total revenue from contracts with customers$4,686 4,995 14,144 15,083 


(1)Includes regulatory revenue and lease revenue sublease rental income, revenue from fiber capacity lease arrangements and failed sale leaseback income, none of which arenot 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 September 30, 20192020 and December 31, 2018:2019:
September 30, 2020December 31, 2019
 (Dollars in millions)
Customer receivables(1)
$2,070 2,194 
Contract assets104 130 
Contract liabilities918 1,028 
 September 30, 2019 December 31, 2018
 (Dollars in millions)
Customer receivables(1)
$2,224
 2,346
Contract assets145
 140
Contract liabilities987
 860

(1)GrossReflects gross customer receivables of $2.4$2.2 billion and $2.5$2.3 billion, net of allowance for doubtful accounts of $133$140 million and $132$94 million, at September 30, 20192020 and December 31, 2018,2019, respectively.

Table of Contents

Contract liabilities consist ofare 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 typically ranges from one to sevenfive years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets.

The following table provides information about During the three and nine months ended September 30, 2020, we recognized $58 million and $612 million, respectively, of revenue recognized forthat was included in contract liabilities as of January 1, 2020. During the three and nine months ended September 30, 2019, we recognized $47 million and 2018:$581 million, respectively, of revenue that was included in contract liabilities as of January 1, 2019.
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 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)$47
 56
 581
 629
Performance obligations satisfied in previous periods—
 —
 —
 —


Performance Obligations

As of September 30, 2019,2020, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $7.3$5.4 billion. We expect to recognize approximately 75%85% of this revenue through 2021,2022, with the balance recognized thereafter.

We do not discloseThese amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), orand (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606.
15

Table of Contents


Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:
Three Months Ended September 30, 2019 Three Months Ended September 30, 2018Three Months Ended September 30, 2020Three Months Ended September 30, 2019
Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment CostsAcquisition CostsFulfillment CostsAcquisition CostsFulfillment Costs
(Dollars in millions)(Dollars in millions)
Beginning of period balance$321
 207
 287
 161
Beginning of period balance$300 219 321 207 
Costs incurred48
 41
 53
 46
Costs incurred45 35 48 41 
Amortization(50) (32) (44) (34)Amortization(53)(37)(50)(32)
End of period balance$319
 216
 296
 173
End of period balance$292 217 319 216 


Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
Acquisition CostsFulfillment CostsAcquisition CostsFulfillment Costs
(Dollars in millions)
Beginning of period balance$326 221 322 187 
Costs incurred130 105 148 119 
Amortization(164)(109)(151)(90)
End of period balance$292 217 319 216 
 Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
 Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs
 (Dollars in millions)
Beginning of period balance$322
 187
 268
 133
Costs incurred148
 119
 152
 104
Amortization(151) (90) (124) (64)
End of period balance$319
 216
 296
 173



Table of Contents

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 communicationstelecommunications services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of 30 months for consumer customers and an expected contract term between 12 andto 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 amount 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. The amount of deferred costs expected to be amortized beyond the next twelve12 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.

(4) LeasesCredit Losses on Financial Instruments

In accordance with ASC 326, "Financial Instruments - Credit Losses" we aggregate financial assets with similar risk characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets. We monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change each reporting period. Financial assets that do not share risk characteristics with other financial assets are evaluated separately. Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new accounting guidance, while prior periods amounts are not adjusted and continue to be reported in accordanceassets measured at amortized cost primarily consist of accounts receivable.

In developing our accounts receivable portfolio, we pooled certain assets with previous guidance, as discussed in Note 1— Background.

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. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. 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, such as, rent, real estate taxes and insurance costs) and non-lease components (including common-area maintenance costs). We generally account for each component separatelycredit risk characteristics based on the estimated standalone pricenature of each component. For colocation leases, we accountour customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns. We grouped assets from our International and Global Accounts, Enterprise, Small and Medium Business and Wholesale segments into the Business portfolio in the below table.

Prior to the adoption of the new credit loss standard, the allowance for doubtful accounts receivable reflected our best estimate of probable losses inherent in our receivable portfolio determined based on historical experience, specific allowances for known troubled accounts, and other currently available evidence.

16

Table of Contents

We implemented the lease and non-lease componentsnew standard effective January 1, 2020, using a loss rate method to estimate our allowance for credit losses. Our determination of the current expected credit loss rate begins with our use of historical loss experience as a single lease component.percentage of accounts receivable. We measure our historical loss period based on the average days to recognize accounts receivable as credit losses. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to update our current loss rate. We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period. We measure our forecast period based on the average days to collect payment on billed accounts receivable. The historical, current, and expected credit loss rates are combined and applied to period end accounts receivable, which results in our allowance for credit losses.

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, unlessIf there is a transferdeterioration of titlea customer's financial condition or purchase option reasonably certainif future default rates in general differ from currently anticipated default rates (including changes caused by COVID-19), we may need to be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.


Table of Contents

adjust the allowance for credit losses, which would affect earnings in the period that adjustments are made.
Lease expense consisted
The assessment of the following:correlation between historical observed default rates, current conditions and forecasted economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the allowance for credit losses. The amount of credit loss is sensitive to changes in circumstances and forecasted economic conditions. Our historical credit loss experience, current conditions and forecast of economic conditions may also not be representative of the customers' actual default experience in the future.
 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
 (Dollars in millions)
Operating and short-term lease cost$157
 492
Finance lease cost:   
   Amortization of right-of-use assets11
 34
   Interest on lease liability2
 9
Total finance lease cost13
 43
Total lease cost$170
 535

Supplemental unaudited consolidatedThe following table presents the activity of our allowance for credit losses by accounts receivable portfolio:
(Dollars in millions)BusinessConsumerTotal
Beginning balance at January 1, 2020 (1)
$58 37 95 
Provision for expected losses82 55 137 
Write-offs charged against the allowance(53)(52)(105)
Recoveries collected18 13 31 
Foreign currency exchange rate changes adjustment(2)0 (2)
Ending balance at September 30, 2020$103 53 156 
______________________________________________________________________ 
(1)The beginning balance sheet information and other information related to leases:includes the cumulative effect of the adoption of new credit loss standard.
  September 30,
Leases (Dollars in millions)Classification on the Balance Sheet2019
Assets  
Operating lease assetsOperating lease assets$1,721
Finance lease assetsProperty, plant and equipment, net of accumulated depreciation253
Total leased assets$1,974
   
Liabilities  
Current  
   OperatingCurrent operating lease liabilities$419
   FinanceCurrent portion of long-term debt30
Noncurrent  
   OperatingNoncurrent operating lease liabilities1,351
   FinanceLong-term debt182
Total lease liabilities$1,982
   
Weighted-average remaining lease term (years) 
   Operating leases9.5
   Finance leases11.2
Weighted-average discount rate  
   Operating leases6.78%
   Finance leases5.49%

Supplemental unaudited consolidated cash flow statement information related to leases:
 Nine Months Ended September 30, 2019
 (Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities: 
   Operating cash flows from operating leases$508
   Operating cash flows from finance leases11
   Financing cash flows from finance leases24



Table of Contents

As of September 30, 2019, maturities of lease liabilities were as follows:
 Operating Leases Finance Leases
 (Dollars in millions)
2019 (remaining three months)$136
 11
2020453
 36
2021355
 25
2022305
 23
2023262
 20
Thereafter1,004
 179
Total lease payments2,515
 294
   Less: interest(745) (82)
Total$1,770
 212
Less: current portion(419) (30)
Long-term portion$1,351
 182


As of September 30, 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 are included in operating revenue in the consolidated statements of operations.

For the three and nine months ended September 30, 2019,2020, we increased our gross rental income was $202 millionallowance for credit losses for our business and $606 million, respectively,consumer accounts receivable portfolios due to an increase in historical and expected loss experience in certain classes of aged balances, which represents 4%we believe were predominantly attributable to the COVID-19 induced economic slowdown. We believe that decreased write-offs (net of recoveries) driven by COVID-19 regulations and 4%, respectively, ofprograms have further contributed to an increase in our operating revenueallowance for the three and nine months ended September 30, 2019. For the three and nine months ended September 30, 2018, our gross rental income was $221 million and $693 million, respectively, which represents 4% and 4%, respectively, of our operating revenue for the three and nine months ended September 30, 2018.credit losses.

Disclosures under ASC 840

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.

The future annual minimum payments under capital lease agreements as of December 31, 2018 were as follows:
 Capital Lease Obligations
 (Dollars in millions)
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


17

Table of Contents

At December 31, 2018, our future rental commitments for operating leases were as follows:
 Operating Leases
 (Dollars in millions)
2019$675
2020443
2021355
2022279
2023241
2024 and thereafter969
Total future minimum payments (1)
$2,962

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


Table of Contents

(5) Long-Term Debt and Credit Facilities

The following chart reflects the consolidated long-term debt of CenturyLink, Inc.Lumen Technologies and its subsidiaries, including unamortized discounts and premiums and unamortized debt issuance costs, but excluding intercompany debt:
Interest Rates(1)
Maturities(1)
September 30, 2020December 31, 2019
   (Dollars in millions)
Senior Secured Debt: (2)
CenturyLink, Inc.
Revolving Credit Facility (3)
LIBOR + 2.00%2025$1,075 250 
Term Loan A (3)(4)
LIBOR + 2.00%20251,123 1,536 
Term Loan A-1 (3)(4)
LIBOR + 2.00%2025321 333 
Term Loan B (3)(5)
LIBOR + 2.25%20274,963 5,880 
Senior notes4.000%20271,250 0 
Subsidiaries:
Level 3 Financing, Inc.
Tranche B 2027 Term Loan (6)
LIBOR + 1.75%20273,111 3,111 
Senior notes3.400% - 3.875%2027 - 20291,500 1,500 
Embarq Corporation subsidiaries
First mortgage bonds7.125% - 8.375%2023 - 2025138 138 
Senior Notes and Other Debt:    
CenturyLink, Inc.
Senior notes5.125% - 7.650%2021 - 20427,645 8,696 
Subsidiaries:
Level 3 Financing, Inc.
Senior notes3.625% - 5.375%2024 - 20295,515 5,515 
Qwest Corporation
Senior notes6.125% - 7.750%2021 - 20574,105 5,956 
Term Loan (7)
LIBOR + 2.00%2025100 100 
Qwest Capital Funding, Inc.
Senior notes6.875% - 7.750%2021 - 2031352 352 
Embarq Corporation and subsidiary
Senior note7.995%20361,437 1,450 
Finance lease and other obligationsVariousVarious292 222 
Unamortized discounts, net  (77)(52)
Unamortized debt issuance costs(258)(293)
Total long-term debt  32,592 34,694 
Less current maturities  (1,487)(2,300)
Long-term debt, excluding current maturities  $31,105 32,394 
 
Interest Rates(1)
 Maturities September 30, 2019 December 31, 2018
     (Dollars in millions)
Senior Secured Debt: (2)
       
CenturyLink, Inc.       
2017 Revolving Credit Facility4.786% 2022 $700
 550
Term Loan A (3)
LIBOR + 2.75% 2022 1,558
 1,622
Term Loan A-1 (3)
LIBOR + 2.75% 2022 338
 351
Term Loan B (3)
LIBOR + 2.75% 2025 5,895
 5,940
Subsidiaries:       
Level 3 Financing, Inc.       
Tranche B 2024 Term Loan (4)
LIBOR + 2.25% 2024 4,611
 4,611
Embarq Corporation subsidiaries       
First mortgage bonds7.125% - 8.375% 2023 - 2025 138
 138
Senior Notes and Other Debt:       
CenturyLink, Inc.       
Senior notes5.625% - 7.650% 2019 - 2042 7,446
 8,036
Subsidiaries:       
Level 3 Financing, Inc.       
Senior notes4.625% - 6.125% 2021 - 2027 5,915
 5,315
Level 3 Parent, LLC       
Senior notes5.750% 2022 600
 600
Qwest Corporation       
Senior notes6.125% - 7.750% 2021 - 2057 5,956
 5,956
Term loan4.050% 2025 100
 100
Qwest Capital Funding, Inc.       
Senior notes6.875% - 7.750% 2021 - 2031 352
 697
Embarq Corporation and subsidiary       
Senior note7.995% 2036 1,450
 1,485
Other9.000% 2019 148
 150
Finance lease and other obligationsVarious Various 214
 801
Unamortized discounts and other, net    (30) (8)
Unamortized debt issuance costs    (266) (283)
Total long-term debt    35,125
 36,061
Less current maturities    (1,744) (652)
Long-term debt, excluding current maturities    $33,381
 35,409
______________________________________________________________________ 
(1)As ofSeptember 30, 2020.
(1)
As ofSeptember 30, 2019.
(2)See Note 7—Long-Term Debt and Credit Facilities in our Annual Report on Form 10-K for the year ended December 31, 2019 for a description of certain parent or subsidiary guarantees and liens securing this debt.
(3)CenturyLink, Inc.'s credit agreement was amended as noted below, extending the maturity date of its (a) Term Loan A, Term Loan A-1 and Revolving Credit Facilities from 2022 to 2025 and (b) Term Loan B from 2025 to 2027.
(2)For information on certain parent or subsidiary guarantees and liens securing this debt, see "Other" below.
(3)Term Loans A, A-1 and B had interest rates of 4.794% and 5.272% as of September 30, 2019 and December 31, 2018, respectively.
(4)The Tranche B 2024 Term Loan had an interest rate of 4.294% as of September 30, 2019 and 4.754% as of December 31, 2018, respectively.
18

Table of Contents

(4)Term Loans A and A-1 had interest rates of 2.147% and 4.549% as of September 30, 2020 and December 31, 2019, respectively.
(5)Term Loan B had interest rates of 2.397% and 4.549% as of September 30, 2020 and December 31, 2019, respectively.
(6)The Tranche B 2027 Term Loan had an interest rate of 1.897% as of September 30, 2020 and 3.549% as of December 31, 2019, respectively.
(7)Qwest Corporation Term Loan had an interest rate of 2.150% as of September 30, 2020 and 3.800% as of December 31, 2019, respectively.

Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of September 30, 2020 (excluding unamortized discounts, net, and unamortized debt issuance costs), maturing during the following yearsyears:
 (Dollars in millions)
2020 (remaining three months)$54 
20212,423 
20221,541 
2023965 
20242,041 
2025 and thereafter25,903 
Total long-term debt$32,927 

Amended and Restated Credit Agreement

On January 31, 2020, we amended and restated our credit agreement dated June 19, 2017 (as so amended and restated, the “Amended Credit Agreement”). Coupled with CenturyLink, Inc.’s prepayment on January 24, 2020 of $1.25 billion of indebtedness outstanding under its Term Loan B facility (using principally the net proceeds from its below-described sale of $1.25 billion of its 4.000% Senior Secured Notes due 2027), the Amended Credit Agreement then provided for approximately $8.699 billion in senior secured credit facilities, consisting of; (i) an approximately $1.166 billion Term Loan A credit facility, (ii) a $333 million Term Loan A-1 credit facility, (iii) a $5.0 billion Term Loan B credit facility and (iv) a $2.2 billion revolving credit facility (collectively, the “Amended Senior Secured Credit Facilities”).

The Amended Credit Agreement, among other things, (i) extended the maturity date of (a) the Term Loan A, Term Loan A-1 and revolving credit facilities from November 1, 2022 to January 31, 2025 and (b) the Term Loan B facility from January 31, 2025 to March 15, 2027, and (ii) lowered the interest rate applicable to loans made under each of the Amended Senior Secured Credit Facilities. As so amended, (i) loans under the Term Loan A, Term Loan A-1 and revolving credit facilities will bear interest at a rate equal to, at CenturyLink, Inc.’s option, the Eurodollar rate or the alternative base rate (each as defined in the Amended Credit Agreement) plus an applicable margin between 1.50% to 2.25% per annum for Eurodollar loans and 0.50% to 1.25% per annum for alternative base rate loans, depending on CenturyLink, Inc.’s then current total leverage ratio, and (ii) loans under the Term Loan B facility will bear interest at the rate equal to, at CenturyLink, Inc.’s option, the Eurodollar rate plus 2.25% per annum or the alternative base rate plus 1.25% per annum. The subsidiary guarantor and collateral provisions and the financial covenants contained in the Amended Credit Agreement are unchanged from the credit agreement dated June 19, 2017.

These January 2020 transactions resulted in an aggregate net loss of September 30, 2019:$67 million from modification and extinguishment of the debt.

19
 (Dollars in millions)
2019 (remaining three months)$640
20201,190
20212,478
20225,250
20232,095
2024 and thereafter23,768
Total long-term debt$35,421

Table of Contents

Repayments

During the nine months ended September 30, 2019,2020, CenturyLink, Inc. and its affiliates repurchased approximately $1.1$5.2 billion of their respective debt securities, which primarily included approximately $400$1.25 billion of CenturyLink, Inc. credit agreement debt, $1.9 billion of Qwest Corporation senior notes, $78 million of CenturyLink, Inc. senior notes and $2.0 billion of Level 3 Financing, Inc. senior notes, $345 million of Qwest Capital Funding senior notes, $340 million of CenturyLink, Inc. senior notes, which resulted in a gainloss of $70 million. Additionally,$82 million, including the $67 million loss resulting from the modification of the Amended Credit Agreement discussed above.

In addition, during the periodnine months ended September 30, 2020, CenturyLink, Inc. (i) paid $249at maturity $973 million aggregate principal amount of its maturingoutstanding senior notes and $122(ii) made $94 million of scheduled amortization payments under its term loans.

