UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 30, 2020~~March 31, 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. 001-03040

QWEST CORPORATION

(Exact name of registrant as specified in its charter)

Colorado

84-0273800

(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

~~6.125% Notes Due 2053~~

~~CTY~~

~~New York Stock Exchange~~

~~7.00% Notes Due 2056~~

~~CTAA~~

~~New York Stock Exchange~~

6.5% Notes Due 2056

CTBB

New York Stock Exchange

6.75% Notes Due 2057

CTDD

New York Stock Exchange

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

☐

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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. ☐

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

On ~~November~~May 5, ~~2020,~~2021, there was 1 share of common stock outstanding.

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TABLE OF CONTENTS



	Special Note Regarding Controlling Stockholder	4
	Special Note Regarding Forward-Looking Statements	4
Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated Statements of Operations (Unaudited)	7
	Consolidated Balance Sheets (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	9
	Consolidated Statements of Stockholder's Equity (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited) *	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2422
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3532
Item 4.	Controls and Procedures	3532
Part II.	Other Information
Item 1.	Legal Proceedings	3633
Item 1A.	Risk Factors	3633
Item 6.	Exhibits	3834
Signature		3935

* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial ~~Statements.~~Statements, unless otherwise specified.

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Special Note Regarding Controlling Stockholder

~~All references herein to CenturyLink, Lumen Technologies or Lumen are to CenturyLink, Inc., our ultimate controlling stockholder.~~ On September 14, 2020, our controlling shareholder, CenturyLink, Inc. ~~announced the "Lumen" brand launch and effective September 18, 2020 CenturyLink, Inc. began trading~~, commenced operating under the ~~ticker symbol "LUMN".~~brand name "Lumen" and on January 22, 2021, officially changed its legal name to "Lumen Technologies, Inc." As a result, CenturyLink, Inc. is now “Lumen Technologies, Inc.”, and sometimes referred to herein as "Lumen Technologies", or ~~simply "Lumen"~~“Lumen”. ~~The legal name "CenturyLink, Inc." is expected to be formally changed to "Lumen Technologies, Inc." upon satisfying all applicable legal requirements.~~

Special Note Regarding Forward-Looking Statements

This report and other documents filed by us under the federal securities law include, and future oral or written statements or press releases by us and our management may include, forward-looking statements about our business, financial condition, operating results ~~and~~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, debt leverage, capital allocation plans, financing alternatives and sources, and pricing plans; and

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

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

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

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•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 ~~on our business from~~of possible security breaches, service outages, system failures, ~~equipment breakage,~~ or similar events impacting our network or the availability and quality of our services;

•the effects of ongoing changes in the regulation of the communications industry, including the outcome of legislative, regulatory or judicial proceedings relating to content liability standards, intercarrier compensation, ~~interconnection obligations, special access,~~ universal service, broadband deployment, data protection, privacy and net neutrality;

•our ability to effectively ~~adjust~~retain and hire key personnel and to ~~changes in the communications industry and changes in the composition of our markets and product mix;~~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 ~~delevering~~deleveraging strategy;

•changes in our operating plans, corporate strategies or capital allocation plans, whether based upon COVID-19 disruptions, changes in our cash flows, cash requirements, financial performance, financial position, market conditions or otherwise;

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

•the negative impact of increases in the costs of Lumen’s pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics, ~~regulations or disruptions caused by the COVID-19 pandemic;~~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 debt credit ratings, unstable markets or otherwise;

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

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

•Lumen's ability to meet evolving environmental, social and governance ("ESG") expectations and benchmarks, and effectively communicate and implement its 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;

•any adverse developments in legal or regulatory proceedings involving us or our affiliates, including Lumen Technologies;

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•~~Lumen's ability to obtain approvals to implement their new brand name change;~~

•changes in tax, communications, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels, including those ~~that might occur after~~arising from pending proposals of the ~~U.S. elections on November 3, 2020;~~Biden Administration to increase infrastructure spending and federal income tax rates;

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

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

•the potential adverse ~~effect~~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 ~~set forth or~~ referenced in "Risk Factors" in Item 1A of Part III of ~~this report~~our Annual Report on Form 10-K for the year ended December 31, 2020 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

QWEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


		Three Months Ended September 30,			Nine Months Ended September 30,			Three Months Ended March 31,
		2020		2019	2020	2019		2021		2020
		(Dollars in millions)
OPERATING REVENUE	OPERATING REVENUE						OPERATING REVENUE
Operating revenue	Operating revenue	$	1,200	1,310	3,642	3,926	Operating revenue	$	1,170	1,235
Operating revenue - affiliates	Operating revenue - affiliates	601		701	1,876	2,143	Operating revenue - affiliates	622		683
Total operating revenue	Total operating revenue	1,801		2,011	5,518	6,069	Total operating revenue	1,792		1,918
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)	528		602	1,491	1,749	Cost of services and products (exclusive of depreciation and amortization)	439		473
Selling, general and administrative	Selling, general and administrative	128		131	410	445	Selling, general and administrative	107		143
Operating expenses - affiliates	Operating expenses - affiliates	198		186	557	600	Operating expenses - affiliates	194		195
Depreciation and amortization	Depreciation and amortization	330		344	985	1,017	Depreciation and amortization	317		328
Total operating expenses	Total operating expenses	1,184		1,263	3,443	3,811	Total operating expenses	1,057		1,139
OPERATING INCOME	OPERATING INCOME	617		748	2,075	2,258	OPERATING INCOME	735		779
OTHER (EXPENSE) INCOME	OTHER (EXPENSE) INCOME						OTHER (EXPENSE) INCOME
Interest expense	Interest expense	(69)		(95)	(219)	(286)	Interest expense	(48)		(75)
Interest expense - affiliates, net	Interest expense - affiliates, net	(18)		(15)	(50)	(46)	Interest expense - affiliates, net	(31)		(16)
Other (expense) income, net		(18)		5	(31)	19
Other expense, net							Other expense, net	(6)		(8)
Total other expense, net	Total other expense, net	(105)		(105)	(300)	(313)	Total other expense, net	(85)		(99)
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	512		643	1,775	1,945	INCOME BEFORE INCOME TAXES	650		680
Income tax expense	Income tax expense	133		166	463	504	Income tax expense	168		177
NET INCOME	NET INCOME	$	379	477	1,312	1,441	NET INCOME	$	482	503

See accompanying notes to consolidated financial statements.

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QWEST CORPORATION

CONSOLIDATED BALANCE SHEETS


		September 30, 2020 (Unaudited)		December 31, 2019		March 31, 2021 (Unaudited)		December 31, 2020
		(Dollars in millions)				(Dollars in millions)
ASSETS	ASSETS				ASSETS
CURRENT ASSETS	CURRENT ASSETS				CURRENT ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	6	2	Cash and cash equivalents	$	10	14
Accounts receivable, less allowance of $48 and $39		402		514
Advances to affiliates		0		1,842
Accounts receivable, less allowance of $53 and $61					Accounts receivable, less allowance of $53 and $61	340		364
Other	Other	133		128	Other	143		122
Total current assets	Total current assets	541		2,486	Total current assets	493		500
Property, plant and equipment, net of accumulated depreciation of $8,168 and $7,746		8,321		8,170
Property, plant and equipment, net of accumulated depreciation of $8,522 and $8,347					Property, plant and equipment, net of accumulated depreciation of $8,522 and $8,347	8,258		8,309
GOODWILL AND OTHER ASSETS	GOODWILL AND OTHER ASSETS				GOODWILL AND OTHER ASSETS
Goodwill	Goodwill	9,360		9,360	Goodwill	9,360		9,360
Other intangible assets, net	Other intangible assets, net	454		779	Other intangible assets, net	245		343
Other, net	Other, net	178		204	Other, net	149		147
Total goodwill and other assets	Total goodwill and other assets	9,992		10,343	Total goodwill and other assets	9,754		9,850
TOTAL ASSETS	TOTAL ASSETS	$	18,854	20,999	TOTAL ASSETS	$	18,505	18,659
LIABILITIES AND STOCKHOLDER'S EQUITY	LIABILITIES AND STOCKHOLDER'S EQUITY				LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES	CURRENT LIABILITIES				CURRENT LIABILITIES
Current maturities of long-term debt	Current maturities of long-term debt	$	1	1,105	Current maturities of long-term debt	$	948	948
Accounts payable	Accounts payable	293		403	Accounts payable	231		292
Advances from affiliates					Advances from affiliates	520		592
Note payable - affiliate	Note payable - affiliate	1,130		1,069	Note payable - affiliate	1,158		1,130
Accrued expenses and other liabilities	Accrued expenses and other liabilities				Accrued expenses and other liabilities
Salaries and benefits	Salaries and benefits	164		276	Salaries and benefits	147		178
Income and other taxes	Income and other taxes	129		94	Income and other taxes	125		95
Other	Other	196		261	Other	190		186
Current portion of deferred revenue	Current portion of deferred revenue	185		201	Current portion of deferred revenue	182		183
Total current liabilities	Total current liabilities	2,098		3,409	Total current liabilities	3,501		3,604
LONG-TERM DEBT	LONG-TERM DEBT	4,126		4,846	LONG-TERM DEBT	2,156		2,386
DEFERRED CREDITS AND OTHER LIABILITIES	DEFERRED CREDITS AND OTHER LIABILITIES				DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net	Deferred income taxes, net	1,178		1,198	Deferred income taxes, net	1,242		1,249
Affiliate obligations, net	Affiliate obligations, net	655		717	Affiliate obligations, net	642		637
Other	Other	720		712	Other	684		685
Total deferred credits and other liabilities	Total deferred credits and other liabilities	2,553		2,627	Total deferred credits and other liabilities	2,568		2,571
COMMITMENTS AND CONTINGENCIES (Note 8)
COMMITMENTS AND CONTINGENCIES (Note 7)					COMMITMENTS AND CONTINGENCIES (Note 7)	0		0
STOCKHOLDER'S EQUITY	STOCKHOLDER'S EQUITY				STOCKHOLDER'S EQUITY
Common stock - 1 share without par value, owned by Qwest Services Corporation	Common stock - 1 share without par value, owned by Qwest Services Corporation	10,050		10,050	Common stock - 1 share without par value, owned by Qwest Services Corporation	10,050		10,050
Retained earnings	Retained earnings	27		67	Retained earnings	230		48
Total stockholder's equity	Total stockholder's equity	10,077		10,117	Total stockholder's equity	10,280		10,098
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	18,854	20,999	TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	18,505	18,659

See accompanying notes to consolidated financial statements.

