UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the Quarterly Period Ended ~~June 30, 2017~~March 31, 2018



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

For the transition period from to

Commission file number 001-35134

LEVEL 3 ~~COMMUNICATIONS, INC.~~PARENT, LLC

(Exact name of registrant as specified in its charter)



Delaware		47-0210602
(State of Incorporation)		(I.R.S. Employer
		Identification No.)

1025 Eldorado Blvd., Broomfield, CO		80021-8869
(Address of principal executive offices)		(Zip Code)

(720) 888-1000

(Registrant’s telephone number,

including area code)

THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF CENTURYLINK, INC., 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 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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x		Accelerated filer o

Non-accelerated filero		Smaller reporting company o
(Do not check if a smaller reporting company)
		Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o

No x

~~The number of shares outstanding of each class~~All of the ~~issuer’s common stock, as~~limited liability company interest in the registrant is held by an affiliate of ~~August 2, 2017:~~the registrant. None of the interest is publicly traded.

~~Common Stock: 362,691,792 shares.~~

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~~LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES~~

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		~~Page No.~~
Part I	Financial Information:
Item 1.	Financial Statements	6
	~~Part I - Financial Information~~

~~Item 1.~~	~~Financial Statements~~:	3
	Consolidated Statements of ~~Income~~Operations (Unaudited)	36
	Consolidated Statements of Comprehensive Income (Unaudited)	47
	Consolidated Balance Sheets (Unaudited)	58
	Consolidated Statements of Cash Flows (Unaudited)	69
	Consolidated Statements of Member's/Stockholders' Equity (Unaudited)	10
	Notes to Unaudited Consolidated Financial Statements (Unaudited)*	711

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3137

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4446

Item 4.	Controls and Procedures	4647

	Part II -	Other ~~Information~~Information:

Item 1.	Legal Proceedings	4748

Item 1A.	Risk Factors	4748

Item 6.	Exhibits	4849

Signatures		4950
Certifications
~~Certifications~~

		* All references to "Notes" in this quarterly report refer to these notes to consolidated financial statements.

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~~Part I - Financial Information~~PART I-FINANCIAL INFORMATION

Effective November 1,2017, Level 3 Communications, Inc. became a wholly owned subsidiary of CenturyLink, Inc. Upon completion of the acquisition, Level 3 Communications, Inc.’s name changed to Level 3 Parent, LLC. Unless the context requires otherwise, references in this report to “Level 3 Communications, Inc.,” "Level 3," “we,” “us,” the “Company” and “our” refer to Level 3 Parent, LLC and its consolidated subsidiaries. The Level 3 logo and Level 3 are registered service marks of our wholly owned subsidiary, Level 3 Communications, LLC, in the United States and other countries. All rights are reserved. This Form 10-Q refers to trade names and trademarks of other companies. The mention of these trade names and trademarks in this Form 10-Q is made with due recognition of the rights of these companies and without any intent to misappropriate those names or marks. All other trade names and trademarks appearing in this Form 10-Q are the property of their respective owners.

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are “forward-looking” statements, as defined by (and subject to the “safe harbor” protections under) the federal securities laws. When used herein, the words “anticipates,” “expects,” “believes,” “seeks,” “hopes,” “intends,” “plans,” “projects,” “will” and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements are based on a number of judgments and assumptions as of the date such statements are made about future events, many of which are beyond our control. These forward-looking statements, and the assumptions on which they are based, (i) are not guarantees of future events, (ii) are inherently speculative and (iii) are subject to significant risks and uncertainties. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us in those statements if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. All of our forward-looking statements are qualified in their entirety by reference to our discussion of certain important factors that could cause our actual results to differ materially from those anticipated, estimated, projected or implied by us in those forward-looking statements. Factors that could cause our results to differ materially from the expectations expressed in such forward-looking statements include but are not limited to the following:

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

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

the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, interconnection obligations, universal service, broadband deployment, data protection and net neutrality;

our ability to timely realize the anticipated benefits of our recently-completed combination with Level 3, including our ability to attain anticipated cost savings, to use Level 3's net operating loss carryforwards in the amounts projected, to retain key personnel and to avoid unanticipated integration disruptions;

our ability to safeguard our network, and to avoid the adverse impact on our business from possible security breaches, service outages, system failures, equipment breakage, or similar events impacting our network or the availability and quality of our services;

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

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

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

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

changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, whether based upon changes in our cash flows, cash requirements, financial performance, financial position, market conditions or otherwise;

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

increases in the costs of our pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations;

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

our ability to meet the terms and conditions of our debt obligations;

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

our ability to effectively manage our network buildout project and our other expansion opportunities;

our ability to collect our receivables from financially troubled customers;

any adverse developments in legal or regulatory proceedings involving us;

changes in tax, communications, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels;

the effects of changes in accounting policies or practices, including potential future impairment charges;

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

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

other risks identified in our "Risk Factors" disclosures included in our annual report on Form 10-K for the year ended December 31, 2017.