New IssuanceIssuances

On September 25, 2019,August 12, 2020, Level 3 Financing, Inc., issued $1.0 billion$840 million aggregate principal amount of 4.625%its 3.625% Senior Notes due 2027. The2029 (the "2029 Notes"). Level 3 Financing, Inc. used the net proceeds from thethis offering together with cash on hand will be used for general corporate purposes, including, without limitation, to redeem certain of its outstanding senior note indebtedness. See "—Repayments" above. The 2029 Notes are (i) unconditionally guaranteed by Level 3 Parent, LLC, and (ii) expected to be unconditionally guaranteed by Level 3 Communications, LLC upon receipt of all $240 million outstandingrequisite material governmental authorizations.

On June 15, 2020, Level 3 Financing, Inc., issued $1.2 billion aggregate principal amount of its 4.250% Senior Notes due 2028 (the "2028 Notes"). Level 3 Financing, Inc.'s 6.125% Senior used the net proceeds from this offering to redeem certain of its outstanding senior note indebtedness. See "—Repayments" above. The 2028 Notes due 2021,are (i) unconditionally guaranteed by Level 3 Parent, LLC and (ii) expected to be unconditionally guaranteed by Level 3 Communications, LLC, upon receipt of all $600 million outstandingrequisite material governmental authorizations.

On January 24, 2020, CenturyLink, Inc. issued $1.25 billion aggregate principal amount of Level 3 Parent, LLC's 5.75%its 4.000% Senior Secured Notes due 2022 and $160 million2027 (the “2027 Notes”). As noted above, CenturyLink, Inc. used the net proceeds from this offering to repay a portion of Level 3 Financing,the outstanding indebtedness under its Term Loan B facility. The 2027 Notes are unconditionally guaranteed by each of CenturyLink, Inc.'s $1 billiondomestic subsidiaries that guarantee CenturyLink, Inc.'s Amended Credit Agreement. While the 2027 Notes are not secured by any of the assets of CenturyLink, Inc., certain of the note guarantees are secured by a first priority security interest in outstanding principal amountsubstantially all of 5.375% Senior Notes due 2022 during the fourth quarterassets of 2019. See "Subsequent Event" below.such guarantors (including the stock of certain of their respective subsidiaries), which assets also secure obligations under the Amended Credit Agreement on a pari passu basis.

Covenants

Certain of our debt instruments 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, dispose of assets and merge or consolidate with any other person. Also, CenturyLink, Inc. and certain of its affiliates will be required to offer to purchase certain of their respective outstanding debt under certain circumstances in connection with certain specified "change of control" transactions.

Certain of our debt instruments contain cross accelerationcross-acceleration provisions.

Compliance

As of September 30, 2019,2020, CenturyLink, Inc., believes it and its subsidiaries were in compliance with the provisions and financial covenants in their respective material debt agreements in all material respects.
20

Other
In February 2019, we entered into 5 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.

In June 2019, we entered into 6 variable-to-fixed interest rate swap agreements to hedge the interest payments on $1.5 billion notional amount of floating rate debt. See Note 10—Derivative Financial Instruments.

Table of Contents



For additional information on our long-term debt and credit facilities, see Note 6—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, 2018.

Subsequent EventEvents

On October 15, 2019, we repaid23, 2020, Qwest Corporation borrowed $215 million under a variable-rate term loan with CoBank ACB and used the $148resulting net proceeds to pay off its previous $100 million outstandingterm loan with CoBank ACB. Additionally, on October 26, 2020, Qwest Corporation used the remaining net proceeds to partially facilitate the redemption of the remaining $160 million aggregate principal amount of Centel Capital Corporation 9.000% notes at maturity. its outstanding 6.625% Notes due 2055 (the "6.625% Notes"), as described below. The new term loan will mature on October 23, 2027, and has terms substantially similar to those contained in the prior term loan with CoBank ACB.

On October 25, 2019 we26, 2020, Qwest Corporation redeemed all $240the remaining $160 million outstandingaggregate principal amount of Level 3 Financing, Inc.'s remaining 6.125% Senior Notes due 2021 and $160 million of Level 3 Financings, Inc.'s $1 billion inits outstanding principal amount of 5.375% Senior Notes due 2022. On October 17, 2019 we issued a notice of6.625% Notes. Following this redemption on all $600 millionthere were 0 bonds outstanding principal amount of Level 3 Parent, LLC's 5.75% Senior Notes due 2022 on December 1, 2019.for the 6.625% Notes.

(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.

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. In accordance with transitional guidance under the new 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 consolidated financial statements in Item 1 of Part I of this report.

Changes in our accrued liabilities for severance expenses were as follows:
 Severance
 (Dollars in millions)
Balance at December 31, 2018$87
Accrued to expense10
Payments, net(71)
Balance at September 30, 2019$26
Severance
(Dollars in millions)
Balance at December 31, 2019$89 
Accrued to expense62 
Payments, net(121)
Balance at September 30, 2020$30 


(7) Employee Benefits

Net periodic benefit (income) expense (income) for our combined pension plan includes the following components:
Combined Pension Plan Combined Pension Plan
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
(Dollars in millions) (Dollars in millions)
Service cost$14
 17
 42
 50
Service cost$15 14 44 42 
Interest cost109
 99
 326
 295
Interest cost81 109 243 326 
Expected return on plan assets(155) (171) (464) (513)Expected return on plan assets(147)(155)(445)(464)
Recognition of prior service credit(2) (2) (6) (6)Recognition of prior service credit(3)(2)(7)(6)
Recognition of actuarial loss54
 45
 167
 134
Recognition of actuarial loss50 54 152 167 
Net periodic pension benefit expense (income)$20
 (12) 65
 (40)
Net periodic pension benefit (income) expenseNet periodic pension benefit (income) expense$(4)20 (13)65 
21


Table of Contents


Net periodic benefit expense for our post-retirement benefit plans includes the following components:
 Post-Retirement Benefit Plans
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (Dollars in millions)
Service cost$3
 4
 11
 13
Interest cost27
 24
 82
 73
Expected return on assets—
 (1) —
 (1)
Recognition of prior service cost5
 5
 13
 15
Net periodic post-retirement benefit expense$35
 32
 106
 100

 Post-Retirement Benefit Plans
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in millions)
Service cost$4 3 11 11 
Interest cost17 27 57 82 
Recognition of prior service cost4 5 12 13 
Curtailment loss7 0 7 0 
Net periodic post-retirement benefit expense$32 35 87 106 
Service costs are included in the cost of services and products and selling, general and administrative line items on the statementconsolidated statements of operations and all other costs listed above are included in the other income (loss), net line item on the statementconsolidated statements of operations. 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 2019.2020. The amount of required contributions to our qualified pension plan in 20202021 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 do not anticipate making a voluntary contribution to the trust for our qualified pension plan in 2019.2020. As a result of ongoing efforts to reduce our workforce in 2020, we recognized a one-time curtailment accounting charge of $7 million upon remeasurement of our medical obligations under our post-retirement benefit plans for the three and nine months ended September 30, 2020.


22

Table of Contents

(8) Earnings (Loss) Per Common Share

Basic and diluted earnings (loss) per common share were calculated as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in millions, except per share amounts, shares in thousands)
Income (Loss) (Numerator):
Net income (loss)$366 302 1,057 (5,492)
Net income (loss) applicable to common stock for computing basic earnings per common share366 302 1,057 (5,492)
Net income (loss) as adjusted for purposes of computing diluted earnings per common share$366 302 1,057 (5,492)
Shares (Denominator):
Weighted-average number of shares:
Outstanding during period1,097,496 1,090,755 1,096,017 1,088,229 
Non-vested restricted stock(16,991)(18,212)(17,345)(17,308)
Weighted-average shares outstanding for computing basic earnings per common share1,080,505 1,072,543 1,078,672 1,070,921 
Incremental common shares attributable to dilutive securities:
Shares issuable under convertible securities10 10 10 0 
Shares issuable under incentive compensation plans5,151 2,237 4,686 0 
Number of shares as adjusted for purposes of computing diluted earnings (loss) per common share1,085,666 1,074,790 1,083,368 1,070,921 
Basic earnings (loss) per common share$0.34 0.28 0.98 (5.13)
Diluted earnings (loss) per common share (1)
$0.34 0.28 0.98 (5.13)
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (Dollars in millions, except per share amounts, shares in thousands)
Income (Loss) (Numerator):       
Net income (loss)$302
 272
 (5,492) 679
Net income (loss) applicable to common stock for computing basic earnings per common share302
 272
 (5,492) 679
Net income (loss) as adjusted for purposes of computing diluted earnings per common share$302
 272
 (5,492) 679
Shares (Denominator):       
Weighted-average number of shares:       
Outstanding during period1,090,755
 1,080,589
 1,088,229
 1,077,712
Non-vested restricted stock(18,212) (13,685) (17,308) (12,302)
Weighted-average shares outstanding for computing basic earnings per common share1,072,543
 1,066,904
 1,070,921
 1,065,410
Incremental common shares attributable to dilutive securities:       
Shares issuable under convertible securities10
 10
 —
 10
Shares issuable under incentive compensation plans2,237
 5,437
 —
 4,306
Number of shares as adjusted for purposes of computing diluted earnings (loss) per common share1,074,790
 1,072,351
 1,070,921
 1,069,726
Basic earnings (loss) per common share$0.28
 0.25
 (5.13) 0.64
Diluted earnings (loss) per common share (1)
$0.28
 0.25
 (5.13) 0.63
______________________________________________________________________ 
(1)For the nine months ended September 30, 2019, we excluded from the calculation of diluted loss per share 2.3 million shares, potentially issuable under incentive compensation plans or convertible securities, as their effect, if included, would have been anti-dilutive.
(1)For the nine months ended September 30, 2019, we excluded from the calculation of diluted loss per share 2.3 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 earnings (loss) 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 antidilutive as a result of unrecognized compensation cost. Such shares averaged 0.4 million and 5.2 million for the three months ended September 30, 2020 and 2019, respectively, and 4.0 million and 8.3 million for the three and nine months ended September 30, 2019, respectively,2020 and 1.5 million and 3.0 million for the three and nine months ended September 30, 2018,2019, respectively.

(9) Fair Value of Financial Instruments

The Fair Value MeasurementOur financial instruments consist of cash, cash equivalents 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 significantrestricted cash, accounts receivable, accounts payable, long-term debt, excluding finance lease and other observable inputsobligations, and Input Level 3 includes fair values estimated using significant unobservable inputs.
interest rate swap contracts. Due to their short-term nature, the carrying amounts of our cash, cash equivalents and restricted cash, accounts receivable and accounts payable approximate their fair values.

23

Table of Contents


The three input levels in the hierarchy of fair value measurements defined by the Fair Value Measurement and Disclosure framework are generally as follows:
Input LevelDescription of Input
Level 1Observable inputs such as quoted market prices in active markets.
Level 2Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3Unobservable inputs in which little or no market data exists.

The following table presents the carrying amounts and estimated fair values of CenturyLink, Inc.'sour financial liabilities as of September 30, 20192020 and December 31, 2018:2019:
  September 30, 2019 December 31, 2018  September 30, 2020December 31, 2019
Input
Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 Input
Level		Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
 (Dollars in millions) (Dollars in millions)
Long-term debt, excluding finance lease and other obligations2 $34,911
 35,739
 35,260
 32,915
Long-term debt, excluding finance lease and other obligations2$32,300 33,298 34,472 35,737 
Interest rate swap contracts (see Note 10)2 71
 71
 —
 —
Interest rate swap contracts (see Note 10)2$127 127 51 51 


(10) Derivative Financial Instruments
 
From time to time, CenturyLink, Inc. useswe use 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 (see Note 5—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 1 of Part I of this report)above). 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 currently outstanding interest rate swap agreements as cash flow hedges. As described further below, under these hedges, we receive 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 AOCIaccumulated other comprehensive income ("AOCI") and, as described below, is subsequently reclassified into earnings in the period that the hedged transaction affects earnings. We do not use derivative financial instruments for speculative purposes.
 
In February 2019, we entered into 5 variable-to-fixed interest rate swap agreements to hedge the interest payments on $2.5 billion notional amount of floating rate debt. The 5 interest rate swap agreements are with different counterparties; one for $700 million and the other four for $450 million each. The transactions were effective beginning March 31, 2019 and mature March 31, 2022. Under the terms of these interest rate swap transactions, we receive interest payments based on one monthone-month floating LIBOR terms and pay interest at the fixed rate of 2.48%. 

In June 2019, we entered into 6 variable-to-fixed interest rate swap agreements to hedge the interest payments on $1.5 billion notional amount of floating rate debt. The 6 interest rate swap agreements are with different counterparties for $250 million each. The transactions were effective beginning June 30, 2019 and mature June 30, 2022. Under the terms of these interest rate swap transactions, we receive interest payments based on one monthone-month floating LIBOR terms and pay interest at the fixed rate of 1.58%. 

We evaluateAs of September 30, 2020 and December 31, 2019, we evaluated the effectiveness of both our February 2019 and June 2019 hedges qualitatively on a quarterly basis and both currently qualifyany hedges we had entered into at the time qualified as effective hedge relationships.
  
CenturyLink, Inc. isWe are exposed to credit relatedcredit-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 marketmarkets and the risk that our counterparties will default on their obligations as part of our quarterly qualitative effectiveness evaluation.
 
24

Table of Contents

Amounts accumulated in AOCI related to derivatives are indirectly recognized in earnings as periodic settlement payments are made throughout the term of the swaps.


Table of Contents

The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheet at September 30, 2020 and December 31, 2019, as follows (in millions):
September 30, 2020December 31, 2019
Derivatives designated asBalance Sheet LocationFair Value
Cash flow hedging contractsOther current and noncurrent liabilities$127 51 
 Liability Derivatives
 September 30, 2019
Derivatives designated asBalance Sheet Location Fair Value
Cash flow hedging contractsOther current and noncurrent liabilities $71


The amount of unrealized (gains) losses recognized in AOCI consists of the following (in millions):
Derivatives designated as hedging instruments20202019
  Cash flow hedging contracts
Three Months Ended September 30,$(1)14 
Nine Months Ended September 30,$115 71 
Derivatives designated as hedging instruments 2019
  Cash flow hedging contracts  
Three months ended September 30, $14
Nine months ended September 30, 71

The amount of realized losses reclassified from AOCI to the statement of operations consists of the following (in millions):
Derivatives designated as hedging instruments20202019
  Cash flow hedging contracts
Three Months Ended September 30,$20 0 
Nine Months Ended September 30,$41 0 

Amounts currently included in AOCI will be reflected asreclassified into earnings prior to the settlementongoing settlements of these cash flow hedging contracts inuntil 2022. We estimate that $20.1$81 million of net losses on the interest rate swaps (based on the estimated LIBOR curve as of September 30, 2019)2020) will be reflected as earningsin our statements of operations within the next twelve12 months.
 
(11) Segment Information

In January 2019, Jeff Storey, our CODM, announced a new organization structure and began managing our operations in the following 5 segments: International and Global Accounts Management, Enterprise, Small and Medium Business, Wholesale and Consumer. In addition, asAs described in more detail below, our segments are managed based on the direct 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", in the tables below. We reclassified certain prior period amounts to conform to the current period presentation.presentation, See Note 1— Background for further detail on these changes.