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QWEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Nine Months Ended September 30,				Three Months Ended March 31,
		2020		2019		2021		2020
		(Dollars in millions)				(Dollars in millions)
OPERATING ACTIVITIES	OPERATING ACTIVITIES				OPERATING ACTIVITIES
Net income	Net income	$	1,312	1,441	Net income	$	482	503
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	985		1,017	Depreciation and amortization	317		328
Deferred income taxes	Deferred income taxes	(30)		(96)	Deferred income taxes	(7)		(11)
Provision for uncollectible accounts	Provision for uncollectible accounts	45		36	Provision for uncollectible accounts	7		13
Accrued interest on affiliate note	Accrued interest on affiliate note	61		61	Accrued interest on affiliate note	28		31
Net loss on early retirement of debt	Net loss on early retirement of debt	36		0	Net loss on early retirement of debt	8		12
Changes in current assets and liabilities:	Changes in current assets and liabilities:				Changes in current assets and liabilities:
Accounts receivable	Accounts receivable	70		5	Accounts receivable	17		36
Accounts payable	Accounts payable	(34)		(14)	Accounts payable	(7)		(20)
Accrued income and other taxes	Accrued income and other taxes	12		13	Accrued income and other taxes	30		67
Other current assets and liabilities, net	Other current assets and liabilities, net	(193)		(88)	Other current assets and liabilities, net	(64)		(154)
Other current assets and liabilities - affiliates, net	Other current assets and liabilities - affiliates, net	(17)		(14)	Other current assets and liabilities - affiliates, net	0		(16)
Changes in other noncurrent assets and liabilities, net	Changes in other noncurrent assets and liabilities, net	45		6	Changes in other noncurrent assets and liabilities, net	(14)		10
Changes in affiliate obligations, net	Changes in affiliate obligations, net	(54)		(67)	Changes in affiliate obligations, net	5		(18)
Other, net	Other, net	13		17	Other, net	12		4
Net cash provided by operating activities	Net cash provided by operating activities	2,251		2,317	Net cash provided by operating activities	814		785
INVESTING ACTIVITIES	INVESTING ACTIVITIES				INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(885)		(777)	Capital expenditures	(219)		(317)
Changes in advances to affiliates	Changes in advances to affiliates	1,842		(456)	Changes in advances to affiliates	0		1,147
Proceeds from sale of property, plant and equipment and other assets	Proceeds from sale of property, plant and equipment and other assets	2		24	Proceeds from sale of property, plant and equipment and other assets	8		0
Net cash provided by (used in) investing activities		959		(1,209)
Net cash (used in) provided by investing activities					Net cash (used in) provided by investing activities	(211)		830
FINANCING ACTIVITIES	FINANCING ACTIVITIES				FINANCING ACTIVITIES
Payments of long-term debt	Payments of long-term debt	(1,860)		(10)	Payments of long-term debt	(235)		(1,109)
Dividends paid	Dividends paid	(1,350)		(1,100)	Dividends paid	(300)		(500)
Changes in advances from affiliates	Changes in advances from affiliates	4		0	Changes in advances from affiliates	(72)		0
Net cash used in financing activities	Net cash used in financing activities	(3,206)		(1,110)	Net cash used in financing activities	(607)		(1,609)
Net increase (decrease) in cash, cash equivalents and restricted cash		4		(2)
Net (decrease) increase in cash, cash equivalents and restricted cash					Net (decrease) increase in cash, cash equivalents and restricted cash	(4)		6
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	4		7	Cash, cash equivalents and restricted cash at beginning of period	15		4
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	8	5	Cash, cash equivalents and restricted cash at end of period	$	11	10
Supplemental cash flow information:	Supplemental cash flow information:				Supplemental cash flow information:
Income taxes paid, net	Income taxes paid, net	$	(473)	(584)	Income taxes paid, net	$	(172)	(179)
Interest paid (net of capitalized interest of $24 and $19)		$	(232)	(281)
Interest paid (net of capitalized interest of $5 and $10)					Interest paid (net of capitalized interest of $5 and $10)	$	(37)	(81)

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	$	6	3	Cash and cash equivalents	$	10	8
Restricted cash included in Other, net noncurrent assets		2		2
Restricted cash - noncurrent					Restricted cash - noncurrent	1		2
Total	Total	$	8	5	Total	$	11	10

See accompanying notes to consolidated financial statements.

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QWEST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(UNAUDITED)


		Three Months Ended September 30,			Nine Months Ended September 30,			Three Months Ended March 31,
		2020		2019	2020	2019		2021		2020
		(Dollars in millions)						(Dollars in millions)
COMMON STOCK	COMMON STOCK						COMMON STOCK
Balance at beginning of period	Balance at beginning of period	$	10,050	10,050	10,050	10,050	Balance at beginning of period	$	10,050	10,050
Balance at end of period	Balance at end of period	10,050		10,050	10,050	10,050	Balance at end of period	10,050		10,050
RETAINED EARNINGS (ACCUMULATED DEFICIT)	RETAINED EARNINGS (ACCUMULATED DEFICIT)						RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance at beginning of period	Balance at beginning of period	73		104	67	(182)	Balance at beginning of period	48		67
Net income	Net income	379		477	1,312	1,441	Net income	482		503
Cumulative effect of adoption of ASU 2016-02, Leases		—		—	—	22
Cumulative effect of adoption of ASU 2016-13, Measurement of Credit losses, net $1 tax		—		—	3	—
Dividends declared to Qwest Services Corporation		(425)		(400)	(1,350)	(1,100)
Cumulative net effect of adoption of ASU 2016-13, Measurement of Credit Losses, net $(1) tax							Cumulative net effect of adoption of ASU 2016-13, Measurement of Credit Losses, net $(1) tax	—		3
Dividends declared and paid to Qwest Services Corporation							Dividends declared and paid to Qwest Services Corporation	(300)		(500)
Other	Other	—		—	(5)	—	Other	0		(5)
Balance at end of period	Balance at end of period	27		181	27	181	Balance at end of period	230		68
TOTAL STOCKHOLDER'S EQUITY	TOTAL STOCKHOLDER'S EQUITY	$	10,077	10,231	10,077	10,231	TOTAL STOCKHOLDER'S EQUITY	$	10,280	10,118

See accompanying notes to consolidated financial statements.

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QWEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Unless the context requires otherwise, references in this report to "QC" refer to Qwest Corporation, references to "Qwest," "we," "us," and "our" refer to Qwest Corporation and its consolidated subsidiaries, references to "QSC" refer to our direct parent company, Qwest Services Corporation and its consolidated subsidiaries, and references to "Lumen Technologies" or "Lumen" refer to our ultimate parent company, ~~CenturyLink,~~Lumen Technologies, Inc. and its consolidated subsidiaries including Level 3 Parent, LLC, referred to as "Level 3".

(1) Background

General

We are an integrated communications company engaged primarily in providing a broad array of communications services to our ~~residential~~mass markets and business customers. Our specific products and services are detailed in Note ~~7—Products and Services~~ 3—Revenue Recognition of this report.

We generate the majority of our total consolidated operating revenue from services provided in the 14-state region of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. We refer to this region as our local service area.

Basis of Presentation

Our consolidated balance sheet as of December 31, ~~2019,~~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; however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations and cash flows for the first ~~nine~~three months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (referred to herein as affiliates) have not been eliminated.

We reclassified certain prior period amounts to conform to the current period presentation, including ~~the categorization of~~ our revenue by product and service categories. See Note 3—Revenue Recognition for additional information. These changes had no impact on total operating revenue, total operating expenses or net income (loss) for ~~the nine months ended September 30, 2020 and 2019.~~any period.

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

Segments

Our operations are integrated into and reported as part of Lumen Technologies. Lumen's chief operating decision maker ("CODM") is our CODM but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the SEC. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we have 1 reportable segment.

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Summary of Significant Accounting Policies

The significant accounting policy below is in addition to the significant accounting policies described in Note 1—Background and Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

~~Change in Accounting Policy~~

During the first quarter of 2020, we elected to change the presentation for taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, including federal and certain state Universal Service Fund ("USF") regulatory fees, to present all such taxes on a net basis in our statement of operations. Prior to the first quarter of 2020, we assessed whether we were the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business. The previous policy resulted in presenting such USF fees on a gross basis within operating revenue and cost of services and products, and all other significant taxes on a net basis. We applied this change in accounting policy retrospectively during the first quarter of 2020. As a result, we have decreased both operating revenue and cost of services and products by $28 million and $28 million for the three months ended September 30, 2020 and 2019, respectively, and $75 million and $76 million for the nine months ended September 30, 2020 and 2019, respectively. The change had no impact on operating income or net income in our consolidated statements of operations. Refer to our Form 8-K filing dated May 7, 2020 for further information.

We changed our policy to present such taxes on the net basis and believe the new policy is preferable because of the historical and potential future regulatory rate changes outside of our control resulting in significant variability in tax and fee revenue that are not indicative of our operating performance. We believe that net presentation provides the most useful and transparent financial information and improves comparability and consistency of financial results.

Operating Lease Income

Qwest leases various data transmission capacity, office facilities, switching facilities and other network sites to third parties under operating leases. Lease and sublease income are included in operating revenue in our consolidated statements of operations.