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

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ITEM 1. FINANCIAL STATEMENTS

LEVEL 3 ~~COMMUNICATIONS, INC. AND SUBSIDIARIES~~PARENT, LLC

~~Consolidated Statements of Income~~CONSOLIDATED STATEMENTS OF OPERATIONS

~~(unaudited)~~(UNAUDITED)

Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
(dollars in millions, except per share data) 2017 2016 2017 2016

Revenue $ 2,061
$ 2,056
$ 4,109
$ 4,107
Costs and Expenses:
Network access costs 675
676
1,366
1,370
Network related expenses 337
339
673
677
Depreciation and amortization 330
310
650
611
Selling, general and administrative expenses 366
357
730
713
Total Costs and Expenses 1,708
1,682
3,419
3,371
Operating Income 353
374
690
736
Other Income (Expense):
Interest income 3
1
5
2
Interest expense (132 ) (140 ) (266 ) (275 )
Loss on modification and extinguishment of debt —
(40 ) (44 ) (40 )
Other, net (1 ) (5 ) 3
(15 )
Total Other Expense (130 ) (184 ) (302 ) (328 )
Income Before Income Taxes 223
190
388
408
Income Tax Expense (69 ) (34 ) (139 ) (124 )
Net Income $ 154
$ 156
$ 249
$ 284

Basic Earnings per Common Share

Net Income Per Share $ 0.42
$ 0.44

$ 0.69
$ 0.79
Weighted-Average Shares Outstanding (in thousands) 362,385
357,924
361,942
357,355

Diluted Earnings per Common Share

Net Income Per Share $ 0.42
$ 0.43

$ 0.68
$ 0.79
Weighted-Average Shares Outstanding (in thousands) 365,002
361,250
364,569
360,804



	Successor			Predecessor
	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017
	(Dollars in millions)
OPERATING REVENUES
Operating revenues	$	2,062		2,048
Operating revenues - affiliate	25			—
Total operating revenues	2,087			2,048
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	998			1,051
Selling, general and administrative expenses	344			364
Operating expenses - affiliate	53			—
Depreciation and amortization	431			296
Total costs and expenses	1,826			1,711
OPERATING INCOME	261			337
OTHER INCOME (EXPENSE)
Interest income	1			2
Interest income - affiliate	16			—
Interest expense	(120		)	(134	)
Loss on modification and extinguishment of debt	—			(44	)
Other income, net	6			4
Total other income (expense), net	(97		)	(172	)
INCOME BEFORE INCOME TAX EXPENSE	164			165
Income tax expense	(102		)	(70	)
NET INCOME	$	62		95

See accompanying notes to unaudited ~~Consolidated Financial Statements.~~consolidated financial statements.

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LEVEL 3 ~~COMMUNICATIONS, INC. AND SUBSIDIARIES~~PARENT, LLC

~~Consolidated Statements of Comprehensive Income~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

~~(unaudited)~~(UNAUDITED)

Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
(dollars in millions) 2017 2016 2017 2016
Net Income $ 154
$ 156
$ 249
$ 284
Other Comprehensive Income, net of Tax:

Foreign currency translation adjustments, net of tax effect of ($29), $16, ($37) and $24 42
(24 ) 62
24
Defined benefit pension plan adjustments, net of tax effect of $0, $1, $0, and ($1) (1 ) 2
—
(1 )
Other Comprehensive Income, net of Tax 41
(22 ) 62
23
Comprehensive Income $ 195
$ 134
$ 311
$ 307



	Successor		Predecessor
	Three Months Ended		Three Months Ended
	March 31, 2018		March 31, 2017
	(Dollars in millions)
NET INCOME	$	62	$	95
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments, net of tax effect of ($14) and ($8)	72		20
Defined benefit pension plan adjustments, net of tax effect of $0 and $0	—		1
Other Comprehensive Income, net of tax	72		21
COMPREHENSIVE INCOME	$	134	$	116

See accompanying notes to unaudited ~~Consolidated Financial Statements.~~consolidated financial statements.

