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 ~~March 31,~~September 30, 2021


☐			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

LUMEN TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



Louisiana		72-0651161
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
100 CenturyLink Drive,
Monroe,	Louisiana	71203
(Address of principal executive offices)		(Zip Code)

(318) 388-9000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $1.00 per share

LUMN

New York Stock Exchange

Preferred Stock Purchase Rights

N/A

New 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 ☒

On ~~April 30,~~October 29, 2021, there were ~~1,105,312,538~~1,023,894,166 shares of common stock outstanding.

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TABLE OF CONTENTS



	~~Special Note Regarding Name Change~~	3
	Special Note Regarding Forward-Looking Statements	3
Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated Statements of Operations (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Unaudited)	7
	Consolidated Balance Sheets (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	9
	Consolidated Statements of Stockholders' Equity (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited)*	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3343
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4862
Item 4.	Controls and Procedures	4862
Part II.	Other Information
Item 1.	Legal Proceedings	4963
Item 1A.	Risk Factors	4963
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5064
Item 5.	Other Information	5064
Item 6.	Exhibits	5165
Signature		5266

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

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~~Special Note Regarding Name Change~~

On September 14, 2020, we commenced operating under the brand name “Lumen” and, on January 22, 2021, we officially changed our legal name from “CenturyLink, Inc.�� to “Lumen Technologies, Inc.”

Special Note Regarding Forward-Looking Statements

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

•~~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 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, leverage, capital allocation plans, financing alternatives and sources, and pricing plans;

•statements regarding how the health and economic challenges raised by the COVID-19 pandemic may impact our business, operations, cash flows or financial position; 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-looking statements. Factors that could affect actual results include but are not limited to:

•~~uncertainties regarding the impact that COVID-19 health and economic disruptions will continue to have on our business, operations, cash flows and corporate initiatives;~~

•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;

•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;

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•our ability to safeguard our network, and to avoid the adverse impact of possible security breaches, service outages, system failures, 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 legislative, regulatory or judicial proceedings relating to content liability standards, intercarrier compensation, universal service, service regulation, broadband deployment, data protection, privacy and net neutrality;

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•our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages;

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

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

•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 deleveraging strategy;

•our ability to successfully and timely consummate our pending divestitures on the terms proposed, to realize the anticipated benefits therefrom and to operate our retained business successfully thereafter;

•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;

•the impact of any future material acquisitions or divestitures that we may ~~engage in;~~transact;

•the negative impact of increases in the costs of our pension, ~~health,~~healthcare for active and retired employees and post-employment ~~or other~~ benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations;

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

•adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower credit ratings, unstable markets 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 security holders, key business partners, suppliers, vendors, landlords and financial institutions;

•our ability to meet evolving environmental, social and governance ("ESG") expectations and benchmarks, and effectively communicate and implement our ESG strategies;

•our ability to collect our receivables from, 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;

•any adverse developments in legal or regulatory proceedings involving us;

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•changes in tax, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels, including those arising from pending proposals of the Biden Administration to increase infrastructure spending and federal income tax rates;

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

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•continuing uncertainties regarding the impact that COVID-19 disruptions and vaccination policies could have on our business, operations, cash flows and corporate initiatives;

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

•the potential adverse effects if our internal controls over financial reporting have weaknesses or deficiencies, or otherwise fail to operate as intended;

•the effects of 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 referenced in the "Risk Factors" section or other portions of this report or other of our filings with the U.S. Securities and Exchange Commission (the "SEC").

Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned not to unduly rely upon our forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise. Furthermore, any information about our intentions contained in any of our forward-looking statements reflects our intentions as of the date of such forward-looking statement, and is based upon, among other things, existing regulatory, technological, industry, competitive, economic and market conditions, and our assumptions as of such date. We may change our intentions, strategies or plans (including our dividend or other capital allocation plans) at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LUMEN TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


		Three Months Ended March 31,				Three Months Ended September 30,			Nine Months Ended September 30,
		2021		2020		2021		2020	2021	2020
		(Dollars in millions, except per share amounts, and shares in thousands)				(Dollars in millions, except per share amounts, and shares in thousands)
OPERATING REVENUE	OPERATING REVENUE	$	5,029	5,228	OPERATING REVENUE	$	4,887	5,167	14,840	15,587
OPERATING EXPENSES	OPERATING EXPENSES				OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	Cost of services and products (exclusive of depreciation and amortization)	2,136		2,235	Cost of services and products (exclusive of depreciation and amortization)	2,151		2,236	6,402	6,703
Selling, general and administrative	Selling, general and administrative	756		853	Selling, general and administrative	654		850	2,172	2,598
Depreciation and amortization	Depreciation and amortization	1,150		1,160	Depreciation and amortization	951		1,193	3,142	3,515
Total operating expenses	Total operating expenses	4,042		4,248	Total operating expenses	3,756		4,279	11,716	12,816
OPERATING INCOME	OPERATING INCOME	987		980	OPERATING INCOME	1,131		888	3,124	2,771
OTHER (EXPENSE) INCOME	OTHER (EXPENSE) INCOME				OTHER (EXPENSE) INCOME
Interest expense	Interest expense	(389)		(449)	Interest expense	(377)		(409)	(1,150)	(1,272)
Other income (expense), net		34		(98)
Other (expense) income, net					Other (expense) income, net	(38)		1	48	(73)
Total other expense, net	Total other expense, net	(355)		(547)	Total other expense, net	(415)		(408)	(1,102)	(1,345)
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	632		433	INCOME BEFORE INCOME TAXES	716		480	2,022	1,426
Income tax expense	Income tax expense	157		119	Income tax expense	172		114	497	369
NET INCOME	NET INCOME	$	475	314	NET INCOME	$	544	366	1,525	1,057
BASIC AND DILUTED EARNINGS PER COMMON SHARE	BASIC AND DILUTED EARNINGS PER COMMON SHARE				BASIC AND DILUTED EARNINGS PER COMMON SHARE
BASIC	BASIC	$	0.44	0.29	BASIC	$	0.51	0.34	1.42	0.98
DILUTED	DILUTED	$	0.44	0.29	DILUTED	$	0.51	0.34	1.41	0.98
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING	WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING				WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC	BASIC	1,082,474		1,075,459	BASIC	1,062,084		1,080,505	1,077,106	1,078,672
DILUTED	DILUTED	1,091,586		1,081,754	DILUTED	1,069,157		1,085,666	1,083,879	1,083,368

See accompanying notes to consolidated financial statements.

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LUMEN TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended March 31,
2021 2020
(Dollars in millions)
NET INCOME $ 475 314
OTHER COMPREHENSIVE INCOME (LOSS):
Items related to employee benefit plans:
Change in net actuarial loss, net of $(12) and $(12) tax 38 38
Change in net prior service cost, net of $(1) and $0 tax 1 1
Reclassification of realized loss on interest rate swaps to net income, net of $(5) and $0 tax 15 5
Unrealized holding loss on interest rate swaps, net of $0 and $26 tax 0 (80)
Foreign currency translation adjustment, net of $7 and $23 tax (86) (239)
Other comprehensive loss (32) (275)
COMPREHENSIVE INCOME $ 443 39


	Three Months Ended September 30,			Nine Months Ended September 30,
	2021		2020	2021	2020
	(Dollars in millions)
NET INCOME	$	544	366	1,525	1,057
OTHER COMPREHENSIVE INCOME (LOSS):
Items related to employee benefit plans:
Change in net actuarial loss, net of $(69), $(12), $(93) and $(37) tax	214		38	290	115
Change in net prior service cost, net of $—, $—, $(1) and $(1) tax	1		1	3	4
Curtailment loss, net of $—, $(1), $— and $(1) tax	—		3	—	3
Reclassification of realized loss on interest rate swaps to net income, net of $(5), $(5), $(15) and $(10) tax	16		15	47	31
Unrealized holding (loss) gain on interest rate swaps, net of $—, $—, $— and $28 tax	(1)		1	(1)	(87)
Foreign currency translation adjustment, net of $13, $(21), $16 and $(2) tax	(97)		49	(103)	(181)
Other comprehensive income (loss)	133		107	236	(115)
COMPREHENSIVE INCOME	$	677	473	1,761	942

See accompanying notes to consolidated financial statements.

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LUMEN TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS


		March 31, 2021 (Unaudited)		December 31, 2020		September 30, 2021 (Unaudited)		December 31, 2020
		(Dollars in millions and shares in thousands)				(Dollars in millions and shares in thousands)
ASSETS	ASSETS				ASSETS
CURRENT ASSETS	CURRENT ASSETS				CURRENT ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	486	406	Cash and cash equivalents	$	635	406
Accounts receivable, less allowance of $162 and $191		1,883		1,962
Accounts receivable, less allowance of $117 and $191					Accounts receivable, less allowance of $117 and $191	1,541		1,962
Assets held for sale					Assets held for sale	8,682		—
Other	Other	924		808	Other	843		808
Total current assets	Total current assets	3,293		3,176	Total current assets	11,701		3,176
Property, plant and equipment, net of accumulated depreciation of $32,214 and $31,596		26,091		26,338
Property, plant and equipment, net of accumulated depreciation of $22,027 and $31,596					Property, plant and equipment, net of accumulated depreciation of $22,027 and $31,596	20,926		26,338
GOODWILL AND OTHER ASSETS	GOODWILL AND OTHER ASSETS				GOODWILL AND OTHER ASSETS
Goodwill	Goodwill	18,854		18,870	Goodwill	15,987		18,870
Other intangible assets, net	Other intangible assets, net	7,884		8,219	Other intangible assets, net	7,160		8,219
Other, net	Other, net	2,706		2,791	Other, net	2,534		2,791
Total goodwill and other assets	Total goodwill and other assets	29,444		29,880	Total goodwill and other assets	25,681		29,880
TOTAL ASSETS	TOTAL ASSETS	$	58,828	59,394	TOTAL ASSETS	$	58,308	59,394
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY				LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES	CURRENT LIABILITIES				CURRENT LIABILITIES
Current maturities of long-term debt	Current maturities of long-term debt	$	3,841	2,427	Current maturities of long-term debt	$	2,501	2,427
Accounts payable	Accounts payable	1,017		1,134	Accounts payable	829		1,134
Accrued expenses and other liabilities	Accrued expenses and other liabilities				Accrued expenses and other liabilities
Salaries and benefits	Salaries and benefits	846		1,008	Salaries and benefits	873		1,008
Income and other taxes	Income and other taxes	346		314	Income and other taxes	280		314
Current operating lease liabilities	Current operating lease liabilities	387		379	Current operating lease liabilities	389		379
Interest	Interest	285		291	Interest	229		291
Other	Other	307		328	Other	284		328
Liabilities held for sale					Liabilities held for sale	2,291		—
Current portion of deferred revenue	Current portion of deferred revenue	758		753	Current portion of deferred revenue	624		753
Total current liabilities	Total current liabilities	7,787		6,634	Total current liabilities	8,300		6,634
LONG-TERM DEBT	LONG-TERM DEBT	27,599		29,410	LONG-TERM DEBT	27,260		29,410
DEFERRED CREDITS AND OTHER LIABILITIES	DEFERRED CREDITS AND OTHER LIABILITIES				DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net	Deferred income taxes, net	3,471		3,342	Deferred income taxes, net	3,732		3,342
Benefit plan obligations, net	Benefit plan obligations, net	4,435		4,556	Benefit plan obligations, net	3,980		4,556
Other	Other	4,233		4,290	Other	3,853		4,290
Total deferred credits and other liabilities	Total deferred credits and other liabilities	12,139		12,188	Total deferred credits and other liabilities	11,565		12,188
COMMITMENTS AND CONTINGENCIES (Note 12)		0		0
COMMITMENTS AND CONTINGENCIES (Note 15)					COMMITMENTS AND CONTINGENCIES (Note 15)	0		0
STOCKHOLDERS' EQUITY	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 shares	0		0	Preferred stock—non-redeemable, $25.00 par value, authorized 2,000 and 2,000 shares, issued and outstanding 7 and 7 shares	—		—
Common stock, $1.00 par value, authorized 2,200,000 and 2,200,000 shares, issued and outstanding 1,105,533 and 1,096,921 shares		1,106		1,097
Common stock, $1.00 par value, authorized 2,200,000 and 2,200,000 shares, issued and outstanding 1,031,060 and 1,096,921 shares					Common stock, $1.00 par value, authorized 2,200,000 and 2,200,000 shares, issued and outstanding 1,031,060 and 1,096,921 shares	1,031		1,097
Additional paid-in capital	Additional paid-in capital	20,598		20,909	Additional paid-in capital	19,235		20,909
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,845)		(2,813)	Accumulated other comprehensive loss	(2,577)		(2,813)
Accumulated deficit	Accumulated deficit	(7,556)		(8,031)	Accumulated deficit	(6,506)		(8,031)
Total stockholders' equity	Total stockholders' equity	11,303		11,162	Total stockholders' equity	11,183		11,162
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	58,828	59,394	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	58,308	59,394

See accompanying notes to consolidated financial statements.

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LUMEN TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Three Months Ended March 31,				Nine Months Ended September 30,
		2021		2020		2021		2020
		(Dollars in millions)				(Dollars in millions)
OPERATING ACTIVITIES	OPERATING ACTIVITIES				OPERATING ACTIVITIES
Net income	Net income	$	475	314	Net income	$	1,525	1,057
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:				Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	1,150		1,160	Depreciation and amortization	3,142		3,515
Deferred income taxes	Deferred income taxes	131		105	Deferred income taxes	431		315
Provision for uncollectible accounts	Provision for uncollectible accounts	27		35	Provision for uncollectible accounts	80		137
Net (gain) loss on early retirement of debt	Net (gain) loss on early retirement of debt	(8)		79	Net (gain) loss on early retirement of debt	(8)		78
Share-based compensation	Share-based compensation	20		69	Share-based compensation	89		120
Changes in current assets and liabilities:	Changes in current assets and liabilities:				Changes in current assets and liabilities:
Accounts receivable	Accounts receivable	45		60	Accounts receivable	20		(34)
Accounts payable	Accounts payable	(93)		(115)	Accounts payable	(240)		(325)
Accrued income and other taxes	Accrued income and other taxes	31		(16)	Accrued income and other taxes	7		90
Other current assets and liabilities, net	Other current assets and liabilities, net	(272)		(366)	Other current assets and liabilities, net	(263)		(408)
Retirement benefits	Retirement benefits	(71)		(25)	Retirement benefits	(126)		(96)
Changes in other noncurrent assets and liabilities, net	Changes in other noncurrent assets and liabilities, net	66		(14)	Changes in other noncurrent assets and liabilities, net	207		287
Other, net	Other, net	24		13	Other, net	30		106
Net cash provided by operating activities	Net cash provided by operating activities	1,525		1,299	Net cash provided by operating activities	4,894		4,842
INVESTING ACTIVITIES	INVESTING ACTIVITIES				INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(716)		(974)	Capital expenditures	(2,052)		(2,971)
Proceeds from sale of property, plant and equipment and other assets	Proceeds from sale of property, plant and equipment and other assets	35		35	Proceeds from sale of property, plant and equipment and other assets	90		119
Other, net	Other, net	6		0	Other, net	13		12
Net cash used in investing activities	Net cash used in investing activities	(675)		(939)	Net cash used in investing activities	(1,949)		(2,840)
FINANCING ACTIVITIES	FINANCING ACTIVITIES				FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	Net proceeds from issuance of long-term debt	891		1,237	Net proceeds from issuance of long-term debt	1,881		3,257
Payments of long-term debt	Payments of long-term debt	(1,176)		(2,488)	Payments of long-term debt	(2,604)		(6,334)
Net (payments of) proceeds from revolving line of credit	Net (payments of) proceeds from revolving line of credit	(150)		1,125	Net (payments of) proceeds from revolving line of credit	(150)		825
Dividends paid	Dividends paid	(294)		(291)	Dividends paid	(834)		(837)
Repurchases of common stock					Repurchases of common stock	(909)		—
Other, net	Other, net	(45)		(69)	Other, net	(52)		(83)
Net cash used in financing activities	Net cash used in financing activities	(774)		(486)	Net cash used in financing activities	(2,668)		(3,172)
Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	76		(126)	Net increase (decrease) in cash, cash equivalents and restricted cash	277		(1,170)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	427		1,717	Cash, cash equivalents and restricted cash at beginning of period	427		1,717
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	503	1,591	Cash, cash equivalents and restricted cash at end of period	$	704	547
Supplemental cash flow information:	Supplemental cash flow information:				Supplemental cash flow information:
Income taxes paid, net		$	(21)	(6)
Interest paid (net of capitalized interest of $13 and $23)		$	(387)	(383)

Income taxes (paid) refunded, net					Income taxes (paid) refunded, net	$	(102)	51
Interest paid (net of capitalized interest of $39 and $60)					Interest paid (net of capitalized interest of $39 and $60)	$	(1,144)	(1,254)
Supplemental noncash information regarding investing activities:					Supplemental noncash information regarding investing activities:
Sale of property, plant and equipment in exchange for note receivable					Sale of property, plant and equipment in exchange for note receivable	$	56	—
Cash, cash equivalents and restricted cash:	Cash, cash equivalents and restricted cash:				Cash, cash equivalents and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	486	1,564	Cash and cash equivalents	$	635	526
Cash and cash equivalents included in Assets held for sale					Cash and cash equivalents included in Assets held for sale	39		—
Restricted cash included in Other current assets	Restricted cash included in Other current assets	2		3	Restricted cash included in Other current assets	2		3
Restricted cash included in Other, net noncurrent assets	Restricted cash included in Other, net noncurrent assets	15		24	Restricted cash included in Other, net noncurrent assets	28		18
Total	Total	$	503	1,591	Total	$	704	547

See accompanying notes to consolidated financial statements.