For both the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ our gross rental income was ~~$77 million and~~ $79 million, ~~respectively,~~ which represents approximately 4% of our operating revenue for the three months ended September 30, 2020 and 2019. For the nine months ended September 30, 2020 and 2019, our gross rental income was $234 million and $242 million, respectively, which represents approximately 4% of our operating revenue for the nine months ended September 30, 2020 and 2019.each period.

Recently Adopted Accounting Pronouncements

Debt

~~In June 2016,~~

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 Accounting Standards Board ("FASB") issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments~~".financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The ~~primary impact~~adoption of ASU ~~2016-13 for us is a change in the model for the recognition of credit losses related~~2020-09 did not have an impact to our consolidated financial instruments from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires us to estimate the total credit losses expected on the portfolio of financial instruments.statements.

Investments

~~We adopted~~

~~ASU 2016-13~~ onOn January 1, ~~2020,~~2021, we adopted ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and ~~recognized~~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 ~~cumulative adjustment~~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, 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 an impact to our ~~retained earnings as of the date of adoption of $3 million net of tax effect. Please refer to Note 4—Credit Losses on Financial Instruments for more information.~~consolidated financial statements.

~~Recently Issued Accounting Pronouncements~~Income taxes

~~In December 2019, the FASB issued~~On January 1, 2021, we adopted ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic ~~740~~740)" ("ASU 2019-12"). This ASU ~~2019-12~~ removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU 2019-12 ~~will become effective for us in the first quarter of fiscal 2021 and early adoption is permitted. We do~~did not ~~believe the adoption will~~ have a ~~significant~~material impact onto 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 $3 million, net of tax effect of $1 million. Please refer to Note 4—Credit Losses on Financial Instruments for more information.

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Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period. Subject to certain criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications and hedging accounting relationships made until December 31, 2022. WeThese 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. As of March 31, 2021, we are evaluating ~~ASU 2020-04's applicability to relevant transactions referencing~~ the ~~London Inter-bank Offering Rate ("LIBOR") or another reference rate expected to be discontinued~~existing contracts and the ~~resulting~~ impact on ~~our~~ consolidated financial statements.

(2) Goodwill, Customer Relationships and Other Intangible Assets

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


		September 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
		(Dollars in millions)				(Dollars in millions)
Goodwill	Goodwill	$	9,360	9,360	Goodwill	$	9,360	9,360
Customer relationships, less accumulated amortization of $5,520 and $5,231		$	179	468
Other intangible assets, less accumulated amortization of $1,813 and $1,780		275		311
Customer relationships, less accumulated amortization of $5,699 and $5,611					Customer relationships, less accumulated amortization of $5,699 and $5,611	$	0	88
Other intangible assets, less accumulated amortization of $1,850 and $1,831					Other intangible assets, less accumulated amortization of $1,850 and $1,831	245		255
Total other intangible assets, net	Total other intangible assets, net	$	454	779	Total other intangible assets, net	$	245	343

Substantially all of our goodwill was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We assess our goodwill for impairment annually as of October 31, 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 in periods in which the carrying value of equity exceeds the estimated fair value of equity, limited to the amount of goodwill. ~~Our annual~~Goodwill is evaluated for impairment ~~assessment date for goodwill is October 31,~~ at ~~which date we assess goodwill at our~~the reporting ~~unit. In reviewing the criteria for reporting units,~~unit level, and we have determined that we ~~are~~have 1 reporting unit.

Because Lumen's low stock price was a trigger for impairment testing, we estimated the fair value of our operations using only the market approach in the quarter ended March 31, 2019. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry, which have historically supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple within this range. As of March 31, ~~2019, based on our assessments performed as described above, we concluded that our goodwill was not impaired as of that date.~~

The market multiples approach that we used in the quarter ended March 31, 2019 incorporated significant estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of certain cost synergies. In developing the market multiple, we also considered observed trends of our industry participants. Our assessment included many qualitative factors that required significant judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the size of our impairments.

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

~~As of September 30, 2020,~~2021, the gross carrying amount of goodwill, customer relationships and other intangible assets was ~~$17.1~~$17.2 billion. The total amortization expense for intangible assets for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ totaled ~~$120~~$110 million and ~~$133 million, respectively, and for the nine months ended September 30, 2020 and 2019 totaled $365 million and $404~~$124 million, respectively.

We estimate that total amortization expense for intangible assets for the years ending December 31, ~~2020~~2021 through ~~2024~~2025 will be as follows:


		(Dollars in millions)			(Dollars in millions)
2020 (remaining three months)		$	114
2021		163
2021 (remaining nine months)				2021 (remaining nine months)	$	64
2022	2022	58		2022	85
2023	2023	46		2023	60
2024	2024	34		2024	12
2025				2025	10

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(3) Revenue Recognition

Beginning in the first quarter of 2021, we categorize our products, services and revenue among the following 4 categories:

•Voice and Other, which includes primarily local voice services, private line and other legacy services. This category also includes Universal Service Fund ("USF") and Connect America Fund Phase II ("CAF II") support payments and other operating revenue. We receive support payments from state USF programs and from the federal CAF II program. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services. During the three months ended March 31, 2021, we recorded approximately $36 million of revenue from the CAF II program that will end as of December 31, 2021.

•Fiber Infrastructure Services, which includes high speed, fiber-based and lower speed DSL-based broadband services, and optical network services;

•IP and Data Services, which consists primarily of Ethernet services;

•Affiliate Services, which are telecommunication services that we also provide to external customers. In addition, we provide to our affiliates computer system development and support services, network support and technical services.

From time to time, we may change the categorization of our products and services.

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Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following table provides our total revenue by product and service category as well as the amount of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(Dollars in millions)
Total revenue $ 1,801 2,011 5,518 6,069
Adjustments for non-ASC 606 revenue (1)
(118) (123) (360) (375)
Total revenue from contracts with customers $ 1,683 1,888 5,158 5,694


	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	$	543	(85)	458	590	(89)	501
Fiber Infrastructure	504		(31)	473	513	(31)	482
IP and Data Services	123		0	123	132	0	132
Affiliate Services	622		(3)	619	683	(1)	682
Total revenue	$	1,792	(119)	1,673	1,918	(121)	1,797

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

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		September 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
		(Dollars in millions)				(Dollars in millions)
Customer receivables (1)	Customer receivables (1)	$	378	430	Customer receivables (1)	$	342	346
Contract assets	Contract assets	13		18	Contract assets	12		13
Contract liabilities	Contract liabilities	297		338	Contract liabilities	301		300

(1)Gross customer receivables, including gross affiliate receivables, of ~~$418~~$387 million and ~~$462~~$396 million, net of allowance for doubtful accounts of ~~$40~~$45 million and ~~$32~~$50 million, at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Contract liabilities consist of consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and March 31, 2020, we recognized ~~$13~~$163 million and ~~$210~~$184 million, respectively, of revenue that was included in contract liabilities as of January 1, ~~2020. During the three~~2021 and ~~nine months ended September 30, 2019, we recognized $4 million and $269 million, respectively, of revenue that was included in contract liabilities as of~~ January 1, ~~2019.~~2020, respectively.

Performance Obligations

As of ~~September 30, 2020,~~March 31, 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 ~~$161~~$167 million. We expect to recognize approximately ~~96%~~99% of this revenue through ~~2022,~~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.

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Contract Costs

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

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs
(Dollars in millions)
Beginning of period balance $ 81 59 87 60
Costs incurred 12 6 15 10
Amortization (15) (8) (15) (8)
End of period balance $ 78 57 87 62


		Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019			Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
		Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs		Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
		(Dollars in millions)						(Dollars in millions)
Beginning of period balance	Beginning of period balance	$	86	64	90	57	Beginning of period balance	$	73	54	86	64
Costs incurred	Costs incurred	39		18	44	29	Costs incurred	11		6	14	6
Amortization	Amortization	(47)		(25)	(47)	(24)	Amortization	(15)		(8)	(16)	(9)
End of period balance	End of period balance	$	78	57	87	62	End of period balance	$	69	52	84	61

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

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of 30 months for ~~consumer~~mass markets customers and average contract life of 29 months for business customers. Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are anticipated to be amortized in the next ~~twelve~~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) Credit Losses on Financial Instruments

In accordance with ASC 326, "Financial Instruments - Credit Losses" ("ASC 326") 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.

In developing our accounts receivable portfolio, 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.

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

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

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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.

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 three months ended March 31, 2021:

Business Consumer Total
(Dollars in millions)
Beginning balance at January 1, 2020 (1)
$ 17 18 35
Provision for expected losses 23 22 45
Write-offs charged against the allowance (16) (22) (38)
Recoveries collected 3 3 6
Ending balance at September 30, 2020 $ 27 21 48

~~______________________________________________________________________~~


	Business		Mass Markets	Total
	(Dollars in millions)
Beginning balance at January 1, 2021 (1)	$	25	36	61
Provision for expected losses	4		3	7
Write-offs charged against the allowance	(7)		(10)	(17)
Recoveries collected	1		1	2
Ending balance at March 31, 2021	$	23	30	53

(1)~~The beginning balance includes~~Due to an internal reorganization of our reporting categories on January 1, 2021, our accounts receivable portfolios were changed to align with changes to how we manage our customers. Allowance for credit losses previously included in the ~~cumulative effect~~Consumer and Business portfolio of $32 million and $4 million, respectively, were reclassified to the ~~adoption~~Mass Markets allowance for credit losses on January 1, 2021, as a result of ~~new credit loss standard.~~this change.

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we ~~increased~~decreased our allowance for credit losses for our business and ~~consumer~~mass markets accounts receivable ~~portfolio~~portfolios primarily due to ~~an increase~~higher write-off activity in ~~historical and expected loss experience, which we believe were predominantly attributable~~the quarter with the easing of prior delays due to ~~the~~ COVID-19 ~~induced economic slowdown. We believe that decreased write-offs (net of recoveries) driven by COVID-19 regulations and programs have further contributed to an increase~~related restrictions in ~~our allowance for credit losses.~~2020.