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LEVEL 3 ~~COMMUNICATIONS, INC. AND SUBSIDIARIES~~PARENT, LLC

~~Consolidated Balance Sheets~~CONSOLIDATED BALANCE SHEETS

~~(unaudited)~~(UNAUDITED)

June 30, December 31,
(dollars in millions, except per share data) 2017 2016
Assets:
Current Assets:
Cash and cash equivalents $ 1,056
$ 1,819
Marketable securities 1,127
—
Restricted cash and securities 5
7
Receivables, less allowances for doubtful accounts of $32 and $29, respectively 707
712
Other 141
115
Total Current Assets 3,036
2,653
Property, Plant and Equipment, net of accumulated depreciation of $11,874 and $11,249, respectively 10,392
10,139
Restricted Cash and Securities 29
31
Goodwill 7,737
7,729
Other Intangibles, net 809
915
Deferred Tax Assets 3,235
3,370
Other Assets, net 49
51
Total Assets $ 25,287
$ 24,888
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable $ 693
$ 706
Current portion of long-term debt 306
7
Accrued payroll and employee benefits 178
195
Accrued interest 97
129
Current portion of deferred revenue 262
266
Other 162
168
Total Current Liabilities 1,698
1,471
Long-Term Debt, less current portion 10,584
10,877
Deferred Revenue, less current portion 1,058
1,001
Other Liabilities 632
622
Total Liabilities 13,972
13,971
Commitments and Contingencies

Stockholders’ Equity:
Preferred stock, $.01 par value, authorized 10,000,000 shares: no shares issued or outstanding —
—
Common stock, $.01 par value, authorized 433,333,333 shares in both periods; 361,479,420 issued and outstanding at June 30, 2017 and 360,021,098 issued and outstanding at December 31, 2016 4
4
Additional paid-in capital 19,887
19,800
Accumulated other comprehensive loss (325 ) (387 )
Accumulated deficit (8,251 ) (8,500 )
Total Stockholders’ Equity 11,315
10,917
Total Liabilities and Stockholders’ Equity $ 25,287
$ 24,888



	Successor		Successor
	March 31,		December 31,
	2018		2017
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	259	297
Restricted cash and securities	5		5
Assets held for sale	140		140
Accounts receivable, less allowance of $4 and $3, respectively	726		748
Accounts receivable - affiliate	3		13
Note receivable - affiliate	1,825		1,825
Other	183		117
Total current assets	3,141		3,145
Property, plant and equipment, net of accumulated depreciation of $380 and $143, respectively	9,542		9,412
Restricted cash and securities	29		29
GOODWILL AND OTHER ASSETS
Goodwill	11,141		10,837
Customer relationships, net	8,206		8,845
Other intangibles, net	390		378
Deferred tax assets	458		426
Other, net	96		63
Total goodwill and other assets	20,291		20,549
TOTAL ASSETS	$	33,003	33,135
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	9	8
Accounts payable	678		695
Accounts payable - affiliate	95		41
Accrued expenses and other liabilities
Income and other taxes	87		100
Salary and benefits	163		136
Interest	95		109
Current portion of deferred revenue	273		258
Current portion of deferred revenue - affiliate	2		2
Other	67		57
Total current liabilities	1,469		1,406
LONG-TERM DEBT	10,872		10,882
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenue	1,106		1,093
Deferred revenue - affiliate	6		6
Deferred tax liability	209		212
Other	321		264
Total deferred credits and other liabilities	1,642		1,575
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY
Member's equity	18,924		19,254
Accumulated other comprehensive income	96		18
Total member's equity	19,020		19,272
Total liabilities and member's equity	33,003		33,135

See accompanying notes to unaudited ~~Consolidated Financial Statements.~~consolidated financial statements.

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LEVEL 3 ~~COMMUNICATIONS, INC. AND SUBSIDIARIES~~PARENT, LLC

~~Consolidated Statements of Cash Flows~~CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(unaudited)~~(UNAUDITED)

Six Months Ended
June 30, June 30,
(dollars in millions) 2017 2016
Cash Flows from Operating Activities:
Net income $ 249
$ 284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 650
611
Non-cash compensation expense attributable to stock awards 87
78
Loss on modification and extinguishment of debt 44
40
Accretion of debt discount and amortization of debt issuance costs 9
10
Accrued interest on long-term debt, net (32 ) 23
Deferred income taxes 119
101
Gain on sale of property, plant and equipment and other assets —
(1 )
Other, net (8 ) (3 )
Changes in working capital items:
Receivables 16
(69 )
Other current assets (36 ) (40 )
Accounts payable (17 ) 132
Deferred revenue 50
42
Other current liabilities (31 ) (67 )
Net Cash Provided by Operating Activities 1,100
1,141
Cash Flows from Investing Activities:
Capital expenditures (696 ) (664 )
Change in restricted cash and securities, net 4
11
Purchases of marketable securities (1,127 ) —
Proceeds from the sale of property, plant and equipment and other assets —
1
Net Cash Used in Investing Activities (1,819 ) (652 )
Cash Flows from Financing Activities:
Long-term debt borrowings, net of issuance costs 4,569
764
Payments on and repurchases of long-term debt and capital leases (4,615 ) (816 )
Net Cash Used in Financing Activities (46 ) (52 )
Effect of Exchange Rates on Cash and Cash Equivalents 2
—
Net Change in Cash and Cash Equivalents (763 ) 437
Cash and Cash Equivalents at Beginning of Period 1,819
854
Cash and Cash Equivalents at End of Period $ 1,056
$ 1,291