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LUMEN TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)


		Three Months Ended March 31,				Three Months Ended September 30,			Nine Months Ended September 30,
		2021		2020		2021		2020	2021	2020
		(Dollars in millions except per share amounts)				(Dollars in millions except per share amounts)
COMMON STOCK	COMMON STOCK				COMMON STOCK
Balance at beginning of period	Balance at beginning of period	$	1,097	1,090	Balance at beginning of period	$	1,105	1,097	1,097	1,090
Issuance of common stock through incentive and benefit plans	Issuance of common stock through incentive and benefit plans	9		8	Issuance of common stock through incentive and benefit plans	—		—	8	7
Repurchases of common stock					Repurchases of common stock	(74)		—	(74)	—
Balance at end of period	Balance at end of period	1,106		1,098	Balance at end of period	1,031		1,097	1,031	1,097
ADDITIONAL PAID-IN CAPITAL	ADDITIONAL PAID-IN CAPITAL				ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period	Balance at beginning of period	20,909		21,874	Balance at beginning of period	20,361		21,376	20,909	21,874
Repurchases of common stock					Repurchases of common stock	(880)		—	(880)	—
Shares withheld to satisfy tax withholdings	Shares withheld to satisfy tax withholdings	(39)		(33)	Shares withheld to satisfy tax withholdings	(2)		(4)	(44)	(39)
Share-based compensation and other, net	Share-based compensation and other, net	20		79	Share-based compensation and other, net	25		33	89	132
Dividends declared	Dividends declared	(292)		(286)	Dividends declared	(269)		(275)	(839)	(837)
Balance at end of period	Balance at end of period	20,598		21,634	Balance at end of period	19,235		21,130	19,235	21,130
ACCUMULATED OTHER COMPREHENSIVE LOSS	ACCUMULATED OTHER COMPREHENSIVE LOSS				ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period	Balance at beginning of period	(2,813)		(2,680)	Balance at beginning of period	(2,710)		(2,902)	(2,813)	(2,680)
Other comprehensive loss		(32)		(275)
Other comprehensive income (loss)					Other comprehensive income (loss)	133		107	236	(115)
Balance at end of period	Balance at end of period	(2,845)		(2,955)	Balance at end of period	(2,577)		(2,795)	(2,577)	(2,795)
ACCUMULATED DEFICIT	ACCUMULATED DEFICIT				ACCUMULATED DEFICIT
Balance at beginning of period	Balance at beginning of period	(8,031)		(6,814)	Balance at beginning of period	(7,050)		(6,109)	(8,031)	(6,814)
Net income					Net income	544		366	1,525	1,057
Cumulative effect of adoption of ASU 2016-13, Measurement of Credit Losses, net of $(2) tax	Cumulative effect of adoption of ASU 2016-13, Measurement of Credit Losses, net of $(2) tax	—		9	Cumulative effect of adoption of ASU 2016-13, Measurement of Credit Losses, net of $(2) tax	—		—	—	9
Net income		475		314
Other	Other	0		5	Other	—		—	—	5
Balance at end of period	Balance at end of period	(7,556)		(6,486)	Balance at end of period	(6,506)		(5,743)	(6,506)	(5,743)
TOTAL STOCKHOLDERS' EQUITY	TOTAL STOCKHOLDERS' EQUITY	$	11,303	13,291	TOTAL STOCKHOLDERS' EQUITY	$	11,183	13,689	11,183	13,689
DIVIDENDS DECLARED PER COMMON SHARE	DIVIDENDS DECLARED PER COMMON SHARE	$	0.25	0.25	DIVIDENDS DECLARED PER COMMON SHARE	$	0.25	0.25	0.75	0.75

See accompanying notes to consolidated financial statements.

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LUMEN TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

References in the Notes to "Lumen ~~Technologies, Inc.," "Lumen~~ Technologies" or "Lumen," "we," "us," the "Company," and "our" refer to Lumen Technologies, Inc. and its consolidated subsidiaries, unless the context otherwise requires. References in the Notes to "Level 3" refer to Level 3 Parent, LLC and its predecessor, Level 3 Communications, Inc., which we acquired on November 1, 2017.

(1) Background

General

We are an international facilities-based technology and communications company engaged primarily in providing a broad array of integrated services to our business and mass markets customers. Our specific products and services are detailed in Note 3—4—Revenue Recognition.

Basis of Presentation

Our consolidated balance sheet as of December 31, 2020, 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 ~~SEC.~~U.S. Securities and Exchange Commission ("SEC"). However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading. We believe ~~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 ~~three~~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 Report on Form 10-K for the year ended December 31, 2020.

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

We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and expenses in our segment reporting. See Note ~~11—~~14—Segment Information for additional information. These changes had no impact on total operating revenue, total operating expenses or net income ~~(loss)~~ for any period.

Operating 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 0no book overdrafts included in accounts payable at ~~March 31,~~September 30, 2021 or December 31, 2020.

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Summary of Significant Accounting Policies

~~The significant accounting policy below is in addition~~Refer to the significant accounting policies described in Note 1— Background and Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

~~Operating Lease Income~~Assets Held for Sale

~~Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites~~We classify assets and ~~service equipment~~related liabilities as held for sale when: (i) management has committed to ~~third parties under operating leases. Lease~~a plan to sell the assets, (ii) the net assets are available for immediate sale, (iii) there is an active program to locate a buyer and ~~sublease income~~(iv) the sale and transfer of the net assets is probable within one year. Assets and liabilities held for sale are ~~included in operating revenue in~~presented separately on our consolidated ~~statements~~balance sheets with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of ~~operations.~~

cost or fair value, less costs to sell. Depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale. For each period that assets are classified as being held for sale, they are tested for recoverability. Unless otherwise specified, the ~~three months ended March 31, 2021~~amounts and ~~2020, our gross rental income was $332 million~~information presented in the notes do not include assets and ~~$333 million, respectively, which represents approximately 7%~~liabilities that have been reclassified as held for sale as of September 30, 2021. See Note 2—Planned Divestiture of the Latin American and ~~6%, respectively, of our operating revenue~~ILEC Businesses for ~~the three months ended March 31, 2021 and 2020.~~additional information.

Recently Adopted Accounting Pronouncements

Debt

On January 1, 2021, we adopted ASU 2020-09, "Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762" ("ASU 2020-09"). This ASU amends and supersedes various SEC paragraphs to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The adoption of ASU 2020-09 did not have a material impact to our consolidated financial statements.

Investments

On January 1, 2021, we adopted ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815)" ("ASU 2020-01"). This ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments - Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. As of ~~March 31,~~September 30, 2021, we determined there was no application or discontinuation of the equity method during the reporting periods. The adoption of ASU 2020-01 did not have a material impact to our consolidated financial statements.

Income ~~taxes~~Taxes

On January 1, 2021, we adopted ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)" ("ASU 2019-12"). This ASU removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU 2019-12 did not have a material impact to our consolidated financial statements.

Measurement of Credit Losses on Financial Instruments

We adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") on January 1, 2020 and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $9 million, net of tax effect of $2 million. Please refer to Note 4—6—Credit Losses on Financial Instruments for more information.

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Recently Issued Accounting Pronouncements

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

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" or "Reference Rate Reform"), 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. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. AsBased on our review of ~~March 31,~~our key material contracts through September 30, 2021, we ~~are evaluating the existing contracts and the~~do not expect ASU 2020-04 to have a material impact on the consolidated financial statements.

(2) Planned Divestiture of the Latin American and ILEC Businesses

On July 25, 2021, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., entered into a definitive agreement to divest Lumen’s Latin American business to an affiliate of a fund advised by Stonepeak Partners LP in exchange for $2.7 billion cash, subject to certain working capital, other purchase price adjustments and related transaction expenses (estimated to be approximately $50 million). Level 3 Parent, LLC expects to close the transaction in the first half of 2022, upon receipt of all requisite regulatory approvals in the U.S. and certain countries where the Latin American business operates, as well as the satisfaction of other customary conditions.

On August 3, 2021, Lumen Technologies, Inc. and certain of its wholly-owned subsidiaries entered into a definitive agreement to divest their incumbent local exchange ("ILEC") business conducted within 20 Midwestern and Southern states to an affiliate of funds advised by Apollo Global Management, Inc. In exchange, Lumen and its subsidiaries would receive $7.5 billion, subject to (i) offsets for assumed indebtedness (expected to be approximately $1.4 billion) and (ii) certain purchaser’s transaction expenses along with working capital, tax, other customary purchase price adjustments and related transaction expenses (estimated to be approximately $1.7 billion). Lumen expects to close the transaction in the second half of 2022 upon receipt of all regulatory approvals and the satisfaction of other customary closing conditions.

The actual amount of our net after-tax proceeds from these divestitures could vary substantially from the amounts we currently estimate, particularly if we experience delays in completing the transactions or if there are changes in other assumptions that impact our estimates.

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We do not believe these divestiture transactions represent a strategic shift for Lumen. Therefore, neither divested business meets the criteria to be classified as a discontinued operation. As a result, we will continue to report our operating results for the Latin American and ILEC businesses (the "disposal groups") in our consolidated operating results until the transactions are closed. The pre-tax net income of the disposal groups is estimated to be as follows in the tables below:


	Three Months Ended September 30,
	2021			2020
	Low		High	Low	High
	(Dollars in millions)
Latin American business pre-tax net income	$	59	72	36	45
ILEC business pre-tax net income	221		271	139	169
Total disposal groups pre-tax net income	$	280	343	175	214


	Nine Months Ended September 30,
	2021			2020
	Low		High	Low	High
	(Dollars in millions)
Latin American business pre-tax net income	$	131	160	108	131
ILEC business pre-tax net income	518		633	455	556
Total disposal groups pre-tax net income	$	649	793	563	687

As of September 30, 2021 in the accompanying consolidated balance sheets, the assets and liabilities of our Latin American and ILEC businesses are classified as held for sale and are measured at the lower of (i) the carrying value when we classified the disposal groups as held for sale and (ii) the fair value of the disposal groups, less costs to sell. Effective with the designation of both disposal groups as held for sale on July 25, 2021 and August 3, 2021, respectively, depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale. We estimate that we would have recorded an additional $107 million of depreciation, intangible amortization, and amortization of right-of-use assets for the three and nine months ended September 30, 2021 if the Latin American and ILEC businesses did not meet the held for sale criteria.

As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we did not record any estimated loss on disposal during the nine months ended September 30, 2021. The recoverability of each disposal group will be re-evaluated each reporting period until the closing of each transaction.

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The principal components of the held for sale assets and liabilities as of September 30, 2021 are as follows:


	September 30, 2021
	Latin American Business		ILEC Business	Total (4)
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	37	2	39
Accounts receivable, less allowance of $3, $21 and $24	83		230	313
Other current assets	75		46	121
Property, plant and equipment, net accumulated depreciation of $445, $10,976 and $11,421	1,545		3,386	4,931
Goodwill (1)	244		2,615	2,859
Other intangible assets, net	129		158	287
Other non-current assets	71		41	112
Total assets held for sale	$	2,184	6,478	8,662

Liabilities held for sale
Accounts payable	$	76	79	155
Salaries and benefits	22		28	50
Income and other taxes	32		31	63
Interest	—		38	38
Current portion of deferred revenue	28		90	118
Other current liabilities	10		43	53
Long-term debt, net of discounts (2)	—		1,367	1,367
Deferred income taxes, net	116		—	116
Pension and other post-retirement benefits (3)	2		56	58
Other non-current liabilities	126		147	273
Total liabilities held for sale	$	412	1,879	2,291

______________________________________________________________________

(1)The assignment of goodwill was based on the relative fair values of the applicable reporting units prior to being reclassified as held for sale.

(2)Long-term debt, net of discounts includes $1.4 billion of Embarq Senior notes, $118 million of related unamortized discounts and $48 million of long-term finance lease obligations.

(3)Excludes pension obligation of approximately $2.5 billion for the ILEC business as of September 30, 2021, which will be transferred to the purchaser of the ILEC business upon closing. As of September 30, 2021, approximately $2.2 billion, or 89%, of this pension obligation is expected to be funded through the transfer of Lumen pension plan assets to the purchaser. The remaining portion of the obligation is expected to be separately funded with cash paid by Lumen at the time of closing.

(4)The totals shown here exclude $20 million of assets held for sale unrelated to these divestitures.

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(3) Goodwill, Customer Relationships and Other Intangible Assets

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


		March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
		(Dollars in millions)				(Dollars in millions)
Goodwill	Goodwill	$	18,854	18,870	Goodwill	$	15,987	18,870
Indefinite-life intangible assets	Indefinite-life intangible assets	$	9	278	Indefinite-life intangible assets	$	9	278
Other intangible assets subject to amortization:	Other intangible assets subject to amortization:				Other intangible assets subject to amortization:
Customer relationships, less accumulated amortization of $11,356 and $11,060		6,035		6,344
Capitalized software, less accumulated amortization of $3,366 and $3,279		1,509		1,520
Trade names, patents and other, less accumulated amortization of $134 and $120		331		77
Customer relationships, less accumulated amortization of $11,571 and $11,060					Customer relationships, less accumulated amortization of $11,571 and $11,060	5,535		6,344
Capitalized software, less accumulated amortization of $3,537 and $3,279					Capitalized software, less accumulated amortization of $3,537 and $3,279	1,464		1,520
Trade names, patents and other, less accumulated amortization of $156 and $120					Trade names, patents and other, less accumulated amortization of $156 and $120	152		77
Total other intangible assets, net	Total other intangible assets, net	$	7,884	8,219	Total other intangible assets, net	$	7,160	8,219

When we acquired Embarq Corporation ("Embarq") in 2009, we acquired certain right-of-way assets and, because there were no legal, regulatory, contractual or other factors that would reasonably limit the useful life of these assets, we classified them as indefinite-lived and, as such, these assets were not amortized. However, as we leverage our fiber infrastructure assets, our reliance on the legacy infrastructure (largely copper-based) acquired from Embarq is diminishing. Our recent digital transformation efforts have prompted management to reassess and ultimately change the accounting treatment of these indefinite-lived assets to align with our focus on growth products versus our declining products. As a result, during the first quarter of 2021, we reclassified an indefinite-lived intangible asset to ~~definite-lived~~finite-lived intangible asset. As of January 1, 2021 we began amortizing the $268 million asset over its estimated ~~9-year~~nine-year remaining life. ~~This~~On August 3, 2021, upon entering into a definitive agreement to divest our ILEC business, we reclassified $158 million of the $268 million asset as held for sale. At this time, we discontinued recording amortization on the portion of the finite-lived intangible assets that had been reclassified as held for sale (see Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information). The above-described change in the estimated remaining economic life of these assets, as modified by the subsequent reclassification of a portion thereof, resulted in an increase in amortization expense of approximately $7$5 million and $20 million, respectively, for the three and nine months ended ~~March 31,~~September 30, 2021, and is expected to increase amortization expense by approximately ~~$30~~$23 million for the year ending December 31, 2021. The increase in amortization expense, net of tax, (i) reduced consolidated net income by approximately $5$4 million and $15 million, respectively, for the three and nine month periods ending September 30, 2021, with no0 impact per basic and diluted common share for the three months ended ~~March 31,~~September 30, 2021 and a $0.01 reduction per basic and diluted common share for the nine months ended September 30, 2021 and (ii) is expected to reduce consolidated net income by approximately ~~$23~~$17 million, or $0.02 per basic and diluted common share, for the year ending December 31, 2021.

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

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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 write 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 assessment date for goodwill is October 31, at which date we assess our reporting units. Our annual impairment assessment date for indefinite-lived intangible assets other than goodwill is December 31.

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Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of multiple reporting units. For each reporting unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit. If the estimated fair value of the reporting unit is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the reporting unit is less than the carrying value, we record an impairment equal to the excess amount. Depending on the facts and circumstances, we typically estimate the fair value of our reporting units by considering either or both of (i) a discounted cash flow method, which is based on the present value of projected cash flows over a discrete projection period and a terminal value, which represents the value of expected normalized cash flows of the reporting units following the discrete projection period, and (ii) a market approach, which includes the use of market multiples of publicly-traded companies whose services are comparable to ours.

~~As previously announced, we~~We completed an internal reorganization in January 2021. We now, as a result, report 2 segments: Business and Mass Markets. The following table shows the rollforward of goodwill assigned to our reportable segments, including the reorganization, from December 31, 2020 through ~~March 31,~~September 30, 2021:


		International and Global Accounts		Enterprise	Small and Medium Business	Wholesale	Consumer	Business	Mass Markets	Total		International and Global Accounts		Enterprise	Small and Medium Business	Wholesale	Consumer	Business	Mass Markets	Total
		(Dollars in millions)										(Dollars in millions)
As of December 31, 2020(1)	As of December 31, 2020(1)	$	2,555	4,738	2,808	3,114	5,655	—	—	18,870	As of December 31, 2020(1)	$	2,555	4,738	2,808	3,114	5,655	—	—	18,870
January 2021 reorganization	January 2021 reorganization	(2,555)		(4,738)	(2,808)	(3,114)	(5,655)	12,173	6,697	0	January 2021 reorganization	(2,555)		(4,738)	(2,808)	(3,114)	(5,655)	12,173	6,697	—
Reclassified as held for sale(2)											Reclassified as held for sale(2)	—		—	—	—	—	(918)	(1,946)	(2,864)
Effect of foreign currency exchange rate change and other	Effect of foreign currency exchange rate change and other	—		—	—	—	—	(16)	0	(16)	Effect of foreign currency exchange rate change and other	—		—	—	—	—	(19)	—	(19)
As of March 31, 2021(1)		$	—	—	—	—	—	12,157	6,697	18,854
As of September 30, 2021(1)											As of September 30, 2021(1)	$	—	—	—	—	—	11,236	4,751	15,987

(1)Goodwill at ~~March 31,~~September 30, 2021 and December 31, 2020 is net of accumulated impairment losses of $7.7 billion and $12.9 ~~billion.~~billion, respectively. The change in accumulated impairment losses at September 30, 2021 is a result of amounts reclassified as held for sale related to our planned divestitures.

(2)Includes $2.9 billion of goodwill, net of accumulated impairment loss reclassified as held for sale related to our pending divestitures. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

~~The~~In January 2021, we began reporting under 2 segments: Business and Mass Markets. See Note 14—Segment Information for more information on these segments and the underlying sales channels. Since effecting this reorganization, we have used 5 reporting units for goodwill impairment testing, which are (i) Mass Markets, (ii) North America ("NA") Business (iii) Europe, Middle East and Africa region ("EMEA"), (iv) Asia Pacific region ("APAC") and (v) Latin America region ("LATAM"). Our January 2021 reorganization was considered aan event or change in ~~event or~~ circumstance which required an assessment of our goodwill for impairment. We performed a qualitative impairment assessment in the first quarter of 2021 and concluded it is more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at January 31, 2021. Therefore, 0we concluded no impairment existed as of our assessment date.

The reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American and ILEC Businesses, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of July 31, 2021. We performed a pre-reclassification goodwill impairment test to determine whether there was an impairment prior to the reclassification of these assets and to determine the July 31, 2021 fair values to be utilized for goodwill allocation regarding the disposal groups to be reclassified as assets held for sale. We concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at July 31, 2021. We also performed a post-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to evaluate whether the fair value of our reporting units that will remain following the divestitures exceeds the carrying value of the equity of such reporting units after reclassification of assets held for sale.