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(5) Long-Term Debt and Note Payable - Affiliate

The following chart reflects (i) the consolidated long-term debt of Qwest Corporation and its subsidiaries, including finance lease and other obligations, unamortized premiums, net, unamortized debt issuance costs and (ii) note payable - affiliate:


		Interest Rates (1)	Maturities (1)	September 30, 2020		December 31, 2019		Interest Rates (1)	Maturities (1)	March 31, 2021		December 31, 2020
				(Dollars in millions)						(Dollars in millions)
Senior notes	Senior notes	6.125% - 7.750%	2021 - 2057	$	4,105	5,956	Senior notes	6.500% - 7.750%	2021 - 2057	$	2,935	3,170
Term loan (2)	Term loan (2)	LIBOR + 2.00%	2025	100		100	Term loan (2)	LIBOR + 2.00%	2027	215		215
Finance lease and other obligations	Finance lease and other obligations	Various	Various	5		10	Finance lease and other obligations	Various	Various	3		6
Unamortized premiums, net	Unamortized premiums, net			5		0	Unamortized premiums, net			5		5
Unamortized debt issuance costs	Unamortized debt issuance costs			(88)		(115)	Unamortized debt issuance costs			(54)		(62)
Total long-term debt	Total long-term debt			4,127		5,951	Total long-term debt			3,104		3,334
Less current maturities	Less current maturities			(1)		(1,105)	Less current maturities			(948)		(948)
Long-term debt, excluding current maturities	Long-term debt, excluding current maturities			$	4,126	4,846	Long-term debt, excluding current maturities			$	2,156	2,386
Note payable - affiliate	Note payable - affiliate	4.974%	2022	$	1,130	1,069	Note payable - affiliate	4.883%	2022	$	1,158	1,130

(1)As of ~~September 30, 2020.~~March 31, 2021.

(2)Qwest Corporation's Term Loan had an interest ~~rate~~rates of ~~2.150%~~2.110% as of ~~September 30, 2020~~March 31, 2021 and ~~3.800%~~2.150% as of December 31, ~~2019.~~2020.

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Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of ~~September 30, 2020~~March 31, 2021 (excluding unamortized premiums, ~~and discounts~~net and unamortized debt issuance costs and ~~excluding~~ note payable-affiliate) maturing during the following years:


		(Dollars in millions)			(Dollars in millions)
2020 (remaining three months)		$	0
2021		951
2021 (remaining nine months)				2021 (remaining nine months)	$	951
2022	2022	1		2022	1
2023	2023	1		2023	0
2024	2024	1		2024	0
2025 and thereafter		3,256
2025				2025	250
2026 and thereafter				2026 and thereafter	1,951
Total long-term debt	Total long-term debt	$	4,210	Total long-term debt	$	3,153

Redemption of Senior Notes

On ~~September~~February 16, ~~2020, Qwest Corporation partially~~2021, we fully redeemed ~~$250~~all $235 million aggregate principal amount of ~~its~~our outstanding ~~6.625%~~7.000% Senior Notes due ~~2055 (the "6.625% Notes"). On August 7, 2020, Qwest Corporation completed the~~2056. The redemption of the ~~remaining $300 million aggregate principal amount of its outstanding 6.875%~~Senior Notes ~~due 2054 (the "6.875% Notes").~~

~~On June 29, 2020, Qwest Corporation partially redeemed $200 million aggregate principal amount of its outstanding 6.875% Notes. On January 15, 2020, Qwest Corporation fully redeemed all$850 million aggregate principal amount of its outstanding6.875%senior notes due 2033 and all$250 million aggregate principal amount of its outstanding7.125% senior notes due 2043. Through the nine months ended September 30, 2020, redemptions of senior notes~~ resulted in a loss of ~~$36 million.~~$8 million for the three months ended March 31, 2021.

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Note Payable - Affiliate

Qwest Corporation is currently indebted to an affiliate of our ultimate parent company, ~~CenturyLink,~~Lumen Technologies, Inc., under a revolving promissory note that provides Qwest Corporation with a funding commitment of up to $965 million in aggregate principal amount (the "Intercompany Note"). The outstanding principal balance owed by Qwest Corporation under the Intercompany Note and the accrued interest thereon is due and payable on demand, but if no demand is made, then on June 30, 2022. Interest is accrued on the outstanding principal balance during the respective interest period using a weighted average per annum interest rate on the consolidated outstanding debt of ~~CenturyLink,~~Lumen Technologies, Inc. and its subsidiaries. As of ~~September 30, 2020, the Intercompany Note had an outstanding balance of $1.13 billion and bore interest at a weighted-average interest rate of 4.974%. As of September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Intercompany Note is reflected on our consolidated balance sheets as a current liability under "Note payable - affiliate". In accordance with the terms of the Intercompany Note, interest shall be assessed on June 30th and December 31st (an "Interest Period"). Any assessed interest for an Interest Period that remains unpaid on the last day of the subsequent Interest Period is capitalized to ~~be capitalized~~the outstanding principal balance on such ~~date and is~~date. Due to ~~begin accruing interest. Through September 30, 2020, $165 million of such~~the amount the unpaid interest ~~has been~~ capitalized since ~~entering into~~inception of the Intercompany ~~Note. As~~Note, the outstanding principal balance at March 31, 2021 is approximately $1.2 billion. Additionally, as of ~~September 30, 2020,~~March 31, 2021, $14 million of accrued interest is reflected in other current liabilities on our consolidated balance sheet.

Compliance

As of ~~September 30, 2020,~~March 31, 2021, we believe we were in compliance with the financial covenants contained in our material debt agreements in all material respects.

Other

For additional information on our long-term debt and credit facilities, see Note 5—6—Long-Term Debt and ~~Revolving Promissory~~ Note Payable - Affiliate to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

~~Subsequent Events~~

On October 23, 2020, Qwest Corporation borrowed $215 million under a variable-rate term loan with CoBank ACB and used the resulting net proceeds to pay off its previous $100 million term loan with CoBank ACB. Additionally, on October 26, 2020, Qwest Corporation used the remaining net proceeds to partially facilitate the redemption of the remaining $160 million aggregate principal amount of its outstanding 6.625% Notes, as described below. The new term loan will mature on October 23, 2027, and has terms substantially similar to those contained in the prior term loan with CoBank ACB.

On October 26, 2020, Qwest Corporation redeemed the remaining $160 million aggregate principal amount of its outstanding 6.625% Notes. Following this redemption, there were 0 bonds outstanding for the 6.625% Notes.2020.

(6) Fair Value Disclosure

Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, advances to affiliates, accounts payable, note payable-affiliate and long-term debt, excluding finance lease and other obligations. Due to their short-term nature, the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, advances to affiliates, accounts payable and note payable-affiliate approximate their fair values.

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The three input levels in the hierarchy of fair value measurements are defined by the Fair Value Measurement and Disclosure framework generally as follows:


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

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The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding finance lease and other obligations, as well as the input level used to determine the fair values indicated below:

September 30, 2020 December 31, 2019
Input
Level Carrying
Amount Fair
Value Carrying
Amount Fair
Value
(Dollars in millions)
Liabilities—Long-term debt (excluding finance lease and other obligations) 2 $ 4,122 4,329 5,941 6,258


		March 31, 2021			December 31, 2020
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities—Long-term debt (excluding finance lease and other obligations)	2	$	3,101	3,305	3,328	3,532

(7) ~~Products and Services Revenue~~

We are an integrated communications company engaged primarily in providing an array of communications services, including local voice, broadband, private line (including business data services), Ethernet, network access, information technology and other ancillary services. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services.

~~We categorize our products, services and revenue among the following 6 categories:~~

•~~IP and Data Services, which include primarily VPN data networks, Ethernet, IP and other ancillary services;~~

•~~Transport and Infrastructure, which include broadband, private line (including business data services) and other ancillary services;~~

•~~Voice and Collaboration, which includes primarily local voice, including wholesale voice, and other ancillary services;~~

•~~IT and Managed Services,~~ ~~which include information technology services and managed services, which may be purchased in conjunction with our other network services;~~

•~~Regulatory Revenue,~~ which consist of Connect America Fund ("CAF") support payments and other operating revenue. We receive federal support payments from the federal CAF program. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services including the costs of deploying, maintaining and operating voice and broadband infrastructure in high-cost rural areas where we are not able to fully recover our costs from our customers; and

•~~Affiliate Services,~~ which are telecommunication services that we also provide to external customers. In addition, we provide to our affiliates computer system development and support services, network support and technical services.

~~From time to time, we may change the categorization of our products and services.~~

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~~Our operating revenue for our products and services consisted of the following categories:~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(Dollars in millions)
IP and Data Services $ 130 161 397 446
Transport and Infrastructure 649 703 1,957 2,100
Voice and Collaboration 376 397 1,151 1,234
IT and Managed Services 1 1 2 3
Regulatory Revenue 44 48 135 143
Affiliate Services 601 701 1,876 2,143
Total operating revenue $ 1,801 2,011 5,518 6,069

~~(8)~~ Commitments, Contingencies and Other Items

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

Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for our litigation and non-income tax contingencies at ~~September 30, 2020,~~March 31, 2021, aggregated to approximately ~~$22~~$19 million and are included in “Other” current liabilities and “Other Liabilities” in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows.