	Successor			Predecessor
	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017
	(Dollars in millions)
OPERATING ACTIVITITES
Net income	$	62		95
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	431			296
Share-based compensation	27			48
Loss on modification and extinguishment of debt	—			44
Net long-term debt issuance costs and premium amortization	(9		)	5
Accrued interest on long-term debt, net	(14		)	(28	)
Deferred income taxes	104			62
Other, net	5			(5	)
Changes in current assets and liabilities
Accounts receivable	21			6
Accounts payable	(18		)	42
Deferred revenue	15			50
Other current assets and liabilities	(90		)	(76	)
Other current assets and liabilities, affiliate	37			—
Net cash provided by operating activities	571			539
INVESTING ACTIVITIES
Capital expenditures	(252		)	(368	)
Deposits received on assets held for sale	34			—
Proceeds from sale of property, plant and equipment and other assets	1			—
Net cash used in investing activities	(217		)	(368	)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	—			4,569
Payments of long-term debt	(1		)	(4,613	)
Distributions	(390		)	—
Net cash used in financing activities	(391		)	(44	)
Effect of exchange rates on cash, cash equivalents and restricted cash and securities	(1		)	1
Net (decrease) increase in cash, cash equivalents and restricted cash and securities	(38		)	128
Cash, cash equivalents and restricted cash and securities and beginning of period	331			1,857
Cash, cash equivalents and restricted cash and securities and end of period	$	293		1,985

Supplemental Disclosure of Cash Flow Information:
Cash interest paid $ 282
$ 245
Income taxes paid, net of refunds $ 32
$ 18



Supplemental cash flow information:
Interest paid	$	129	153
Income taxes paid, net	8		10

See accompanying notes to unaudited ~~Consolidated Financial Statements.~~consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF MEMBER'S/STOCKHOLDERS' EQUITY

(UNAUDITED)



	Successor			Predecessor
	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017
	(Dollars in millions)
MEMBER'S EQUITY
Balance at beginning of period	$	19,254		—
Distributions	(390		)	—
Adoption of ASU 2014-09, Revenue from Contracts with Customers	9			—
Adoption of ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	(6		)	—
Purchase price accounting adjustments	(5		)	—
Net income	62			—
Balance at end of period	18,924			—
COMMON STOCK
Balance at beginning of period	—			4
Balance at end of period	—			4
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period	—			19,800
Common stock issued under employee stock benefit plans and other	—			10
Share-based compensation	—			38
Balance at end of period	—			19,848
ACCUMULATED OTHER COMPREHENSIVE (INCOME) LOSS
Balance at beginning of period	18			(387	)
Other comprehensive income	72			21
Adoption of ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	6			—
Balance at end of period	96			(366	)
ACCUMULATED DEFICIT
Balance at beginning of period	—			(8,500	)
Net income	—			95
Balance at end of period	—			(8,405	)
TOTAL MEMBER'S/STOCKHOLDERS' EQUITY	$	19,020		11,081

See accompanying notes to unaudited consolidated financial statements.

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LEVEL 3 ~~COMMUNICATIONS, INC. AND SUBSIDIARIES~~PARENT, LLC

~~Notes to Unaudited Consolidated Financial Statements~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) ~~Organization and Summary of Significant Accounting Policies~~Background

~~Description of Business~~General

~~Level 3 Communications, Inc. and subsidiaries is~~We are a facilities-based provider (that is, a provider that owns or leases a substantial portion of the property, plant ~~property~~ and equipment necessary to provide our services) of a broad range of integrated communications services. We created our communications network by constructing our own assets and through a combination of purchasing other companies and purchasing or leasing facilities from others. Our network is an international, facilities-based communications network. We designed our network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.

On October 31, 2016, we entered into an agreement and plan of merger (the "Merger Agreement") with CenturyLink, Inc., a Louisiana corporation ("CenturyLink"), Wildcat Merger Sub 1 LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of CenturyLink ("Merger Sub 1"), and WWG Merger Sub LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of CenturyLink ("Merger Sub 2"), pursuant to which, ~~subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement,~~effective November 1, 2017, we ~~will be~~were acquired by CenturyLink in a cash and stock transaction, including the assumption of our debt (the "CenturyLink Merger"). See Note 2 - CenturyLink Merger.

~~Principles of Consolidation and~~ Basis of Presentation

On November 1, 2017, we became a wholly owned subsidiary of CenturyLink. On the date of the acquisition, our assets and liabilities were recognized at CenturyLink's preliminary estimates of fair value. This revaluation has been reflected in our financial statements and, therefore, has resulted in a new basis of accounting for the successor period beginning on November 1, 2017. This new basis of accounting means that our financial statements for the successor periods are not comparable to our previously reported financial statements, including the predecessor period financial statements in this report.