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At July 31, 2021, we estimated the fair value of our 5 above-mentioned reporting units by considering both a market approach and a discounted cash flow method. We discounted the projected cash flows of our Mass Markets and Business segments using a rate that represents our weighted average cost of capital, which we determined to be approximately 6.8% as of the assessment date (which comprised an after-tax cost of debt of 2.3% and a cost of equity of 9.7%). We discounted the projected cash flows of our EMEA, LATAM and APAC reporting units using a rate that represents their estimated weighted average cost of capital, which we determined to be approximately 7.2%, 11.2% and 8.6%, respectively, as of the measurement date (which was comprised of an after-tax cost of debt of 2.6%, 5.3% and 3.6% and a cost of equity of 10.1%, 15.0% and 11.9%, respectively). 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 earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples between 2.1x and 5.8x and 4.8x and 14.8x, respectively. We selected a revenue and EBITDA multiple for each of our reporting units resulting in an overall company revenue and EBITDA multiple of 2.8x and 6.3x, respectively. We also reconciled the estimated fair values of the reporting units to our market capitalization as of July 31, 2021 and concluded that the indicated implied control premium of approximately 32% was reasonable based on recent market transactions. As of July 31, 2021, we determined that the estimated fair value of equity exceeded the carrying value of equity for our Mass Markets, NA Business, EMEA, LATAM and APAC reporting units by 150%, 24%, 58%, 100% and 134%, respectively. Based on our assessments performed, we concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at July 31, 2021. Therefore, we concluded no impairment existed as of our assessment date.

Total amortization expense for intangible assets for the three months ended ~~March 31,~~September 30, 2021 and 2020 totaled ~~$425~~$306 million and ~~$431~~$443 million, respectively, and for the nine months ended September 30, 2021 and 2020 totaled $1.0 billion and $1.3 billion, respectively. As of ~~March 31,~~September 30, 2021, the gross carrying amount of goodwill, customer relationships, capitalized software, indefinite-life and other intangible assets was ~~$41.6~~$38.4 billion.

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We estimate that total amortization expense for intangible assets for the years ending December 31, 2021 through 2025 will be as ~~follows:~~provided in the table below. As a result of reclassifying our disposal groups as being held for sale on our September 30, 2021 consolidated balance sheet, the amounts presented below do not include future amortization expense for intangible assets of those disposal groups. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.


		(Dollars in millions)			(Dollars in millions)
2021 (remaining nine months)		$	893
2021 (remaining three months)				2021 (remaining three months)	$	286
2022	2022	1,081		2022	1,027
2023	2023	985		2023	932
2024	2024	887		2024	842
2025	2025	797		2025	801

~~(3)~~(4) Revenue Recognition

Product and Service Categories

~~Beginning in~~Since the first quarter of 2021, we ~~categorize~~have categorized our products and services revenue among the following 4 categories for the Business segment:

•Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;

•IP and Data Services, which include Ethernet, IP, and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;

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

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•Voice and Other, which ~~includes~~include Time Division Multiplexing ("TDM") voice, private line and other legacy services.

~~Beginning in~~Since the first quarter of 2021, we ~~categorize~~have categorized our products and services revenue among the following 4 categories for the Mass Markets segment:

•Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;

•Small Business Group ("SBG") Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

•Voice and Other, which ~~includes~~include primarily local and long-distance services, retail video services (including our linear and TV services), professional services and other ancillary services; and

•Connect America Fund ("CAF") II, which consists of Connect America Fund Phase II payments through the end of 2021 to support ~~payments designed to reimburse us for various costs related to certain telecommunications services.~~voice and broadband in FCC-designated high-cost areas.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following ~~table provides~~tables provide total revenue by segment, sales channel and product category. ItThey also ~~provides~~provide 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, 2021				Three Months Ended September 30, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services	$	178	(71)	107	188	(66)	122
IP and Data Services	429		—	429	431	—	431
Fiber Infrastructure Services	230		(33)	197	206	(28)	178
Voice and Other	182		—	182	188	—	188
Total IGAM Revenue	1,019		(104)	915	1,013	(94)	919

Large Enterprise
Compute and Application Services	176		(16)	160	167	(22)	145
IP and Data Services	387		—	387	393	(1)	392
Fiber Infrastructure Services	137		(11)	126	162	(12)	150
Voice and Other	232		—	232	268	—	268
Total Large Enterprise Revenue	932		(27)	905	990	(35)	955

Mid-Market Enterprise
Compute and Application Services	31		(7)	24	32	(3)	29
IP and Data Services	432		(1)	431	460	(1)	459
Fiber Infrastructure Services	53		(2)	51	54	(1)	53
Voice and Other	150		—	150	191	—	191

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		Three Months Ended March 31, 2021				Three Months Ended March 31, 2020				Three Months Ended September 30, 2021				Three Months Ended September 30, 2020
		Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers		Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
		(Dollars in millions)								(Dollars in millions)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services		$	179	(69)	110	201	(69)	132
IP and Data Services		427		0	427	437	0	437
Fiber Infrastructure Services		216		(30)	186	202	(26)	176
Voice and Other		191		0	191	201	0	201
Total IGAM Revenue		1,013		(99)	914	1,041	(95)	946

Large Enterprise
Compute and Application Services		165		(15)	150	154	(17)	137
IP and Data Services		395		0	395	401	0	401
Fiber Infrastructure Services		124		(15)	109	138	(10)	128
Voice and Other		253		0	253	273	0	273
Total Large Enterprise Revenue		937		(30)	907	966	(27)	939

Mid-Market Enterprise
Compute and Application Services		36		(8)	28	34	(8)	26
IP and Data Services		453		(1)	452	466	(1)	465
Fiber Infrastructure Services		60		(2)	58	54	(4)	50
Voice and Other		167		0	167	207	0	207
Total Mid-Market Enterprise Revenue	Total Mid-Market Enterprise Revenue	716		(11)	705	761	(13)	748	Total Mid-Market Enterprise Revenue	666		(10)	656	737	(5)	732

Wholesale	Wholesale								Wholesale
Compute and Application Services	Compute and Application Services	48		(40)	8	46	(40)	6	Compute and Application Services	46		(39)	7	47	(41)	6
IP and Data Services	IP and Data Services	305		0	305	318	0	318	IP and Data Services	297		—	297	311	—	311
Fiber Infrastructure Services	Fiber Infrastructure Services	154		(31)	123	153	(30)	123	Fiber Infrastructure Services	155		(30)	125	157	(33)	124
Voice and Other	Voice and Other	422		(63)	359	452	(68)	384	Voice and Other	393		(63)	330	443	(64)	379
Total Wholesale Revenue	Total Wholesale Revenue	929		(134)	795	969	(138)	831	Total Wholesale Revenue	891		(132)	759	958	(138)	820

Business Segment by Product Category	Business Segment by Product Category								Business Segment by Product Category
Compute and Application Services	Compute and Application Services	428		(132)	296	435	(134)	301	Compute and Application Services	431		(133)	298	434	(132)	302
IP and Data Services	IP and Data Services	1,580		(1)	1,579	1,622	(1)	1,621	IP and Data Services	1,545		(1)	1,544	1,595	(2)	1,593
Fiber Infrastructure Services	Fiber Infrastructure Services	554		(78)	476	547	(70)	477	Fiber Infrastructure Services	575		(76)	499	579	(74)	505
Voice and Other	Voice and Other	1,033		(63)	970	1,133	(68)	1,065	Voice and Other	957		(63)	894	1,090	(64)	1,026
Total Business Segment Revenue	Total Business Segment Revenue	$	3,595	(274)	3,321	3,737	(273)	3,464	Total Business Segment Revenue	$	3,508	(273)	3,235	3,698	(272)	3,426

Mass Markets Segment by Product Category	Mass Markets Segment by Product Category								Mass Markets Segment by Product Category
Consumer Broadband	Consumer Broadband	$	731	(52)	679	722	(53)	669	Consumer Broadband	$	715	(52)	663	730	(56)	674
SBG Broadband	SBG Broadband	39		(4)	35	39	(3)	36	SBG Broadband	39		(4)	35	38	(3)	35
Voice and Other									Voice and Other	502		(20)	482	578	(27)	551
CAF II									CAF II	123		(123)	—	123	(123)	—
Total Mass Markets Segment									Total Mass Markets Segment	$	1,379	(199)	1,180	1,469	(209)	1,260

Total Revenue									Total Revenue	$	4,887	(472)	4,415	5,167	(481)	4,686

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Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
Total revenue
Adjustments for non-ASC 606 revenue (1)
Total revenue from contracts with customers Total revenue
Adjustments for non-ASC 606 revenue (1)
Total revenue from contracts with customers
(Dollars in millions)
Voice and Other 541 (21) 520 607 (29) 578
CAF II 123 (123) 0 123 (123) 0
Total Mass Markets Segment $ 1,434 (200) 1,234 1,491 (208) 1,283
Total revenue $ 5,029 (474) 4,555 5,228 (481) 4,747


	Nine Months Ended September 30, 2021				Nine Months Ended September 30, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services	$	536	(210)	326	581	(199)	382
IP and Data Services	1,283		—	1,283	1,300	—	1,300
Fiber Infrastructure Services	662		(95)	567	610	(82)	528
Voice and Other	555		—	555	594	—	594
Total IGAM Revenue	3,036		(305)	2,731	3,085	(281)	2,804

Large Enterprise
Compute and Application Services	513		(47)	466	481	(61)	420
IP and Data Services	1,170		—	1,170	1,194	(2)	1,192
Fiber Infrastructure Services	388		(38)	350	436	(35)	401
Voice and Other	729		—	729	818	—	818
Total Large Enterprise Revenue	2,800		(85)	2,715	2,929	(98)	2,831

Mid-Market Enterprise
Compute and Application Services	103		(23)	80	101	(14)	87
IP and Data Services	1,323		(4)	1,319	1,389	(3)	1,386
Fiber Infrastructure Services	166		(6)	160	165	(8)	157
Voice and Other	472		—	472	598	—	598
Total Mid-Market Enterprise Revenue	2,064		(33)	2,031	2,253	(25)	2,228

Wholesale
Compute and Application Services	143		(120)	23	138	(120)	18
IP and Data Services	899		—	899	942	—	942
Fiber Infrastructure Services	464		(89)	375	462	(93)	369
Voice and Other	1,219		(188)	1,031	1,343	(197)	1,146
Total Wholesale Revenue	2,725		(397)	2,328	2,885	(410)	2,475

Business Segment by Product Category
Compute and Application Services	1,295		(400)	895	1,301	(394)	907
IP and Data Services	4,675		(4)	4,671	4,825	(5)	4,820
Fiber Infrastructure Services	1,680		(228)	1,452	1,673	(218)	1,455
Voice and Other	2,975		(188)	2,787	3,353	(197)	3,156
Total Business Segment Revenue	$	10,625	(820)	9,805	11,152	(814)	10,338

Mass Markets Segment by Product Category

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	Nine Months Ended September 30, 2021				Nine Months Ended September 30, 2020
	Total revenue		Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers	Total revenue	Adjustments for non-ASC 606 revenue (1)	Total revenue from contracts with customers
	(Dollars in millions)
Consumer Broadband	$	2,169	(157)	2,012	2,178	(164)	2,014
SBG Broadband	117		(12)	105	116	(11)	105
Voice and Other	1,561		(60)	1,501	1,772	(85)	1,687
CAF II	368		(368)	—	369	(369)	—
Total Mass Markets Segment	$	4,215	(597)	3,618	4,435	(629)	3,806

Total Revenue	$	14,840	(1,417)	13,423	15,587	(1,443)	14,144

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(1)Includes regulatory revenue and lease revenue not within the scope of ASC 606.

Operating Lease Revenue

Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment 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, 2021 and 2020, our gross rental income was $329 million and $332 million, respectively, which represents approximately 7% and 6%, respectively, of our operating revenue for the three months ended September 30, 2021 and 2020. For the nine months ended September 30, 2021 and2020, our gross rental income was $988 million and $998 million, respectively, which represents 7% and 6%, respectively, of our operating revenue for the nine months ended September 30, 2021 and2020.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts reclassified as held for sale, as of ~~March 31,~~September 30, 2021 and December 31, 2020:


		March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
		(Dollars in millions)				(Dollars in millions)
Customer receivables~~(1)~~(2)	Customer receivables~~(1)~~(2)	$	1,805	1,889	Customer receivables~~(1)~~(2)	$	1,491	1,889
Contract assets(3)	Contract assets(3)	103		108	Contract assets(3)	71		108
Contract liabilities(4)	Contract liabilities(4)	883		950	Contract liabilities(4)	703		950

(1)Reflects gross customer receivables of ~~$2.0~~$1.6 billion and $2.1 billion, net of allowance for credit losses of ~~$148~~$107 million and $174 million, at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

(2)As of September 30, 2021, amount excludes customer receivables, net reclassified as held for sale of $293 million.

(3)As of September 30, 2021, amount excludes contract assets reclassified as held for sale of $10 million.

(4)As of September 30, 2021, amount excludes contract liabilities reclassified as held for sale of $165 million.

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Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue and liabilities held for sale in our consolidated balance sheets. During the three and nine months ended ~~March 31,~~September 30, 2021, we recognized ~~$425~~$61 million and $544 million, respectively, of revenue that was included in contract liabilities as of January 1, 2021. During the three and nine months ended ~~March 31,~~September 30, 2020, we recognized ~~$495~~$58 million and $612 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020.

Performance Obligations

As of ~~March 31,~~September 30, 2021, 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 ~~$5.2~~$6.4 billion. We expect to recognize approximately ~~90%~~70% of this revenue through 2023, with the balance recognized thereafter.

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

Contract Costs

The following tables provide changes in our contract acquisition costs and fulfillment costs:


	Three Months Ended September 30, 2021			Three Months Ended September 30, 2020
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)			(Dollars in millions)
Beginning of period balance	$	271	217	300	219
Costs incurred	43		37	45	35
Amortization	(51)		(37)	(53)	(37)
Reclassified as held for sale(1)	(35)		(31)	—	—
End of period balance	$	228	186	292	217


	Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)			(Dollars in millions)
Beginning of period balance	$	289	216	326	221
Costs incurred	132		112	130	105
Amortization	(158)		(111)	(164)	(109)
Reclassified as held for sale(1)	(35)		(31)	—	—
End of period balance	$	228	186	292	217

(1)Represents the amounts reclassified as held for sale related to our planned divestitures. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

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~~Contract Costs~~

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

Three Months Ended March 31, 2021
Acquisition Costs Fulfillment Costs
(Dollars in millions)
Beginning of period balance $ 289 216
Costs incurred 44 37
Amortization (54) (37)
End of period balance $ 279 216

Three Months Ended March 31, 2020
Acquisition Costs Fulfillment Costs
(Dollars in millions)
Beginning of period balance $ 326 221
Costs incurred 49 36
Amortization (55) (37)
End of period balance $ 320 220

Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of ~~telecommunications~~ services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of approximately 30 months for mass markets and business customers. Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are anticipated to be amortized in the next 12 months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond the next 12 months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.

~~(4)~~(5) Leases

We primarily lease to or from third parties various office facilities 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.

During the third quarter of 2021, we rationalized our lease footprint and ceased using 23 leased property locations that were underutilized. We determined that we no longer needed the leased space and, due to the limited remaining term on the contracts, concluded that we had neither the intent nor ability to sublease the properties. For the three and nine month periods ending September 30, 2021, we incurred accelerated lease costs of approximately $35 million. In conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and may incur additional costs in future periods.

(6) Credit 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 assets measured at amortized cost primarily consist of accounts receivable.

We ~~implemented the new standard effective January 1, 2020, using~~use 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 percentage of accounts receivable. We measure our historical loss period based on the average days to recognize accounts receivable as credit losses. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to adjust our historical loss rate. We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period. We measure our forecast period based on the average days to collect payment on billed accounts receivable. To determine our current allowance for credit losses, we combine the historical and expected credit loss rates and apply them to our period end accounts receivable.

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In conjunction with our January 2021 internal reorganization, as referenced in Note ~~11—~~14—Segment Information, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns. Additionally, we reassessed our historical loss period for the segment portfolio reorganization.

If there is a deterioration of a customer's financial condition or if future default rates in general differ from currently anticipated default rates (including changes caused by COVID-19), we may need to adjust the allowance for credit losses, which would affect earnings in the period that adjustments are made.

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The assessment of the correlation between historical observed default rates, current conditions and forecasted economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding 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.

The following table presents the activity of our allowance for credit losses by accounts receivable ~~portfolio:~~portfolio for the nine months ended September 30, 2021:


		Business		Mass Markets	Total		Business		Mass Markets	Total
		(Dollars in millions)					(Dollars in millions)
Beginning balance at January 1, 2021(1)	Beginning balance at January 1, 2021(1)	$	109	82	191	Beginning balance at January 1, 2021(1)	$	109	82	191
Provision for expected losses	Provision for expected losses	13		14	27	Provision for expected losses	36		44	80
Write-offs charged against the allowance	Write-offs charged against the allowance	(19)		(48)	(67)	Write-offs charged against the allowance	(58)		(94)	(152)
Recoveries collected	Recoveries collected	5		6	11	Recoveries collected	11		11	22
Ending balance at March 31, 2021		$	108	54	162
Reclassified as held for sale(2)						Reclassified as held for sale(2)	(8)		(16)	(24)
Ending balance at September 30, 2021						Ending balance at September 30, 2021	$	90	27	117

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(1)As described in Note ~~11—~~14—Segment Information, we completed an internal reorganization in January 2021. As a result of this change, allowance for credit losses previously included in the Consumer and Business portfolio of $70 million related to consumer and $12 million related to our small business group, respectively, were reclassified to the Mass Markets allowance for credit losses on January 1, 2021.

(2)Represents the amounts reclassified as held for sale related to our pending divestitures. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

For the ~~three~~nine months ended ~~March 31,~~September 30, 2021, we decreased our allowance for credit losses for our business and mass markets accounts receivable portfolios primarily due to higher write-off activity ~~in the quarter~~year to date 2021 with the easing of prior delays due to COVID-19 related restrictions in ~~2020.~~2020 and lower receivable balances.