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Principal Proceedings

Billing Practices Suits

In June 2017, a former employee of a Lumen Technologies subsidiary filed an employment lawsuit against Lumen Technologies (at the time known as CenturyLink, Inc.) claiming that she was wrongfully terminated for alleging that Lumen ~~Technologies~~ charged some of its retail customers for products and services they did not authorize. ~~Starting shortly thereafter and continuing since then, and~~Thereafter, based in part on the allegations made by the former employee, several legal proceedings ~~have been filed.~~

~~In June 2017, McLeod v. CenturyLink, a~~were filed, including consumer class ~~action, was filed against Lumen Technologies~~actions in the U.S. District Court for the Central District of California alleging that it charged some of its retail customers for products and services they did not authorize. Other complaints asserting similar claims have been filed in other federal and state courts, ~~as well. The lawsuits assert claims including fraud, unfair competition, and unjust enrichment. Also, in June 2017, Craig. v. CenturyLink, Inc., et al.,~~ a series of securities investor class ~~action, was filed~~actions in ~~U.S. District Court for the Southern District of New York, alleging that it failed to disclose material information regarding improper sales practices,~~federal courts, and ~~asserting federal securities law claims. A number of other cases asserting similar claims have also been filed.~~

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~~Beginning June 2017, Lumen Technologies received~~ several shareholder derivative ~~demands addressing related topics. In August 2017, Lumen's Board of Directors formed a special litigation committee of outside directors to address the allegations of impropriety contained~~actions in ~~the shareholder derivative demands. In April 2018, the special litigation committee concluded its review of the derivative demands~~federal and ~~declined to take further action. Since then,~~Louisiana state courts. The derivative cases were ~~filed in Louisiana state court in the Fourth Judicial District Court for the Parish of Ouachita and in federal court in Louisiana and Minnesota. These cases have been~~ brought on behalf of ~~Lumen Technologies~~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 ~~have been~~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. ~~Subject to confirmatory discovery and court approval,~~ Lumen Technologies ~~agreed to settle~~has settled the consumer and securities investor class ~~actions for payments of $15.5 million to compensate~~actions. The consumer class settlement was approved by the Court and is final. Approximately 12,000 potential class members and of up to $3.5 million for administrative costs. In the second quarter of 2019, Lumen Technologies accrued for these obligations, and a portion of the administrative costs has been expended in 2020. Certain class members may electelected to opt out of the consumer class settlement, and ~~pursue~~Lumen Technologies has settled the ~~resolution~~claims of ~~their individual claims against us on these issues through various dispute resolution processes, including individual arbitration. One~~approximately 11,000 such class members asserted by one law firm ~~asserts it~~subject to certain conditions. The securities investors class settlement entails a payment of $55 million, which Lumen expects to be paid by its insurers. That settlement has ~~opt out requests from approximately12,000class members. To~~received preliminary court approval and is subject to certain conditions including final approval by the extent that a substantial number of class members, meet the contractual requirements to arbitrate, elect to opt out of the settlement (or otherwise successfully exclude their individual claims), and actually pursue arbitrations, Lumen Technologies and we could incur a material amount of filing and other arbitrations fees in relation to the administration of those claims.

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

Lumen ~~Technologies~~ has engaged in discussions regarding ~~potential resolutions of these~~related claims with a number of state attorneys general, and has entered into agreements settling ~~the Minnesota suit and~~ certain of the consumer practices claims asserted by state attorneys general. While Lumen Technologies does not agree with allegations raised in these matters, it has been willing to consider reasonable settlements where appropriate.

Other Proceedings, Disputes and Contingencies

From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, administrative hearings of state public utility commissions relating primarily to our rates or services, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third-party tort actions.

We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of which are seeking substantial recoveries. These cases have progressed to various stages and~~one~~ 1 or more may go to trial during 2020 if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.

We are subject to various federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed ~~$100,000~~$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.

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The matters listed above in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 16—Commitments, Contingencies and Other Items to the financial statements included in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~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.

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~~(9)~~(8) Dividends

From time to time we may declare and pay dividends to our direct parent company, QSC, sometimes in excess of our earnings to the extent permitted by applicable law. Our debt covenants do not currently limit the amount of dividends we can pay to QSC.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we declared and paid dividends to QSC of ~~$1.4 billion~~$300 million and ~~$1.1 billion,~~$500 million, respectively. Dividends paid are reflected on our consolidated statements of cash flows as financing activities.

~~(10)~~(9) Other Financial Information

Other Current Assets

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

September 30, 2020 December 31, 2019
(Dollars in millions)
Prepaid expenses $ 49 41
Contract acquisition costs 49 50
Contract fulfillment costs 28 28
Other 7 9
Total other current assets $ 133 128


	March 31, 2021		December 31, 2020
	(Dollars in millions)
Prepaid expenses	$	62	40
Contract acquisition costs	45		47
Contract fulfillment costs	29		28
Other	7		7
Total other current assets	$	143	122

Other Noncurrent Liabilities

The following table presents details of other noncurrent liabilities in our consolidated balance sheets:


	March 31, 2021		December 31, 2020
	(Dollars in millions)
Unrecognized tax benefits	$	451	448
Deferred revenue	109		108
Noncurrent operating lease liability	70		76
Other	54		53
Total other noncurrent liabilities	$	684	685

~~(11)~~(10) Labor Union Contracts

As of ~~September 30, 2020,~~March 31, 2021, approximately ~~45%~~46% of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). During the third quarter of 2019, we reached new agreements with each of the CWA and IBEW, which represented all of the above noted represented employees. Therefore, there are no collective bargaining agreements that are scheduled to expire over the 12 month period ending ~~September 30, 2021.~~March 31, 2022. We believe relations with our employees continue to be generally good.

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

Unless the context requires otherwise, references in this report to "QC" refer to Qwest Corporation, references to "Qwest," "we," "us" and "our" refer to Qwest Corporation and its consolidated subsidiaries, and references to "QSC" refer to Qwest Services Corporation.

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

Certain statements in this report constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements" appearing at the beginning of this report and "Risk Factors" ~~set forth or~~ referenced in Item 1A of Part 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, ~~2019,~~2020, and with the consolidated financial statements and related notes in Item 1 of Part I of this report. The results of operations for the first ~~nine~~three months of the year are not necessarily indicative of the results of operations that might be expected for the entire year.

We are an integrated communications company engaged primarily in providing an array of communications services to our business and ~~residential~~mass markets customers. Our specific products and services are detailed in Note ~~7—Products and Services~~ 3—Revenue Recognition of this report.

Our ultimate parent company, ~~CenturyLink,~~Lumen Technologies, Inc. has cash management arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends. As part of these cash management arrangements, affiliates provide lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate. From time to time we may declare and pay dividends to QSC, our direct parent, using cash owed to us under these advances, which has the net effect of reducing the amount of these advances. We report the balance of these transfers on our consolidated balance sheet as advances to affiliates.

At ~~September 30, 2020,~~March 31, 2021, we served approximately ~~2.8~~2.9 million broadband subscribers. Our methodology for counting broadband subscribers may not be comparable to those of other companies.

Impact of COVID-19 Pandemic

In response to the safety and economic challenges arising out of the COVID-19 pandemic and in ana continued attempt to mitigate the negative impact on our stakeholders, we have taken over the past several months a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees and customers, to enable us to continue to adapt and provide our products and services worldwide to our customers, and to strengthen our communities. ~~These~~In addition to other actions described in our earlier reports, these steps ~~have~~ included:

•Lumen Technologies taking the FCC’s “Keep Americans Connected Pledge,” under which we waived certain late fees and suspended the application of data caps and service terminations for non-payment by certain consumer and small business customers through the end of the second quarter of 2020;

•establishing ~~new~~ protocols for the safety of our on-site technicians and customers, including our “Safe Connections” program;

•adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel;

•continuously monitoring our network to enhance its ability to respond to changes in usage patterns;

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•donating products or services in several of our communities to enhance their abilities to provide necessary support services; and

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•taking steps to maintain our internal controls and the security of our systems and data in a remote work environment.

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

Social distancing, business and school closures, travel restrictions and other actions taken in response to the pandemic have impacted us, our customers and our business since March 2020. In particular, as discussed further elsewhere herein, we ~~are tracking~~have tracked pandemic impacts, ~~such as:~~including: (i) increases in certain revenue streams and decreases in others (including late fee revenue), (ii) increases in allowances for credit losses ~~and~~through the end of 2020, (iii) increases in overtime expenses, ~~and (iii) any~~(iv) delays in our cost transformation ~~initiatives.~~initiatives and (v) an acceleration of our real estate rationalization efforts and the incurrence of related costs. Thus far, these changes have not materially impacted our financial performance or financial ~~position. This could change, however, if the pandemic intensifies or economic~~position, and, barring any unforeseen changes in conditions, ~~deteriorate.~~we do not expect these changes to materially impact us during 2021. The impact of the pandemic after the ~~third~~first quarter of ~~2020~~2021 will materially depend on additional steps that we may take in response to the pandemic and various events outside of our control, including the length and severity of the health crisis and economic ~~slowdown,~~dislocations, actions taken by central banks, governmental agencies or legislative bodies, and the impact of those events on our employees, suppliers and customers. For additional information, see the risk factor disclosures set forth ~~or referenced~~ in Item 1A of Part III of ~~this report.~~our Annual Report on Form 10-K for the year ended December 31, 2020.

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

For the reasons noted in Note 1—Background to our consolidated financial statements in Item 1 of Part I of this report, we believe we have one reportable segment.

We categorize our products, services and revenue among the following ~~six~~four categories:

•Voice and Other, which includes primarily local voice services, private line and other legacy services. This category also includes Universal Service Fund ("USF") and CAF II support payments and other operating revenue. We receive support payments from state USF programs and from the federal CAF II program. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services. During the three months ended March 31, 2021, we recorded approximately $36 million of revenue from the CAF II program that will end as of December 31, 2021.

•Fiber Infrastructure Services, which includes high speed, fiber-based and lower speed DSL-based broadband services, and optical network services;

•IP and Data Services, which ~~include~~consists primarily ~~VPN data networks,~~of Ethernet ~~IP and other ancillary~~ services;

•~~Transport and Infrastructure, which include broadband, private line (including business data services) and other ancillary services;~~

•~~Voice and Collaboration, which includes primarily local voice, including wholesale voice, and other ancillary service;~~

•~~IT and Managed Services,~~ ~~which include information technology services and managed services, which may be purchased in conjunction with our other network services;~~

•~~Regulatory Revenue,~~ ~~which consist of Connect America Fund ("CAF") support payments and other operating revenue. We receive federal support payments from the federal CAF program; and~~

•Affiliate Services,which are telecommunication services that we also provide to external customers. In addition, we provide to our affiliates computer system development and support services, network support and technical services.