At September 30, 2019,2020, we had the following 5 reportable 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 to enterprises and carriers in 3 operating regions: Asia Pacific, Latin America, Europe Middle East and Africa. IGAM is responsible for working with large multinational organizations in support of their 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";
•International and Global Accounts Management ("IGAM") Segment. Under our IGAM segment, we provide our products and services to approximately 200 global enterprise customers and to enterprises and carriers in 3 operating regions: Europe Middle East and Africa, Latin America and Asia Pacific;
•Enterprise Segment. Under our enterprise segment, we provide our products and services to large and regional domestic and global enterprises, as well as public sector, which includes the U.S. federal government, state and local governments and research and education institutions;
•Small and Medium Business ("SMB") Segment. Under our SMB segment, we provide our products and services to small and medium businesses directly and through our indirect channel partners;
•Wholesale Segment. Under our wholesale segment, we provide our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors. Our wholesale customers range from large global telecom providers to small regional providers; and
•
Enterprise Segment. Under our enterprise segment, we provide our products and services to large and medium domestic and global enterprises, including 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, data center, 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 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
25

Table of Contents


•
Wholesale Segment. Under our wholesale segment, we provide our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors. Our wholesale customers range from large global telecom providers to small regional providers. Our products and services offered to these customers include our IP and Data Services suite of products, primarily Ethernet, VPN and IP services; Transport and Infrastructure, which includes private line, wavelengths, UNE, dark fiber, colocation, data center, and wholesale broadband services; and Voice 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. Under our consumer segment, we provide our products and services to residential customers. Our products and services offered to these customers include our broadband, local and long-distance voice, 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 are reported in our consumer segment as regulatory revenue.
Product and Service Categories
We categorize our products and services revenue among the following 4 categories for the International and Global Accounts Management,IGAM, Enterprise, Small and Medium BusinessSMB and Wholesale segments:
•
IP and Data Services, which includes primarily VPN data networks, Ethernet, IP, video (including our facilities-based video services, CDN services and Vyvx broadcast services)
•IP and Data Services, which includes primarily VPN data networks, Ethernet, IP, content delivery and other ancillary services;
•Transport and Infrastructure, which includes wavelengths, dark fiber, private line, colocation and data center services, including cloud, hosting and application management solutions, professional services and other ancillary services;
•Voice and Collaboration, which includes primarily local and long-distance voice, including wholesale voice, and other ancillary services, as well as VoIP services; and
•IT and Managed Services, which includes information technology services and managed services, which may be purchased in conjunction with our other network services.
•
Transport and Infrastructure, which includes broadband, private line (including business data services), data center facilities and services, including cloud, hosting and application management solutions, wavelength, equipment sales and professional services, network security services, dark fiber services and other ancillary services;
•
Voice and Collaboration, which includes primarily local and long-distance voice, including wholesale voice, and other ancillary services;
•
IT and Managed Services, which includes 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 4 categories for the Consumer segment:
•
Broadband, which includes broadband revenue; and
•
Voice, which includes local and long-distance revenue; and
•
Regulatory Revenue, which consists of (i) Universal Service Fund, Connect America Fund and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space; and
•
Other, which includes retail video revenue (including our facilities-based video revenue)
•Broadband, which includes high-speed fiber based and lower speed DSL broadband services;
•Voice, which includes local and long-distance services;
•Regulatory Revenue, which consists of (i) CAF and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space; and
•Other, which includes retail video services (including our linear and TV services), professional services and other ancillary services.
26

Table of Contents

The following table summarizestables summarize our segment results and operating revenue detail for our product and services for the three months ended September 30, 2019.2020 and 2019, based on the segment categorization we were operating under at September 30, 2020.
Three Months Ended September 30, 2020
International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
(Dollars in millions)
Revenue:
IP and Data Services$381 611 266 318 0 1,576 0 1,576 
Transport and Infrastructure315 420 85 447 0 1,267 0 1,267 
Voice and Collaboration87 357 271 183 0 898 0 898 
IT and Managed Services52 51 13 1 0 117 0 117 
Broadband0 0 0 0 730 730 0 730 
Voice0 0 0 0 401 401 0 401 
Regulatory0 0 0 0 153 153 0 153 
Other0 0 0 0 25 25 0 25 
Total revenue835 1,439 635 949 1,309 5,167 0 5,167 
Expenses:
Cost of services and products229 478 94 120 47 968 1,268 2,236 
Selling, general and administrative58 124 97 16 118 413 437 850 
Less: share-based compensation0 0 0 0 0 0 (31)(31)
Total expense287 602 191 136 165 1,381 1,674 3,055 
Total adjusted EBITDA$548 837 444 813 1,144 3,786 (1,674)2,112 

Three Months Ended September 30, 2019

International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal

(Dollars in millions)
Revenue:



 



  

IP and Data Services$417
691
295
357
—
1,760
—
1,760
Transport and Infrastructure331
405
106
467
—
1,309
—
1,309
Voice and Collaboration96
395
322
200
—
1,013
—
1,013
IT and Managed Services55
59
11
1
—
126
—
126
Broadband—
—
—
—
718
718
—
718
Voice—
—
—
—
462
462
—
462
Regulatory—
—
—
—
157
157
—
157
Other—
—
—
—
61
61
—
61
Total Revenue899
1,550
734
1,025
1,398
5,606
—
5,606
Expenses:        
Cost of services and products269
544
155
144
80
1,192
1,398
2,590
Selling, general and administrative65
134
112
21
102
434
397
831
Less: share-based compensation—
—
—
—
—
—
(38)(38)
Total expense334
678
267
165
182
1,626
1,757
3,383
Total adjusted EBITDA$565
872
467
860
1,216
3,980
(1,757)2,223

27


Table of Contents

 Three Months Ended September 30, 2019
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Revenue:
IP and Data Services$404 631 270 353 0 1,658 0 1,658 
Transport and Infrastructure317 384 93 464 0 1,258 0 1,258 
Voice and Collaboration89 354 300 198 0 941 0 941 
IT and Managed Services56 59 11 2 0 128 0 128 
Broadband0 0 0 0 718 718 0 718 
Voice0 0 0 0 453 453 0 453 
Regulatory0 0 0 0 157 157 0 157 
Other0 0 0 0 37 37 0 37 
Total revenue866 1,428 674 1,017 1,365 5,350 0 5,350 
Expenses:
Cost of services and products235 451 99 134 50 969 1,365 2,334 
Selling, general and administrative64 132 108 15 122 441 390 831 
Less: share-based compensation0 0 0 0 0 0 (38)(38)
Total expense299 583 207 149 172 1,410 1,717 3,127 
Total adjusted EBITDA$567 845 467 868 1,193 3,940 (1,717)2,223 
28

Table of Contents

The following table summarizestables summarize our segment results and operating revenue detail for our product and services for the three months ended September 30, 2018.
 Three Months Ended September 30, 2018
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Revenue: 







  

IP and Data Services$423
659
294
348
—
1,724
—
1,724
Transport and Infrastructure317
374
117
537
—
1,345
—
1,345
Voice and Collaboration90
395
361
210
—
1,056
—
1,056
IT and Managed Services62
77
13
2
—
154
—
154
Broadband—
—
—
—
702
702
—
702
Voice—
—
—
—
565
565
—
565
Regulatory—
—
—
—
181
181
—
181
Other—
—
—
—
91
91
—
91
Total Revenue892
1,505
785
1,097
1,539
5,818
—
5,818
Expenses:        
Cost of services and products254
491
154
158
115
1,172
1,500
2,672
Selling, general and administrative62
141
129
18
124
474
493
967
Less: share-based compensation—
—
—
—
—
—
(49)(49)
Total expense316
632
283
176
239
1,646
1,944
3,590
Total adjusted EBITDA$576
873
502
921
1,300
4,172
(1,944)2,228


Table of Contents

The following table summarizes our segment results and operating revenue detail for our product and services for the nine months ended September 30, 2019.
 Nine Months Ended September 30, 2019
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Revenue:        
IP and Data Services$1,257
2,060
885
1,037
—
5,239
—
5,239
Transport and Infrastructure984
1,137
319
1,450
—
3,890
—
3,890
Voice and Collaboration284
1,182
986
589
—
3,041
—
3,041
IT and Managed Services167
199
35
4
—
405
—
405
Broadband—
—
—
—
2,158
2,158
—
2,158
Voice—
—
—
—
1,428
1,428
—
1,428
Regulatory—
—
—
—
474
474
—
474
Other—
—
—
—
196
196
—
196
Total Revenue2,692
4,578
2,225
3,080
4,256
16,831
—
16,831
Expenses:        
Cost of services and products786
1,537
455
430
244
3,452
4,104
7,556
Selling, general and administrative201
426
364
62
321
1,374
1,349
2,723
Less: share-based compensation—
—
—
—
—
—
(114)(114)
Total expense987
1,963
819
492
565
4,826
5,339
10,165
Total adjusted EBITDA$1,705
2,615
1,406
2,588
3,691
12,005
(5,339)6,666

Table of Contents

The following table summarizes our segment results2020 and operating revenue detail for our product and services for the nine months ended September 30, 2018.
 Nine Months Ended September 30, 2018
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Revenue:        
IP and Data Services$1,294
1,991
884
1,036
—
5,205
—
5,205
Transport and Infrastructure947
1,154
362
1,614
—
4,077
—
4,077
Voice and Collaboration285
1,203
1,101
667
—
3,256
—
3,256
IT and Managed Services204
227
41
6
—
478
—
478
Broadband—
—
—
—
2,119
2,119
—
2,119
Voice—
—
—
—
1,668
1,668
—
1,668
Regulatory—
—
—
—
549
549
—
549
Other—
—
—
—
313
313
—
313
Total Revenue2,730
4,575
2,388
3,323
4,649
17,665
—
17,665
Expenses:        
Cost of services and products789
1,505
454
501
397
3,646
4,559
8,205
Selling, general and administrative194
438
392
65
395
1,484
1,707
3,191
Less: share-based compensation—
—
—
—
—
—
(144)(144)
Total expense983
1,943
846
566
792
5,130
6,122
11,252
Total adjusted EBITDA$1,747
2,632
1,542
2,757
3,857
12,535
(6,122)6,413


We recognize revenue 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 USF surcharges, where we record revenue and transaction taxes, are assigned to the product and service categories of each segment2019 based on the underlying revenue. We also act as a collection agent for certain other USF and transaction taxes thatsegment categorization 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.were operating under at September 30, 2020.

The following table provides the amount of USF surcharges and transaction taxes:
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (Dollars in millions)
USF surcharges and transaction taxes$270
 221
 750
 698


Nine Months Ended September 30, 2020
International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
(Dollars in millions)
Revenue:
IP and Data Services$1,167 1,862 798 965 0 4,792 0 4,792 
Transport and Infrastructure942 1,181 265 1,327 0 3,715 0 3,715 
Voice and Collaboration275 1,084 843 561 0 2,763 0 2,763 
IT and Managed Services165 165 33 2 0 365 0 365 
Broadband0 0 0 0 2,178 2,178 0 2,178 
Voice0 0 0 0 1,231 1,231 0 1,231 
Regulatory0 0 0 0 463 463 0 463 
Other0 0 0 0 80 80 0 80 
Total revenue2,549 4,292 1,939 2,855 3,952 15,587 0 15,587 
Expenses:
Cost of services and products694 1,388 297 383 131 2,893 3,810 6,703 
Selling, general and administrative184 395 316 49 352 1,296 1,302 2,598 
Less: share-based compensation0 0 0 0 0 0 (120)(120)
Total expense878 1,783 613 432 483 4,189 4,992 9,181 
Total adjusted EBITDA$1,671 2,509 1,326 2,423 3,469 11,398 (4,992)6,406 

29

Table of Contents

Nine Months Ended September 30, 2019
International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
(Dollars in millions)
Revenue:
IP and Data Services$1,221 1,901 817 1,028 0 4,967 0 4,967 
Transport and Infrastructure949 1,085 282 1,441 0 3,757 0 3,757 
Voice and Collaboration267 1,078 929 584 0 2,858 0 2,858 
IT and Managed Services169 198 34 6 0 407 0 407 
Broadband0 0 0 0 2,158 2,158 0 2,158 
Voice0 0 0 0 1,397 1,397 0 1,397 
Regulatory0 0 0 0 471 471 0 471 
Other0 0 0 0 137 137 0 137 
Total revenue2,606 4,262 2,062 3,059 4,163 16,152 0 16,152 
Expenses:
Cost of services and products698 1,313 306 408 159 2,884 3,993 6,877 
Selling, general and administrative198 421 347 44 403 1,413 1,310 2,723 
Less: share-based compensation0 0 0 0 0 0 (114)(114)
Total expense896 1,734 653 452 562 4,297 5,189 9,486 
Total adjusted EBITDA$1,710 2,528 1,409 2,607 3,601 11,855 (5,189)6,666 

Revenue and Expenses

Our segment revenue includes all revenue from our 5 segments as described in more detail above. Our segment revenue is based upon each customer's classification. We report our segment revenue 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 directly associated with specific segment customers or activities. Network

The following items are excluded from our segment results, because they are centrally managed and not monitored by or reported to our chief operating decision maker by segment:
•network expenses not incurred as a direct result of providing services and products to segment customers and customers;
•centrally managed expenses such as Operations, Finance, Human Resources, Legal, Marketing, Product Management and IT, are not assigned to segments as they are managed separately; theywhich 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 CODM by segment. Interestimpairments;
•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. Stock-based compensationsegments;
•stock-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.operations.
30

Table of Contents

The following table reconciles total segment adjusted EBITDA to net income (loss):
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
(Dollars in millions) (Dollars in millions)
Total segment adjusted EBITDA$3,980
 4,172
 12,005
 12,535
Total segment adjusted EBITDA$3,786 3,940 11,398 11,855 
Depreciation and amortization(1,235) (1,285) (3,619) (3,858)Depreciation and amortization(1,193)(1,235)(3,515)(3,619)
Impairment of goodwill—
 —
 (6,506) —
Impairment of goodwill0 0 0 (6,506)
Other operating expenses(1,757) (1,944) (5,339) (6,122)Other operating expenses(1,674)(1,717)(4,992)(5,189)
Stock-based compensation(38) (49) (114) (144)Stock-based compensation(31)(38)(120)(114)
Operating income (loss)950
 894
 (3,573) 2,411
Operating income (loss)888 950 2,771 (3,573)
Total other expense, net(540) (565) (1,542) (1,609)Total other expense, net(408)(540)(1,345)(1,542)
Income (loss) before income taxes410
 329
 (5,115) 802
Income (loss) before income taxes480 410 1,426 (5,115)
Income tax expense108
 57
 377
 123
Income tax expense114 108 369 377 
Net income (loss)$302
 272
 (5,492) 679
Net income (loss)$366 302 1,057 (5,492)


(12) Commitments, and Contingencies and Other Items

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

Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for our litigation and non-income tax contingencies at September 30, 20192020, aggregated to approximately $133$129 million and are included in other current liabilities and other liabilities in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows.

In this Note, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in that matter.


Table of Contents

Principal Proceedings

Shareholder Class Action SuitsSuit

CenturyLinkLumen and certain CenturyLink boardLumen Board of Directors 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, Inc. shareholders as a result of the transaction.our acquisition of Level 3. It alleges that the proxy statement provided to the Level 3 shareholders failed to disclose various 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. In May 2020, the court dismissed the complaint. Plaintiffs appealed that decision, and the appeal is pending.

Switched Access Disputes
31


Table of Contents
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 in the United States District Court for the Northern District of Texas for pretrial procedures. The disputes relate to switched access charges that local exchange carriers ("LECs") collect from interexchange carriers ("IXCs") for IXCs' use of LEC's access services. In the lawsuits, IXCs, including Sprint Communications Company L.P. ("Sprint") and various affiliates of Verizon Communications Inc. ("Verizon"), assert that federal and state laws bar LECs from collecting access charges when IXCs exchange certain types of calls between mobile and wireline devices that are routed through an IXC. Some of these IXCs have asserted claims seeking refunds of payments for access charges previously paid and relief from future access charges.

In November 2015, the federal court agreed with the LECs and rejected the IXCs' contention that federal law prohibits these particular access charges, and also allowed the IXCs to refile state-law claims. Since then, many of the 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.

Our subsidiaries include both IXCs and LECs which respectively pay and assess significant amounts of the charges in question. The outcomes of these disputes and lawsuits, as well as any related regulatory proceedings that could ensue, are currently not predictable.

State Tax Suits

SeveralSince 2012, a number of 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.Missouri, alleging that we and several of our subsidiaries have underpaid taxes. 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 1 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.decision to the Missouri Supreme Court. In December 2019, it affirmed the circuit court's order in some respects and reversed it in others, remanding the case to the circuit court for further proceedings. The Missouri Supreme Court's decision reduced our exposure in the case. In a June 2017 ruling in connection with another one of these pending cases, the circuit court made findings in a non-final ruling which, if not overturned or modified in light of the Missouri Supreme Court's decision, will result in a tax liability to us well in excess of the contingent liability we have established. In due course,The circuit court has indicated it does not intend to alter its 2017 ruling when it issues its final decision. Once a final decision is issued, we planwill have the right to appeal that decision.pursue an appeal. We continue to vigorously defend against these claims.


Table of Contents

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.

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 otherOther complaints asserting similar claims have beenwere filed in other federal and state courts, as well.courts. 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.

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, derivative cases were filed. NaN 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. The remaining derivative cases were filedOuachita and in federal court in Louisiana and Minnesota. These cases have been brought on behalf of CenturyLink, Inc. 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. Subject to confirmatory discovery and court approval, we have agreed to settle the consumer putative class actions for payments of $15.5 million to compensate class members and of up to $3.5 million for administrative costs. We haveIn the second quarter of 2019, we accrued for these obligations, and a portion of the administrative costs has been expended in 2020. Certain class members may elect to opt out of the class settlement and pursue the resolution of their individual claims against us on these issues through various dispute resolution processes, including individual arbitration. One law firm asserts it has opt out requests from approximately 12,000 class members. To the extent that a substantial number of class members meet the contractual requirements to arbitrate, elect to opt out of the settlement (or otherwise successfully exclude their individual claims), and actually pursue arbitrations, the Company could incur a material amount of filing and other arbitrations fees in relation to the administration of those amounts.claims.

In July 2017, the Minnesota state attorney general filed State of Minnesota v. CenturyTel Broadband Services LLC, et al. in the Anoka County Minnesota District Court, alleging claims of fraud and deceptive trade practices relating to improper consumer sales practices. The

32

Table of Contents

We have engaged in discussions regarding potential resolutions of these claims with a number of state attorneys general, and have entered into agreements settling the Minnesota suit seeks an orderand certain of restitution on behalf of all CenturyLink customers, civil penalties, injunctive relief, and costs and fees. Additionally,the consumer practices claims asserted by state attorneys general. While we do not agree with allegations raised in these matters, we have received and respondedbeen willing to information requests and inquiries from other states.consider reasonable settlements where appropriate.

Locate Service Investigations

In JuneAs previously disclosed, in the fourth quarter of 2019, Minnesota and Arizona initiated investigations relatedwe recorded an accrual with respect to the timeliness of responses by certain of our vendors to requests for marking the location of underground telecommunications facilities. Weabove-described settlements and our subsidiaries are cooperating with the investigations.other consumer litigation related matters.

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one1 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 was $8$3 million atas of September 30, 2019.2020.

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. Oral argument was held before the Supreme Court of Justice in October 2018. A decision on this case is pending.

Table of Contents


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. Oral argument was held before the Supreme Court of Justice in June 2019. A decision on this case is pending.