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~~(5)~~(7) Long-Term Debt and Credit Facilities

The following chart reflects the consolidated long-term debt of Lumen Technologies, Inc. and its subsidiaries, including unamortized discounts and premiums, net and unamortized debt issuance costs, but excluding intercompany debt:

Interest Rates(1)
Maturities(1)
March 31, 2021 December 31, 2020
(Dollars in millions)
Senior Secured Debt: (2)
Lumen Technologies, Inc.
Revolving Credit Facility LIBOR + 2.00% 2025 $ 0 150
Term Loan A (3)
LIBOR + 2.00% 2025 1,094 1,108
Term Loan A-1 (3)
LIBOR + 2.00% 2025 312 316
Term Loan B (4)
LIBOR + 2.25% 2027 4,938 4,950
Senior notes 4.000% 2027 1,250 1,250
Subsidiaries:
Level 3 Financing, Inc.
Tranche B 2027 Term Loan (5)
LIBOR + 1.75% 2027 3,111 3,111
Senior notes 3.400% - 3.875% 2027 - 2029 1,500 1,500
Embarq Corporation subsidiaries
First mortgage bonds 7.125% - 8.375% 2023 - 2025 138 138
Senior Notes and Other Debt:
Lumen Technologies, Inc.
Senior notes 4.500% - 7.650% 2021 - 2042 8,645 8,645
Subsidiaries:
Level 3 Financing, Inc.
Senior notes 3.625% - 5.375% 2025 - 2029 5,515 5,515
Qwest Corporation
Senior notes 6.500% - 7.750% 2021 - 2057 2,935 3,170
Term Loan (6)
LIBOR + 2.00% 2027 215 215
Qwest Capital Funding, Inc.
Senior notes 6.875% - 7.750% 2021 - 2031 352 352
Embarq Corporation and subsidiary
Senior note 7.995% 2036 1,437 1,437
Finance lease and other obligations Various Various 327 295
Unamortized discounts, net (96) (78)
Unamortized debt issuance costs (233) (237)
Total long-term debt 31,440 31,837
Less current maturities (3,841) (2,427)
Long-term debt, excluding current maturities $ 27,599 29,410


	Interest Rates(1)	Maturities(1)	September 30, 2021		December 31, 2020
			(Dollars in millions)
Senior Secured Debt: (2)
Lumen Technologies, Inc.
Revolving Credit Facility(7)	LIBOR + 2.00%	2025	$	—	150
Term Loan A(3) (7)	LIBOR + 2.00%	2025	1,064		1,108
Term Loan A-1(3) (7)	LIBOR + 2.00%	2025	304		316
Term Loan B(4) (7)	LIBOR + 2.25%	2027	4,913		4,950
Senior notes	4.000%	2027	1,250		1,250
Subsidiaries:
Level 3 Financing, Inc.
Tranche B 2027 Term Loan(5) (7)	LIBOR + 1.75%	2027	3,111		3,111
Senior notes	3.400% - 3.875%	2027 - 2029	1,500		1,500
Embarq Corporation subsidiaries
First mortgage bonds	7.125% - 8.375%	2023 - 2025	138		138
Senior Notes and Other Debt:
Lumen Technologies, Inc.
Senior notes	4.500% - 7.650%	2022 - 2042	8,414		8,645
Subsidiaries:
Level 3 Financing, Inc.
Senior notes	3.625% - 5.375%	2025 - 2029	5,515		5,515
Qwest Corporation
Senior notes	6.500% - 7.750%	2021 - 2057	2,935		3,170
Term Loan(6) (7)	LIBOR + 2.00%	2027	215		215
Qwest Capital Funding, Inc.
Senior notes	6.875% - 7.750%	2028 - 2031	255		352
Embarq Corporation and subsidiary
Senior note(8)	7.995%	2036	—		1,437
Finance lease and other obligations	Various	Various	352		295
Unamortized premiums (discounts), net			23		(78)
Unamortized debt issuance costs			(228)		(237)
Total long-term debt			29,761		31,837
Less current maturities			(2,501)		(2,427)
Long-term debt, excluding current maturities			$	27,260	29,410

______________________________________________________________________

(1)As of ~~March 31,~~September 30, 2021.

(2)See Note 6—Long-Term Debt and Credit Facilities in our Annual Report on Form 10-K for the year ended December 31, 2020 for a description of certain parent or subsidiary guarantees and liens securing this debt.

(3)Term Loans A and A-1 had interest rates of ~~2.109%~~2.085% and 2.147% as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

(4)Term Loan B had interest rates of ~~2.359%~~2.335% and 2.397% as of ~~March 31, 2021 and December 31, 2020, respectively.~~

~~(5)The Tranche B 2027 Term Loan had interest rates of 1.859% and 1.897% as of March 31,~~September 30, 2021 and December 31, 2020, respectively.

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(5)The Tranche B 2027 Term Loan had interest rates of 1.835% and 1.897% as of September 30, 2021 and December 31, 2020, respectively.

(6)Qwest Corporation Term Loan had interest rates of ~~2.110%~~2.090% and 2.150% as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

(7)See Note 1— Background for our considerations of the impact of Reference Rate Reform on our debt subject to rate reference changes from LIBOR.

(8)As of September 30, 2021, the Embarq Senior notes have been reclassified as held for sale. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of ~~March 31,~~September 30, 2021 (excluding unamortized ~~discounts,~~premiums (discounts), net, and unamortized debt issuance costs), maturing during the following ~~years:~~years. As a result of reclassifying our disposal groups as being held for sale on our September 30, 2021 consolidated balance sheet, the amounts presented below do not include maturities of the debt obligations of those disposal groups. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.


		(Dollars in millions)			(Dollars in millions) (1)
2021 (remaining nine months)		$	2,410
2021 (remaining three months)				2021 (remaining three months)	$	989
2022	2022	1,541		2022	1,551
2023	2023	966		2023	977
2024	2024	1,143		2024	1,158
2025	2025	2,907		2025	2,927
2026 and thereafter	2026 and thereafter	22,802		2026 and thereafter	22,364
Total long-term debt	Total long-term debt	$	31,769	Total long-term debt	$	29,966

______________________________________________________________________

(1)As of September 30, 2021, these amounts exclude $1.5 billion of debt and finance lease obligations that have been reclassified as held for sale. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

Repayments

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, Lumen Technologies, Inc. and its affiliates repaid or redeemed approximately ~~$1.3~~$2.7 billion of their respective debt obligations, which primarily included a $97 million repayment at maturity of Qwest Capital Funding, Inc. senior notes, $150 million of payments on our revolving credit facility, a $1.2 billion repayment at maturity of Lumen senior unsecured notes, a $900 million redemption of Level 3 Financing, Inc. senior notes, ~~and~~a $235 million redemption of Qwest Corporation senior ~~notes.~~notes, and $94 million of year to date payments on our term loans. These ~~redemptions~~transactions resulted in a net gain of $8 million.

New Issuances

On June 15, 2021, Lumen Technologies, Inc. issued $1.0 billion aggregate principal amount of 5.375% Senior Notes due 2029 (the "2029 Notes"). The net proceeds were used, together with cash on hand, to repay at maturity our outstanding $1.2 billion 6.450% Senior Notes, Series S, due 2021.

On January 13, 2021, Level 3 Financing, Inc. issued $900 million aggregate principal amount of 3.750% Sustainability-Linked Senior Notes due 2029 (the "Sustainability-Linked Notes"). The net proceeds were used, together with cash on hand, to redeem ~~certain~~$900 million of its outstanding senior note indebtedness. ~~See "—Repayments" above.~~ The Sustainability-Linked Notes are ~~(i)~~ guaranteed by Level 3 Parent, LLC and ~~(ii) expected to be guaranteed by~~ Level 3 Communications, ~~LLC, upon the receipt of all requisite material governmental authorizations.~~LLC.

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Covenants

Certain of our debt instruments contain affirmative and negative covenants. Debt at Lumen Technologies, Inc. and Level 3 Financing, Inc. ~~contain~~contains more extensive covenants including, among other things and subject to certain exceptions, restrictions on ~~their~~the 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, Lumen Technologies, Inc. and certain of its affiliates will be required to offer to purchase certain of their respective outstanding debt under ~~certain~~defined circumstances in connection with ~~certain~~ specified "change of control" transactions.

Certain of our debt instruments contain cross-payment default or cross-acceleration provisions.

Compliance

As of ~~March 31,~~September 30, 2021, Lumen Technologies, 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.

~~(6)~~(8) Property, Plant and Equipment

Net property, plant and equipment is composed of the following:


	September 30, 2021		December 31, 2020
	(Dollars in millions)
Land	$	751	848
Fiber, conduit and other outside plant(1)	18,500		26,522
Central office and other network electronics(2)	15,265		20,692
Support assets(3)	7,147		8,261
Construction in progress(4)	1,290		1,611
Gross property, plant and equipment	42,953		57,934
Accumulated depreciation	(22,027)		(31,596)
Net property, plant and equipment	$	20,926	26,338

_______________________________________________________________________________

(1)Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures.

(2)Central office and other network electronics consists of circuit and packet switches, routers, transmission electronics and electronics providing service to customers.

(3)Support assets consist of buildings, cable landing stations, data centers, computers and other administrative and support equipment.

(4)Construction in progress includes inventory held for construction and property of the aforementioned categories that has not been placed in service as it is still under construction.

As of September 30, 2021, we classified certain property, plant and equipment, net as held for sale and discontinued recording depreciation on these disposal groups. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

We recorded depreciation expense of $645 million and $2.1 billion for the three and nine months ended September 30, 2021 and $750 million and $2.2 billion for the three and nine months ended September 30, 2020.

(9) Severance

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.

~~Table of Contents~~

Changes in our accrued liabilities for severance expenses were as follows:


	Severance
	(Dollars in millions)
Balance at December 31, 2020	$	103
Accrued to expense	0—
Payments, net	~~(25)~~(64)
Balance at ~~March 31,~~September 30, 2021	$	7839

~~(7)~~(10) Employee Benefits

For detailed description of the various defined benefit pension plans (qualified and non-qualified) ~~and~~, post-retirement benefits plans and defined contribution plan we sponsor, see Note 10—Employee Benefits to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Net periodic pension benefit ~~income~~expense (income) for the Lumen Combined Pension Plan ("Combined Pension Plan" or the "Plan") includes the following components:


		Combined Pension Plan				Combined Pension Plan
		Three Months Ended March 31,				Three Months Ended September 30,			Nine Months Ended September 30,
		2021		2020		2021		2020	2021	2020
		(Dollars in millions)				(Dollars in millions)
Service cost	Service cost	$	13	16	Service cost	$	14	15	42	44
Interest cost	Interest cost	50		82	Interest cost	49		81	148	243
Expected return on plan assets	Expected return on plan assets	(138)		(149)	Expected return on plan assets	(138)		(147)	(414)	(445)
Settlements					Settlements	57		—	57	—
Recognition of prior service credit	Recognition of prior service credit	(2)		(3)	Recognition of prior service credit	(2)		(3)	(7)	(7)
Recognition of actuarial loss	Recognition of actuarial loss	49		50	Recognition of actuarial loss	49		50	147	152
Net periodic pension benefit income		$	(28)	(4)
Net periodic pension benefit expense (income)					Net periodic pension benefit expense (income)	$	29	(4)	(27)	(13)

Net periodic benefit expense for our post-retirement benefit plans includes the following components:


		Post-Retirement Benefit Plans				Post-Retirement Benefit Plans
		Three Months Ended March 31,				Three Months Ended September 30,			Nine Months Ended September 30,
		2021		2020		2021		2020	2021	2020
		(Dollars in millions)				(Dollars in millions)
Service cost	Service cost	$	4	4	Service cost	$	4	4	11	11
Interest cost	Interest cost	12		20	Interest cost	12		17	35	57
Recognition of prior service cost	Recognition of prior service cost	4		4	Recognition of prior service cost	3		4	11	12
Recognition of actuarial loss	Recognition of actuarial loss	1		0	Recognition of actuarial loss	2		—	4	—
Curtailment loss					Curtailment loss	—		7	—	7
Net periodic post-retirement benefit expense	Net periodic post-retirement benefit expense	$	21	28	Net periodic post-retirement benefit expense	$	21	32	61	87

Service costs are included in the cost of services and products and selling, general and administrative line items on ~~the~~our consolidated statements of operations and all other costs listed above are included in other (expense) income, ~~(expense),~~ net on ~~the~~our consolidated statements of operations.

22Our 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 or are probable to 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. During the third quarter, we determined lump sum pension settlement payments for 2021 are expected to exceed the settlement threshold. As a result, in the third quarter of 2021 we recognized a non-cash settlement charge of $57 million to accelerate the recognition of a portion of the previously unrecognized actuarial losses in the qualified pension plan, which is reflected in other (expense) income, net in our consolidated statement of operations for the three and nine months ended September 30, 2021. This non-cash charge reduced our recorded net income and increased our recorded accumulated deficit, with an offset to accumulated other comprehensive loss in shareholders' equity. We expect to recognize an additional non-cash settlement charge in the fourth quarter of 2021, as further described in Note 20—Subsequent Events. The amount of any future non-cash settlement charges after 2021 will be dependent on several factors, including the total amount of our future lump sum benefit payments.

~~Table~~As a result of ~~Contents~~our lump sum payments exceeding the settlement threshold, we also remeasured the Combined Pension Plan on September 30, 2021 using the same assumptions as of December 31, 2020, with the exception of increasing the discount rate to 2.79% from 2.43%. The remeasurement resulted in a decrease in the Plan's unfunded status, which we recognized with a corresponding decrease in our net actuarial loss recognized in accumulated other comprehensive loss of $133 million, net of tax effect of $43 million.

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.

Benefits paid by the Combined 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 the Combined Pension Plan during 2021.~~ The amount of required contributions to the Combined Pension Plan in 2022 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 laws and circumstances, we do not believe we are required to make any contributions to the Combined Pension Plan in 2021, but we could make voluntary contributions to the trust for the Combined Pension Plan in ~~2021.~~the upcoming years.

~~(8)~~

(11) Earnings Per Common Share

Basic and diluted earnings per common share were calculated as follows:

Three Months Ended March 31,
2021 2020
(Dollars in millions, except per share amounts, shares in thousands)
Income (Numerator):
Net income $ 475 314
Net income applicable to common stock for computing basic earnings per common share 475 314
Net income as adjusted for purposes of computing diluted earnings per common share $ 475 314
Shares (Denominator):
Weighted-average number of shares:
Outstanding during period 1,100,350 1,092,970
Non-vested restricted stock (17,876) (17,511)
Weighted-average shares outstanding for computing basic earnings per common share 1,082,474 1,075,459
Incremental common shares attributable to dilutive securities:
Shares issuable under convertible securities 10 10
Shares issuable under incentive compensation plans 9,102 6,285
Number of shares as adjusted for purposes of computing diluted earnings per common share 1,091,586 1,081,754
Basic earnings per common share $ 0.44 0.29
Diluted earnings per common share $ 0.44 0.29


	Three Months Ended September 30,			Nine Months Ended September 30,
	2021		2020	2021	2020
	(Dollars in millions, except per share amounts, shares in thousands)
Income (Numerator):
Net income	$	544	366	1,525	1,057
Net income applicable to common stock for computing basic earnings per common share	544		366	1,525	1,057
Net income as adjusted for purposes of computing diluted earnings per common share	$	544	366	1,525	1,057
Shares (Denominator):
Weighted-average number of shares:
Outstanding during period	1,079,917		1,097,496	1,095,223	1,096,017
Non-vested restricted stock	(17,833)		(16,991)	(18,117)	(17,345)
Weighted-average shares outstanding for computing basic earnings per common share	1,062,084		1,080,505	1,077,106	1,078,672
Incremental common shares attributable to dilutive securities:
Shares issuable under convertible securities	10		10	10	10
Shares issuable under incentive compensation plans	7,063		5,151	6,763	4,686
Number of shares as adjusted for purposes of computing diluted earnings per common share	1,069,157		1,085,666	1,083,879	1,083,368
Basic earnings per common share	$	0.51	0.34	1.42	0.98
Diluted earnings per common share	$	0.51	0.34	1.41	0.98

Our calculation of diluted earnings per common share excludes ~~shares of common stock that are issuable upon exercise of stock options when the exercise price is greater than the average market price of our common stock. We also exclude~~ unvested restricted stock awards that are antidilutive as a result of unrecognized compensation cost. Such shares were ~~less than 1~~3.9 million and 0.4 million for the three months ended ~~March 31,~~September 30, 2021 and ~~2.7~~2020, respectively, and 3.0 million and 4.0 million for ~~the three~~nine months ended ~~March 31, 2020.~~September 30, 2021 and 2020, respectively.

~~(9)~~(12) Fair Value of Financial Instruments

Our financial instruments consist of cash, cash equivalents and restricted cash, accounts receivable, accounts payable, long-term debt, excluding finance lease and other obligations, and 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.

~~Table of Contents~~

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


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

The following table presents the carrying amounts and estimated fair values of our financial liabilities as of ~~March 31,~~September 30, 2021 and December 31, 2020:


			March 31, 2021			December 31, 2020				September 30, 2021			December 31, 2020
		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 obligations(1)	Long-term debt, excluding finance lease and other obligations(1)	2	$	31,113	32,441	31,542	33,217	Long-term debt, excluding finance lease and other obligations(1)	2	$	29,409	30,309	31,542	33,217
Interest rate swap contracts (see Note 10)		2	$	87	87	107	107
Interest rate swap contracts (see Note 13)								Interest rate swap contracts (see Note 13)	2	$	47	47	107	107

______________________________________________________________________

(1)As of September 30, 2021, these amounts exclude $1.4 billion of carrying amount and $1.5 billion of fair value of debt that has been reclassified as held for sale. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

~~(10)~~(13) Derivative Financial Instruments

From time to time, we 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—7—Long-Term Debt and Credit ~~Facilities of this report)~~Facilities). 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 accumulated other comprehensive income ("AOCI") and, as described below, is subsequently reclassified into earnings in the period that the hedged transaction affects earnings by virtue of qualifying as effective cash flow hedges. We do not use derivative financial instruments for speculative purposes.

As of ~~March 31,~~September 30, 2021 and December 31, 2020, we evaluated the effectiveness of our hedges quantitatively and any hedges we had entered into at the time qualified as effective hedge relationships.

We may be exposed to credit-related losses in the event of non-performance by counterparties. The counterparties to any of the financial derivatives we enter into are major institutions with investment grade credit ratings. We evaluate counterparty credit risk before entering into any hedge transaction and continue to closely monitor the financial market and the risk that our counterparties will default on their obligations as part of our quarterly qualitative effectiveness evaluation.