From time to time, we may change the categorization of our products and services.

The following analysis is organized to provide the information we believe will be useful for understanding material trends affecting our business.

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Results of Operations

The following table summarizes the results of our consolidated operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(Dollars in millions)
Operating revenue $ 1,801 2,011 5,518 6,069
Operating expenses 1,184 1,263 3,443 3,811
Operating income 617 748 2,075 2,258
Total other expense, net (105) (105) (300) (313)
Income before income taxes 512 643 1,775 1,945
Income tax expense 133 166 463 504
Net income $ 379 477 1,312 1,441


	Three Months Ended March 31,
	2021		2020

Operating revenue	$	1,792	1,918
Operating expenses	1,057		1,139
Operating income	735		779
Total other expense, net	(85)		(99)
Income before income taxes	650		680
Income tax expense	168		177
Net income	$	482	503

For a discussion of certain trends that impact our business, see the MD&A discussion of trends impacting Lumen's business included in Lumen's reports filed with the SEC, including most recently its Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2020.~~March 31, 2021.

Operating Revenue

The following tables summarize our consolidated operating revenue recorded under ~~each of~~ our ~~six above-described~~four revenue categories:

Three Months Ended September 30, % Change
2020 2019
(Dollars in millions)
IP and Data Services $ 130 161 (19) %
Transport and Infrastructure 649 703 (8) %
Voice and Collaboration 376 397 (5) %
IT and Managed Services 1 1 — %
Regulatory Revenue 44 48 (8) %
Affiliate Services 601 701 (14) %
Total operating revenue $ 1,801 2,011 (10) %

Nine Months Ended September 30, % Change
2020 2019
(Dollars in millions)
IP and Data Services $ 397 446 (11) %
Transport and Infrastructure 1,957 2,100 (7) %
Voice and Collaboration 1,151 1,234 (7) %
IT and Managed Services 2 3 (33) %
Regulatory Revenue 135 143 (6) %
Affiliate Services 1,876 2,143 (12) %
Total operating revenue $ 5,518 6,069 (9) %


	Three Months Ended March 31,			% Change
	2021		2020
	(Dollars in millions)
Voice and other	$	543	590	(8)	%
Fiber Infrastructure	504		513	(2)	%
IP and Data Services	123		132	(7)	%
Affiliate Services	622		683	(9)	%
Total operating revenue	$	1,792	1,918	(7)	%

Total operating revenue decreased by $126 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Approximately half of the decrease in operating revenue was driven by lower affiliate service revenues due to the transfer of employees, and the revenues related to the services those employees provide, from us to an affiliate. The remaining decline in revenue was primarily due to decreases in our voice, private line, broadband and Ethernet services.

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Total operating revenue decreased by $210 million, or 10%, and $551 million, or 9%, respectively, for the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019. The decrease in our operating revenue for both periods was due to decreases in all of our revenue categories driven primarily by decreases in our voice, broadband, private line services and Ethernet, as well as affiliate services revenue.

Operating Expenses

The following tables summarize our consolidated operating expenses:


		Three Months Ended September 30,				% Change			Three Months Ended March 31,					% Change
		2020		2019	% Change			2021			2020		% Change
		(Dollars in millions)					(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	Cost of services and products (exclusive of depreciation and amortization)	$	528	602		(12)	%	Cost of services and products (exclusive of depreciation and amortization)	$	439		473		(7)	%
Selling, general and administrative	Selling, general and administrative	128		131		(2)	%	Selling, general and administrative	107			143		(25)	%
Operating expenses - affiliates	Operating expenses - affiliates	198		186		6	%	Operating expenses - affiliates	194			195		(1)	%
Depreciation and amortization	Depreciation and amortization	330		344		(4)	%	Depreciation and amortization	317			328		(3)	%
Total operating expenses	Total operating expenses	$	1,184	1,263		(6)	%	Total operating expenses	$	1,057		1,139		(7)	%

Nine Months Ended September 30, % Change
2020 2019
(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization) $ 1,491 1,749 (15) %
Selling, general and administrative 410 445 (8) %
Operating expenses - affiliates 557 600 (7) %
Depreciation and amortization 985 1,017 (3) %
Total operating expenses $ 3,443 3,811 (10) %

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

Cost of services and products (exclusive of depreciation and amortization) decreased ~~by $74~~$34 million ~~or 12%, and $258 million, or 15%, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 as compared to the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020. The decrease in our cost of services and products (exclusive of depreciation and amortization) ~~for both periods~~ was primarily due to reductions in salaries and wages and employee-related expenses resulting from lower ~~headcount partially offset by increased network related costs due to higher project termination, repair and maintenance costs.~~headcount.

Selling, General and Administrative

Selling, general and administrative expenses decreased by $3$36 million ~~or 2%, and $35 million, or 8%, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 as compared to the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020. The decrease ~~for both periods~~ was primarily due to ~~reductions in salaries~~a reduction of professional fees and ~~wages~~employee costs, lower property taxes, lower bad debt expense, and ~~employee-related expenses from lower headcount and lower marketing and advertising expenses.~~a gain on the sale of property during the first quarter of 2021.

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Operating Expenses - Affiliates

Operating expenses - affiliates ~~increased by $12 million or 6%~~remained consistent for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to the three months ended September 30, 2019, primarily due to an increase in the level of services provided to us by our affiliates. Operating expenses - affiliates decreased by $43 million, or 7%, for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The decrease in this period was primarily due to the decline in the level of services provided to us by our affiliates.March 31, 2020.

Depreciation and Amortization

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

Three Months Ended September 30, % Change
2020 2019
(Dollars in millions)
Depreciation $ 210 211 — %
Amortization 120 133 (10) %
Total depreciation and amortization $ 330 344 (4) %


		Nine Months Ended September 30,				% Change			Three Months Ended March 31,					% Change
		2020		2019	% Change			2021			2020		% Change
		(Dollars in millions)				(Dollars in millions)
Depreciation	Depreciation	$	620	613		1	%	Depreciation	$	207		204		1	%
Amortization	Amortization	365		404		(10)	%	Amortization	110			124		(11)	%
Total depreciation and amortization	Total depreciation and amortization	$	985	1,017		(3)	%	Total depreciation and amortization	$	317		328		(3)	%

Depreciation expense ~~remained consistent, decreasing~~increased by $1$3 million for the three months ended ~~September 30, 2020~~March 31, 2021 as compared to the three months ended ~~September 30, 2019. Depreciation expense increased by $7 million, or 1%, for the nine months ended September 30,~~March 31, 2020 ~~as compared to the nine months ended September 30, 2019,~~ primarily due ~~to higher depreciation expense associated with net growth~~a $13 million increase resulting from an increase in depreciable assets, ~~of $61 million,~~ which was partially offset by ~~the impact~~a decrease of $9 million resulting from annual rate depreciable life changes ~~of $54 million.~~for certain telecommunications equipment.

Amortization expense decreased ~~by $13~~$14 million ~~or 10%, and $39 million, or 10%, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 as compared to the three ~~and nine~~ months ended ~~September 30, 2019. The decrease in amortization expense for both periods was~~March 31, 2020 primarily due to an $11 million decrease from the effect of using an accelerated amortization method resulting in an incremental decline in expense as the intangible assets ~~amortize.~~amortize and a $3 million decrease associated with annual rate amortizable life changes of software for the period.

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Other Consolidated Results

The following tables summarize our total other expense, net and income tax expense:

Three Months Ended September 30, % Change
2020 2019
(Dollars in millions)
Interest expense $ (69) (95) (27) %
Interest expense - affiliates, net (18) (15) 20 %
Other (expense) income, net (18) 5 nm
Total other expense, net $ (105) (105) — %
Income tax expense $ 133 166 (20) %

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Nine Months Ended September 30, % Change
2020 2019
(Dollars in millions)
Interest expense $ (219) (286) (23) %
Interest expense - affiliates, net (50) (46) 9 %
Other (expense) income, net (31) 19 nm
Total other expense, net $ (300) (313) (4) %
Income tax expense $ 463 504 (8) %

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


	Three Months Ended March 31,			% Change
	2021		2020
	(Dollars in millions)
Interest expense	$	(48)	(75)	(36)	%
Interest expense - affiliates, net	(31)		(16)	94	%
Other (expense) income, net	(6)		(8)	(25)	%
Total other expense, net	$	(85)	(99)	(14)	%
Income tax expense	$	168	177	(5)	%

Interest Expense

Interest expense decreased by ~~$26~~$27 million ~~or 27%, and $67 million, or 23%~~ for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 as compared to the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020. These decreases were primarily due to ~~(i)~~ the decrease in average long-term debt from ~~$6.0~~$4.9 billion to ~~$4.4~~$3.2 billion and the decrease in our average interest rate from ~~6.67%~~6.58% to ~~6.54%~~6.44%, for the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended September 30, 2020, and (ii) the decrease in average long-term debt from $6.0 billion to $5.0 billion and the decrease in our average interest rate from 6.67% to 6.59%, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2020.March 31, 2021.

Interest Expense - Affiliates, Net

Affiliated interest expense, net increased by $3$15 million ~~or 20%, and $4 million, or 9%, respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 as compared to the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020. The increase in interest expense - affiliates, net ~~for both periods~~ was due primarily ~~due~~ to the ~~compounding~~increase in outstanding advances from our affiliates, which incur interest ~~for~~at the ~~Intercompany Note.~~same rate as the note payable to our affiliate. See Note 5—Long-Term Debt and Note Payable - Affiliate.