The consolidated financial statements include our accounts and the accounts of our ~~subsidiaries' accounts~~subsidiaries in which we have a controlling interest. All significant intercompany accounts and transactions have been eliminated. ~~The accompanying Consolidated Financial Statements~~Transactions with our non-consolidated affiliates (CenturyLink and its other subsidiaries, referred to herein as affiliates) have not been ~~prepared in accordance with accounting principles generally accepted in the United States ("GAAP").~~

eliminated. As part of our consolidation policy, we consider our controlled subsidiaries, investments in businesses in which we are not the primary beneficiary or do not have effective control but have the ability to significantly influence operating and financial policies, and variable interests resulting from economic arrangements that give us rights to economic risks or rewards of a legal entity. We do not have variable interests in a variable interest entity where we are required to consolidate the entity as the primary beneficiary. Due to exchange restrictions and other conditions, effective at the end of the third quarter of 2015 we deconsolidated our Venezuelan subsidiary and began accounting for our investment in our Venezuelan subsidiary using the cost method of accounting. The factors that led to our conclusions at the end of the third quarter of 2015 continued to exist through the ~~end of the second~~first quarter of ~~2017.~~2018.

The accompanying Consolidated Balance Sheet as of December 31, 2016, which was derived from audited Consolidated Financial Statements, and the unaudited interim Consolidated Financial Statements as of June 30, 2017 and for the three and six months ended June 30, 2017 and 2016 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for complete financial statements. These financial statements should be read inIn conjunction with our ~~audited Consolidated Financial Statements~~acquisition on November 1, 2017, we changed the definitions we use to classify expenses as cost of services and ~~notes thereto included~~products and selling, general and administrative, and as a result, we reclassified previously reported amounts to conform to the current period presentation. We revised our definitions so that our expense classifications are more consistent with the expense classifications used by our new ultimate parent company, CenturyLink. These revisions resulted in ~~our Form 10-K~~the reclassification of $24 million from depreciation and amortization to cost of services and products for the ~~year~~predecessor three months ended ~~December~~March 31, ~~2016. In~~2017. Although we continued as a surviving corporation and legal entity after the ~~opinion~~acquisition, the accompanying consolidated statements of ~~our management, these financial statements contain all adjustments necessary for a fair presentation of financial position, results of~~ operations, comprehensive income, member's/stockholders' equity and cash flows atare presented for two periods: predecessor and successor, which relates to the ~~dates~~period preceding the acquisition and ~~for~~ the ~~interim periods presented herein. The results of~~period succeeding the acquisition. Our current definitions are as follows:

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Cost of services and products (exclusive of depreciation and amortization) are expenses incurred in providing products and services to our customers. These expenses include: employee-related expenses directly attributable to operating and maintaining our network (such as salaries, wages, benefits and professional fees); facilities expenses (which are third-party telecommunications expenses we incur for using other carriers' networks to provide services to our customers); rents and utilities expenses; costs for universal service funds ("USF") (which are federal and state funds that are established to promote the availability of telecommunications services to all consumers at reasonable and affordable rates, among other things, and to which we are often required to contribute); taxes (such as property and other taxes); and other expenses directly related to our network.

Selling, general and administrative expenses are expenses incurred in selling products and services to our customers, corporate overhead and other operating expenses. These expenses include: employee-related expenses (such as salaries, wages, internal commissions, benefits and professional fees) directly attributable to selling products or services and employee-related expenses for administrative functions; marketing and advertising; taxes (such as state and local franchise taxes and sales and use taxes) and fees; external commissions; bad debt expense; and other selling, general and administrative expenses.

Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law and in December 2017, the SEC staff issued Staff Accounting Bulletin (SAB) 118 to provide guidance for companies that have not completed their accounting for the income tax effects of the Act. As of March 31, 2018, we have not completed our accounting for the tax effects of the Act. In order to complete our accounting for the impact of the Act, we continue to obtain, analyze and interpret additional guidance as such guidance becomes available from the U.S. Treasury Department, the Internal Revenue Service (“IRS”), state taxing jurisdictions, the FASB, and other standard-setting and regulatory bodies. New guidance or interpretations may materially impact our provision for income taxes in future periods.

Additional information that is needed to complete the analysis but is currently unavailable includes, but is not limited to, the amount of earnings of foreign subsidiaries, the final determination of certain net deferred tax assets subject to remeasurement due to purchase accounting adjustments and other matters and the tax treatment of such provisions of the Act by various state tax authorities. We have provisionally recognized the tax impacts related to the re-measurement of deferred tax assets and liabilities. The ultimate impact may differ from our provisional amount due to additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Act. The change from our current provisional estimates will be reflected in our future statements of operations and could be material. We expect to complete the accounting in the fourth quarter of 2018, although we cannot assure you of this.