Brazilian Tax Claims

In December 2004, March 2009, April 2009 and July 2014, the São Paulo state tax authoritiesauthority issued tax assessments against one1 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 authoritiesauthority issued tax assessments to the same Brazilian subsidiary on similar issues.

We have filed objections to these assessments in both states, arguing, among other things, that neither the lease of assets andnor the provision of Internet access are not communication servicesqualify as “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 respective state judicial courts.

In October 2012 and June 2014, we received favorable rulings from the São Paulo state lower court onruled partially in our favor finding that the lease assets are not subject to ICMS in connection with the December 2004 and March 2009 assessments regarding equipment leasing, butassessments. The state of São Paulo appealed those rulings are subjectrulings. Our objection to the April 2009 assessment is pending final administrative action in São Paulo. The July 2014 assessment was affirmed at the first administrative level and our appeal byto the state. No ruling has been obtained with respect tosecond administrative level is pending.

Regarding the September 2002 assessment. Theassessment, in July 2020, the Rio de Janeiro state court ruling in our favor became final once the appeals process had been exhausted. Accordingly, we released the related reserve. Our objections to the April and July 2009 and May 2012 assessments are still pending final administrativestate judicial 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 and Internet access to be without merit. We estimate that theseThese assessments, if upheld, could result in a loss of up$16 million to $37as high as $44 million atas of September 30, 20192020 in excess of the accruals established for these matters.
33

Table of Contents


Qui Tam Action

Level 3 was notified in late 2017 of a qui tam action pending against Level 3 Communications, Inc. and others in the United StatesU.S. 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 wasand an amended complaint were filed under seal on November 26, 2013 and an amended complaint was filed under seal on June 16, 2014.2014, respectively. The court unsealed the complaints on October 26, 2017.

The amended complaint alleges that Level 3, principally through two2 former employees, submitted false claims and made false statements to the government in connection with two2 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.

Several people, including two2 former Level 3 employees, were indicted in the United StatesU.S. 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 two2 former employees, one1 entered into a plea agreement, and the other is deceased. Level 3 is fully cooperating in the government’s investigations in this matter.


Table of Contents

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 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 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 1 or more may go to trial in the coming 24 monthsduring 2020 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 matters listed above in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 1719 - Commitments, Contingencies and Other Items - to the financial statements included in Item 8 of part II of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2018.2019. The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us.

Environmental Contingencies
34

In connection with our largely historical operations, we have responded to or been notifiedTable of potential 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 fault, for the 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.Contents

(13) Other Financial Information

Other Current Assets

The following table presents details of other current assets reflected in our consolidated balance sheets:
September 30, 2019 December 31, 2018September 30, 2020December 31, 2019
(Dollars in millions) (Dollars in millions)
Prepaid expenses$352
 307
Prepaid expenses$312 274 
Income tax receivable5
 82
Income tax receivable6 35 
Materials, supplies and inventory137
 120
Materials, supplies and inventory112 105 
Contract assets51
 52
Contract assets35 42 
Contract acquisition costs175
 167
Contract acquisition costs172 178 
Contract fulfillment costs111
 82
Contract fulfillment costs117 115 
Other53
 108
Other81 70 
Total other current assets$884
 918
Total other current assets$835 819 



Table of Contents

(14) Accumulated Other Comprehensive Loss

Information Relating to 2019

2020

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheet by component for the nine months ended September 30, 2019:2020:
Pension PlansPost-Retirement
Benefit Plans		Foreign Currency
Translation
Adjustment
and Other		Interest Rate SwapTotal
Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Interest Rate Swap Total (Dollars in millions)
(Dollars in millions)
Balance at December 31, 2018$(2,173) (58) (230) —
 (2,461)
Balance at December 31, 2019Balance at December 31, 2019$(2,229)(184)(228)(39)(2,680)
Other comprehensive loss before reclassifications—
 —
 (115) (54) (169)Other comprehensive loss before reclassifications0 0 (181)(87)(268)
Amounts reclassified from accumulated other comprehensive loss122
 9
 —
 —
 131
Amounts reclassified from accumulated other comprehensive loss110 12 0 31 153 
Net current-period other comprehensive income (loss)122
 9
 (115) (54) (38)Net current-period other comprehensive income (loss)110 12 (181)(56)(115)
Balance at September 30, 2019$(2,051) (49) (345) (54) (2,499)
Balance at September 30, 2020Balance at September 30, 2020$(2,119)(172)(409)(95)(2,795)

35

Table of Contents

The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the three and nine months ended September 30, 2019:2020:
Three Months Ended September 30, 2019 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 $54
 Other income, net
Prior service cost 3
 Other income, net
Total before tax 57
  
Income tax benefit (14) Income tax expense
Net of tax $43
  
Nine Months Ended September 30, 2019 Increase (Decrease)
in Net Loss		 Affected Line Item in Consolidated Statement of Operations
  (Dollars in millions)  
Amortization of pension & post-retirement plans(1)
    
Net actuarial loss $167
 Other income, net
Prior service cost 7
 Other income, net
Total before tax 174
  
Income tax benefit (43) Income tax expense
Net of tax $131
  
________________________________________________________________________
(1)Three Months Ended September 30, 2020See Note 7—Employee Benefits for additional information on ourDecrease (Increase)
in Net Income		Affected Line Item in Consolidated Statement of Operations
(Dollars in millions)
Interest rate swaps$20 Interest expense
Income tax expense(5)Income tax expense
Net of tax$15 
Amortization of pension & post-retirement plans(1)
Net actuarial loss$50 Other income (loss), net periodic benefit
Prior service cost1 Other income (loss), net
Curtailment loss4 Other income (loss), net
Total before tax55 
Income tax expense (income) related to our pension and post-retirement plans.(13)Income tax expense
Net of tax$42 

Nine Months Ended September 30, 2020Decrease (Increase) in Net IncomeAffected Line Item in Consolidated Statement of Operations
(Dollars in millions)
Interest rate swaps$41 Interest expense
Income tax expense(10)Income tax expense
Net of tax$31 
Amortization of pension & post-retirement plans (1)
Net actuarial loss$152 Other income (loss), net
Prior service cost5 Other income (loss), net
Curtailment loss4 Other income (loss), net
Total before tax161 
Income tax expense(39)Income tax expense
Net of tax$122 
(1)See Note 7—Employee Benefits for additional information on our net periodic benefit (income) expense related to our pension and post-retirement plans.
36

Table of Contents

Information Relating to 20182019
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the nine months ended September 30, 20182019:
 Pension Plans Post-Retirement
Benefit Plans		 Foreign Currency
Translation
Adjustment
and Other		 Total
 (Dollars in millions)
Balance at December 31, 2017$(1,731) (235) (29) (1,995)
Other comprehensive income before reclassifications—
 —
 (161) (161)
Amounts reclassified from accumulated other comprehensive loss97
 11
 —
 108
Net current-period other comprehensive income97
 11
 (161) (53)
Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income(375) (32) —
 (407)
Balance at September 30, 2018$(2,009) (256) (190) (2,455)

Pension PlansPost-Retirement
Benefit Plans		Foreign Currency
Translation
Adjustment
and Other		Interest Rate SwapTotal
 (Dollars in millions)
Balance at December 31, 2018$(2,173)(58)(230)0 (2,461)
Other comprehensive loss before reclassifications0 0 (115)(54)(169)
Amounts reclassified from accumulated other comprehensive loss122 9 0 0 131 
Net current-period other comprehensive income (loss)122 9 (115)(54)(38)
Balance at September 30, 2019$(2,051)(49)(345)(54)(2,499)
The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the three and nine months ended September 30, 2018
Three Months Ended September 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 $45
 Other income, net
Prior service cost 3
 Other income, net
Total before tax 48
  
Income tax benefit (11) Income tax expense
Net of tax $37
  
2019
Nine Months Ended September 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 $134
 Other income, net
Prior service cost 9
 Other income, net
Total before tax 143
  
Income tax benefit (35) Income tax expense
Net of tax $108
  

(1)Three Months Ended September 30, 2019See Note 7—Employee Benefits for additional information on ourDecrease (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$54 Other income, net periodic
Prior service cost3 Other income, net
Total before tax57 
Income tax benefit(14)Income tax expense (income) related to our pension and post-retirement plans.
Net of tax$43 

Table of Contents
Nine Months Ended September 30, 2019Decrease (Increase) in Net IncomeAffected Line Item in Consolidated Statement of Operations
(Dollars in millions)
Amortization of pension & post-retirement plans (1)
Net actuarial loss$167 Other income, net
Prior service cost7 Other income, net
Total before tax174 
Income tax benefit(43)Income tax expense
Net of tax$131 
(1)See Note 7—Employee Benefits for additional information on our net periodic benefit (income) expense related to our pension and post-retirement plans.

(15) Labor Union Contracts

As of September 30, 2019, CenturyLink, Inc. had2020, approximately, 43,000 employees. Approximately, 26%24% of our employees arewere represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). Approximately 2% of our union-represented employees were subject to collective bargaining agreements that expired as of September 30, 20192020 and are currently being renegotiated. Additionally, approximately 10%Approximately 13% of our union-representedrepresented employees are subject to collective bargaining agreements that are scheduled to expire over the next 12 months. During third quarter 2019, we reached new agreements with the CWA and IBEW, which represented approximately 73%, of our represented employees. We believe relations with our employees continue to be generally good.
month period ending September 30, 2021.

37

Table of Contents


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,"Lumen Technologies" or "Lumen," "we," "us" and "our" refer to CenturyLink, Inc. (doing business as Lumen Technologies) and its consolidated subsidiaries and (ii) references in this report to "Level 3" refer to Level 3 Communications, Inc. prior to our acquisition thereofParent, LLC and to its successor-in-interestpredecessor Level 3 Parent, LLC after such acquisition.Communications, Inc., which we acquired on November 1, 2017.

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" set forth or referenced in Item 1A of Part III of this report or other of our annual report on Form 10-K forfilings with the year endedDecember 31, 2018SEC 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 reportAnnual Report on Form 10-K for the year ended December 31, 2018,2019 and with the consolidated financial statements and related notes in Item 1 of Part I of this report. The results of operations and cash flows for the first nine 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 a broad array of integrated services to our residentialbusiness and businessresidential customers. We believe we are among the largest providers of communications services to domestic and global enterprise customers and the thirdsecond largest enterprise wireline telecommunications company in the United States.States, based on revenues. We provide services in over 60 countries, with most of our revenue being derived in the United States. As of September 30, 2020, we had approximately 39,000 employees.

Impact of COVID-19 Pandemic

In response to the safety and economic challenges arising out of the COVID-19 pandemic and in an attempt to mitigate the negative impact on our stakeholders, we have taken over the past several months a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees and customers, to enable us to continue to adapt and provide our products and services worldwide to our customers, and to strengthen our communities. These steps have included:
•taking the FCC's "Keep Americans Connected Pledge," under which we waived certain late fees and suspended the application of data caps and service terminations for non-payment by certain consumer and small business customers through the end of the second quarter of 2020;
•establishing new protocols for the safety of our on-site technicians and customers, including our "Safe Connections" program;
•adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel;
•continuously monitoring our network to enhance its ability to respond to changes in usage patterns;
•donating products or services in several of our communities to enhance their abilities to provide necessary support services; and
•taking steps to maintain our internal controls and the security of our systems and data in a remote work environment.
38

Table of Contents


As the pandemic continues, we may revise our responses or take additional steps to adjust to changed circumstances.

Social distancing, business and school closures, travel restrictions, and other actions taken in response to the pandemic have impacted us, our customers and our business since March 2020. In particular, as discussed further elsewhere herein, we are tracking pandemic impacts such as: (i) increases in certain revenue streams and decreases in others (including late fee revenue), (ii) increases in allowances for credit losses and overtime expenses and (iii) any delays in our cost transformation initiatives. Thus far, these changes have not materially impacted our financial performance or financial position. This could change, however, if the pandemic intensifies or economic conditions deteriorate. The impact of the pandemic after the third quarter of 2020 will materially depend on additional steps that we may take in response to the pandemic and various events outside of our control, including the length and severity of the health crisis and economic slowdown, actions taken by governmental agencies or legislative bodies, and the impact of those events on our employees, suppliers and customers. For additional information, see the risk factor disclosures set forth or referenced in Item 1A of Part II of this report.

For additional information on the impacts of the pandemic, see the remainder of this item, including "—Liquidity and Capital Resources — Overview of Sources and Uses of Cash," and "— Pension and Post-retirement Benefit Obligations."

Reporting Segments

Our reporting segments are organized by customer focus:
•International and Global Accounts Management ("IGAM") Segment. Under our IGAM segment, we provide our products and services to approximately 200 global enterprise customers and to enterprises and carriers in three operating regions: Europe Middle East and Africa, Latin America and Asia Pacific. IGAM works with large multinational organizations in support of their business and IT transformation strategies. With our extensive fiber network, and our ability to provide global networking solutions and a differentiated customer experience spanning the globe, we believe we are well-positioned to serve customers within this segment. This segment contains some of our largest customers, which could result in revenue fluctuations driven by contract renegotiations or churn. We remain focused on investing globally to expand our reach, scale and technology to grow services that we can offer to our global and international customers;
•Enterprise Segment. Under our enterprise segment, we provide our products and services to large and regional domestic and global enterprises, as well as the public sector, which includes the U.S. Federal government, state and local governments and research and education institutions. We believe we have the ability to meet our enterprise customers' increasing needs for integrated data, broadband and voice services with our extensive product portfolio and our local approach to the market. We seek revenue growth within our Enterprise segment by leveraging our extensive enterprise-focused fiber network to deliver dynamic solutions our customers require to meet their growing and evolving needs;
•Small and Medium Business ("SMB") Segment. Under our SMB segment, we provide our products and services to small and medium businesses directly and through our indirect channel partners. We generally designate businesses as small or medium if they have fewer than 500 employees. With traditional voice services representing a significant portion of SMB segment revenues, we currently do not anticipate revenue growth for this segment. We believe by bringing products tailored to the needs of this segment, penetrating fiber-fed on-net buildings and collaborating with our indirect channel partners, we will be better positioned to meet our SMB customers’ needs; and
•Wholesale Segment. Under our wholesale segment, we provide our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors. Our wholesale segment contributes scale that we leverage in connection with serving our other customers. We plan to continue to partner with 5G wireless providers to support their growing needs for transmission capacity, which in turn will place our network closer to our customers. Nonetheless, we expect the relative contributions of our wholesale segment will decline over the longer term due to competitive pressures. In the meantime, we expect our wholesale segment will remain volatile from quarter to quarter given the relatively large size of wholesale customer contracts.
39

Table of Contents

•Consumer Segment. Under our consumer segment, we provide our products and services to residential customers. For this segment, we expect continued declines in revenues from our traditional voice services, as consumers continue their long-term migration towards alternative products and services, and from our video business, which we are no longer actively marketing to consumers. We are aggressively investing in fiber to drive higher average revenue per broadband customer to partially offset legacy voice and video declines. Additionally, we continue to invest in our own digital transformation to improve our service delivery and reduce our costs. At September 30, 2019,2020, we served 4.7approximately 4.6 million consumer broadband subscribers. Our methodology for counting consumer broadband subscribers may not be comparable to those of other companies.
SegmentsSee Note 11—Segment Information to our consolidated financial statements in Item 1 of Part I of this report for additional information.

At September 30, 2019, we hadWe categorize our revenue among the following five segments:four product and services categories that we sell to business customers:
•
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 operations connect over 60 countries and conduct business in 25 languages. IGAM is responsible for working with large multinational organizations in support of their 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
•IP and Data Services, which include primarily VPN data networks, Ethernet, IP, content delivery and other ancillary services;
•Transport and Infrastructure, which includes wavelengths, dark fiber, private line, colocation and data center services, including cloud, hosting and application management solutions, professional services and other ancillary services;
•Voice and Collaboration, which includes primarily local and long-distance voice, including wholesale voice, and other ancillary services, as well as VoIP services; and
•IT and Managed Services, which include information technology services and managed services, which may be purchased in conjunction with our other network services.
We categorize revenue among the following four categories that we sell to residential customers:
•Broadband, which includes high speed, fiber-based and lower speed DSL broadband services;
•Voice, which include local and long-distance services;
•Regulatory Revenue, which consist of (i) CAF and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space; and
•Other, which include retail video services (including our linear TV services), professional services and other ancillary services.

Trends Impacting Our Operations

In addition to the above-described impact of the pandemic, our consolidated operations have been, and are expected to continue to be, impacted by the following company-wide trends:
•Customers’ demand for automated products and services and competitive pressures will require that we continue to invest in new technologies and automated processes to improve the customer experience and reduce our operating expenses.
•The increasingly digital environment and the growth in online video require robust, scalable network services.  We are continuing to enhance our product capabilities and simplify our product portfolio based on demand and profitability to enable customers to have access to greater bandwidth.
•Businesses continue to adopt distributed, global operating models.  We are expanding and enhancing our fiber network, connecting more buildings to our network to generate revenue opportunities and reducing our reliance upon other carriers.
•Industry consolidation, coupled with changes in regulation, technology and customer preferences, are significantly reducing demand for our traditional voice services and are pressuring some other revenue streams, while other advances, such as the need for lower latency provided by Edge computing or the implementation of 5G networks, are expected to create opportunities.
•
Enterprise Segment. Under our enterprise segment, we provide our products and services to large and medium domestic and global enterprises, including 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, data center, 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"; and
40

Table of Contents


•
Small and Medium Business ("SMB") Segment. •The operating margins of several of our newer, more technologically advanced services, some of which may connect to customers through other carriers, are lower than the operating margins on our traditional, on-net wireline services.Under our SMB segment, we provide our products and services to small and medium businesses directly and 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"; and
•
Wholesale Segment. Under our wholesale segment, we provide our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors. Our wholesale customers range from large global telecom providers to small regional providers. Our products and services offered to these customers include our IP and Data Services suite of products, primarily Ethernet, VPN and IP services; Transport and Infrastructure, which includes private line, wavelengths, UNE, dark fiber, colocation, data center, and wholesale broadband services; and Voice 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"; and
•
Consumer Segment. Under our consumer segment, we provide our products and services to residential customers. Our products and services offered to these customers include our broadband, local and long-distance voice, 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 are reported in our consumer segment as regulatory revenue.
•Declines in our traditional wireline services have necessitated right-sizing our cost structures to remain competitive.