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

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The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance ~~sheet~~sheets at ~~March 31,~~September 30, 2021 and December 31, 2020, as follows (in millions):

March 31, 2021

December 31, 2020

September 30, 2021

December 31, 2020

Derivatives designated as

Balance Sheet Location

Fair Value

Derivatives designated as

Balance Sheet Location

Fair Value

Cash flow hedging contracts

Other current and noncurrent liabilities

107

Cash flow hedging contracts

Other current and noncurrent liabilities

107

The amount of unrealized ~~(gains)~~ losses recognized in AOCI consists of the following (in millions):


Derivatives designated as hedging instruments	Derivatives designated as hedging instruments	2021		2020	Derivatives designated as hedging instruments	2021		2020
Cash flow hedging contracts	Cash flow hedging contracts				Cash flow hedging contracts
Three Months Ended March 31,		$	0	106
Three Months Ended September 30,					Three Months Ended September 30,	$	1	(1)
Nine Months Ended September 30,					Nine Months Ended September 30,	$	1	115

The amount of realized losses reclassified from AOCI to the statement of operations consists of the following

(in millions):


Derivatives designated as hedging instruments	Derivatives designated as hedging instruments	2021		2020	Derivatives designated as hedging instruments	2021		2020
Cash flow hedging contracts	Cash flow hedging contracts				Cash flow hedging contracts
Three Months Ended March 31,		$	20	5
Three Months Ended September 30,					Three Months Ended September 30,	$	21	20
Nine Months Ended September 30,					Nine Months Ended September 30,	$	62	41

Amounts currently included in AOCI will be reclassified into earnings prior to the ongoing settlements of these cash flow hedging contracts until 2022. We estimate that ~~$81~~$47 million of net losses on the interest rate swaps (based on the estimated LIBOR curve as of ~~March 31,~~September 30, 2021) will be reflected in our consolidated statements of operations within the next 12 months.

~~(11)~~(14) Segment Information

Jeff Storey, our chief operating decision maker ("CODM"), made changes to our segment and customer-facing sales channel reporting categories beginning in 2021 to align with operational changes designed to better support our customers. Following these changes, we now report 2 segments: Business and Mass Markets. The Business segment includes 4 sales channels: International and Global Accounts, Large Enterprise, Mid-Market Enterprise and Wholesale. These changes also include both the creation of new product categories and the realignment of products and services within previously reported product categories to better reflect product life cycles and our go-to-market approach. For Business segment revenue, we report the following product categories: Compute and Application Services, IP and Data Services, Fiber Infrastructure Services and Voice and Other, byin each case through the sales channels outlined above. For Mass Markets segment revenue, we report the following product categories: Consumer Broadband, SBG Broadband, Voice and Other and CAF II. See detailed descriptions of these product and service categories in Note 3—4—Revenue Recognition.

As 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 are managed separately and included in "Operations and Other" in the tables below. As referenced above, we reclassified certain prior period amounts to conform to the current period presentation. See Note 1— Background for additional detail on these changes.

At ~~March 31,~~September 30, 2021, we had the following 2 reportable segments:

•Business Segment: Under our Business segment, we provide our products and services under ~~four~~4 distinct sales channels to meet the needs of our enterprise and commercial customers; and

•Mass Markets Segment: Under our Mass Markets segment, we provide products and services to consumer and small business customers.

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The following tables summarize our segment results for the three months ended ~~March 31,~~September 30, 2021 and 2020, based on the segment categorization we were operating under at ~~March 31,~~September 30, 2021.


		Three Months Ended March 31, 2021							Three Months Ended September 30, 2021
		Business		Mass Markets	Total Segments	Operations and Other	Total		Business		Mass Markets	Total Segments	Operations and Other	Total
		(Dollars in millions)							(Dollars in millions)
Revenue	Revenue	$	3,595	1,434	5,029	0	5,029	Revenue	$	3,508	1,379	4,887	—	4,887
Expenses:	Expenses:							Expenses:
Cost of services and products	Cost of services and products	881		43	924	1,212	2,136	Cost of services and products	868		36	904	1,247	2,151
Selling, general and administrative	Selling, general and administrative	306		133	439	317	756	Selling, general and administrative	296		125	421	233	654
Less: share-based compensation	Less: share-based compensation	0		0	0	(20)	(20)	Less: share-based compensation	—		—	—	(27)	(27)
Total expense	Total expense	1,187		176	1,363	1,509	2,872	Total expense	1,164		161	1,325	1,453	2,778
Total adjusted EBITDA	Total adjusted EBITDA	$	2,408	1,258	3,666	(1,509)	2,157	Total adjusted EBITDA	$	2,344	1,218	3,562	(1,453)	2,109


		Three Months Ended March 31, 2020							Three Months Ended September 30, 2020
		Business		Mass Markets	Total Segments	Operations and Other	Total		Business		Mass Markets	Total Segments	Operations and Other	Total
		(Dollars in millions)							(Dollars in millions)
Revenue	Revenue	$	3,737	1,491	5,228	0	5,228	Revenue	$	3,698	1,469	5,167	—	5,167
Expenses:	Expenses:							Expenses:
Cost of services and products	Cost of services and products	907		49	956	1,279	2,235	Cost of services and products	912		55	967	1,269	2,236
Selling, general and administrative	Selling, general and administrative	342		140	482	371	853	Selling, general and administrative	299		148	447	403	850
Less: share-based compensation	Less: share-based compensation	0		0	0	(69)	(69)	Less: share-based compensation	—		—	—	(31)	(31)
Total expense	Total expense	1,249		189	1,438	1,581	3,019	Total expense	1,211		203	1,414	1,641	3,055
Total adjusted EBITDA	Total adjusted EBITDA	$	2,488	1,302	3,790	(1,581)	2,209	Total adjusted EBITDA	$	2,487	1,266	3,753	(1,641)	2,112

The following tables summarize our segment results for the nine months ended September 30, 2021 and 2020, based on the segment categorization we were operating under at September 30, 2021.


	Nine Months Ended September 30, 2021
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	10,625	4,215	14,840	—	14,840
Expenses:
Cost of services and products	2,611		118	2,729	3,673	6,402
Selling, general and administrative	900		408	1,308	864	2,172
Less: share-based compensation	—		—	—	(89)	(89)
Total expense	3,511		526	4,037	4,448	8,485
Total adjusted EBITDA	$	7,114	3,689	10,803	(4,448)	6,355


	Nine Months Ended September 30, 2020
	Business		Mass Markets	Total Segments	Operations and Other	Total
	(Dollars in millions)
Revenue	$	11,152	4,435	15,587	—	15,587
Expenses:
Cost of services and products	2,738		152	2,890	3,813	6,703
Selling, general and administrative	975		432	1,407	1,191	2,598
Less: share-based compensation	—		—	—	(120)	(120)
Total expense	3,713		584	4,297	4,884	9,181
Total adjusted EBITDA	$	7,439	3,851	11,290	(4,884)	6,406

Revenue and Expenses

Our segment revenue includes all revenue from our 2 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.

The following items are excluded from our segment results, because they are centrally managed and not monitored by or reported to our CODM by segment:

•network expenses not incurred as a direct result of providing services and products to segment customers;

•centrally managed expenses such as Operations, Finance, Human Resources, Legal, Marketing, Product Management and IT, which are reported as "Operations and Other";

•depreciation and amortization expense or impairments;

•interest expense, because we manage our financing on a consolidated basis and have not allocated assets or debt to specific segments;

•stock-based compensation; and

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•other income and expense items are not monitored as a part of our segment operations.

The following table reconciles total segment adjusted EBITDA to net ~~income (loss):~~income:


		Three Months Ended March 31,				Three Months Ended September 30,			Nine Months Ended September 30,
		2021		2020		2021		2020	2021	2020
		(Dollars in millions)				(Dollars in millions)			(Dollars in millions)
Total segment adjusted EBITDA	Total segment adjusted EBITDA	$	3,666	3,790	Total segment adjusted EBITDA	$	3,562	3,753	10,803	11,290
Depreciation and amortization	Depreciation and amortization	(1,150)		(1,160)	Depreciation and amortization	(951)		(1,193)	(3,142)	(3,515)
Other operating expenses	Other operating expenses	(1,509)		(1,581)	Other operating expenses	(1,453)		(1,641)	(4,448)	(4,884)
Stock-based compensation	Stock-based compensation	(20)		(69)	Stock-based compensation	(27)		(31)	(89)	(120)
Operating income	Operating income	987		980	Operating income	1,131		888	3,124	2,771
Total other expense, net	Total other expense, net	(355)		(547)	Total other expense, net	(415)		(408)	(1,102)	(1,345)
Income before income taxes	Income before income taxes	632		433	Income before income taxes	716		480	2,022	1,426
Income tax expense	Income tax expense	157		119	Income tax expense	172		114	497	369
Net income	Net income	$	475	314	Net income	$	544	366	1,525	1,057

~~(12)~~(15) Commitments, Contingencies and Other Items

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

Irrespective 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~~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 ~~March 31,~~September 30, 2021 aggregated to approximately ~~$119~~$104 million and are included in other current liabilities, ~~and~~ other liabilities and liabilities held for sale 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.

Principal Proceedings

Shareholder Class Action Suit

Lumen and certain Lumen 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 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.

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State Tax Suits

Since 2012, a number of Missouri municipalities have asserted claims in the Circuit Court of St. Louis County, 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 appealed that 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~~2021 ruling in ~~connection with another one~~1 of ~~these~~the pending cases, another trial court awarded the ~~circuit court made findings in a non-final ruling which, if~~cities of Columbia and Joplin approximately $55 million, plus statutory interest. We have appealed that decision to the Missouri Court of Appeals. That appeal is pending. If the trial court’s decision is not overturned or modified in light of the Missouri Supreme ~~Court's~~Court’s decision, it will result in a tax liability to us ~~well~~ in excess of the contingent liability we have established. 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 will have the right to pursue an appeal.reserved accruals established for these matters. We continue to vigorously defend against these claims.

Billing Practices Suits

In June 2017, a former employee filed an employment lawsuit against us claiming that she was wrongfully terminated for alleging that we charged some of our retail customers for products and services they did not authorize. Thereafter, based in part on the allegations made by the former employee, several legal proceedings were filed, including consumer class actions in federal and state courts, a series of securities investor class actions in federal courts and several shareholder derivative actions in federal and Louisiana state courts. The derivative cases were 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 class actions, the securities investor class actions, and the federal derivative actions were 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. We have settled the consumer and securities investor class actions. ~~The consumer class settlement was approved by the Court and is~~Those settlements are final. Approximately 12,000 potential class members elected to opt out of the consumer class settlement, and we have settled the claims of approximately 11,000 such class members asserted by one law firm subject to certain conditions. The securities investors class settlement entails a payment of $55 million, which we expect to be paid by our insurers. That settlement has received preliminary court approval and is subject to certain conditions including final approval by the Court. The derivative actions remain pending.

We have engaged in discussions regarding related claims with a number of state attorneys general, and have entered into agreements settling certain of the consumer practices claims asserted by state attorneys general. While we do not agree with allegations raised in these matters, we have been willing to consider reasonable settlements where appropriate.

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against 1 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~~In May 2021, the Company paid the remaining amount on the fractioning regimes entered into ~~account~~by the ~~developments described below, as well as~~Company to pay the ~~accrued interest and foreign exchange effects, we believe the total~~ amount ~~of our exposure is $1 million at March 31, 2021.~~assessed while it was appealed.

We challenged the assessments via administrative and then judicial review processes. In October 2011, the highest administrative review tribunal (the Tribunal) decided the central issue underlying the 2002 assessments in SUNAT's favor. We appealed the Tribunal's 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.

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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. AIn May 2021, the Company was served with a favorable and final decision ~~on this case is pending.~~from the Supreme Court of Justice. The Company expects an order for SUNAT to comply with the Supreme Court of Justice's decision.

Brazilian Tax Claims

The São Paulo and Rio de Janeiro state tax authorities have issued tax assessments against our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”), mainly with respect to revenue from leasing certain assets and revenue from the provision of Internet access services by treating such activities as the provision of communications services, to which the ICMS tax applies. We filed objections to these assessments in both states, arguing, among other things that neither the lease of assets nor the provision of Internet access qualifies as “communication services” subject to ICMS.

We have appealed to the respective state judicial courts the decisions by the respective state administrative courts that rejected our objections to these assessments. In cases in which state lower courts ruled partially in our favor finding that the lease assets are not subject to ICMS in connection, the State appealed those rulings. In other cases, the assessment was affirmed at the first administrative level and ~~we have appealed~~our appeal to the second administrative ~~level.~~level is pending. Other assessments are still pending state judicial decisions.

We are vigorously contesting all such assessments in both states and view the assessment of ICMS on revenue from equipment leasing and Internet access to be without merit. These assessments, if upheld, could result in a loss of ~~$12 million~~up to ~~as high as $49~~$47 million as of ~~March 31,~~September 30, 2021, in excess of the reserved accruals established for these matters.

~~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 U.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 and an amended complaint were filed under seal on November 26, 2013 and June 16, 2014, respectively. The court unsealed the complaints on October 26, 2017.

The amended complaint alleges that Level 3, principally through 2 former employees, submitted false claims and made false statements to the government in connection with 2 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. If, contrary to our expectations, the plaintiff obtains an award of the approximate magnitude he has claimed, the award would significantly exceed the reserve we have accrued for the matter. Such an 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 2 former Level 3 employees, were indicted in the U.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 2 former employees, 1 entered into a plea agreement, and the other is deceased. Level 3 is fully cooperating in the government’s investigations in this matter.

Other Proceedings, Disputes and Contingencies

From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, regulatory hearings relating primarily to our rates or services, actions relating to employee

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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 during the fourth quarter of 2021 or during 2022 if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.

We are subject to various foreign, federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $300,000 in fines and penalties.

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

The matters listed above in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 17—Commitments, Contingencies and Other Items to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. 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.

~~(13)~~

(16) Other Financial Information

Other Current Assets

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


		March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
		(Dollars in millions)				(Dollars in millions)
Prepaid expenses	Prepaid expenses	$	403	290	Prepaid expenses	$	294	290
Income tax receivable	Income tax receivable	6		7	Income tax receivable	15		7
Materials, supplies and inventory	Materials, supplies and inventory	100		105	Materials, supplies and inventory	103		105
Contract assets	Contract assets	64		66	Contract assets	49		66
Contract acquisition costs	Contract acquisition costs	170		173	Contract acquisition costs	144		173
Contract fulfillment costs	Contract fulfillment costs	115		114	Contract fulfillment costs	104		114
Note receivable					Note receivable	56		—
Receivable for sale of land					Receivable for sale of land	56		—
Other	Other	66		53	Other	22		53
Total other current assets	Total other current assets	$	924	808	Total other current assets	$	843	808

(17) Repurchases of Lumen Common Stock

~~Table~~Effective August 3, 2021, our Board of ~~Contents~~Directors authorized a 24-month program to repurchase up to an aggregate of $1.0 billion of our outstanding common stock (the "August 2021 stock repurchase program"). During the three and nine months ended September 30, 2021, we repurchased 73.8 million shares of our outstanding common stock in the open market. These shares were repurchased for an aggregate market price of $909 million. The figures set forth above exclude 3.5 million shares that, as of September 30, 2021, we had agreed to purchase under the program for an additional $45 million in transactions that settled in October of 2021. All repurchased common stock has been retired.

~~(14)~~(18) Accumulated Other Comprehensive Loss

Information Relating to 2021

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheet by component for the ~~three~~nine months ended ~~March 31,~~September 30, 2021:


		Pension Plans		Post-Retirement Benefit Plans	Foreign Currency Translation Adjustment and Other	Interest Rate Swap	Total		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, 2020	Balance at December 31, 2020	$	(2,197)	(272)	(265)	(79)	(2,813)	Balance at December 31, 2020	$	(2,197)	(272)	(265)	(79)	(2,813)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	0		0	(86)	0	(86)	Other comprehensive loss before reclassifications	133		—	(103)	(1)	29
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	35		4	0	15	54	Amounts reclassified from accumulated other comprehensive loss	149		11	—	47	207
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	35		4	(86)	15	(32)	Net current-period other comprehensive income (loss)	282		11	(103)	46	236
Balance at March 31, 2021		$	(2,162)	(268)	(351)	(64)	(2,845)
Balance at September 30, 2021								Balance at September 30, 2021	$	(1,915)	(261)	(368)	(33)	(2,577)

The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the three and nine months ended ~~March 31,~~September 30, 2021:


Three Months Ended ~~March 31,~~September 30, 2021	Decrease (Increase) in Net Income		Affected Line Item in Consolidated Statement of Operations
	(Dollars in millions)
Interest rate swaps	$	21	Interest expense
Income tax benefit	(5)		Income tax expense
Net of tax	$	16

Amortization of pension & post-retirement plans(1)
Net actuarial loss	$	108	Other (expense) income, net
Prior service cost	1		Other (expense) income, net
Total before tax	109
Income tax benefit	(27)		Income tax expense
Net of tax	$	82


Nine Months Ended September 30, 2021	Decrease (Increase) in Net Income		Affected Line Item in Consolidated Statement of Operations
	(Dollars in millions)
Interest rate swaps	$	62	Interest expense
Income tax benefit	(15)		Income tax expense
Net of tax	$	47

Amortization of pension & post-retirement plans(1)
Net actuarial loss	$	208	Other (expense) income, net
Prior service cost	4		Other (expense) income, net
Total before tax	212
Income tax benefit	(52)		Income tax expense
Net of tax	$	160

(1)See Note 10—Employee Benefits for additional information on our net periodic benefit (income) expense related to our pension and post-retirement plans.