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21%, we provisionally re-measured our net deferred tax assets at December 31, 2017 and recognized a tax expense of approximately $195 million in our consolidated statement of operations for ~~an interim period are~~the year ended December 31, 2017. During the first three months of 2018, we increased the tax expense from tax reform by $64 million due to changes in certain purchase accounting adjustments related to CenturyLink’s acquisition of us.

The Act imposed a one-time repatriation tax on certain earnings of foreign subsidiaries. Although we have not ~~necessarily indicative~~determined a reasonable estimate of the ~~results of operations expected for a full fiscal year.~~

~~The preparation~~impact of the ~~Consolidated Financial Statements in conformity with GAAP requires management~~one-time repatriation tax, we do not expect this one-time tax to ~~make estimates and assumptions~~materially impact us, but we cannot provide any assurance that ~~affect~~upon completion of the ~~reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and~~analysis the ~~reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates under different assumptions or conditions and such differences could~~amount will not be material.

Because of our net operating loss carryforwards, we do not expect to experience a material immediate reduction in the amount of cash taxes paid by us to CenturyLink as part of our tax allocation policy. However, we anticipate that this provision may reduce our cash income taxes in future years.

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Recently ~~Issued~~Adopted Accounting Pronouncements

In ~~February 2016,~~ the ~~Financial Accounting Standards Board ("FASB") issued~~first quarter or 2018, we adopted Accounting Standards Update ~~("ASU"~~(“ASU”) ~~2016-02,~~ ~~Leases~~ ~~("ASC 842")~~2014-09, “Revenue from Contracts with Customers”, ~~which requires entities that lease assets to recognize on the balance sheet the assets~~ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”, and ~~liabilities for the rights and obligations created by those leases. This~~ ASU ~~will replace most existing leasing guidance in U.S. GAAP when it becomes effective. The new standard~~2018 - 02, “Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”.

Each of these is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early application is permitted. The standard requires the use of a modified retrospective transition method. We are evaluating the effect that ASU 2016-02 will have on our Consolidated Financial Statements and related disclosures, and expect the new guidance to significantly increase the reported assets and liabilities on our Consolidated Balance Sheets.described further below.

InRevenue Recognition

On May 28, 2014, the FASB issued ASU 2014-09 ~~Revenue from Contracts with Customers~~, which ~~amended the~~replaces virtually all existing generally accepted accounting ~~standards for~~principles on revenue recognition and ~~requires~~replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to ~~recognize the amount of revenue it expects to be entitled to for~~depict the transfer of promised goods or services to ~~customers. The~~customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and ~~subsequent amendments have been codified as ASC 606,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”). In July 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017,~~amortization of contract acquisition and interim reporting periods within those periods. Early adoption is permitted using the original effective date of annual reporting periods beginning after December 15, 2016, and interim reporting periods within those periods. The new guidancefulfillment costs.

ASU 2014-09 may be ~~applied retrospectively~~adopted by applying the provisions of this standard on a retrospective basis to ~~each prior period presented~~the periods included in the financial statements or ~~prospectively with~~on a modified retrospective basis which would result in the recognition of a cumulative effect ~~recognized as~~of adopting ASU 2014-09 in the first quarter of 2018. We adopted the new revenue recognition standard under the modified retrospective transition method.

Upon adoption, we are deferring (i.e. capitalizing) incremental contract acquisition costs and are recognizing (i.e. amortizing) them over the term of the ~~date~~initial contract and anticipated renewal contracts to which the costs relate. Our deferred contract costs for our customers have average amortization periods of ~~initial adoption. We will not adopt ASC 606 early.~~approximately 12 months to 60 months and are subject to being monitored every period to reflect any significant change in assumptions. In addition, we assess our deferred contract cost asset for impairment on a periodic basis.

We have ~~performed a comprehensive analysis~~material obligations to our customers in our indefeasible right of ~~our revenue streams~~use arrangements, including certain long-term prepaid customer capacity arrangements, which are accounted for as operating leases and ~~contractual arrangements to identify and quantify the effects of ASC 606 on~~service contracts. As our consolidated financial statements and are developing new accounting and reporting policies, business and internal control processes and procedures to facilitate adoption of the standard. Because we currently have service contracts ~~that~~ contain a significant financing component that are not ~~currently~~ separately accounted for, we ~~will be~~are required to estimate and record incremental revenue and interest cost associated with these contractual terms. ~~In addition, we~~Most of our indefeasible right of use arrangements are accounted for as operating leases.

We recognized a cumulative adjustment of $9 million to beginning retained earnings, net of tax effect, on January 1, 2018, as a result of deferring commissions as contract acquisition costs that were not previously deferred. Adoption of this standard increased our disclosures regarding revenue recognition, see Note 5 - Revenue Recognition for additional information.