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

~~Other (expense) income, net reflects certain items not directly related to~~The following table summarizes our core operations, including interest income, gains and losses from non-operating asset dispositions and components of net periodic pension and post-retirement benefit costs. Other (expense) income, net changed by $23 million and $50 million, respectively, for the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019. The change intotal other (expense) income, ~~net for both periods was primarily due to a loss on the retirement of debt and a reduction of interest income.~~net:


	Three Months Ended March 31,
	2021		2020	% Change
	(Dollars in millions)
Loss on extinguishment of debt	$	(8)	(12)	(33)	%
Interest income	—		1	(100)	%
Other income, net	2		3	(33)	%
Total other expense, net	$	(6)	(8)	(25)	%

Income Tax Expense

Income tax expense for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 was ~~$133 million and $463~~$168 million, or an effective tax ~~rates~~rate of ~~26.0% and 26.1%~~25.8%, ~~respectively,~~ compared to ~~$166 million and $504~~$177 million, or an effective tax ~~rates~~rate of ~~25.8% and 25.9%, respectively,~~26.0% for the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020.

Liquidity and Capital Resources

Overview of Sources and Uses of Cash

We are an indirectly wholly-owned subsidiary of ~~CenturyLink, Inc..~~Lumen Technologies, Inc. As such, factors relating to, or affecting, Lumen's liquidity and capital resources could have material impacts on us, including impacts on our credit ratings, our access to capital markets and changes in the financial market's perception of us.

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Lumen Technologies has cash management arrangements with a majority of its subsidiaries that include lines of credit, affiliate advances and obligations, capital contributions and dividends. As part of these cash management arrangements, affiliates provide lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate. From time to time we may declare and pay dividends to our stockholder, QSC, sometimes in excess of our earnings to the extent permitted by applicable law, using cash owed to us under these advances, which has the net effect of reducing the amount of these advances. Our debt covenants do not currently limit the amount of dividends we can pay to QSC. Given our cash management arrangement with our ultimate parent, ~~CenturyLink,~~Lumen Technologies, Inc., and the resulting amounts due to us from ~~CenturyLink,~~Lumen Technologies, Inc., a significant component of our liquidity is dependent upon ~~CenturyLink,~~Lumen Technologies, Inc.'s ability to repay its obligation to us.

We anticipate that our future liquidity needs will be met through (i) our cash provided by our operating activities, (ii) amounts due to us from Lumen Technologies, (iii) our ability to refinance QC's debt securities at maturity and (iv) capital contributions, advances or loans from Lumen Technologies or its affiliates if and to the extent they have available funds or access to available funds that they are willing and able to contribute, advance or loan.

Capital Expenditures

We incur capital expenditures on an ongoing basis in order to enhance and modernize our networks, compete effectively in our markets and expand and improve our service offerings. Lumen Technologies evaluates 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 the expected return on investment. The amount of Lumen’s consolidated capital investment is influenced by, among other things, demand for Lumen’s services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations (such as Lumen's CAF II infrastructure buildout requirements). For more information on Lumen’s total capital expenditures, please see its annual and quarterly reports filed with the SEC.

For more information on our capital spending, see "Historical Information—Investing Activities" below and Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019 and Item 1A of Part II of this report.~~2020.

Debt and Other Financing Arrangements

On February 16, 2021, we fully redeemed all $235 million aggregate principal amount of our outstanding 7.000% Senior Notes due 2056. As of March 31, 2021, we had a face amount of approximately $3.2 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net and unamortized debt issuance costs). Approximately $950 million of our outstanding debt is due in the next 12 months (excluding finance lease obligations).

Subject to market conditions, and to the extent feasible, we expect to continue to issue debt securities, under Qwest Corporation, from time to time in the future primarily to refinance a substantial portion of our maturing debt. The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned to Qwest Corporation by credit rating agencies, among other factors. We have no remaining debt maturities due in the next 12 months excluding finance lease obligations after redeeming the remaining $160 million aggregate principal amount of our 6.625% Notes on October 26, 2020.

As of the date of this report, the credit ratings for Qwest Corporation's senior unsecured debt were as follows:


Agency			Credit Ratings
Standard & Poor's			BBB-
Moody's Investors Service, Inc.			Ba2
Fitch Ratings			BB+

~~CenturyLink, Inc.'s~~Lumen's and Qwest Corporation's credit ratings are reviewed and adjusted from time to time by the rating agencies. For additional information regarding Lumen's and Qwest Corporation's funding arrangements, see ~~"Risk~~Risk Factors—~~Risk Related to CenturyLink's Recently-Completed Acquisition of Level 3" and "Risks Affecting Liquidity and Capital Resources"~~Financial Risks in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019 and Item 1A of Part II of this report.~~2020.

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Term Loan

In ~~2015,~~October 2020, we ~~entered into~~borrowed $215 million under a ~~ten-year~~variable rate term loan ~~in the amount of $100 million~~ with CoBank ACB. The outstanding unpaid principal amount of this term loan plus any accrued and unpaid interest is due on October 23, 2027. Interest is paid ~~monthly~~at least quarterly based upon either the LIBOR or the base rate (as defined in the credit agreement) plus an applicable margin between 1.50% to 2.50% per annum for LIBOR loans and 0.50% to 1.50% per annum for base rate loans depending on ~~our~~Qwest Corporation's then current senior unsecured long-term debt rating. At both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the outstanding principal balance on this term loan was ~~$100~~$215 million.

~~On October 23, 2020, we amended and restated this term loan on the terms described in Note 5—Long-Term Debt and Note Payable – Subsequent Events.~~

Note Payable - Affiliate

The Intercompany Note ~~(defined~~(as defined in Note 5)5—Long-Term Debt and Note Payable - Affiliate) was entered into between Qwest Corporation and an affiliate of our ultimate parent company, ~~CenturyLink,~~Lumen Technologies, Inc., in the amount of $965 million. The outstanding principal balance owed by us under the Intercompany Note and the accrued interest thereon is due and payable on demand, but if no demand is made, then on June 30, 2022. Interest is accrued on the outstanding balance during an interest period using a weighted average per annum interest rate on the consolidated outstanding debt of ~~CenturyLink,~~Lumen Technologies, Inc. and its subsidiaries. As of ~~September 30, 2020,~~March 31, 2021, the weighted average interest rate was ~~4.974%~~4.883%. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Intercompany Note is reflected on our consolidated balance sheets as a current liability under note payable - affiliate. As of ~~September 30, 2020,~~March 31, 2021, $14 million of accrued interest is reflected in other current liabilities on our consolidated balance sheets.

For additional information about our indebtedness, see Note 5—Long-Term Debt and Note Payable - Affiliate.

Dividends

We periodically pay dividends to QSC, our direct parent company. See Note 9—8—Dividends and the discussion above under the heading "Overview".

Pension and Post-retirement Benefit Obligations

Lumen Technologies is subject to material obligations under its existing defined benefit pension plans and post-retirement benefit plans. At December 31, ~~2019,~~2020, the accounting unfunded status of Lumen's qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was approximately ~~$1.8~~$1.7 billion and approximately $3.0 billion, respectively. For additional information about Lumen's pension and post-retirement benefit arrangements, see "Critical Accounting Policies and Estimates—~~Pensions~~Pension and Post-Retirement ~~Benefits"~~Benefit Obligations" in Item 7 of Lumen's Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and see Note 9—10—Employee Benefits to the consolidated financial statements in Item 8 of Part II of the same report.

A substantial portion of our active and retired employees participate in Lumen's qualified pension plan and post-retirement benefit plans. On December 31, 2014, the Qwest Communications International Inc. ("QCII") pension plan and a pension plan of an affiliate were merged into the CenturyLink Retirement Plan, which ~~was renamed~~is now named the ~~CenturyLink~~Lumen Combined Pension Plan. Our contributions are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees of our affiliates. Prior to the pension plan merger, the above-noted employees participated in the QCII pension plan.

Benefits paid by Lumen's qualified pension plan are paid through a trust that holds all of the plan's assets. Based on current laws and circumstances, Lumen Technologies does not expect any contributions to be required for their qualified pension plan during ~~2020.~~2021. The amount of required contributions to Lumen's qualified pension plan in 2021 and beyond will depend on a variety of factors, most of which are beyond their control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations. Lumen Technologies occasionally makes voluntary contributions in addition to required contributions. Although Lumen Technologies ~~does~~believes it is not ~~currently expect~~required to make ~~a voluntary contribution~~contributions to the ~~trust for its qualified~~ pension plan in ~~2020.~~2021 based on current laws and circumstances, it could make voluntary contributions.

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Substantially all of Lumen's post-retirement health care and life insurance benefits plans are unfunded. Several trusts hold assets that have been used to help cover the health care costs of certain retirees. As of December 31, 2019, assets in the post-retirement trusts had been substantially depletedunfunded and had a fair value of $13 million (a portion of which was comprised of investments with restricted liquidity), which has significantly limited Lumen's ability to continue paying benefits from the trusts; however, Lumen Technologies will continue to pay certain benefits through the trusts. Benefits notare paid ~~from the trusts are expected to be paid directly~~ by Lumen Technologies with available cash.

The affiliate obligations, net in current and noncurrent liabilities on our consolidated balance sheets primarily represents the cumulative allocation of expenses, net of payments, associated with QCII's pension plans and post-retirement benefits plans prior to the plan mergers. In 2015, we agreed to a plan to settle the outstanding pension and post-retirement affiliate obligations, net balance with QCII over a 30 year term. Under the plan, payments are scheduled to be made on a monthly basis. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we ~~made settlement payments of $54~~received a $5 million refund from QCII due to ~~QCII~~overpayments in ~~accordance with the plan.~~prior periods. Changes in the affiliate obligations, net are reflected in operating activities on our consolidated statements of cash flows. For ~~2020,~~2021, we expect to make aggregate settlement payments,net of ~~$72~~the first quarter refund, of $45 million to QCII under the plan.