Information Relating to 2020

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the three and nine months ended September 30, 2020:


	Pension Plans		Post-Retirement Benefit Plans	Foreign Currency Translation Adjustment and Other	Interest Rate Swap	Total
	(Dollars in millions)
Balance at December 31, 2019	$	(2,229)	(184)	(228)	(39)	(2,680)
Other comprehensive loss before reclassifications	—		—	(181)	(87)	(268)
Amounts reclassified from accumulated other comprehensive loss	110		12	—	31	153
Net current-period other comprehensive income (loss)	110		12	(181)	(56)	(115)
Balance at September 30, 2020	$	(2,119)	(172)	(409)	(95)	(2,795)

The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the nine months ended September 30, 2020:

Three Months Ended September 30, 2020

Decrease (Increase)
in Net Income

Affected Line Item in Consolidated Statement of Operations

(Dollars in millions)

Interest rate swaps

Interest expense

Income tax ~~benefit~~expense

(5)

Income tax expense

Net of tax

Amortization of pension & post-retirement plans(1)

Net actuarial loss

Other (expense) income, ~~(expense),~~ net

Prior service cost

Other (expense) income, net

Curtailment loss

Other (expense), income, net

Total before tax

5255

Income tax benefit

(13)

Income tax expense

Net of tax

3942

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

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~~Information Relating to 2020~~

~~The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the three months ended March 31, 2020~~:

Pension Plans Post-Retirement
Benefit Plans Foreign Currency
Translation
Adjustment
and Other Interest Rate Swap Total
(Dollars in millions)
Balance at December 31, 2019 $ (2,229) (184) (228) (39) (2,680)
Other comprehensive loss before reclassifications 0 0 (239) (80) (319)
Amounts reclassified from accumulated other comprehensive loss 36 3 0 5 44
Net current-period other comprehensive income (loss) 36 3 (239) (75) (275)
Balance at March 31, 2020 $ (2,193) (181) (467) (114) (2,955)

~~The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the three months ended March 31, 2020:~~

~~Three~~Nine Months Ended ~~March 31,~~September 30, 2020

Decrease (Increase)
in Net Income

Affected Line Item in Consolidated Statement of Operations

(Dollars in millions)

Interest rate swaps

541

Interest expense

Income tax expense

0 (10)

Income tax expense

Net of tax

531

Amortization of pension & post-retirement plans(1)

Net actuarial loss

50152

Other (expense) income, ~~(expense),~~ net

Prior service cost

Other (expense) income, net

Curtailment loss

Other (expense), income, net

Total before tax

51161

Income tax benefit

~~(12)~~(39)

Income tax expense

Net of tax

39122

(1)See Note 7—10—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.

~~(15)~~(19) Labor Union Contracts

As of ~~March 31,~~September 30, 2021, approximately ~~23%~~22% of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). Approximately ~~4% of our union-represented employees were subject to collective bargaining agreements that expired as of March 31, 2021 and are currently being renegotiated. Approximately 10%~~9% of our represented employees are subject to collective bargaining agreements that are scheduled to expire over the 12 month period ending ~~March 31,~~September 30, 2022.

~~Table of Contents~~(20) Subsequent Events

Pension Annuitization

On October 19, 2021, we, as sponsor of the Combined Pension Plan, along with the Plan’s independent fiduciary, entered into an agreement committing the Plan to use a portion of its plan assets to purchase an annuity from an insurance company (the "Insurer") to transfer approximately $1.4 billion of the Plan’s pension liabilities. This agreement will irrevocably transfer to the Insurer future Plan benefit obligations for approximately 22,600 U.S. Lumen participants (“Transferred Participants”) effective on December 31, 2021. This annuity transaction will be funded entirely by existing Plan assets.

The Insurer is committed to assume responsibility for administrative and customer service support, including distribution of payments to the Transferred Participants. Transferred Participants’ benefits are not being reduced as a result of this transaction.

The transaction will result in Lumen recognizing a noncash settlement charge in the fourth quarter of 2021 to accelerate recognition of a portion of the actuarial loss included in accumulated other comprehensive loss. We currently estimate that the pension settlement charges recognized in the fourth quarter will be approximately $350 million, dependent upon the completion of the annuity transaction discussed above and the amount of our lump sum pension payments as discussed in Note 10—Employee Benefits. The settlement charge will be recognized in other (expense) income, net in our consolidated statements of operations. The Plan will be remeasured for the annuity and lump sum payments in the fourth quarter of 2021.

For more information on our Combined Pension Plan, see Note 10—Employee Benefits.

Repurchases of Lumen Common Stock

As of October 5, 2021, we completed the August 2021 stock repurchase program, settling 3.5 million shares for $45 million that were previously executed and accrued as of September 30, 2021 and repurchasing an additional 3.6 million shares for $46 million subsequent to the end of the third quarter. Upon completion of the program, we repurchased a total of 80.9 million shares for an average purchase price of $12.36 per share.

For more information, see Note 17—Repurchases of Lumen Common Stock.

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 "Lumen Technologies" or "Lumen," "we," "us" and "our" refer to Lumen Technologies, Inc. and its consolidated subsidiaries and (ii) references in this report to "Level 3" refer to Level 3 Parent, LLC and its predecessor, Level 3 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" referenced in Item 1A of Part II of this report or other of our filings with the SEC for a discussion of certain factors that could cause our actual results to differ from our anticipated results or otherwise impact our business, financial condition, results of operations, liquidity or prospects.

Overview

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with MD&A and the other information included in our Annual Report on Form 10-K for the year ended December 31, 2020 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 ~~three~~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 technology and communications company focused on providing our business and mass markets customers with a broad array of integrated services and solutions necessary to fully participate in our rapidly evolving digital world. We believe we are the world's most inter-connected network and our platform empowers our customers to rapidly adjust digital programs to meet immediate demands, create efficiencies, accelerate market access, and reduce costs - allowing customers to rapidly evolve their IT programs to address dynamic changes without distraction from their core competencies. With approximately 450,000 route miles of fiber optic cable globally, we are among the largest providers of communications services to domestic and global enterprise customers. Our terrestrial and subsea fiber optic long-haul network throughout North America, Europe, Latin America and Asia Pacific connects to metropolitan fiber networks that we operate. We provide services in over 60 countries, with most of our revenue being derived in the United States. As of ~~March 31,~~September 30, 2021, we had approximately ~~38,000~~37,000 employees.

Planned Divestiture of the Latin American and ILEC Businesses

On July 25, 2021, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen, agreed to divest their Latin American business in exchange for $2.7 billion cash, subject to certain working capital, other purchase price adjustments and related transaction expenses (estimated to be approximately $50 million). On August 3, 2021, Lumen and certain of its subsidiaries agreed to divest a substantial portion of their incumbent local exchange business in exchange for $7.5 billion, subject to offsets for (i) assumed indebtedness (expected to be approximately $1.4 billion) and (ii) our transaction expenses, certain of purchaser’s transaction expenses, income taxes and certain working capital and other customary purchase price adjustments (currently estimated to aggregate to approximately $1.7 billion). The actual amount of our net after-tax proceeds from these divestitures could vary substantially from the amounts we currently estimate, particularly if we experience delays in completing the transactions or if there are changes in other assumptions that impact our estimates. For more information, see (i) Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 1 of Part I of this report and (ii) the risk factors included in Item 1A of Part II of this report.

Impact of COVID-19 Pandemic

InAs previously outlined in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2020, in response to the safety and economic challenges arising out of the COVID-19 pandemic and in a continued attempt to mitigate the negative impact on our stakeholders, we have taken a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees and customers, to enable us to continue to adapt and provide our products and services worldwide to our customers, and to strengthen our communities. ~~In addition to other actions described in our other reports, these steps include:~~

•~~establishing 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.~~

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As ~~the pandemic continues and~~ vaccination rates increase, we expect to ~~revise~~continue revising our responses to the pandemic or take additional steps necessary to adjust to changed circumstances.

~~Social distancing, business and school closures, travel restrictions, and other actions taken~~As discussed in ~~response to~~further detail in our prior reports, the pandemic ~~have impacted us, our customers and our business since March 2020. In particular, as discussed further elsewhere herein, we have tracked pandemic impacts, including:~~resulted in (i) increases in certain revenue streams and decreases in others, ~~(including late fee revenue),~~ (ii) increases in allowances for credit losses through the end of 2020, (iii) increases in overtime expenses, (iv) delays in our cost transformation initiatives and (v) an acceleration of our real estate rationalization efforts and the incurrence of related costs. ~~Thus far, these~~We believe we are also experiencing delayed decision-making by certain of our customers in the current environment. These changes ~~have~~did not materially ~~impacted~~impact our financial performance or financial position during 2020, and, barring any ~~unforeseen changes~~substantial deterioration in prevailing health or economic conditions, ~~we do~~are not ~~expect these changes~~expected to materially impact us ~~during 2021. The impact~~in the near term.

Effective December 8, 2021, we plan to comply with President Biden's September 2021 Executive Order requiring covered employees of ~~the pandemic during 2021 will materially depend on additional steps that we may take in response~~federal contractors to the pandemic and various events outside of our control, including the pace of vaccinations worldwide, the length and severity of the health crisis and economic slowdown, actions taken by central banks, governmental agencies or legislative bodies, and the impact of those events on our employees, suppliers and customers.be vaccinated against COVID-19. For additional information, see ~~the risk factor disclosures referenced~~"Risk Factors" 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

As previously announced, we completed an internal reorganization of our reporting segments in January 2021. Our reporting segments are currently organized as follows, by customer focus:

•Business Segment: Under our Business segment, we provide our products and services under four sales channels:

◦International and Global Accounts ("IGAM"): Our IGAM sales channel includes multinational and enterprise customers. We provide our products and services to approximately 350 of our highest potential enterprise customers and to enterprises and carriers in three operating regions: Europe Middle East and Africa, Latin America and Asia Pacific.

◦Large Enterprise: Under our large enterprise sales channel, we provide our products and services to large enterprises and the public sector, including the U.S. Federal government, state and local governments and research and education institutions.

◦Mid-Market Enterprise: Under our mid-market enterprise sales channel, we provide our products and services to medium-sized enterprises directly and through our indirect channel partners.

◦Wholesale: Under our wholesale sales channel, we provide our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors.

•Mass Markets Segment: Under our Mass Markets segment, we provide products and services to consumer and small business customers. At ~~March 31,~~September 30, 2021, we served ~~4.7~~4.6 million broadband subscribers under our Mass Markets segment.

See Note ~~11—~~14—Segment Information to our consolidated financial statements in Item 1 of Part I of this report for additional information.

We categorize our Business segment revenue among the following ~~four~~ products and services categories:

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•IP and Data Services, which ~~includes~~include Ethernet, IP, and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;

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

•Voice and Other, which ~~includes~~include Time Division Multiplexing ("TDM") voice, private line and other legacy services.

Under our Mass Markets segment, we provide the following products and services:

•Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;

•SBG Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

•Voice and Other, which include local and long-distance services, retail video services (including our linear TV services), state support and other ancillary services; and

•CAF II, which consists of Connect America Fund Phase II payments through the end of 2021 to support ~~payments designed to reimburse us for various costs related to certain telecommunications services.~~voice and broadband in FCC-designated high-cost areas.

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 and gaming 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 through volume or rate reductions, 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.

•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.

•Declines in our traditional wireline services have necessitated right-sizing our cost structures to remain competitive.

~~Additional~~The amount of support payments we receive from governmental agencies will decrease substantially after December 31, 2021. This and other developments and trends impacting our ~~segments~~operations 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 two reporting segments in more detail.

~~Table of Contents~~

The following table summarizes the results of our consolidated operations for the three and nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020:


		Three Months Ended March 31,				Three Months Ended September 30,			Nine Months Ended September 30,
		2021		2020		2021		2020	2021	2020
		(Dollars in millions, except per share amounts)				(Dollars in millions, except per share amounts)
Operating revenue	Operating revenue	$	5,029	5,228	Operating revenue	$	4,887	5,167	14,840	15,587
Operating expenses	Operating expenses	4,042		4,248	Operating expenses	3,756		4,279	11,716	12,816
Operating income	Operating income	987		980	Operating income	1,131		888	3,124	2,771
Total other expense, net	Total other expense, net	(355)		(547)	Total other expense, net	(415)		(408)	(1,102)	(1,345)
Income before income taxes	Income before income taxes	632		433	Income before income taxes	716		480	2,022	1,426
Income tax expense	Income tax expense	157		119	Income tax expense	172		114	497	369
Net income	Net income	$	475	314	Net income	$	544	366	1,525	1,057
Basic earnings per common share	Basic earnings per common share	$	0.44	0.29	Basic earnings per common share	$	0.51	0.34	1.42	0.98
Diluted earnings per common share	Diluted earnings per common share	$	0.44	0.29	Diluted earnings per common share	$	0.51	0.34	1.41	0.98

For 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 other 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;

•pursue acquisitions of additional assets or divestitures of non-strategic assets, in each case 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.

Consolidated Revenue

The following ~~table summarizes~~tables summarize our consolidated operating revenue recorded under each of our two segments and in our four above-described revenue sales channels within the Business segment:


	Three Months Ended September 30,			% Change
	2021		2020
	(Dollars in millions)
Business Segment:
International & Global Accounts	$	1,019	1,013	1	%
Large Enterprise	932		990	(6)	%
Mid-Market Enterprise	666		737	(10)	%
Wholesale	891		958	(7)	%
Business Segment Revenue	3,508		3,698	(5)	%
Mass Markets Segment Revenue	1,379		1,469	(6)	%
Total operating revenue	$	4,887	5,167	(5)	%

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		Three Months Ended March 31,			% Change			Nine Months Ended September 30,			% Change
		2021		2020				2021		2020
		(Dollars in millions)						(Dollars in millions)
Business Segment:	Business Segment:						Business Segment:
International & Global Accounts	International & Global Accounts	$	1,013	1,041	(3)	%	International & Global Accounts	$	3,036	3,085	(2)	%
Large Enterprise	Large Enterprise	937		966	(3)	%	Large Enterprise	2,800		2,929	(4)	%
Mid-Market Enterprise	Mid-Market Enterprise	716		761	(6)	%	Mid-Market Enterprise	2,064		2,253	(8)	%
Wholesale	Wholesale	929		969	(4)	%	Wholesale	2,725		2,885	(6)	%
Business Segment Revenue	Business Segment Revenue	3,595		3,737	(4)	%	Business Segment Revenue	10,625		11,152	(5)	%
Mass Markets Segment Revenue	Mass Markets Segment Revenue	1,434		1,491	(4)	%	Mass Markets Segment Revenue	4,215		4,435	(5)	%
Total operating revenue	Total operating revenue	$	5,029	5,228	(4)	%	Total operating revenue	$	14,840	15,587	(5)	%

Our total operating revenue decreased by ~~$199~~$280 million and $747 million for the three and nine months ended ~~March 31,~~September 30, 2021 as compared to the three and nine months ended ~~March 31,~~September 30, 2020, primarily due to revenue declines in all of our above-listed revenue categories. See our segment results below for additional information.

Operating Expenses

The following tables summarize our consolidated operating expenses:


		Three Months Ended March 31,			% Change			Three Months Ended September 30,			% Change
		2021		2020				2021		2020
		(Dollars in millions)						(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	Cost of services and products (exclusive of depreciation and amortization)	$	2,136	2,235	(4)	%	Cost of services and products (exclusive of depreciation and amortization)	$	2,151	2,236	(4)	%
Selling, general and administrative	Selling, general and administrative	756		853	(11)	%	Selling, general and administrative	654		850	(23)	%
Depreciation and amortization	Depreciation and amortization	1,150		1,160	(1)	%	Depreciation and amortization	951		1,193	(20)	%

Total operating expenses	Total operating expenses	$	4,042	4,248	(5)	%	Total operating expenses	$	3,756	4,279	(12)	%


	Nine Months Ended September 30,			% Change
	2021		2020
	(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	$	6,402	6,703	(4)	%
Selling, general and administrative	2,172		2,598	(16)	%
Depreciation and amortization	3,142		3,515	(11)	%

Total operating expenses	$	11,716	12,816	(9)	%

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

Cost of services and products (exclusive of depreciation and amortization) decreased by ~~$99~~$85 million and $301 million for the three and nine months ended ~~March 31,~~September 30, 2021 as compared to the three and nine months ended ~~March 31,~~September 30, 2020. ~~The decrease was~~These decreases were primarily due to reductions in salaries and wages and employee-related expense from lower headcount and lower facility, ~~costs~~real estate and power costs. These decreases were partially offset by ~~higher network expenses.~~a portion of accelerated lease costs as part of our real estate rationalization during the third quarter 2021.

Selling, General and Administrative

Selling, general and administrative expenses decreased by ~~$97~~$196 million and $426 million for the three and nine months ended ~~March 31,~~September 30, 2021 as compared to the three and nine months ended ~~March 31,~~September 30, 2020. ~~This decrease was~~These decreases were primarily due to a $75 million gain on the sale of land in August 2021, partially offset by a portion of accelerated lease costs as part of our real estate rationalization during the third quarter 2021. These decreases were also attributable to reductions in salaries and wages and employee-related expense from lower headcount, lower bad debt expense, and lower marketing and advertising costs.

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Depreciation and Amortization

The following tables provide detail of our depreciation and amortization expense:


		Three Months Ended March 31,			% Change			Three Months Ended September 30,			% Change
		2021		2020				2021		2020
		(Dollars in millions)						(Dollars in millions)
Depreciation	Depreciation	$	725	729	(1)	%	Depreciation	$	645	750	(14)	%
Amortization	Amortization	425		431	(1)	%	Amortization	306		443	(31)	%
Total depreciation and amortization	Total depreciation and amortization	$	1,150	1,160	(1)	%	Total depreciation and amortization	$	951	1,193	(20)	%


	Nine Months Ended September 30,			% Change
	2021		2020
	(Dollars in millions)
Depreciation	$	2,093	2,201	(5)	%
Amortization	1,049		1,314	(20)	%
Total depreciation and amortization	$	3,142	3,515	(11)	%

Depreciation expense decreased by $4$105 million and $108 million for the three and nine months ended ~~March 31,~~September 30, 2021, as compared to the three and nine months ended ~~March 31,~~September 30, 2020 primarily due to discontinuing the depreciation of the tangible assets reclassified as held for sale of our Latin American and ILEC businesses upon entering into our divestiture agreements. We estimate we would have recorded an additional $98 million of depreciation expense during the three and nine months ended September 30, 2021 if we had not agreed to sell these businesses. In addition, depreciation expense decreased due to the impact of annual rate depreciable life changes of $38 million and $113 million, respectively, which ~~was partially~~were largely offset by ~~$31 million of~~ higher depreciation expense of $27 million and $92 million, respectively, associated with net growth in depreciable assets.