Additional trends impacting our segments are discussed elsewhere in this Item 2.

Results of Operations

In this section, we discuss our overall results of operations and highlight special items that are not included in our segment results. In "Segment Results of Operations" we review the performance of our five reporting segments in more detail.

The following table summarizes the results of our consolidated operations for the three and nine months ended September 30, 2020 and September 30, 2019:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in millions, except per share amounts)
Operating revenue$5,167 5,350 15,587 16,152 
Operating expenses4,279 4,400 12,816 19,725 
Operating income (loss)888 950 2,771 (3,573)
Total other expense, net(408)(540)(1,345)(1,542)
Income (loss) before income taxes480 410 1,426 (5,115)
Income tax expense114 108 369 377 
Net income (loss)$366 302 1,057 (5,492)
Basic earnings (loss) per common share$0.34 0.28 0.98 (5.13)
Diluted earnings (loss) per common share$0.34 0.28 0.98 (5.13)

41
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (Dollars in millions, except per share amounts)
Operating revenue$5,606
 5,818
 16,831
 17,665
Operating expenses4,656
 4,924
 20,404
 15,254
Operating income (loss)950

894
 (3,573) 2,411
Total other expense, net(540) (565) (1,542) (1,609)
INCOME (LOSS) BEFORE INCOME TAXES410
 329
 (5,115) 802
Income tax expense108
 57
 377
 123
Net income (loss)$302

272
 (5,492) 679
Basic earnings (loss) per common share$0.28
 0.25
 (5.13) 0.64
Diluted earnings (loss) per common share$0.28
 0.25
 (5.13) 0.63

Table of Contents

For over a decade,years, we have experienced revenue declines, excluding the impact of acquisitions, primarily due to declines in 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 businessother 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 size, 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;

Table of Contents•

pursue acquisitions of additional assets if available at attractive prices;
•increase prices on our products and services if and when practicable; and
•market our products and services to new customers.
Operating
Consolidated Revenue
We categorize our products and services revenue among the following four categories for our International and Global Accounts Management, Enterprise, Small and Medium Business and Wholesale segments:
•
IP and Data 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;
•
Transport and Infrastructure, which include broadband, private line (including business data services), data center facilities and services, including cloud, hosting and application management solutions, wavelength, equipment sales and professional services, network security services, dark fiber services and other ancillary services;
•
Voice and Collaboration, which includes primarily local and long-distance voice, including wholesale voice, and other ancillary services; and
•
IT and Managed Services, which include information technology services and managed services, which may be purchased in conjunction with our other network services.
We categorize our products and services revenue among the following four categories for our Consumer segment:
•
Broadband, which include broadband revenue;
•
Voice, which include local and long-distance revenue;
•
Regulatory Revenue, which consist of (i) Universal Service Fund ("USF"), Connect America Fund ("CAF") and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space; and
•
Other, which include retail video revenue (including our facilities-based video revenue), professional services and other ancillary services.
The following table summarizes our consolidated operating revenue recorded under each of our eight above described revenue categories:
Three Months Ended September 30, Increase/(Decrease) % Change  Three Months Ended September 30,% Change 
2019 2018  20202019
(Dollars in millions)   (Dollars in millions)
IP and Data Services$1,760
 1,724
 36
 2 %IP and Data Services$1,576 1,658 (5)%
Transport and Infrastructure1,309
 1,345
 (36) (3)%Transport and Infrastructure1,267 1,258 1 %
Voice and Collaboration1,013
 1,056
 (43) (4)%Voice and Collaboration898 941 (5)%
IT and Managed Services126
 154
 (28) (18)%IT and Managed Services117 128 (9)%
Broadband718
 702
 16
 2 %Broadband730 718 2 %
Voice462
 565
 (103) (18)%Voice401 453 (11)%
Regulatory157
 181
 (24) (13)%Regulatory153 157 (3)%
Other61
 91
 (30) (33)%Other25 37 (32)%
Total operating revenue$5,606
 5,818
 (212) (4)%Total operating revenue$5,167 5,350 (3)%

Nine Months Ended September 30,% Change
20202019
(Dollars in millions)
IP and Data Services$4,792 4,967 (4)%
Transport and Infrastructure3,715 3,757 (1)%
Voice and Collaboration2,763 2,858 (3)%
IT and Managed Services365 407 (10)%
Broadband2,178 2,158 1 %
Voice1,231 1,397 (12)%
Regulatory463 471 (2)%
Other80 137 (42)%
Total operating revenue$15,587 16,152 (3)%
42

Table of Contents


 Nine Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
IP and Data Services$5,239
 5,205
 34
 1 %
Transport and Infrastructure3,890
 4,077
 (187) (5)%
Voice and Collaboration3,041
 3,256
 (215) (7)%
IT and Managed Services405
 478
 (73) (15)%
Broadband2,158
 2,119
 39
 2 %
Voice1,428
 1,668
 (240) (14)%
Regulatory474
 549
 (75) (14)%
Other196
 313
 (117) (37)%
Total operating revenue$16,831
 17,665
 (834) (5)%

Our total operating revenue decreased by $212$183 million, or 4%3%, and $834$565 million, or 5%3%, respectively, for the three and nine months ended September 30, 20192020 as compared to the three and nine months ended September 30, 20182019 primarily due to decreasesrevenue declines in sixmost of the eightour revenue categories. Voice, regulatory and other revenue under our Consumer segment, transport and infrastructure revenue under our Wholesale and Small and Medium Business segments and voice and collaboration revenue under our Wholesale and Small and Medium Business segments experienced our largest decreases. See our segment results below for additional information.

Operating Expenses

The following table summarizestables summarize our consolidated operating expenses:
Three Months Ended September 30, Increase/(Decrease) % Change  Three Months Ended September 30,% Change 
2019 2018  20202019
(Dollars in millions)   (Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)$2,590
 2,672
 (82) (3)%Cost of services and products (exclusive of depreciation and amortization)$2,236 2,334 (4)%
Selling, general and administrative831
 967
 (136) (14)%Selling, general and administrative850 831 2 %
Depreciation and amortization1,235
 1,285
 (50) (4)%Depreciation and amortization1,193 1,235 (3)%
Total operating expenses$4,656
 4,924
 (268) (5)%Total operating expenses$4,279 4,400 (3)%


 Nine Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Cost of services and products (exclusive of depreciation and amortization)$7,556
 8,205
 (649) (8)%
Selling, general and administrative2,723
 3,191
 (468) (15)%
Depreciation and amortization3,619
 3,858
 (239) (6)%
Goodwill impairment6,506
 —
 6,506
 nm
Total operating expenses$20,404
 15,254
 5,150
 34 %

Nine Months Ended September 30,% Change
20202019
(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)$6,703 6,877 (3)%
Selling, general and administrative2,598 2,723 (5)%
Depreciation and amortization3,515 3,619 (3)%
Goodwill impairment— 6,506 nm
Total operating expenses$12,816 19,725 (35)%

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


Table of Contents

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

Cost of services and products (exclusive of depreciation and amortization) decreased by $82$98 million, or 3%4%, and $649$174 million, or 8%3%, respectively, for the three and nine months ended September 30, 20192020 as compared to the three and nine months ended September 30, 2018.2019. The decrease in costs of services and products (exclusive of depreciation and amortization) for both periods was attributableprimarily due to lowerreductions in salaries and wages and employee related expensesemployee-related expense from lower headcount reduced network expenses and voice usage costs, reduced customer premises equipment costs, a decline in content costs for Prism TV, and lower space and power expenses. These declines were slightlyfacility costs partially offset by higher direct taxes and fees, professional services, customer installationaccelerated real estate expense from an increase in exited properties, power costs and right of way and dark fibernetwork expenses.

Selling, General and Administrative

Selling, general and administrative expenses increased by $19 million, or 2%, for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. This increase was primarily due to higher taxes and increases in the allowance for credit losses related to the impact of the COVID-19 pandemic. These increases were partially offset by reductions in professional fees and lower internal commission costs. Selling, general and administrative expenses decreased by $136$125 million, or 14%5%, for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. This decrease was primarily due to reductions in salaries and wages and employee-related expenses from lower headcount and from lower dedicated labor associated with customer premises equipment sales. These decreases were partially offset by increases in the allowance for credit losses related to the impact of the COVID-19 pandemic and higher taxes.
43

Table of Contents


Depreciation and Amortization

The following tables provide detail of our depreciation and amortization expense:
Three Months Ended September 30,% Change
20202019
(Dollars in millions)
Depreciation$750 797 (6)%
Amortization443 438 1 %
Total depreciation and amortization$1,193 1,235 (3)%

Nine Months Ended September 30,% Change
20202019
(Dollars in millions)
Depreciation$2,201 2,312 (5)%
Amortization1,314 1,307 1 %
Total depreciation and amortization$3,515 3,619 (3)%

Depreciation expense decreased by $47 million, or 6%, and $468$111 million, or 15%5%, respectively, for the three and nine months ended September 30, 20192020, as compared to the three and nine months ended September 30, 2018. The decrease in selling, general2019 primarily due to the impact of annual rate depreciable life changes of $60 million and administrative expenses for both periods$179 million, respectively, which was attributable to lower salaries and wages and employee related expenses from lower headcount, a decline in contract labor costs, lower rent expense due largely to lease terminations over the past year, lower hardware and software maintenance costs, a reduction in marketing and advertising expenses and an increase in the amount of labor capitalized or deferred. These declines were slightlypartially offset by $53 million and $108 million, respectively, of higher professional fees.depreciation expense associated with net growth in depreciable assets.

Depreciation and Amortization

The following table provides detail of our depreciation and amortization expense:
 Three Months Ended September 30, Increase/(Decrease) % Change
 2019 2018  
 (Dollars in millions)  
Depreciation$797
 839
 (42) (5)%
Amortization438
 446
 (8) (2)%
Total depreciation and amortization$1,235
 1,285
 (50) (4)%
 Nine Months Ended September 30, Increase/(Decrease) % Change
 2019 2018  
 (Dollars in millions)  
Depreciation$2,312
 2,522
 (210) (8)%
Amortization1,307
 1,336
 (29) (2)%
Total depreciation and amortization$3,619
 3,858
 (239) (6)%
Depreciation expense decreasedincreased by $42$5 million, or 5%1%, and $210$7 million, or 8%1%, respectively, for the three and nine months ended September 30, 20192020 as compared to the three and nine months ended September 30, 20182019, primarily due to increases associated with the impactnet growth in amortizable assets of the full depreciation of plant, property and equipment assigned a one year life at the time we acquired Level 3 of $60$13 million and $180$45 million, respectively, and the accelerated amortization for the three and nine month periods ended September 30, 2018 that were fully depreciated in 2018, the impacta decommissioned application of annual rate depreciable life changes of $27$12 million and $81$24 million, for the three and nine month periods, and the discontinuation of depreciation on failed sale leaseback assetsrespectively, which was partially offset by decreases of $17 million and $52$54 million, for the three and nine month periods. These decreases were partially offset by net growth in depreciable assets of $43 million and $67 million for the three and nine month periods and increases associated with changes in our estimates of the remaining economic life of certain network assets of $28 million and $43 million for the three and nine month periods.


Table of Contents

Amortization expense decreased by $8 million, or 2%, and $29 million, or 2%, respectively, for the three and nine months ended September 30, 2019 as compared to the three and nine months ended September 30, 2018 primarily due to decreases associated withfrom the use of accelerated amortization methods for a portion of the customer intangibles of $18 million and $54 million for the three and nine month periods and decreases associated with annual rate amortizable life changes of software of $6 million and $19 million for the three and nine month periods. These decreases were partially offset by net growth in amortizable assets of $15 million and $43 million for the three and nine month periods.intangibles.

Further analysis of our segment operating expenses by segment is provided below in "Segment Results."

Goodwill Impairments

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. Both our January 2019 internal reorganization and the decline in our stock price triggered impairment testing in the first quarter of 2019. Consequently, we evaluated our goodwill in January 2019 and again as of March 31, 2019. In our judgment, there were no additional triggering events during the second or third quarter of 2019.

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 difference.

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 equal to the present value of all normalized cash flows after the projection period. Because our low stock price was a key trigger for impairment testing in early 2019, 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 derived from 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 eventstests during the first quarter and concluded that the indicated control premium of approximately 4.5% and 4.1% were reasonable based on recent transactions in the market place. In the quarter 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.quarter of 2019. As a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $6.5 billion in the quarter ended March 31, 2019.
44

Table of Contents


During 2020, we observed a decline in our stock price as a result of events occurring after the end of 2019, including the COVID-19 pandemic. We evaluated whether such events would indicate the fair value of our reporting units were below their carrying values. We believe these events have impacted the global economy more directly than us and, when considered with other factors, we have concluded it is not more likely than not that the fair values of our reporting units were less than their carrying values as of the period ended September 30, 2020. In light of the negative impacts of COVID-19 on the global economy, we will continue to evaluate the general economic trends which could have an impact on our assessment of whether it is more likely than not that the fair value of one or more reporting units is less than its carrying amount. Future changes could cause one or more of our reporting unit fair values to be less than its carrying value, resulting in potential impairments of our goodwill, which could have a material effect on our results of operations and financial condition. The extent of the impact, if any, will depend on future developments including the length and severity of the pandemic and its long-term impacts on the overall economy.

See Note 2—Goodwill, Customer Relationships and Other Intangible Assets for further details on these tests and impairment charges.

Other Consolidated Results

The following tables summarize our total other expense, net and income tax expense:
 Three Months Ended September 30,% Change
 20202019
 (Dollars in millions)
Interest expense$(409)(496)(18)%
Other income (loss), net1 (44)nm
Total other expense, net$(408)(540)(24)%
Income tax expense$114 108 6 %
 Three Months Ended September 30, Increase/(Decrease) % Change
 2019 2018  
 (Dollars in millions)  
Interest expense$(496) (557) (61) (11)%
Other loss, net(44) (8) 36
 nm
Total other expense, net$(540) (565) (25) (4)%
Income tax expense$108
 57
 51
 (89)%

Nine Months Ended September 30, Increase/(Decrease) % ChangeNine Months Ended September 30,% Change
2019 2018 20202019
(Dollars in millions)  (Dollars in millions)
Interest expense$(1,537) (1,638) (101) (6)%Interest expense$(1,272)(1,537)(17)%
Other (loss) income, net(5) 29
 (34) (117)%
Other loss, netOther loss, net(73)(5)nm
Total other expense, net$(1,542) (1,609) (67) (4)%Total other expense, net$(1,345)(1,542)(13)%
Income tax expense$377
 123
 254
 nm
Income tax expense$369 377 (2)%
_______________________________________________________________________________

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

Interest Expense

Interest expense decreased by $61$87 million, or 11%18%, and $101$265 million, or 6%17%, respectively, for the three and nine months ended September 30, 20192020 as compared to the three and nine months ended September 30, 2018. The decrease in interest expense was2019. These decreases were primarily due to (i) the decrease in long termaverage long-term debt from $36.5$35.0 billion atto $33.5 billion and the decrease in the average interest rate of 5.79% to 4.93% for the three months ended September 30, 20182019 compared to $35.1 billion at September 30, 2019.2020, and (ii) the decrease in average long-term debt from $35.6 billion to $33.6 billion and the decrease in our average interest rate from 5.83% to 5.22% for the nine months ended September 30, 2019 compared to September 30, 2020.

45

Table of Contents

Other Income (Loss) Income,, Net

Other income (loss), 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 debt modifications or extinguishments or non-operating asset dispositions, foreign currency gains and losses and components of net periodic pension and postretirement benefit costs. Other loss,income (loss), net increasedchanged by $36$45 million for the three months ended September 30, 20192020 as compared to the three months ended September 30, 2018.2019. This change was primarily due to foreign currency gains and a decrease in pension expenses. Other income,loss, net decreasedincreased by $34$68 million for the nine months endedSeptember 30, 2019 as compared to the nine months ended September 30, 2018. The2020 compared to September 30, 2019. This change in other income, net for both periods was primarily due to increased pensiona loss on modification and postretirement net periodic expense and foreign currency losses, which wereextinguishment of debt in 2020 compared to a gain on extinguishment of debt in 2019, partially offset by the gain on the early extinguishment of debt.a decrease in pension expense.