Income Taxes

On October 24, 2016, FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” ("ASU 2016-16"). ASU 2016-16 eliminates the current prohibition on the recognition of the income tax effects on the transfer of assets among our subsidiaries. After adoption of this ASU, the income tax effects associated with these asset transfers, except for the transfer of inventory, will be recognized in the period the asset is transferred versus the current deferral and recognition upon either the sale of the asset to a third party or over the remaining useful life of the asset. We adopted ASU 2016-16 on January 1, 2018. The adoption of ASU 2016-16 did not have a material impact to our consolidated financial statements.

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Comprehensive Income

ASU 2018-02 provides an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. If an entity elects to reclassify the income tax effects of the Tax Cuts and Jobs Act, the amount of that reclassification shall include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of enactment of the Tax Cuts and Jobs Act related to items remaining in accumulated other comprehensive income. The effect of the change in the U.S. federal corporate income tax rate on gross valuation allowances that were originally charged to income from continuing operations shall not be included. ASU 2018-02 is effective January 1, 2019, but early adoption is permitted and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We early adopted ASU 2018-02 in the first quarter of 2018 and applied it in the period of adoption. The adoption of ASU 2018-02 resulted in a $6 million decrease to member's equity and increase to accumulated other comprehensive income. See Note 9 - Accumulated Other Comprehensive Income (Loss) for additional information.

Recent Accounting Pronouncements

Leases

On February 25, 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 will require lessees to present right-of-use assets and lease liabilities on their balance sheets for operating leases, which are currently not reflected on their balance sheets.

ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. Upon adoption of ASU 2016-02, we are required to ~~capitalize,~~recognize and ~~subsequently amortize, commission costs associated with obtaining~~measure leases at the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply.

On January 25, 2018, the FASB issued ASU 2018-01, “Leases: Land Easement Practical Expedient for Transition to ASU 2016-02. ASU 2018-01permits the election of an optional transition practical expedient to not evaluate land easements that exist or ~~fulfilling our customer contracts, which~~expired before the entity’s adoption of ASC 2016-02 and that were not previously accounted for as leases. We plan to adopt ASU 2018-01 at the same time we ~~do not currently defer and amortize. We will also have to comply with new revenue disclosure requirements.~~ adopt ASU 2016-02.

We are ~~continuing~~in the process of implementing a new lease administrative and accounting system. We plan to ~~review~~adopt the standard when it becomes effective for us beginning January 1, 2019 and ~~evaluate underlying contract information that will be used to support new accounting and disclosure requirements under ASC 606 and evaluate other matters that may result from~~the adoption of the ~~standard.~~standard will result in the recognition of right of use assets and lease liabilities that have not previously been recorded. Although we believe it is premature as of the date of this report to provide any estimate of the impact of adopting ASU 2016-02, we do expect that it will have a material impact on our consolidated financial statements.

Financial Instruments

On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). The primary impact of ASU 2016-13 for us is a change in the model for the recognition of credit losses related to our financial instruments from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires our management team to estimate the total credit losses expected on the portfolio of financial instruments. We are currently reviewing the requirements of the standard and evaluating the impact on our consolidated financial statements.

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We are required to adopt the provisions of ASU 2016-13 effective January 1, 2020, but could elect to early adopt the provisions as of January 1, 2019. We expect to recognize the impacts of adopting ASU 2016-13 through a cumulative adjustment to retained earnings as of the date of adoption. As of the date of this report, we have not yet determined the date we will adopt ASU 2016-13.

Goodwill Impairment

On January 26, 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the impairment testing for goodwill by changing the measurement for goodwill impairment. Under current rules, we are required to compute the implied fair value of goodwill to measure the impairment amount if the carrying value of a reporting unit exceeds its fair value. Under ASU 2017-04, the goodwill impairment charge will equal the excess of the reporting unit carrying value above fair value, limited to the amount of goodwill assigned to the reporting unit.

We are required to adopt the provisions of ASU 2017-04 for any goodwill impairment tests, including our required annual test, occurring after January 1, 2020, but have the option to early adopt for any impairment test that we are required to perform. We have not ~~yet selected a transition method, as~~determined if we will elect to early adopt the provisions of ASU 2017-04. The provisions of ASU 2017-04 would not have affected our ~~method of transition may~~last goodwill impairment assessment, but no assurance can be ~~affected by~~provided that the ~~CenturyLink Merger, which we expect~~simplified testing methodology will ~~be completed~~not affect our goodwill impairment assessment in the ~~third quarter of 2017, and subsequent integration activities completed prior to the January 1, 2018 ASC 606 adoption date.~~future.

(2) CenturyLink Merger

On November 1, 2017, CenturyLink acquired us through successive merger transactions, including a merger of Level 3 with and into a merger subsidiary, which survived such merger as CenturyLink's indirect wholly-owned subsidiary under the name of Level 3 Parent, LLC.