Amortization expense decreased by $6$137 million and $265 million for the three and nine months ended ~~March 31,~~September 30, 2021, as compared to the three and nine months ended ~~March 31, 2020,~~September 30, 2020. The decrease for both periods was primarily ~~driven by~~due to a decrease of $126 million and $273 million, respectively, as a result of certain customer relationship intangible assets becoming fully amortized at the end of the first quarter 2021 and decreases of ~~$17~~$14 million ~~from~~and $20 million, respectively, associated with net reductions in amortizable assets. In addition, the ~~use of accelerated~~decrease for both periods was due to discontinuing the amortization ~~methods for a portion~~ of the ~~customer intangibles~~intangible assets reclassified as held for sale of our Latin American and $2ILEC businesses upon entering into our divestiture agreements. We estimate we would have recorded an additional $8 million ~~from~~of amortization expense during the ~~impact of annual rate amortizable life changes on certain software, which~~three and nine months ended September 30, 2021 if we had not agreed to sell these businesses. These decreases were partially offset by $7$5 million and $20 million, respectively, of additional amortization expense recognized as a result of reclassification of certain right-of-way assets, as discussed in Note 2—3—Goodwill, Customer Relationships and Other Intangible Assets to our consolidated financial statements in Item 1 of Part I of this ~~report. The decrease in amortization expense was additionally offset~~report, and by accelerated amortization for decommissioned applications of $4 ~~million.~~million and $18 million, respectively.

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.

The January 2021 completion of our previously announced internal reorganization was considered aan event or change in ~~event or~~ circumstance which required an assessment of our goodwill for impairment. We performed a qualitative impairment assessment in the first quarter of 2021 and concluded it is more likely than not that the fair value of each of our reporting units ~~exceeds~~exceeded the carrying value of equity of our reporting units at January 31, 2021. Therefore, nowe did not have any impairment ~~exists~~as of our assessment date.

The reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American and ILEC Businesses, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of July 31, 2021. We performed a pre-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to determine whether there was an impairment prior to the reclassification of these assets to held for sale and to determine the July 31, 2021 fair values to be utilized for goodwill allocation regarding the disposal groups to be reclassified as assets held for sale. We concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at July 31, 2021.

We also performed a post-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to determine whether the fair value of our reporting units that will remain following the divestitures exceeds the carrying value of the equity of such reporting units after reclassification of assets held for sale. At July 31, 2021, we estimated the fair value of our remaining reporting units by considering both a market approach and a discounted cash flow method. Based on our assessments performed, we concluded it was more likely than not that the fair value of each of our remaining reporting units exceeded the carrying value of equity of our remaining reporting units at July 31, 2021. Therefore, we concluded we did not have any impairment as of our assessment date.

See Note 2—3—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 March 31,			% Change			Three Months Ended September 30,			% Change
		2021		2020				2021		2020
		(Dollars in millions)						(Dollars in millions)
Interest expense	Interest expense	$	(389)	(449)	(13)	%	Interest expense	$	(377)	(409)	(8)	%
Other income (expense), net		34		(98)	nm
Other (expense) income, net							Other (expense) income, net	(38)		1	nm
Total other expense, net	Total other expense, net	$	(355)	(547)	(35)	%	Total other expense, net	$	(415)	(408)	2	%
Income tax expense	Income tax expense	$	157	119	32	%	Income tax expense	$	172	114	51	%


	Nine Months Ended September 30,			% Change
	2021		2020
	(Dollars in millions)
Interest expense	$	(1,150)	(1,272)	(10)	%
Other income (expense), net	48		(73)	nm
Total other expense, net	$	(1,102)	(1,345)	(18)	%
Income tax expense	$	497	369	35	%

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

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Interest Expense

Interest expense decreased by ~~$60~~$32 million and $122 million for the three and nine months ended ~~March 31,~~September 30, 2021 as compared to the three and nine months ended ~~March 31,~~September 30, 2020. The decrease was primarily due to (i) the decrease in average long-term debt from ~~$34.7~~$33.5 billion to ~~$31.6~~$31.2 billion and the decrease in the average interest rate of ~~5.34%~~4.93% to ~~4.88%~~4.81% for the three months ended ~~March 31,~~September 30, 2020 compared to the three months ended ~~March 31,~~September 30, 2021, and (ii) the decrease in average long-term debt from $33.6 billion to $31.5 billion and the decrease in our average interest rate from 5.22% to 4.85% for the nine months endedSeptember 30, 2020 compared to the nine months ended September 30, 2021.

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

Other (expense) income, ~~(expense),~~ net reflects certain items not directly related to our core operations, including (i) gains and losses on extinguishments of debt, (ii) components of net periodic pension and ~~postretirement~~post-retirement benefit costs, (iii) foreign currency gains and losses, and (iv) our share of income from partnerships we do not control, interest income, gains and losses from non-operating asset dispositions and other non-core items.

Three Months Ended March 31, % Change
2021 2020
(Dollars in millions)
Gain (loss) on extinguishment of debt $ 8 (79) nm
Pension and postretirement net periodic income (expense) 24 (4) nm
Foreign currency loss (16) (20) (20) %
Other 18 5 nm
Total other income (expense), net $ 34 (98) nm


	Three Months Ended September 30,			% Change
	2021		2020
	(Dollars in millions)
Gain on extinguishment of debt	$	—	8	nm
Pension and post-retirement net periodic expense	(32)		(9)	nm
Foreign currency (loss) gain	(16)		8	nm
Other	10		(6)	nm
Total other (expense) income, net	$	(38)	1	nm


	Nine Months Ended September 30,			% Change
	2021		2020
	(Dollars in millions)
Gain (loss) on extinguishment of debt	$	8	(78)	nm
Pension and post-retirement net periodic income (expense)	19		(19)	nm
Foreign currency (loss) gain	(24)		9	nm
Other	45		15	nm
Total other income (expense), net	$	48	(73)	nm

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

The significant change in pension and post retirement net periodic ~~expense~~(expense) income for the three and nine months ended ~~March 31,~~September 30, 2021 as compared to the three and nine months ended ~~March 31,~~September 30, 2020 was driven by a ~~decline~~settlement charge associated with the acceleration of the recognition of a portion of previously-unrecognized actuarial losses in ~~interest cost~~the qualified pension plan. Additionally, the increase in other income was due to ~~lower discount rates.~~use tax refunds.

Income Tax Expense

For the three and nine months ended ~~March 31,~~September 30, 2021, our effective income tax rate was 24.0% and ~~March 31,~~24.6%, respectively, and for the three and nine months ended September 30, 2020, our effective income tax rate was ~~24.8%~~23.8% and ~~27.5%~~25.9%, respectively.

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Segment Results

General

Reconciliation of segment revenue to total operating revenue is below:


		Three Months Ended March 31,				Three Months Ended September 30,
		2021		2020		2021		2020
		(Dollars in millions)				(Dollars in millions)
Operating revenue	Operating revenue				Operating revenue
Business	Business	$	3,595	3,737	Business	$	3,508	3,698
Mass Markets	Mass Markets	1,434		1,491	Mass Markets	1,379		1,469
Total operating revenue	Total operating revenue	$	5,029	5,228	Total operating revenue	$	4,887	5,167


	Nine Months Ended September 30,
	2021		2020
	(Dollars in millions)
Operating revenue
Business	$	10,625	11,152
Mass Markets	4,215		4,435
Total operating revenue	$	14,840	15,587

Reconciliation of segment EBITDA to total adjusted EBITDA is below:


		Three Months Ended March 31,				Three Months Ended September 30,
		2021		2020		2021		2020
		(Dollars in millions)				(Dollars in millions)
Adjusted EBITDA	Adjusted EBITDA				Adjusted EBITDA
Business	Business	$	2,408	2,488	Business	$	2,344	2,487
Mass Markets	Mass Markets	1,258		1,302	Mass Markets	1,218		1,266
Total segment EBITDA	Total segment EBITDA	3,666		3,790	Total segment EBITDA	3,562		3,753
Operations and Other EBITDA	Operations and Other EBITDA	(1,509)		(1,581)	Operations and Other EBITDA	(1,453)		(1,641)
Total adjusted EBITDA	Total adjusted EBITDA	$	2,157	2,209	Total adjusted EBITDA	$	2,109	2,112


	Nine Months Ended September 30,
	2021		2020
	(Dollars in millions)
Adjusted EBITDA
Business	$	7,114	7,439
Mass Markets	3,689		3,851
Total segment EBITDA	10,803		11,290
Operations and Other EBITDA	(4,448)		(4,884)
Total adjusted EBITDA	$	6,355	6,406

For additional information on our reportable segments and product and services categories, see Note 3—4—Revenue Recognition and Note ~~11—~~14—Segment Information to our consolidated financial statements in Item 1 of Part I of this report.

Business Segment


		Three Months Ended March 31,			% Change			Three Months Ended September 30,			% Change
		2021		2020				2021		2020
		(Dollars in millions)						(Dollars in millions)
Business Segment Product Categories:	Business Segment Product Categories:						Business Segment Product Categories:
Compute and Application Services	Compute and Application Services	$	428	435	(2)	%	Compute and Application Services	$	431	434	(1)	%
IP and Data Services	IP and Data Services	1,580		1,622	(3)	%	IP and Data Services	1,545		1,595	(3)	%
Fiber Infrastructure Services	Fiber Infrastructure Services	554		547	1	%	Fiber Infrastructure Services	575		579	(1)	%
Voice and Other	Voice and Other	1,033		1,133	(9)	%	Voice and Other	957		1,090	(12)	%
Total Business Segment Revenue	Total Business Segment Revenue	3,595		3,737	(4)	%	Total Business Segment Revenue	3,508		3,698	(5)	%
Expenses:	Expenses:						Expenses:
Total expense	Total expense	1,187		1,249	(5)	%	Total expense	1,164		1,211	(4)	%
Total adjusted EBITDA	Total adjusted EBITDA	$	2,408	2,488	(3)	%	Total adjusted EBITDA	$	2,344	2,487	(6)	%


	Nine Months Ended September 30,			% Change
	2021		2020
	(Dollars in millions)
Business Segment Product Categories:
Compute and Application Services	$	1,295	1,301	—	%
IP and Data Services	4,675		4,825	(3)	%
Fiber Infrastructure Services	1,680		1,673	—	%
Voice and Other	2,975		3,353	(11)	%
Total Business Segment Revenue	10,625		11,152	(5)	%
Expenses:
Total expense	3,511		3,713	(5)	%
Total adjusted EBITDA	$	7,114	7,439	(4)	%

Three and nine months ended September 30, 2021 compared to the same periods ended September 30, 2020

Segment revenue decreased ~~$142~~$190 million for the three months ended ~~March 31,~~September 30, 2021 as compared to September 30, 2020, and decreased $527 million for the ~~three~~nine months ended ~~March 31, 2020,~~September 30, 2021 compared to September 30, 2020. The revenue decrease was primarily due to the following factors:

~~Table of Contents~~

•Compute and Application Services declined ~~primarily~~for both periods due to ~~declines in Cloud Services within Large Enterprise and IGAM sales channels, lower rates for CDN and a~~an ongoing large customer disconnect for IT Solutions and lower rates for content delivery network services within ~~the~~our IGAM sales ~~channel,~~channel. Additionally, for the nine months ended September 30, 2021, declines were driven by declines in Cloud Services within our Large Enterprise and IGAM sales channels. These decreases were partially offset by growth in Managed Security and IT Solutions ~~within the Large Enterprise~~services to Federal Public Sector customers and an increase in colocation and data center services in our IGAM sales ~~channel;~~channel.

•IP and Data Services ~~declined~~decreased during both periods due to ~~lengthening sales cycles in the current environment for hybrid networks and SD-WAN,~~ declines in traditional VPN networks ~~in the Enterprise and IGAM sales channels~~ and continued declines in Ethernet sales across all our sales channels, partially offset by an increase in IP ~~services;~~services across our IGAM and Enterprise sales channels;

•Fiber Infrastructure Services ~~grew due to~~experienced growth in both periods in dark fiber and wavelengths demand, primarily from our large IGAM customers which was ~~partially offset~~outpaced by lower equipment ~~revenue~~sales for the three months ended September 30, 2021, resulting in ~~the Large Enterprise sales channel;~~a decrease during such period;

•Voice and Other decreased during both periods due to continued decline of legacy voice, private line and other services to customers across all sales channels. Additionally, voice services revenue in the three and nine month periods decreased compared to the prior periods which had benefited from higher COVID-related demand.

~~Segment expense decreased $62~~The decrease in segment revenue was slightly offset due to $5 million of favorable foreign currency adjustments for the three months ended ~~March 31,~~September 30, 2021 as compared to the three months ended ~~March 31,~~September 30, 2020 and by $20 million of favorable foreign currency adjustments for the nine months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Segment expense decreased $47 million for the three months ended September 30, 2021 as compared to September 30, 2020, and decreased $202 million for the nine months ended September 30, 2021 compared to September 30, 2020, primarily due to lower cost of sales and lower employee-related costs from lower ~~headcount and lower cost of sales.~~headcount.

Segment adjusted EBITDA as a percentage of revenue was 67% for the three and nine months ended September 30, 2021 and 67% for both the three and nine months ended ~~March 31, 2021 and~~September 30, 2020.

Mass Markets Segment


		Three Months Ended March 31,			% Change			Three Months Ended September 30,			% Change
		2021		2020				2021		2020
		(Dollars in millions)						(Dollars in millions)
Mass Markets Product Categories:	Mass Markets Product Categories:						Mass Markets Product Categories:
Consumer Broadband	Consumer Broadband	$	731	722	1	%	Consumer Broadband	$	715	730	(2)	%
SBG Broadband	SBG Broadband	39		39	—	%	SBG Broadband	39		38	3	%
Voice and Other	Voice and Other	541		607	(11)	%	Voice and Other	502		578	(13)	%
CAF II	CAF II	123		123	—	%	CAF II	123		123	—	%
Total Mass Markets Segment Revenue	Total Mass Markets Segment Revenue	1,434		1,491	(4)	%	Total Mass Markets Segment Revenue	1,379		1,469	(6)	%
Expenses:	Expenses:						Expenses:
Total expense	Total expense	176		189	(7)	%	Total expense	161		203	(21)	%
Total adjusted EBITDA	Total adjusted EBITDA	$	1,258	1,302	(3)	%	Total adjusted EBITDA	$	1,218	1,266	(4)	%


	Nine Months Ended September 30,			% Change
	2021		2020
	(Dollars in millions)
Mass Markets Product Categories:
Consumer Broadband	$	2,169	2,178	—	%
SBG Broadband	117		116	1	%
Voice and Other	1,561		1,772	(12)	%
CAF II	368		369	—	%
Total Mass Markets Segment Revenue	4,215		4,435	(5)	%
Expenses:
Total expense	526		584	(10)	%
Total adjusted EBITDA	$	3,689	3,851	(4)	%

Three and nine months ended September 30, 2021 compared to the same periods ended September 30, 2020

Segment revenue decreased ~~$57~~$90 million for the three months ended ~~March 31,~~September 30, 2021 as compared to the ~~three~~September 30, 2020, and decreased $220 million for the nine months ended ~~March 31, 2020:~~September 30, 2021 compared to September 30, 2020, primarily due to the following factors:

•~~Consumer~~ Broadband revenue ~~increases were~~decreased during each period driven by ~~demand for higher-speed services and higher rates; and~~continued pressure on legacy infrastructure, which was partially offset by gains in our fiber-based broadband business.

•Voice and Other declined during both periods due to continued legacy voice customer losses and our ~~de-emphasis~~exit of the Prism video product.

Segment expense decreased ~~$13~~$42 million for the three months ended ~~March 31,~~September 30, 2021 as compared to the ~~three~~September 30, 2020, and decreased $58 million for the nine months ended ~~March 31,~~September 30, 2021 compared to September 30, 2020, primarily due to lower employee-related costs from lower headcount and lower cost of sales driven by the decrease in Prism content ~~costs.~~costs, partially offset by higher network expenses for the nine months ended.

Segment adjusted EBITDA as a percentage of revenue was 88% for both the three and nine months ended September 30, 2021 and 86% and 87%, respectively, for the three and nine months ended ~~March 31, 2021 and 2020, respectively.~~September 30, 2020.

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Liquidity and Capital Resources

Overview of Sources and Uses of Cash

We are a holding company that is dependent on the capital resources of our subsidiaries to satisfy our parent company liquidity requirements. Several of our significant operating subsidiaries have borrowed funds either on a standalone basis or as part of a separate restricted group with certain of its 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, legal and other considerations.

At ~~March 31,~~September 30, 2021, we held cash and cash equivalents of ~~$486~~$674 million, which includes cash and cash equivalents classified as held for sale, and we also had $2.2 billion of borrowing capacity available under our revolving credit facility. We typically use our revolving credit facility as a source of liquidity for operating activities and our other cash requirements. We had approximately ~~$119~~$91 million of cash and cash equivalents outside the United States at ~~March 31,~~September 30, 2021. 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. WeOther than transactions related to our Latin American disposal group, 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.~~entities.

Our executive officers and our Board of Directors periodically review our sources and potential uses of cash in connection with our annual budgeting process. 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. The impact of the sale of our Latin American and ILEC businesses are further described below.

Based on our current capital allocation objectives, for the full year 2021 we project approximately ~~$3.5~~$2.8 billion to ~~$3.8~~$3.0 billion of capital expenditures and approximately $1.1 billion of cash dividends, or $1.00 per share, on our common stock (based on the assumptions described below under "Dividends").

For the 12 month period ending ~~March 31,~~September 30, 2022, we project that our fixed commitments will include (i) $125 million of scheduled term loan amortization payments, (ii) ~~$42~~$29 million of finance lease and other fixed payments (which includes $2 million of finance lease obligations that have been reclassified as held for sale) and (iii) ~~$3.7~~$2.3 billion of debt maturities.

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 may also draw on our revolving credit facility as a source of liquidity for operating activities and to give us additional flexibility to finance our capital investments, repayments of debt, pension contributions and other cash requirements.

For additional information, see "Risk Factors—Financial Risks" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.

Impact of the Planned Divestiture of the Latin American and ILEC Businesses

As discussed in Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 1 of Part I of this report, we entered into definitive agreements to divest our Latin American and ILEC businesses on July 25, 2021 and August 3, 2021, respectively.

Capital Expenditures

We incur capital expenditures on an ongoing basis to expand and improve our service offerings, enhance and 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 ~~or Rural Digital Opportunity Fund ("RDOF")~~ infrastructure buildout requirements).

Our capital expenditures continue to be focused on enhancing network operating efficiencies 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 Report on Form 10-K for the year ended December 31, 2020.

Debt and Other Financing Arrangements

Subject to market conditions, we expect to continue to issue debt securities from time to time in the future to refinance a substantial portion of our maturing debt, including issuing debt securities of certain of our subsidiaries to refinance their maturing debt to the extent ~~feasible.~~feasible and consistent with our capital allocation strategies. The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned by credit rating agencies, among other factors.

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As of ~~March 31, 2021,~~the date of this report, the credit ratings for the senior secured and unsecured debt of Lumen Technologies, Inc., Level 3 Financing, Inc. and Qwest Corporation were as follows:

Borrower

Moody's Investors Service, Inc.