Income Tax Expense

For the three and nine months ended September 30, 2020, our effective income tax rate was 23.8% and 25.9%, respectively, and for the three and nine months ended September 30, 2019, our effective income tax rate was 26.3% and (7.4)%, respectively and for the three and nine months ended September 30, 2018, our effective income tax rate was 17.3% and 15.3%, respectively. The effective tax rate for the nine months ended September 30, 2019 was primarily due toimpacted by the March 2019 goodwill impairment.impairment, which is not deductible for tax purposes. Without the goodwill impairment, the rate would have been 27.1%. The effective tax rate for the nine months ended September 30, 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, 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 $83 million.


Table of Contents

Segment Results

General

For financial reporting purposes, we have determined that asReconciliation of September 30, 2019 we had five reportable segments.

We have four segments associated with our business customers: International and Global Accounts Management, Enterprise, Small and Medium Business and Wholesale. For these segments we categorize our products and services and report our relatedsegment revenue 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 relatedto total operating revenue under the following categories: broadband, voice, regulatory 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.

The results of our reportable segments for the three months ended September 30, 2019 and 2018 are summarizedis below:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in millions)
Operating revenue
International and Global Accounts$835 866 2,549 2,606 
Enterprise1,439 1,428 4,292 4,262 
Small and Medium Business635 674 1,939 2,062 
Wholesale949 1,017 2,855 3,059 
Consumer1,309 1,365 3,952 4,163 
Total operating revenue$5,167 5,350 15,587 16,152 
 Three Months Ended September 30, 2019
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Total Revenue$899
1,550
734
1,025
1,398
5,606
—
5,606
Expenses:        
Cost of services and products269
544
155
144
80
1,192
1,398
2,590
Selling, general and administrative65
134
112
21
102
434
397
831
Less: share-based compensation—
—
—
—
—
—
(38)(38)
Total expense334
678
267
165
182
1,626
1,757
3,383
Total adjusted EBITDA$565
872
467
860
1,216
3,980
(1,757)2,223


Reconciliation of segment EBITDA to total adjusted EBITDA is below:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (Dollars in millions)
Adjusted EBITDA
International and Global Accounts$548 567 1,671 1,710 
Enterprise837 845 2,509 2,528 
Small and Medium Business444 467 1,326 1,409 
Wholesale813 868 2,423 2,607 
Consumer1,144 1,193 3,469 3,601 
Total segment EBITDA3,786 3,940 11,398 11,855 
Operations and Other EBITDA(1,674)(1,717)(4,992)(5,189)
Total adjusted EBITDA$2,112 2,223 6,406 6,666 
46
 Three Months Ended September 30, 2018
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Total Revenue$892
1,505
785
1,097
1,539
5,818
—
5,818
Expenses:        
Cost of services and products254
491
154
158
115
1,172
1,500
2,672
Selling, general and administrative62
141
129
18
124
474
493
967
Less: share-based compensation—
—
—
—
—
—
(49)(49)
Total expense316
632
283
176
239
1,646
1,944
3,590
Total adjusted EBITDA$576
873
502
921
1,300
4,172
(1,944)2,228




Table of Contents

The following table summarized the variances for our segments for the three months ended September 30, 2019 to the three months ended September 30, 2018:
 Variances
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Total Revenue$7
45
(51)(72)(141)(212)—
(212)
Expenses:        
Cost of services and products15
53
1
(14)(35)20
(102)(82)
Selling, general and administrative3
(7)(17)3
(22)(40)(96)(136)
Less: share-based compensation—
—
—
—
—
—
11
11
Total expense18
46
(16)(11)(57)(20)(187)(207)
Total adjusted EBITDA$(11)(1)(35)(61)(84)(192)187
(5)


Table of Contents

The results of our reportable segments for the nine months ended September 30, 2019 and 2018 are summarized below:
 Nine Months Ended September 30, 2019
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Total Revenue$2,692
4,578
2,225
3,080
4,256
16,831
—
16,831
Expenses:        
Cost of services and products786
1,537
455
430
244
3,452
4,104
7,556
Selling, general and administrative201
426
364
62
321
1,374
1,349
2,723
Less: share-based compensation—
—
—
—
—
—
(114)(114)
Total expense987
1,963
819
492
565
4,826
5,339
10,165
Total adjusted EBITDA$1,705
2,615
1,406
2,588
3,691
12,005
(5,339)6,666

 Nine Months Ended September 30, 2018
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Total Revenue$2,730
4,575
2,388
3,323
4,649
17,665
—
17,665
Expenses:        
Cost of services and products789
1,505
454
501
397
3,646
4,559
8,205
Selling, general and administrative194
438
392
65
395
1,484
1,707
3,191
Less: share-based compensation—
—
—
—
—
—
(144)(144)
Total expense983
1,943
846
566
792
5,130
6,122
11,252
Total adjusted EBITDA$1,747
2,632
1,542
2,757
3,857
12,535
(6,122)6,413


Table of Contents

The following table summarized the variances for our segments for the nine months ended September 30, 2019 to the nine months ended September 30, 2018:
 Variances
 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerTotal SegmentsOperations and OtherTotal
 (Dollars in millions)
Total Revenue$(38)3
(163)(243)(393)(834)—
(834)
Expenses:        
Cost of services and products(3)32
1
(71)(153)(194)(455)(649)
Selling, general and administrative7
(12)(28)(3)(74)(110)(358)(468)
Less: share-based compensation—
—
—
—
—
—
30
30
Total expense4
20
(27)(74)(227)(304)(783)(1,087)
Total adjusted EBITDA$(42)(17)(136)(169)(166)(530)783
253

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.

International and Global Accounts Management, Enterprise, Small and Medium Business and Wholesale Segments

The operations of these four segments have been, and are expected to continue to be, impacted by several significant trends, including those described below:

Revenue. Our mix of total revenue from these segments continues to migrate from traditional wireline voice services to newer, lower cost more technologically advanced products and services as our business 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. In some instances, we have elected to discontinue certain unprofitable customer relationships. Our traditional wireline revenue has been, and we expect it will continue to be, adversely affected by access line losses and price compression. In particular, our access, local services and long-distance revenue 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 segment customers are substituting cable, wireless and Voice over Internet Protocol ("VoIP") services for traditional voice telecommunications services, resulting in continued access revenue loss. 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 revenue 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, which are subject to unexpected changes in the appropriation process.


Table of Contents

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 and third-party facility costs. The operating margins of several of our newer, more technologically advanced services are lower than the operating margins on our traditional wireline services, principally because those newer services rely more heavily upon the above-listed support functions. Operating costs, such as 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 attract new customers will continue to require that we incur higher costs in some areas, sometimes in advance of realizing the potential benefits of these efforts. We also expect our segments to benefit indirectly from any enhanced efficiencies in our company-wide network operations.

International and Global Accounts Management Segment

 Three Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:    

 

IP and Data Services$417
 423
 (6) (1)%
Transport and Infrastructure331
 317
 14
 4 %
Voice and Collaboration96
 90
 6
 7 %
IT and Managed Services55
 62
 (7) (11)%
Total Revenue899
 892
 7
 1 %
Expenses:    

 

Cost of services and products269
 254
 15
 6 %
Selling, general and administrative65
 62
 3
 5 %
Total expense334
 316
 18
 6 %
Total adjusted EBITDA$565
 576
 (11) (2)%

Table of Contents



 Nine Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
IP and Data Services$1,257
 1,294
 (37) (3)%
Transport and Infrastructure984
 947
 37
 4 %
Voice and Collaboration284
 285
 (1) — %
IT and Managed Services167
 204
 (37) (18)%
Total Revenue2,692
 2,730
 (38) (1)%
Expenses:       
Cost of services and products786
 789
 (3) — %
Selling, general and administrative201
 194
 7
 4 %
Total expense987
 983
 4
 — %
Total adjusted EBITDA$1,705
 1,747
 (42) (2)%

 Three Months Ended September 30,% Change 
 20202019
 (Dollars in millions)
Revenue:
IP and Data Services$381 404 (6)%
Transport and Infrastructure315 317 (1)%
Voice and Collaboration87 89 (2)%
IT and Managed Services52 56 (7)%
Total revenue835 866 (4)%
Expenses:
Total expense287 299 (4)%
Total adjusted EBITDA$548 567 (3)%


Nine Months Ended September 30,% Change
20202019
(Dollars in millions)
Revenue:
IP and Data Services$1,167 1,221 (4)%
Transport and Infrastructure942 949 (1)%
Voice and Collaboration275 267 3 %
IT and Managed Services165 169 (2)%
Total revenue2,549 2,606 (2)%
Expenses:
Total expense878 896 (2)%
Total adjusted EBITDA$1,671 1,710 (2)%


Three and Nine Months Ended September 30, 20192020 Compared to the same periods Ended September 30, 20182019

Segment revenue increased $7decreased $31 million, or 1%4%, for the three months ended September 30, 20192020 compared to the three months ended September 30, 20182019 and decreased $38$57 million, or 1%2%, for the nine months ended September 30, 20192020 compared to the same period ended September 30, 2018.2019. Excluding the impact of foreign currency fluctuations, segment revenue increased $17decreased $23 million, or 2%3%, for the three months ended September 30, 20192020 compared to September 30, 20182019, and $4decreased $17 million, or less than 1%, for the nine months ended September 30, 20192020, compared to September 30, 2018,2019, primarily due to the following factors:
For the three month period, IT and managed services declined due to higher churn, and for the nine month period the decline was due to a large contract that terminated in the second quarter of 2018;
for•For both periods, IP and data servicesData Services declined mostlyprimarily due to reduced rates and lower traffic; partially offset by;Vyvx traffic due to less live events during the pandemic;

•for both periods, transportTransport and infrastructureInfrastructure increased primarily driven by increased demand for dark fiber and wavelengths from our large customers, partially offset by declines in private line and professional services;

•for the three-month period, Voice and Collaboration declined as usage and call volumes returned to pre COVID-19 levels;

47

Table of Contents

•for the nine-month period, Voice and Collaboration increased due to expanded services for large customers;
for the three month period, voice and collaboration increasedhigher usage primarily attributable to higher call volumes due to increased rates.pandemic-induced social distancing and business closures concentrated in the second quarter 2020; and

•for both periods, the IT and Managed Services decline is driven by lower volumes of legacy managed hosting services.

Segment expenses increaseddecreased by $18$12 million, or 6%4%, for the three months ended September 30, 20192020 compared to the three months ended September 30, 2018 primarily due to the increased cost of services2019, and products associated with higher sales volumes and an increase in headcount costs. Segment expenses increased by $4$18 million, or less than 1%2%, for the nine months ended September 30, 20192020 compared to September 30, 2018,the same period in 2019, primarily due to an increaselower cost of sales in line with revenue declines and lower headcount related costs.

Segment adjusted EBITDA as a percentage of revenue was 63%66% for both periods in 2019the three and nine months ended September 30, 2020 and 65% and 64%66% for the three and nine months ended September 30, 2018,2019, respectively.


Table of Contents

Enterprise Segment
 Three Months Ended September 30,% Change 
 20202019
 (Dollars in millions)
Revenue:
IP and Data Services$611 631 (3)%
Transport and Infrastructure420 384 9 %
Voice and Collaboration357 354 1 %
IT and Managed Services51 59 (14)%
Total revenue1,439 1,428 1 %
Expenses:
Total expense602 583 3 %
Total adjusted EBITDA$837 845 (1)%
 Three Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
IP and Data Services$691
 659
 32
 5 %
Transport and Infrastructure405
 374
 31
 8 %
Voice and Collaboration395
 395
 —
 — %
IT and Managed Services59
 77
 (18) (23)%
Total Revenue1,550
 1,505
 45
 3 %
Expenses:       
Cost of services and products544
 491
 53
 11 %
Selling, general and administrative134
 141
 (7) (5)%
Total expense678
 632
 46
 7 %
Total adjusted EBITDA$872
 873
 (1) — %


Nine Months Ended September 30,% Change
20202019
(Dollars in millions)
Revenue:
IP and Data Services$1,862 1,901 (2)%
Transport and Infrastructure1,181 1,085 9 %
Voice and Collaboration1,084 1,078 1 %
IT and Managed Services165 198 (17)%
Total revenue4,292 4,262 1 %
Expenses:
Total expense1,783 1,734 3 %
Total adjusted EBITDA$2,509 2,528 (1)%
48
 Nine Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
IP and Data Services$2,060
 1,991
 69
 3 %
Transport and Infrastructure1,137
 1,154
 (17) (1)%
Voice and Collaboration1,182
 1,203
 (21) (2)%
IT and Managed Services199
 227
 (28) (12)%
Total Revenue4,578
 4,575
 3
 — %
Expenses:       
Cost of services and products1,537
 1,505
 32
 2 %
Selling, general and administrative426
 438
 (12) (3)%
Total expense1,963
 1,943
 20
 1 %
Total adjusted EBITDA$2,615
 2,632
 (17) (1)%


Table of Contents



Three and Nine Months Ended September 30, 20192020 Compared to the same periods Ended September 30, 20182019

Segment revenue increased $45$11 million, or 3%1%, for the three months ended September 30, 20192020 compared to the three months ended September 30, 20182019, and $3$30 million, or less than 1%, for the nine months ended September 30, 20192020 compared to the nine months ended September 30, 2018,2019 due to the following factors:

•For both periods, IP and dataData Services declined primarily driven by customers migrating from traditional wireline services revenue increased, driven mainly by continued increase in demand, increased rates,to more technologically advanced lower rate services;

•for both periods, Transport and lower credit reserves;
for the three month period, transport and infrastructure increased mainlyInfrastructure grew due to revenue fromhigher demand for managed security services and strength in federal businessequipment sales within our Federal business;

•for both periods, Voice and installations from enterprise sales in prior quarters;
for the nine month period, transport and infrastructure declinedCollaboration growth was primarily driven by increased call volumes due to decreased equipment sales in addition to lower professional services revenue, coupled with the impact of the United States Federal Government shut down for a portion of the nine month period;COVID-19; and
for the nine month period, voice and collaboration declined, driven by a combination of customers discontinuing traditional voice TDM products and lower rates on customers transitioning to VoIP;
•for both periods, IT and managed servicesManaged Services declined mainly from disconnects due to technology transitions.churn in legacy managed services.

Segment expenses increased by $46$19 million, or 7%3%, for the three months ended September 30, 20192020 compared to the three months ended September 30, 20182019, and $20$49 million, or 1%3%, for the nine months ended September 30, 20192020 compared to September 30, 2018,the same period in 2019, primarily due to:
For both periods,to higher cost of services and products increased primarily driven by higher expenses associatedsales in line with the higher regulatory fee rates and higher network related costs. Equipment related expenses were up as well for the three month period, however they were down for the nine month period;
for both periods selling, general and administrative costs decreased due to lower headcount costs and commissionsrevenue increases, partially offset by increased professional fees.lower headcount related costs.

Segment adjusted EBITDA as a percentage of revenue was 56% and 57%58% for both the three and nine months ended September 30, 20192020 and 58%59% for both periods in 2018, respectively.the three and nine months ended September 30, 2019.

Small and Medium Business Segment
 Three Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
IP and Data Services$295
 294
 1
 — %
Transport and Infrastructure106
 117
 (11) (9)%
Voice and Collaboration322
 361
 (39) (11)%
IT and Managed Services11
 13
 (2) (15)%
Total Revenue734
 785
 (51) (6)%
Expenses:       
Cost of services and products155
 154
 1
 1 %
Selling, general and administrative112
 129
 (17) (13)%
Total expense267
 283
 (16) (6)%
Total adjusted EBITDA$467
 502
 (35) (7)%

 Three Months Ended September 30,% Change 
 20202019
 (Dollars in millions)
Revenue:
IP and Data Services$266 270 (1)%
Transport and Infrastructure85 93 (9)%
Voice and Collaboration271 300 (10)%
IT and Managed Services13 11 18 %
Total revenue635 674 (6)%
Expenses:
Total expense191 207 (8)%
Total adjusted EBITDA$444 467 (5)%
49



 Nine Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
IP and Data Services$885
 884
 1
 — %
Transport and Infrastructure319
 362
 (43) (12)%
Voice and Collaboration986
 1,101
 (115) (10)%
IT and Managed Services35
 41
 (6) (15)%
Total Revenue2,225
 2,388
 (163) (7)%
Expenses:       
Cost of services and products455
 454
 1
 — %
Selling, general and administrative364
 392
 (28) (7)%
Total expense819
 846
 (27) (3)%
Total adjusted EBITDA$1,406
 1,542
 (136) (9)%


Nine Months Ended September 30,% Change
20202019
(Dollars in millions)
Revenue:
IP and Data Services$798 817 (2)%
Transport and Infrastructure265 282 (6)%
Voice and Collaboration843 929 (9)%
IT and Managed Services33 34 (3)%
Total revenue1,939 2,062 (6)%
Expenses:
Total expense613 653 (6)%
Total adjusted EBITDA$1,326 1,409 (6)%


Three and Nine Months Ended September 30, 20192020 Compared to the same periods Ended September 30, 20182019

Segment revenue decreased $51 million or 6% for the three months ended September 30, 2019 compared to September 30, 2018 and $163 million, or 7% for the nine months ended September 30, 2019 compared to September 30, 2018, primarily due to the following factors:
For both periods, lower voice and collaboration revenue as customers continue to migrate from traditional TDM voice to VoIP type services at lower rates;
for both periods, lower transport and infrastructure revenue impacted by continued net losses of customers.
Segment expenses decreased by $16 million or 6% for the three months ended September 30, 2019 compared to September 30, 2018 and $27 million or 3% for the nine months ended September 30, 2019 compared to September 30, 2018, primarily due to:
For both periods, lower employee compensation due to lower headcount, in addition to
lower commissions for both periods.
Segment adjusted EBITDA as a percentage of revenue was 64% and 63% for the three and nine months ended September 30, 2019 compared to 64% and 65% for the three and nine months ended September 30, 2018, respectively.