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

For ~~2020,~~2021, Lumen's estimated annual long-term ~~rates~~rate of return ~~net of administrative costs, are 6% and 4% for the~~on pension plan ~~trust~~ assets ~~and post-retirement plans' trust assets, respectively, based on the assets currently held.~~is 5.5%. However, actual returns could be substantially different.

For additional information, see “Risk Factors—~~Risks Affecting Our Liquidity~~Financial Risks—Increases in costs for pension and ~~Capital Resources—Adverse changes in the value of assets or obligations associated with CenturyLink’s qualified pension plan could negatively~~healthcare benefits for our active and retired employees may have a material impact ~~CenturyLink’s liquidity, which may in turn affect our business and liquidity”~~on us.” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019 and Item 1A of Part II of this report.~~2020.

Future Contractual Obligations

For information regarding our estimated future contractual obligations, see the MD&A discussion included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~Connect America Fund~~Federal Broadband Support Programs

~~As a result of accepting~~Since 2015, Lumen has been receiving over $500 million annually through CAF II, ~~support payments,~~a program that will end this year. Our current share of this CAF II funding is approximately $145 million annually. In connection with CAF II funding, we must meet certain specified infrastructure buildout requirements in 13 states by the end of 2021, which ~~will obligate us to continue making~~requires substantial capital ~~expenditures through next year. We~~expenditures. While we are on track to meet the requirement 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 II funding in 2021.

~~On January 30,~~In early 2020, the FCC created the ~~Rural Digital Opportunity Fund (the “RDOF”)~~RDOF which is a new federal support program designed to replace the CAF ~~Phase~~ II program. ~~Through~~On December 7, 2020, the FCC allocated in its RDOF Phase I ~~of the RDOF, the FCC plans to award up to $16.0~~auction $9.2 billion in support payments over ~~ten~~10 years to ~~bring~~deploy high speed broadband ~~service~~ to ~~certain specified high-cost under-served U.S. markets. The FCC plans to select Phase I support recipients through a multi-round reverse auction.~~over 5.2 million unserved locations. Lumen Technologies ~~is a qualified bidder in that auction, which began on October 29, 2020. Any~~won bids for RDOF Phase I support ~~for any areas awarded~~payments of $26 million annually. These RDOF Phase I support payments are expected to ~~Lumen Technologies will~~ begin January 1, 2022. ~~In accordance with the FCC's January order, Lumen Technologies elected to receive an additional year of CAF Phase II funding in 2021.~~

For additional information on these programs, see (i) "Business—~~Regulation"~~Regulations—Universal Service" in Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020 and (ii) "Risk Factors—~~Risks Affecting our Liquidity~~Legal and ~~Capital Resources"~~Regulatory Risks" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019 and (iii) Item 1A Part II~~2020.

As part of ~~this report.~~its proposed infrastructure plan, the Biden Administration has proposed investing $100 billion to expand internet access in the United States. The plan seeks several other changes that could impact us, including proposals to increase competition among broadband providers. Currently we believe it is premature to speculate on the potential impact of these proposals on us.

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Historical Information

The following table summarizes our consolidated cash flow activities:


		Nine Months Ended September 30,			Change		Three Months Ended March 31,			$ Change
		2020		2019			2021		2020
		(Dollars in millions)					(Dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	2,251	2,317	(66)	Net cash provided by operating activities	$	814	785	29
Net cash provided by (used in) investing activities		$	959	(1,209)	2,168
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	$	(211)	830	(1,041)
Net cash used in financing activities	Net cash used in financing activities	$	(3,206)	(1,110)	2,096	Net cash used in financing activities	$	(607)	(1,609)	(1,002)

Operating Activities

Net cash provided by operating activities ~~decreased~~increased by ~~$66~~$29 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 as compared to the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 primarily due to ~~cash used for accounts payable and reductions of~~changes in other current assets and liabilities, partially offset by ~~cash flows provided by~~ lower ~~accounts receivable and higher income and other tax accruals.~~net income. 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.

Investing Activities

Net cash (used in) provided by ~~(used in)~~ investing activities changed by ~~$2.2~~$1.0 billion for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 as compared to the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 primarily due to funds received from affiliates in the first quarter of 2020 that were used to repay our senior notes, which in turn reduced our advances to affiliates balance.

Financing Activities

Net cash used in financing activities ~~increased~~decreased by ~~$2.1~~$1.0 billion for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 as compared to the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 primarily due to lower repayments of long-term ~~debt.~~debt and lower dividends paid to QSC.

See Note 5—Long-Term Debt and Note Payable - Affiliate, for additional information on our outstanding debt securities and financing activities.

Other Matters

We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. See Note 8—7—Commitments, Contingencies and Other Items for additional information.

Lumen Technologies is involved in several legal proceedings to which we are not a party that, if resolved against it, could have a material adverse effect on its business and financial condition. As a wholly owned subsidiary of Lumen Technologies, our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in Lumen's quarterly and annual reports filed with the SEC. Because we are not a party to any of the matters, we have not accrued any liabilities for these matters.

Market Risk

As of ~~September 30, 2020,~~March 31, 2021, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations, amended and restated revolving promissory note 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.

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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 or variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. As of ~~September 30, 2020,~~March 31, 2021, we had no such instruments outstanding nor held or issued derivative financial instruments for trading or speculative purposes.

We do not believe that there were any material changes to market risks arising from changes in interest rates for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the disclosures provided in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Certain shortcomings are inherent in the method of analysis ~~presented~~ in ~~the computation of exposures to~~evaluating our 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~~Our analyses only incorporate the risk exposures that existed at ~~September 30, 2020.~~

~~Off-Balance Sheet Arrangements~~

As of September 30, 2020, we had no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support, and we did not engage in leasing, hedging or other similar activities that expose us to any significant liabilities that are not (i) reflected on the face of the consolidated financial statements, (ii) disclosed in Note 16—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended DecemberMarch 31, ~~2019, or in the Future Contractual Obligations table included in Item 7 of Part II of the same report, or (iii) discussed under the heading "Market Risk" above.~~2021.

Other Information

Lumen's and our website is www.lumen.com. We routinely post important investor information in the "Investor Relations" section of our website at ir.lumen.com. The information contained on, or that may be accessed through, our website is not part of this quarterly report. You may obtain free electronic copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed by us or our ultimate controlling stockholder ~~CenturyLink,~~Lumens Technologies, Inc., and all amendments to those reports, in the "Investor Relations" section of our website (ir.lumen.com) under the heading "SEC Filings." These reports are available on our website as soon as reasonably practicable after they are electronically filed with the SEC.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omitted pursuant to General Instruction H(2).

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��~~Act”)) designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file or furnish under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure this information is accumulated and communicated to our senior management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our 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 ~~September 30, 2020.~~March 31, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective, as of ~~September 30, 2020,~~March 31, 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 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 ~~third~~first quarter of ~~2020~~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 8—7—Commitments, Contingencies and Other Items included in Item 1 of Part I of this report is incorporated herein by reference. The ultimate outcome of the matters described in Note 87 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—~~Risks—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”~~us” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019 and Item 1A of Part II of this report.~~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, 2019, (iii) the risk factors discussed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and (iv) the risk factors discussed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, which are amended and restated in their entirety below.

~~An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic, could have a material adverse impact on our operating results and financial condition~~

An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic and its detrimental impact on the worldwide economy, could have a material adverse impact on our operating results and financial condition.

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

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

•~~The response of governmental and nongovernmental authorities~~. Actions taken by governmental and nongovernmental bodies in response to the pandemic have continued to depress economic activity. In the United States and most other countries, these mandates have been issued by state or local officials, which significantly increases the unpredictability and variability of when and how these mandates will be amended, rescinded or reimposed. The pandemic has also led to changes in laws governing the rights of workers and has caused, and may continue to cause, various parties to propose additional changes to laws or regulations, including those governing communications companies.2020.

~~Table of Contents~~

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

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

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

If the pandemic intensifies or economic conditions deteriorate, the adverse impact of the pandemic has on us could become more pronounced in the future and could have a material adverse impact on our operating results and financial condition.

Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described under the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, In particular, deterioration of global economic conditions could increase the possibility that we will incur a future goodwill impairment, as discussed in greater detail in Footnote 2 and Item 2 of Part I of this report.

We have taken certain precautions due to the uncertain and evolving situation relating to the spread of COVID-19 that could have a material adverse impact on our operating results and financial condition

The precautionary measures described in this report that we have taken to safeguard our employees and customers could make it more difficult to (i) timely and efficiently furnish products and services to our customers, (ii) devote sufficient resources to our ongoing network, product simplification and cost reduction projects, (iii) efficiently monitor and maintain our network, (iv) maintain effective internal controls (v) mitigate information technology or cybersecurity related risks and (vi) otherwise operate and administer our affairs. As such, these measures ultimately could have a material adverse impact on our operating results and financial condition.

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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 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*						Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						Financial statements from the Quarterly Report on Form 10-Q of Qwest Corporation for the period ended ~~September 30, 2020,~~March 31, 2021, formatted in Inline XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Stockholder's Equity and (v) the Notes to the Consolidated Financial Statements.
104*						Cover page formatted as Inline XBRL and contained in Exhibit 101.

* Exhibit filed herewith.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on ~~November~~May 5, ~~2020.~~2021.


			QWEST CORPORATION
			By:			/s/ Eric J. Mortensen
						Eric J. Mortensen Senior Vice President - Controller (Principal Accounting Officer)

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	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	81	59	87	60
Costs incurred	12		6	15	10
Amortization	(15)		(8)	(15)	(8)
End of period balance	$	78	57	87	62


	Business		Consumer	Total
	(Dollars in millions)
Beginning balance at January 1, 2020 (1)	$	17	18	35
Provision for expected losses	23		22	45
Write-offs charged against the allowance	(16)		(22)	(38)
Recoveries collected	3		3	6
Ending balance at September 30, 2020	$	27	21	48