Standard & Poor's

Fitch Ratings

Lumen Technologies, Inc.:

Unsecured

BB-

Secured

Ba3

BBB-

BB+

Level 3 Financing, Inc.

Unsecured

Ba3

Secured

Ba1

BBB-

Qwest Corporation:

Unsecured

Ba2

BBB-

~~BB+~~BB

Our credit ratings are reviewed and adjusted from time to time by the rating agencies. Any future ~~downgrades of~~changes in the senior unsecured or secured debt ratings of us or our subsidiaries could impact our access to capital or ~~further raise~~ our borrowing costs. See "Risk Factors—Financial Risks" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.

Net Operating Loss Carryforwards

As of December 31, 2020, Lumen Technologies had approximately $5.1 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 and related U.S. Treasury Department regulations. We maintain a Section 382 rights agreement designed to safeguard through late 2023 our ability to use those NOLs. Assuming we can continue using these NOLs in the amounts projected, we expect to ~~reduce~~utilize the NOLs available for 2022 to offset taxable gains generated by the completion of our ~~federal cash taxes for the next several years.~~pending divestitures. The amounts of our near-term future tax payments will depend upon many factors, including our future earnings and tax circumstances and ~~results~~the impact of any corporate tax ~~reform.~~reform or taxable transactions. Based on current laws and our current assumptions and projections, we estimate our cash income tax liability related to 2021 will be approximately $100 million. If, as expected, we use a substantial portion of our NOLs in 2022 to offset divestiture-related gains, we anticipate that our cash income tax liabilities will increase in future periods.

We cannot assure you we will be able to use our NOL carryforwards fully. See "Risk Factors—Financial Risks—We may not be able to fully utilize our NOLs" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.

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,~~and investing in ~~the~~our business, deleveraging our balance sheet and returning a substantial portion of our cash to our shareholders. Assuming continued ~~payment~~authorization by our Board during 2021 at this rate of $0.25 per share, our average total dividend paid each quarter would be approximately ~~$273~~$252 million based on the number of our current outstanding shares (which figure (i) ~~assumes no increases or decreases in the number of~~reflects shares repurchased through October 5, 2021 under our stock repurchase plan and (ii) includes dividend payments in connection with the anticipated vesting of currently outstanding equity awards). Dividend payments upon the vesting of equity incentive awards was ~~$23~~$28 million during ~~three~~nine months ended ~~March 31,~~September 30, 2021. See Risk Factors—"Business Risks" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.

43Stock Repurchases

Revolving Facilities and Other Debt Instruments

On January 31, 2020, we amended and restated our credit agreement dated June 19, 2017 to, among other things, extend the debt maturities of the 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—7—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 1 of Part I of this report and (iii) 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, 2020.

At ~~March 31,~~September 30, 2021, we had ~~$64~~$65 million of letters of credit outstanding under our $225 million uncommitted letter of credit facility. Additionally, under a separate facility, we had outstanding letters of credit, or other similar obligations, of approximately ~~$30~~$24 million as of ~~March 31,~~September 30, 2021, of which ~~$10~~$5 million was collateralized by cash that is reflected on our consolidated balance sheets as restricted cash.

In addition to its indebtedness under ~~the~~our Amended Credit Agreement, Lumen Technologies is indebted under its outstanding senior notes, and several of its subsidiaries are indebted under separate credit facilities or senior notes. For information on the terms and conditions of other debt instruments of ours and our subsidiaries, including financial and operating covenants, see (i) Note 5—7—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 1 of Part I of this report and (ii) "—Other Matters" below.

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, 2020, the accounting unfunded status of our qualified and non-qualified defined benefit pension plans and our qualified post-retirement benefit plans was $1.7 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, 2020 and see Note 10—Employee Benefits to our consolidated financial statements in Item 8 of Part II of the same report.

Benefits paid by our qualified pension plan are paid through a trust that holds all of the plan's assets. Based on current laws and circumstances, we do not expect any contributions to be required for our qualified pension plan during 2021. The amount of required contributions to our qualified pension plan in 2022 and beyond will depend on a variety of factors, most of which are beyond our control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations. We occasionally make voluntary contributions in addition to required contributions. We last made a voluntary contribution to the trust for our qualified pension plan during 2018. We ~~may~~could make a voluntary contribution to the trust for our qualified pension plan in 2021.

Substantially all of our post-retirement health care and life insurance benefits plans are unfunded and are paid by us with available cash. Aggregate benefits paid by us under these plans (net of participant contributions and direct subsidy receipts) were $211 million, $241 million and $249 million for the years ended December 31, 2020, 2019 and 2018, respectively. For additional information on our expected future benefits payments for our post-retirement benefit plans, please see Note 10—Employee Benefits to our consolidated financial statements in Item 8 of Part II of our Annual Report Form 10-K for the year ended December 31, 2020.

The capital markets have been volatile since early 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 2021, our expected annual long-term rate of return on the pension plan assets is 5.5%. However, actual returns could be substantially different.

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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. During ~~2020 and as~~the third quarter of ~~March 31,~~ 2021, we determined that lump sum pension settlement payments for 2021 are expected to exceed the settlement ~~threshold was~~threshold. As a result, in the third quarter of 2021 we recognized a non-cash settlement charge of $57 million to accelerate the recognition of a portion of the previously unrecognized actuarial losses in the qualified pension plan, which has been allocated and reflected in other (expense) income, net in our consolidated statement of operations for the three and nine months ended September 30, 2021. The amount of any future non-cash settlement charges after 2021 will be dependent on several factors, including the total amount of our future lump sum benefit payments.

On October 19, 2021, we, as sponsor of the Combined Pension Plan, along with the Plan’s independent fiduciary, entered into an agreement committing the Plan to use a portion of its plan assets to purchase an annuity from an insurance company (the "Insurer") to transfer approximately $1.4 billion of the Plan’s pension liabilities. This agreement will irrevocably transfer to the Insurer future Plan benefit obligations for approximately 22,600 U.S. Lumen participants ("Transferred Participants") effective on December 31, 2021. This annuity transaction will be funded entirely by existing Plan assets.

The transaction will result in Lumen recognizing a noncash settlement charge in the fourth quarter of 2021 to accelerate recognition of a portion of the actuarial loss included in accumulated other comprehensive loss. We currently estimate that the pension settlement charges recognized in the fourth quarter will be approximately $350 million, dependent upon the completion of the annuity transaction discussed above and the amount of lump sum pension payments made as discussed in Note 10—Employee Benefits to our consolidated financial statements in Item 8 of Part II of the same report. The settlement charge will be recognized in other (expense) income, net in our consolidated statements of operations. The Plan will be remeasured for the annuity and lump sum payments in the fourth quarter of 2021.

See Note 10—Employee Benefits to our consolidated financial statements in Item 8 of Part II of the same report for more information.

Future Contractual Obligations

For information regarding our estimated future contractual obligations, see the MD&A discussion included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2020.

Federal Broadband Support Programs

Since 2015, we have been receiving over $500 million annually through Phase II of the CAF, a program that will end this year. In connection with the CAF funding, we must meet certain specified infrastructure buildout requirements in 33 states by the end of 2021, which requires substantial capital expenditures. While we are on track to meet the requirements this year, we cannot provide any assurances that we will be able to timely meet all of our mandated buildout requirements. In accordance with the Federal Communications Commission's ("FCC") January 2020 order, we elected to receive an additional year of CAF Phase II funding in 2021.

In early 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. On December 7, 2020, the FCC allocated in its RDOF Phase I auction $9.2 billion in support payments over 10 years to deploy high speed broadband to over 5.2 million unserved locations. We won bids for RDOF Phase I support payments of $26 million, annually. ~~These~~Support payments under the RDOF Phase I ~~support payments~~program are expected to begin January 1, ~~2022.~~2022, provided we receive regulatory approvals as anticipated. Assuming we timely complete our pending divestiture of ILEC properties on the terms described herein, we expect a portion of these payments will accrue to the purchaser of those properties. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

For additional information on these programs, see (i) "Business—Regulation" in Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020 and (ii) "Risk Factors—Risks Affecting Our Liquidity and Capital Resources" in Item 1A of Part I of the same Annual Report.

As part of its proposed infrastructure plan, the Biden Administration has proposed investing ~~$100 billion~~substantial sums to expand internet access in the United States. The ~~plan~~Administration seeks several other changes that could impact us, including proposals designed to increase competition among broadband ~~providers.~~providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the Obama Administration. Proposed legislation or regulations, if enacted or adopted, could impact us or the scope of our services. Currently, we believe it is premature to speculate on the potential impact of these proposals on us.

Historical Information

The following table summarizes our consolidated cash flow activities:


		Three Months Ended March 31,			$ Change		Nine Months Ended September 30,			$ Change
		2021		2020			2021		2020
		(Dollars in millions)					(Dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	1,525	1,299	226	Net cash provided by operating activities	$	4,894	4,842	52
Net cash used in investing activities	Net cash used in investing activities	$	(675)	(939)	(264)	Net cash used in investing activities	$	(1,949)	(2,840)	(891)
Net cash used in financing activities	Net cash used in financing activities	$	(774)	(486)	288	Net cash used in financing activities	$	(2,668)	(3,172)	(504)

Operating Activities

Net cash provided by operating activities increased by ~~$226~~$52 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2020 primarily due to higher net income, higher ~~accrued payroll and accrued interest,~~collections on accounts receivable and lower payments on accounts payable, partially offset by decreased ~~collections~~depreciation and amortization, gain on ~~accounts receivable~~early retirement of debt and increased cash payments for post-retirement benefits. Cash provided by operating activities is subject to variability period over period as a result of timing differences, including with respect to the collection of receivables and payments of interest expense, accounts payable and bonuses.

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Investing Activities

Net cash used in our investing activities decreased by ~~$264~~$891 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2020 primarily due to a decrease in capital expenditures.

Financing Activities

Net cash used in financing activities ~~increased~~decreased by ~~$288~~$504 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2020 primarily due to ~~higher~~lower payments of long-term debt, partially offset by lower net proceeds from issuance of long-term debt, ~~issuances in the first quarter of 2020 and the change in net activity of~~increased payments on our revolving line of credit, ~~agreement, partially offset by a decrease in payments~~and repurchases of ~~long-term debt year-over-year.~~common stock.

See Note 5—7—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 reflected in the balance sheets of our subsidiaries but are eliminated in consolidation and therefore not recognized on our consolidated balance sheets.

We also are involved in various legal proceedings that could substantially impact our financial position. See Note ~~12—~~15—Commitments, Contingencies and Other Items for additional information.

Market Risk

As of ~~March 31,~~September 30, 2021, we are 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) swap our exposure to changing 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 ~~March 31,~~September 30, 2021, we did not hold or issue derivative financial instruments for trading or speculative purposes.

In 2019, we executed swap transactions that reduced our exposure to floating rates with respect to ~~$4.0~~$4 billion principal amount of floating rate debt. See Note ~~10—~~13—Derivative Financial Instruments to our consolidated financial statements in Item 1 of Part I of this report for additional disclosure regarding our hedging arrangements.

As of ~~March 31,~~September 30, 2021, we had approximately ~~$9.7~~$9.6 billion floating rate debt potentially subject to LIBOR, ~~$4.0~~$4 billion of which was subject to the above-described hedging arrangements. A hypothetical increase of 100 basis points in LIBOR relating to our ~~$5.7~~$5.6 billion of unhedged floating rate debt would, among other things, decrease our annual pre-tax earnings by approximately ~~$57~~$56 million. Additionally, our credit agreements contain language about a possible change from LIBOR to an alternative index.

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. 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 recognize gains or losses from international

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transactions. Accordingly, changes in foreign currency rates relative to the U.S. dollar could adversely impact our operating results.

Certain shortcomings are inherent in the method of analysis presented in the computation of exposures to market risks. Actual values may differ materially from those 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 ~~March 31,~~September 30, 2021.

Other Information

Our website is www.lumen.com. We routinely post important investor information in the "Investor Relations" section of our website at ir.lumen.com. The information contained on, or that may be accessed through, our website is not part of this quarterly report. You may obtain free electronic copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed by us or our affiliates Level 3 Parent, LLC and Qwest Corporation, and all amendments to those reports in the "Investor Relations" section of our website (ir.lumen.com) under the headings "FINANCIALS" and "SEC Filings." These reports are available on our website as soon as reasonably practicable after they are electronically filed with the SEC. From time to time, we also use our website to webcast our earnings calls and certain of our meetings with investors or other members of the investment community.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure this information is accumulated and communicated to our senior management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer, Jeff K. Storey, and our Executive Vice President and Chief Financial Officer, Indraneel Dev, evaluated the effectiveness of our disclosure controls and procedures as of ~~March 31,~~September 30, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective, as of ~~March 31,~~September 30, 2021, in providing reasonable assurance the information required to be disclosed by us in this report was accumulated and communicated in the manner provided above.

Changes in Internal Control Over Financial Reporting

~~There~~Other than the implementation of controls over reporting for the assets and liabilities to be sold through our two previously announced divestitures, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the ~~first~~third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. By their nature, our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management's control objectives.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information contained in Note ~~12—~~15—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 1215 may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing in such Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us. For more information, see “Risk Factors—Risks Relating to Legal and Regulatory Matters—Our pending legal proceedings could have a material adverse impact on our financial condition and operating results, on the trading price of our securities and on our ability to access the capital markets” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition or future results. We urge you to carefully consider (i) the other information set forth in this report and (ii) the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2020, as supplemented by the following additional risk factors.

We may not be able to complete our pending divestitures or realize the benefits of these transactions.

On July 25, 2021, certain of our affiliates agreed to sell our Latin American business and enter into various post-closing commercial agreements with the purchaser designed to ensure the continuity of services to customers, and on August 3, 2021, Lumen and certain of its subsidiaries agreed to sell a substantial portion of their incumbent local exchange business and to enter into several post-closing commercial agreements. The completion of both of these divestitures is subject to receipt of several regulatory approvals and other customary closing conditions, the satisfaction of which is not assured. The pendency of these divestitures could impact us in several ways, including impacting relationships with our customers, vendors and employees, restricting our operations and diverting management’s attention from operating our business in the ordinary course. Even if we successfully complete these divestitures, we may (i) incur greater tax or other costs or realize fewer benefits than anticipated under the purchase agreements and the post-closing commercial agreements that we plan to enter into with the purchasers and (ii) experience operational difficulties segregating the divested assets from our retained assets. Moreover, these divestitures will reduce our future cash flows.

COVID-19 vaccination requirements could potentially result in personnel shortages or disruptions.

Effective December 8, 2021, we plan to comply with President Biden’s September 2021 Executive Order requiring covered employees of federal contractors to be vaccinated against COVID-19. This mandate will require all of our domestic employees to be vaccinated against COVID-19 or face termination, unless a religious or medical exemption applies. This requirement could make it more difficult to retain or attract employees who oppose vaccination mandates and are ineligible for an exemption. In addition, certain of our contractors and vendors may also be subject to this Executive Order. It is possible that any resulting personnel shortages could have a material adverse impact on our operating results or financial condition.

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

Issuer Purchases of Equity Securities

Effective August 3, 2021, our Board of Directors authorized a 24-month program to repurchase up to an aggregate of $1.0 billion of our outstanding common stock. During the three and nine months ended September 30, 2021, we repurchased 73.8 million shares of our outstanding common stock in the open market. These shares were repurchased for an aggregate market price of $909 million, or an average purchase price of $12.32 per share. The figures set forth above and displayed in the table below exclude 3.5 million shares that, as of September 30, 2021, we had agreed to purchase under the program for an additional $45 million in transactions that settled in October of 2021. All repurchased common stock has been retired. For additional information, see Note 17—Repurchases of Lumen Common Stock to our consolidated financial statements included in Item 1 of Part I of this report.

The following table contains information about shares of our previously-issued common stock that were repurchased under our above-described Stock Repurchase Program:


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
Period
Aug-21	34,520,166	$	12.15	34,520,166	$	580,738,105
Sep-21	39,285,699	$	12.47	39,285,699	$	90,779,031
Total	73,805,865	$	12.32	73,805,865

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 ~~first~~third quarter of 2021 to satisfy the related tax withholding obligations:

Total Number of
Shares Withheld
for Taxes Average Price Paid
Per Share
Period
Jan-21 23,948 $ 11.04
Feb-21 974,377 $ 11.94
Mar-21 2,404,398 $ 12.52
Total 3,402,723


	Total Number of Shares Withheld for Taxes	Average Price Paid Per Share
Period
Jul-21	17,087	$	13.20
Aug-21	182,296	$	11.85
Sep-21	13,644	$	12.42
Total	213,027

ITEM 5. OTHER INFORMATION

~~As we continue to evaluate our disclosure obligations under Section 13(r) of the Exchange Act in connection with the matter outlined below, the~~The following disclosure is being made under Section 13(r) of the Exchange Act out of an abundance of caution:

We are required to engage on a regular basis with the Russian Federal Security Service (“FSB”) in the FSB’s official capacity of regulating our use of technology in Russia in connection with providing commercial services therein through our local subsidiary. On March 2, 2021, the U.S. Secretary of State designated the FSB as a party subject to the provisions of U.S. Executive Order No. 13382 issued in 2005. ~~There are no~~We do not derive any gross revenues or net profits directly associated with any such dealings by us with the FSB and all such dealings are explicitly authorized by General License 1B issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control. We plan to continue these activities as required to continue to provide commercial services in Russia.

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ITEM 6. EXHIBITS

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


Exhibit Number			Description
31.1*			Certification of the Chief Executive Officer of Lumen Technologies, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Certification of the Chief Financial Officer of Lumen Technologies, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*			Certification of the Chief Executive Officer of Lumen Technologies, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*			Certification of the Chief Financial Officer of Lumen Technologies, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*			Financial statements from the Quarterly Report on Form 10-Q of Lumen Technologies, Inc. for the period ended ~~March 31,~~September 30, 2021, formatted in Inline XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders' Equity and (vi) the Notes to Consolidated Financial Statements.
104*			Cover page formatted as Inline XBRL and contained in Exhibit 101.

* Exhibit filed herewith.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on ~~May 5,~~November 3, 2021.


			LUMEN TECHNOLOGIES, INC.
			By:			/s/ ~~Eric J. Mortensen~~Andrea Genschaw
						~~Eric J. Mortensen~~Andrea Genschaw Senior Vice President - Controller (Principal Accounting Officer)

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