Table of Contents


Wholesale Segment

 Three Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
IP and Data Services$357
 348
 9
 3 %
Transport and Infrastructure467
 537
 (70) (13)%
Voice and Collaboration200
 210
 (10) (5)%
IT and Managed Services1
 2
 (1) (50)%
Total Revenue1,025
 1,097
 (72) (7)%
Expenses:       
Cost of services and products144
 158
 (14) (9)%
Selling, general and administrative21
 18
 3
 17 %
Total expense165
 176
 (11) (6)%
Total adjusted EBITDA$860
 921
 (61) (7)%

 Nine Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
IP and Data Services$1,037
 1,036
 1
 — %
Transport and Infrastructure1,450
 1,614
 (164) (10)%
Voice and Collaboration589
 667
 (78) (12)%
IT and Managed Services4
 6
 (2) (33)%
Total Revenue3,080
 3,323
 (243) (7)%
Expenses:       
Cost of services and products430
 501
 (71) (14)%
Selling, general and administrative62
 65
 (3) (5)%
Total expense492
 566
 (74) (13)%
Total adjusted EBITDA$2,588
 2,757
 (169) (6)%

Three and Nine Months Ended September 30, 2019 Compared to the same periods Ended September 30, 2018

Segment revenue decreased $72 million or 7% for the three months ended September 30, 2019 compared to September 30, 2018 and $243 million or 7% for the nine months ended September 30, 2019 compared to September 30, 2018, primarily due to the following factors:
For both periods, transport and infrastructure revenue declined, primarily driven by customer network consolidation and grooming, market rate compression and higher discounts; and
for both periods, voice and collaboration product declined due to a combination of market rate compression and customer volume losses resulting from insourcing and industry consolidation, in addition for the nine months period the reduction of unprofitable customer relationships.


Table of Contents

Segment expenses decreased by $11$39 million, or 6%, for the three months ended September 30, 20192020 compared to the three months ended September 30, 20182019, and $74$123 million, or 13%6%, for the nine months ended September 30, 20192020 compared to nine months ended September 30, 2018,2019, primarily due to the following factors:

•For both periods, IP and Data Services declined due to lower rates and customer transitions from Ethernet solutions to lower-rate IP services;
•for both periods, Voice and Collaboration decreased due to continued declines in traditional voice TDM services;

•for both periods, Transport and Infrastructure declined due to continued reductions in demand for our low speed broadband;

•for the three-month period, IT and Managed Services increased primarily driven by a non-recurring benefit in the quarter; and

•for the nine-month period, IT and Managed Services declined mainly due to customer churn.

Segment expenses decreased by $16 million, or 8%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, and $40 million, or 6%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to lower cost of servicessales in line with lower revenue and products decline commensurate with the revenue decline, network grooming, revenue product mix and operating synergies.lower headcount related costs.

Segment adjusted EBITDA as a percentage of revenue was 84%70% and 68% for both periods in 2019 and 84% and 83% forthe three and nine months ended September 30, 2018,2020, respectively, and 69% and 68% for the three and nine months ended September 30, 2019, respectively.
50

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:

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 transmission 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, 2018, certain competitors continue to provide broadband services at higher average transmission speeds than ours or through advanced wireless data service offerings, both of which we believe have impacted the competitiveness of certain of our broadband offerings in certain of our markets. Our voice revenue 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 revenue 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 revenue, but they have also negatively impacted the operating margins of these services and we expect this trend to continue.

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. 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 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.

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 in an effort 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.



Wholesale Segment
 Three Months Ended September 30,% Change 
 20202019
 (Dollars in millions)
Revenue:
IP and Data Services$318 353 (10)%
Transport and Infrastructure447 464 (4)%
Voice and Collaboration183 198 (8)%
IT and Managed Services1 2 nm
Total revenue949 1,017 (7)%
Expenses:
Total expense136 149 (9)%
Total adjusted EBITDA$813 868 (6)%

 Three Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
Broadband$718
 702
 16
 2 %
Voice462
 565
 (103) (18)%
Regulatory157
 181
 (24) (13)%
Other61
 91
 (30) (33)%
Total Revenue1,398
 1,539
 (141) (9)%
Expenses:       
Cost of services and products80
 115
 (35) (30)%
Selling, general and administrative102
 124
 (22) (18)%
Total expense182
 239
 (57) (24)%
Total adjusted EBITDA$1,216
 1,300
 (84) (6)%

 Nine Months Ended September 30, Increase/(Decrease) % Change 
 2019 2018  
 (Dollars in millions)  
Revenue:       
Broadband$2,158
 2,119
 39
 2 %
Voice1,428
 1,668
 (240) (14)%
Regulatory474
 549
 (75) (14)%
Other196
 313
 (117) (37)%
Total Revenue4,256
 4,649
 (393) (8)%
Expenses:       
Cost of services and products244
 397
 (153) (39)%
Selling, general and administrative321
 395
 (74) (19)%
Total expense565
 792
 (227) (29)%
Total adjusted EBITDA$3,691
 3,857
 (166) (4)%



Nine Months Ended September 30,% Change
20202019
(Dollars in millions)
Revenue:
IP and Data Services$965 1,028 (6)%
Transport and Infrastructure1,327 1,441 (8)%
Voice and Collaboration561 584 (4)%
IT and Managed Services2 6 (67)%
Total revenue2,855 3,059 (7)%
Expenses:
Total expense432 452 (4)%
Total adjusted EBITDA$2,423 2,607 (7)%


Three and Nine Months Ended September 30, 20192020 Compared to the same periods Ended September 30, 20182019

Segment revenue decreased $141$68 million, or 9%7%, for the three months ended September 30, 20192020 compared to the three months ended September 30, 20182019, and $393$204 million, or 8%7%, for the nine months ended September 30, 20192020 compared to the nine months ended September 30, 2018,2019, primarily due to the following factors:

•For both periods, decreases in our voice, otherIP and regulatory revenueData Services declined driven by continued net losses of customers, active discontinuance of video services marketingcustomer churn and the derecognition of our prior failed sales leaseback;lower rates;

•for both periods, declineTransport and Infrastructure declined due to continued declines in usage of our traditional voice telecommunicationsprivate line services for the reasons described above; partially offset byand customer network consolidation and grooming efforts;

•for both periods, an increase in Broadband revenue.Voice and Collaboration declined due to market rate compression and lower customer volumes; and

•for both periods, IT and Managed Services declined due to customer churn.

Segment expenses decreased by $57$13 million, or 24%9%, for the three months ended September 30, 20192020 compared to the three months ended September 30, 20182019, and $227$20 million, or 29%4%, for the nine months ended September 30, 20192020 compared to the nine months ended September 30, 2018,2019, primarily due to lower cost of sales and continued network grooming efforts, which was partially offset by higher employee-related costs.

51


Segment adjusted EBITDA as a percentage of revenue was 86% and 85% for both the three and nine months ended September 30, 2020, respectively, and 85% for both the three and nine months ended September 30, 2019.

Consumer Segment
 Three Months Ended September 30,% Change 
 20202019
 (Dollars in millions)
Revenue:
Broadband$730 718 2 %
Voice401 453 (11)%
Regulatory153 157 (3)%
Other25 37 (32)%
Total revenue1,309 1,365 (4)%
Expenses:
Total expense165 172 (4)%
Total adjusted EBITDA$1,144 1,193 (4)%


Nine Months Ended September 30,% Change
20202019
(Dollars in millions)
Revenue:
Broadband$2,178 2,158 1 %
Voice1,231 1,397 (12)%
Regulatory463 471 (2)%
Other80 137 (42)%
Total revenue3,952 4,163 (5)%
Expenses:
Total expense483 562 (14)%
Total adjusted EBITDA$3,469 3,601 (4)%

Three and Nine Months Ended September 30, 2020 Compared to the same periods Ended September 30, 2019

Segment revenue decreased $56 million, or 4%, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, and $211 million, or 5%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to the following factors:

•For both periods, reductionBroadband increases were driven by an increase in headcount costs;the number of customer orders for higher-speed services and higher rates;

•for both periods, Voice declined due to continued legacy voice customer losses; and

•for both periods, Regulatory and Other decreased marketing expenses;due to the de-emphasis of our Prism video product and lower state support revenue.

52


Segment expenses decreased by $7 million, or 4%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, and $79 million, or reduced 14%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to lower TVPrism content costs, for both periods.employee-related costs and marketing expenses.

Segment adjusted EBITDA as a percentage of revenue was 87% and 88% for both periods in 2019 and 84% and 83% forthe three and nine months ended September 30, 2018, respectively.2020, respectively, and 87% for both the three and nine months ended September 30, 2019.

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 respectiveits 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.considerations.

Our executive officersAt September 30, 2020, we held cash and cash equivalents of $526 million, and we had $1.1 billion of borrowing capacity available under our Board of Directors periodically review our sources and potential usesRevolving Credit Facility. We had approximately $105 million of cash particularlyand cash equivalents outside the United States at September 30, 2020. We currently believe that there are no material restrictions on our ability to repatriate cash and cash equivalents into the United States, and that we may do so without paying or accruing U.S. taxes. We do not currently intend to repatriate to the United States any of our foreign cash and cash equivalents from operating entities outside of Latin America.

In response to COVID-19, the U.S. Congress passed the CARES Act on March 27, 2020. The CARES Act favorably increased our liquidity by $41 million as a result of allowing us to receive a full refund of the alternative minimum tax credit carryforward in connection2020, as compared to receiving the refund in phases over the next few years in accordance with the Tax Cuts and Jobs Act. Under the CARES Act, we have also been deferring our budgeting processes. 2020 payroll tax payments, which we estimate will aggregate to $135 million of deferred payments for the full year of 2020.

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 securities repurchases, periodic pension contributions and other benefits payments.

Based onFor the 12 month period ending September 30, 2021, our current capital allocation objectives, during 2019 we project expending approximately $3.5 billion to $3.8 billion (excluding integration and transformation capital) of cash for capital investment in property, plant and equipment and approximately $270projected fixed commitments include (i) $125 million of cash for dividends per quarter on our common stock (based on the assumptions described below under "Dividends"). At September 30, 2019, we had debt maturities of $1.1 billion, scheduled debtterm loan amortization payments, of $164(ii) $34 million scheduled debt redemptions of $400 million and finance lease and other fixed payments and (iii) $1.3 billion of $32 million, each due duringdebt maturities. We do not anticipate that the COVID-19 pandemic will interfere with our ability to discharge these obligations over the next twelve months. Eachyear.

In light of these commitments are described further below. Additionally, on October 17, 2019 CenturyLink announced that its subsidiary, Level 3 Parent, LLC, will redeem all $600 million outstanding principal amountthe economic uncertainties associated with the COVID-19 pandemic, our executive officers and Board of its 5.75% Senior Notes due 2022 on December 1, 2019.

At September 30, 2019, we held cashDirectors have continued to carefully monitor our liquidity and cash equivalentsrequirements. Based on current circumstances, we plan to continue our current dividend policy. Given uncertainties regarding the duration of $1.4 billion,the pandemic and timing for full economic recovery, we had approximately $1.5 billion of borrowing capacity available underwill continue to monitor our revolving credit facility. We had approximately $73 million of cash and cash equivalents outside the United States at September 30, 2019. We currently believecapital spending. As we have the ability to repatriate cash and cash equivalents into the United States without paying or accruing U.S. taxes (subject to complying with applicable currency, repatriation or similar laws or limitations).


Wedo each year, 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 facilityRevolving Credit Facility as a source of liquidity for operating activities and our other corporate purposes.cash requirements.

For additional information, see "Risk Factors—Risks Affecting Our Liquidity and Capital Resources" in Item 1A of Part I of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2018.2019 and Item 1A of Part II of this report.
53



Capital Expenditures

We incur capital expenditures on an ongoing basis in order to enhance and modernize our networks, compete effectively in our markets, expand and improve our service offerings, enhance and comply with regulatory requirements.modernize our networks and compete effectively in our markets. 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, current and projected 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 II infrastructure buildout requirements). Based on current circumstances, we estimate that our total capital expenditures for 2019 will be approximately $3.5 billion to $3.8 billion, inclusive of CAF Phase II related capital expenditures, but excluding integration and transformation capital.

Our capital expenditures continue to be focused on maintaining theenhancing network operating efficiency of our networkefficiencies and supporting new service developments. For more information on our capital spending, see (i) "—Overview of Sources and Uses of Cash" above, (ii) "Historical Information—Investing Activities" below and (iii) Item 1 of Part I of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2018.2019.

Debt and Other Financing Arrangements

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

As of September 30, 2019,2020, the credit ratings for the senior unsecured debtsecured and senior securedunsecured debt of CenturyLink, Inc. and, Level 3 Financing, Inc., as well as the senior unsecured debt of and Qwest Corporation and Level 3 Parent, LLC were as follows:

Table of Contents

BorrowerMoody's Investors Service, Inc.Standard & Poor'sFitch Ratings
CenturyLink, Inc.:
UnsecuredB2B+BB
SecuredBa3BBB-BB+
BorrowerMoody's Investors Service, Inc.Standard & Poor'sFitch Ratings
CenturyLink, Inc.:
UnsecuredB2B+BB
SecuredBa3BBB-BB+
Qwest Corporation:
UnsecuredBa2BBB-BB+
Level 3 Parent, LLC:
UnsecuredB1B+BB
Level 3 Financing, Inc.
UnsecuredBa3BBBB
SecuredBa1BBB-BBB-
Qwest Corporation:
UnsecuredBa2BBB-BB+
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 reportAnnual Report on Form 10-K for the year ended December 31, 2018.2019 and Item 1A of Part II of this report.

Net Operating LossesLoss Carryforwards

As of December 31, 2018, CenturyLink2019, Lumen Technologies had approximately $7.3$6.2 billion of federal net operating loss carryforwards ("NOLs"), which for U.S. federal income tax purposes can be used to offset future taxable income. These NOLs are primarily related to federal NOLs we acquired through the Level 3 acquisition on November 1, 2017 and are subject to limitations under Section 382 of the Internal Revenue Code ("Code") and related U.S. Treasury Department regulations. In the first half of 2019, we entered into and subsequently restated a Section 382 rights agreement designed to safeguard through late 2020 our ability to use those NOLs. Assuming that we can continue using these NOLs in the amounts projected, we expect to significantly reduce our federal cash taxes for the next several years. The amounts of our near-term future tax payments will depend upon many factors, including our
54


future earnings and tax circumstances and results of any corporate tax reform. Given these uncertainties,Based on current laws and our current assumptions and projections, we estimate our cash income tax liability related to 2020 will be approximately $100 million.

We cannot provide any assurances asassure you that we will be able to theuse our NOL carryforwards fully. See "Risk Factors—Risks Affecting Our Liquidity and Capital Resources—We cannot assure you, whether, when or in what amounts we will be able to use our net operating loss carryforwards, or when they will be depleted" in Item 1A of Part I of our gross or net future federal cash tax obligations.Annual Report on Form 10-K for the year ended December 31, 2019, and Item 1A of Part II of this report.

Dividends

We currently expect to continue our current practice of paying quarterly cash dividends in respect of our common stock subject to our Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.25 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, payinginvesting in the business, de-leveraging our fixed commitmentsbalance sheet and returning a substantial portion of our cash to our shareholders. Assuming continued payment during 20192020 at this rate of $0.25 per share, our average total dividend paid each quarter would be approximately $270 million based on the number of our current outstanding shares at(which figure (i) assumes no increases or decrease in the number of shares, except in connection with the anticipated vesting of currently outstanding equity awards and (ii) excludes dividend costs we periodically incur in connection with releasing dividend payments upon the vesting of equity incentive awards, which was $28 million during nine months ended September 30, 2019.2020). 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, 2019 and Item 1A of Part II of this report.

Revolving FacilitiesFacility and Other Debt Instruments

To substantially fundOn January 31, 2020, we amended and restated our acquisitioncredit agreement dated June 19, 2017 to, among other things, extend the debt maturities of Level 3the revolving credit and term loan facilities established thereunder, to lower interest rates payable thereunder, and to amend the amounts owed under each of the facilities. For additional information, see (i) "—Overview of Sources and Uses of Cash," (ii) Note 5—Long-Term Debt and Credit Facilities to our consolidated financial statements in 2017 oneItem 1 of Part I of this report and (iii) Note 7—Long-Term Debt and Credit Facilities in Item 8 of Part II of our affiliates entered into aAnnual Report on Form 10-K for the year ended December 31, 2019.

At September 30, 2020, we had $95 million of letters of credit agreement (the "2017 CenturyLink Credit Agreement") which currently provides for $10.0 billion in senior securedoutstanding under our $225 million uncommitted letter of credit facilities. These facilities include a $2.2 billion revolving credit facility with $700 million outstandingfacility.

Additionally, as of September 30, 20192020, we had outstanding letters of credit, or other similar obligations, of approximately $17 million of which $12 million is collateralized by cash that is reflected on our consolidated balance sheets as restricted cash.

In addition to its indebtedness under the Amended Credit Agreement, Lumen Technologies is indebted under its outstanding senior notes, and $8.0 billionseveral of term loanits subsidiaries are indebted under separate credit facilities with $7.8 billion outstanding asor senior notes. For information on the terms and conditions of September 30, 2019. For additional information,other debt instruments of ours and our subsidiaries, including financial and operating covenants, 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 6—Long-Term Debt and Credit Facilities in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2018."—Other Matters" below.

Table of Contents


At September 30, 2019, we had $82 million of letters of credit outstanding under our $225 million uncommitted letter of credit facility.

Additionally, as of September 30, 2019, we had outstanding letters of credit or other similar obligations of approximately $24 million of which $18 million is collateralized by cash that is reflected on our consolidated balance sheets as restricted cash.

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, 2018,2019, the accounting unfunded status of our qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was $1.6$1.8 billion and $3.0 billion, respectively. For additional information about our pension and post-retirement benefit arrangements, see "Critical Accounting Policies and Estimates - Pensions and Post-Retirement Benefits" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20182019 and see Note 10—11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of the same report.

55


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 2019.2020. The amount of required contributions to our qualified pension plan in 20202021 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. However, basedWe last made a voluntary contribution to the trust for our qualified pension plan during 2018. Based on current circumstances, we do not anticipate making a voluntary contribution to the trust for our qualified pension plan in 2019.2020.

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, 2018,2019, assets in the post-retirement trusts had been substantially depleted and had a fair value of only $18$13 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 plan 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 10—11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of our most recent annual reportAnnual Report on Form 10-K, aggregate benefits paid by us under these plans (net of participant contributions and direct subsidy receipts) were $241 million, $249 million $237 million and $129$237 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively, while the amounts paid from the trust were $4 million, $31$4 million and $145$31 million, respectively. For additional information on our expected future benefits payments for our post-retirement benefit plans, please see Note 10—11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of our annual reportAnnual Report Form 10-K for the year ended December 31, 2018.2019.

The capital markets have been volatile during 2020, primarily as a result of uncertainties related to the COVID-19 outbreak. U.S. federal governmental actions to stimulate the economy have significantly impacted interest rates. These events could ultimately affect the funding levels of our pension plans and calculations of our liabilities under our pension and other post-employment benefit plans.

For 2019,2020, our estimatedexpected annual long-term rates of return net of administrative costs, are 6.5% and 4.0% foron the pension plan trust assets and post-retirement plans trusthealth care and life insurance benefit plan assets respectively, based on the assets currently held.are 6% and 4%, respectively. However, actual returns could be substantially different.

Our pension plan contains provisions that allow us, from time to time, to offer lump sum payment options to certain former employees in settlement of their future retirement benefits. We record an accounting settlement charge, consisting of the recognition of certain deferred costs of the pension plan, associated with these lump sum payments only if, in the aggregate, they exceed the sum of the annual service and interest costs for the plan’s net periodic pension benefit cost, which represents the settlement accounting threshold. As of September 30, 2020, the settlement threshold was not reached. As a result of reductions in our workforce in 2020, we expect the annual lump sum payments to be very close to the settlement accounting threshold. To the extent the settlement threshold is met, we estimate additional pension expense of approximately $110 million would be incurred for the year ending December 31, 2020, but the amount of any additional pension expense will vary depending on the amount of the lump sum payments in 2020.

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 reportAnnual Report on Form 10-K for the year ended December 31, 2018.2019.

Table of Contents


Connect America Fund

As a result of accepting CAF Phase 2II support payments, we are receiving substantial support payments under a program that will soon lapse. Moreover, we must meet certain specified infrastructure buildout requirements in 33 states over the next several years. In orderwhich will obligate us to meet these specified infrastructure buildout requirements, we may be obligated to makecontinue making substantial capital expenditures. See "Capital Expenditures" above.We cannot provide any assurances that we will be able to timely meet our mandated buildout requirements.

On January 30, 2020, the FCC created the Rural Digital Opportunity Fund (the “RDOF”), which is a new federal support program designed to replace the CAF Phase II program. Through Phase I of the RDOF, the FCC plans to award up to $16.0 billion in support payments over 10 years to bring broadband service to certain specified high-cost under-served U.S. markets. The FCC plans to select Phase I support recipients through a multi-round
56


reverse auction. We are a qualified bidder in that auction, which began on October 29, 2020. Any RDOF Phase I support for any areas awarded to us will begin January 1, 2022. In accordance with the FCC's January order, we elected to receive an additional year of CAF Phase II funding in 2021.

For additional information on the FCC's CAF order and the USF program,these programs, see (i) "Business—Regulation" in Item 1 of Part I of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2018 and2019, (ii) "Risk Factors—Risks Affecting ourOur Liquidity and Capital Resources" in Item 1A of Part I of the same annualAnnual Report and (iii) Item 1A of Part II of this report. The FCC released a Notice of Proposed Rulemaking on August 1, 2019 to begin the process of developing rules for the Rural Digital Opportunity Fund which is expected to ultimately succeed CAF Phase 2. The content, timing and final implementation rules and the impact on CenturyLink are not known at this time.

Historical Information

The following table summarizes our consolidated cash flow activities:
Nine Months Ended September 30, Change Nine Months Ended September 30,Change
2019 2018  20202019
(Dollars in millions) (Dollars in millions)
Net cash provided by operating activities$4,771
 5,036
 (265)Net cash provided by operating activities$4,842 4,771 71 
Net cash used in investing activities(2,671) (2,196) 475
Net cash used in investing activities$(2,840)(2,671)169 
Net cash used in financing activities(1,187) (3,007) (1,820)Net cash used in financing activities$(3,172)(1,187)1,985 

Operating Activities

Net cash provided by operating activities decreasedincreased by $265$71 million for the nine months ended September 30, 20192020 as compared to the nine months ended September 30, 2018,2019, primarily due to an increasehigher net income, increased collections from income tax receivables and decreases in prepaid expenses as well as a decrease in accrued expenses and accounts payable,payments of employee payroll taxes partially offset by a decreasedecreased collections on accounts receivable, increased payments on accounts payable and increases in cash payments onfor retirement benefits.benefits and other taxes. Cash provided by operating activities is subject to variability period over period as a result of the timing ofdifferences, including with respect to the collection of receivables and payments related toof interest expense, accounts payable and bonuses.

Investing Activities

Net cash used in our investing activities increased by $475$169 million for the nine months ended September 30, 20192020 as compared to the nine months ended September 30, 20182019 substantially due to an increase in capital expenditures.expenditures partially offset by an increase in proceeds from the sale of property, plant and equipment and other assets.

Financing Activities

Net cash used in financing activities decreased $1.8increased by $2.0 billion for the nine months ended September 30, 20192020 as compared to the nine months ended September 30, 2018,2019, primarily due to the decreasean increase in dividends which reflect the decreasepayments of the per share dividend amount to $0.75 for the nine months ended September 30, 2019 from the $1.62 per share amount for the nine months ended September 30, 2018, andlong-term debt partially offset by increases in net proceeds from issuance of long-term debt during the nine months ended September 30, 2019 compared nine months ended September 30, 2018.and net proceeds from our revolving line of credit.

See Note 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 have cash management and loan arrangements with a majority of our income-generating subsidiaries, in which a substantial portion of the aggregate cash of those subsidiaries' is periodically advanced or loaned to us or our service company affiliate. Although we periodically repay these advances to fund the subsidiaries' cash requirements throughout the year, at any given point in time we may owe a substantial sum to our subsidiaries under these arrangements. In accordance with generally accepted accounting principles, these arrangements are subject toreflected in the balance sheets of our subsidiaries, but are eliminated in consolidation and therefore not recognized on our consolidated balance sheets.

57


We also are involved in various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affectsubstantially impact our financial condition, future results of operations or cash flows.position. See Note 12—Commitments, Contingencies and Other Items for additional information.



Market Risk

As of September 30, 2019,2020, we wereare 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. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. As of September 30, 2020, we did not hold or issue derivative financial instruments for trading or speculative purposes.

In February 2019, we executed swap transactions that reduced our exposure to floating rates with respect to $2.5 billion principal amount of floating rate debt. In June 2019, we executed swap transactions that reduced our exposure to floating rates with respect to $1.5 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’sour hedging arrangements.

As of September 30, 2019,2020, we had approximately $13.2$10.7 billion floating rate debt governed by the London Inter-Bank Offered Rate (LIBOR),potentially subject to LIBOR, $4.0 billion of which was subject to the above-described hedging arrangements. A hypothetical increase of 100 basis points in LIBOR relating to our $9.2$6.7 billion of unhedged floating rate debt would, among other things, decrease our annual pre-tax earnings by approximately $92$67 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 losses from international transactions. ChangesAccordingly, changes in foreign currency rates relative to the U.S. dollar could adversely affectimpact our operating results.

Certain shortcomings are inherent in the method of analysis presented in the computation of exposures to market risks. Actual values may differ materially from those disclosed by us from time to time if market conditions vary from the assumptions used in the analyses performed. These analyses only incorporate the risk exposures that existed at September 30, 2019.2020.

Off-Balance Sheet Arrangements

As of September 30, 2019,2020, 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 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 17—19—Commitments and Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of our annual reportAnnual Report on Form 10-K for the year ended December 31, 2018,2019, 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.

58


Other Information

Our website is www.centurylink.com.www.lumen.com. We routinely post important investor information in the "Investor Relations" section of our website at ir.centurylink.comir.lumen.com. The information contained on, or that may be accessed through, our website is not part of this quarterly report. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed by us or our affiliates Level 3 Parent, LLC and Qwest Corporation, and all amendments to those reports in the "Investor Relations" section of our website (ir.centurylink.comir.lumen.com) under the headings "FINANCIALS" and "SEC Filings." These reports are available on our website as soon as reasonably practicable after wethey are electronically file themfiled 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.
59



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Liquidity and Capital resources—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 Companyus in the reports that it fileswe file or furnishesfurnish 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’sour senior management, including itsour 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, Indraneel Dev, evaluated the effectiveness of the Company’sour disclosure controls and procedures as of September 30, 2019.2020. Based on this evaluation, the Company’sour Chief Executive Officer and Chief Financial Officer concluded that the Company’sour disclosure controls and procedures were not effective, as of September 30, 2019, due2020, in providing reasonable assurance the information required to be disclosed by us in this report was accumulated and communicated in the material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended in December 31, 2018 related to the existence and accuracy of our revenue transactions.manner provided above.

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, we began implementing remediation plans to address both of the material weaknesses described in that report. During the second quarter, we remediated our material weakness related to the ineffective design and operation of process level internal controls over the fair value measurement of certain assets acquired and liabilities assumed from Level 3.

The remaining material weakness relates to our ineffective design and operation of certain process level internal controls over the existence and accuracy of revenue transactions. This material weakness will not be considered remediated until we have designed and implemented sufficient process level controls and the applicable controls operate for a sufficient period of time such that management has concluded, through testing, that these controls are operating effectively. Based on our progress to date, we expect that the remediation of this material weakness will be completed as of December 31, 2019.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’sour internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the third quarter of 20192020 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting. We currently expect, however, to complete the implementation of changes in our internal control over financial reporting during the fourth quarter of 2019 in connection with the remediation efforts discussed above.

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.


60


PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

The information contained in Note 12—Commitments, Contingencies and Other Items included in Item 1 of Part I of this quarterly report on Form 10-Q is incorporated herein by reference. The ultimate outcome of the matters described in Note 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 reportAnnual Report on Form 10-K for the year ended December 31, 2018.2019 and Item 1A of Part II of this report.

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 additionWe urge you to carefully consider (i) the other information set forth in this report, you should carefully consider(ii) the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.2019, (iii) the risk factors discussed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and (iv) the risk factors discussed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, which are amended and restated in their entirety below.

An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic, could have a material adverse impact on our operating results and financial condition.
An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic and its detrimental impact on the worldwide economy, could have a material adverse impact on our operating results and financial condition.
We are vulnerable to the general economic effects of disease outbreaks and similar public health threats. Since the latter half of the first quarter of 2020, the COVID-19 pandemic has caused a sudden and substantial reduction in worldwide economic activity. COVID-19 poses the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities at expected levels through established processes for a prolonged period of time, including due to the continuing effects of governmental regulation of permissible social and business activity. Future events regarding the pandemic, which are unpredictable and beyond our control, will ultimately impact our operations and results, including its impact on demand for our products and services and related impacts upon network usage, the ability of our customers to continue to pay us in a timely manner, the impact on other third parties upon which we are materially reliant, impacts on our workforce, impacts upon performance risk under our contracts, and impacts on our supply chains or distribution channels for our products and services. Such future uncertain and unpredictable developments include:

•The duration, extent and severity of the pandemic. The ultimate impact of the pandemic will depend on various medical factors that are currently unknown, including (i) whether, when or to what extent additional outbreaks may arise or return, (ii) the effectiveness of current or future mitigation steps, and (iii) whether or when treatments or vaccines will be widely available to improve or stem the pandemic.

•The response of governmental and nongovernmental authorities. Actions taken by governmental and nongovernmental bodies in response to the pandemic have continued to depress economic activity. In the United States and most other countries, these mandates have been issued by state or local officials, which significantly increases the unpredictability and variability of when and how these mandates will be amended, rescinded or reimposed. The pandemic has also led to changes in laws governing the rights of workers and has caused, and may continue to cause, various parties to propose additional changes to laws or regulations, including those governing communications companies.

61

Table of Contents

•Impacts to economic and market conditions. Continuing uncertainties related to the duration and intensity of the pandemic will likely continue to create substantial disruptions and volatility in global, national, regional and local economies and markets. These disruptions could (i) limit or restrict our ability to conduct normal business activities with customers, vendors, lenders or others with whom we do business, (ii) continue to result in changes in spending patterns or reduced demand for certain of our products and services, (iii) continue to cause us to incur higher credit losses and overtime expenses, (iv) cause us to delay, change or fail to attain our operating, capital spending or transformational plans, (v) result in future changes in tax rates, (vi) increase the risk of litigation and (vii) otherwise render it more difficult or impossible to implement our operational or strategic plans.

•Impacts on stock prices. Since the outbreak of the pandemic in the U.S., our stock has traded at prices lower than pre-pandemic levels. Continuing uncertainty regarding the impact of the pandemic on our business could constrain the future trading price of our stock.

•Impacts to capital markets. Shortly after COVID-19 began its worldwide spread, domestic and worldwide capital markets experienced periods of instability or unpredictability, particularly for non-investment grade issuers. Legislative bodies and reserve banks have taken various actions in response to the pandemic that have impacted the capital markets, and we expect that these efforts could continue. We are materially reliant upon the capital markets to access funding necessary to refinance our outstanding indebtedness. If the economic disruptions caused by COVID-19 continue to interfere with the operations of the capital markets, our access to cash to refinance our debt or to fund our other cash requirements could be materially adversely affected.


In addition, responding to the continuing pandemic could divert management’s attention from our key strategic priorities, increase costs as we prioritize health and safety matters for our employees and customers, cause us to reduce, delay, alter or abandon initiatives that may otherwise increase our long-term value, increase vulnerability to information technology or cybersecurity related risks as more of our employees work remotely and otherwise continue to disrupt our business operations. Moreover, if the pandemic ultimately materially reduces our cash flows, we may need to re-evaluate our capital allocation plans, especially if increased broadband usage increases our need to invest in our network to remain competitive.
If the pandemic intensifies or economic conditions deteriorate, the adverse impact the pandemic has on us could become more pronounced in the future and could have a material adverse impact on our operating results and financial condition.

Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described under the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. In particular, persistent depressed trading prices for our stock or deterioration of global economic conditions could increase the possibility that we will incur a future goodwill impairment, as discussed in greater detail in Footnote 2 and Item 2 of Part I of this report.
We have taken certain precautions due to the uncertain and evolving situation relating to the spread of COVID-19 that could have a material adverse impact on our operating results and financial condition.
The precautionary measures described in this report that we have taken to safeguard our employees and customers could make it more difficult to (i) timely and efficiently furnish products and services to our customers, (ii) devote sufficient resources to our ongoing network, product simplification and cost reduction projects, (iii) efficiently monitor and maintain our network, (iv) maintain effective internal controls, (v) mitigate information technology or cybersecurity related risks and (vi) otherwise operate and administer our affairs. As such, these measures ultimately could have a material adverse impact on our operating results and financial condition.

62

Table of Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table contains information about shares of our previously-issued common stock that we withheld from employees upon vesting of their stock-based awards during the third quarter of 20192020 to satisfy the related tax withholding obligations:
Total Number of
Shares Withheld
for Taxes		Average Price Paid
Per Share
Period  
July 2020193,474 $9.87 
August 202066,360 $11.03 
September 202092,307 $10.84 
Total352,141 

63
 
Total Number of
Shares Withheld
for Taxes
 
Average Price Paid
Per Share
Period   
Jul-19414,780
 $11.68
Aug-19105,667
 11.67
Sep-1926,221
 11.46
Total546,668
  




Table of Contents


ITEM 6. EXHIBITS

Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference. All other exhibits are provided as part of this electronic submission.
Exhibit

Number
Description
31.1*4.1
10.1*
31.1*
31.2*
32.1*
32.2*
101*
Financial statements from the Quarterly Report on Form 10-Q of CenturyLink, Inc. (doing business as Lumen Technologies) for the period ended September 30, 2019,2020, formatted in Inline XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (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.
104*Cover page formatted as Inline XBRL and contained in Exhibit 101.

*    Exhibit filed herewith.
_______________________________________________________________________________
*Exhibit filed herewith.



64


SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 7, 2019.

5, 2020.
CENTURYLINK, INC.
By:/s/ Eric J. Mortensen
Eric J. Mortensen
Senior Vice President - Controller
 (Principal Accounting Officer)

7065