As a result of the acquisition, Level 3 Communications, Inc. shareholders received $26.50 per share in cash and 1.4286 shares of CenturyLink common stock, with cash paid in lieu of fractional shares, for each outstanding share of Level 3 Communications, Inc. common stock they owned at closing, subject to certain limited exceptions. CenturyLink issued this consideration with respect to all of the outstanding common stock of Level 3, with the exception of shares held by the dissenting common shareholders. Upon closing, CenturyLink shareholders owned approximately 51% and former Level 3 shareholders owned approximately 49% of the combined company.

In addition, each outstanding Level 3 restricted stock unit award granted prior to April 1, 2014 or granted to an outside director of Level 3 was converted into $26.50 in cash and 1.4286 shares of CenturyLink common stock (and cash in lieu of fractional shares) with respect to each Level 3 share covered by such award (the "Converted RSU Awards"). Each outstanding Level 3 restricted stock unit award granted on or after April 1, 2014 (other than those granted to outside directors of Level 3) was converted into a CenturyLink restricted stock unit award using a conversion ratio of 2.8386 to 1 as determined in accordance with a formula set forth in the merger agreement (“the Continuing RSU Awards”).

The preliminary estimated amount of aggregate consideration of $19.628 billion is based on:

the 517.3 million shares of CenturyLink’s common stock (including those issued in connection with the Converted RSU Awards) issued to consummate the acquisition and the closing stock price of CenturyLink common stock at October 31, ~~2016, we entered into an agreement~~2017 of $18.99;

the cash consideration of $26.50 per share on the 362.2 million common shares of Level 3 issued and ~~plan~~outstanding as of ~~merger with CenturyLink, Inc., a Louisiana corporation, Wildcat Merger Sub 1 LLC, a Delaware limited liability company~~October 31, 2017, and ~~an indirect wholly owned subsidiary~~the cash consideration of ~~CenturyLink,~~$1 million paid on the Converted RSUs awards;

the estimated value of $131 million of Continuing RSU Awards, which represents the pre-combination portion of Level 3’s share-based compensation awards replaced by CenturyLink; and ~~WWG Merger Sub LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of CenturyLink, pursuant to which, subject to the~~

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~~satisfaction or waiver~~

the approximately $58.0 million of cash paid to settle claims of former holders of dissenting shares.

At closing, CenturyLink assumed Level 3's long-term debt of approximately $10.6 billion.

In connection with the ~~conditions set forth in~~closing of the Merger Agreement, we ~~will~~loaned $1.825 billion to CenturyLink in exchange for an unsecured demand note that bears interest at 3.5% per annum. The principal amount of such note is payable upon demand by Level 3 Parent but no later than November 1, 2020, and may be ~~acquired~~prepaid by CenturyLink ~~in a cash and stock transaction, including the assumption of our debt.~~

~~Under the Merger Agreement,~~ at the effective time of the merger of Merger Sub 1 with and into us (the "Initial Merger"), (i) each issued and outstanding share of our common stock, will be converted into 1.4286 shares (the "Stock Consideration") of CenturyLink's common stock par value $1.00 per share and (ii) the right to receive $26.50 in cash (the "Cash Consideration" and, together with the Stock Consideration, the "Merger Consideration"). In addition, the Merger Agreement provides that at the effective time of the CenturyLink Merger, each issued and outstanding restricted stock unit award granted prior to April 1, 2014 and each restricted stock unit award granted to a non-employee member of our Board of Directors will be exchanged for the Merger Consideration. Further, at the effective time of the CenturyLink Merger, each issued and outstanding restricted stock unit award granted on or after April 1, 2014, other than those granted to non-employee members of our Board of Directors, will be assumed and converted automatically into a restricted stock unit award of CenturyLink common stock that will be subject to the same service-based vesting conditions as applicable to such awards prior to the transaction (but not any performance-based vesting conditions, which will be deemed satisfied based on forecasted and adjusted results through the closing of the transaction (as determined by Compensation Committee of our Board of Directors)). The CenturyLink Merger is subject to the receipt of certain regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, review by the U.S. Federal Communications Commission, certain state regulatory approvals and other customary closing conditions.time.

The ~~transaction has received approval~~U.S. Department of ~~CenturyLink's shareholders~~Justice approved the acquisition subject to conditions of a consent decree on October 2, 2017, which requires the combined company to divest certain Level 3 metro network assets in the markets located in Albuquerque, New Mexico; Boise, Idaho; and ~~our stockholders.~~ Tucson, Arizona and the combined company will divest 24 strands of dark fiber connecting 30 specified city-pairs across the United States in the form of an Indefeasible Right of Use agreement. The metro network assets are classified as assets held for sale on the consolidated balance sheets as of March 31, 2018 and December 31, 2017.

~~(3) Earnings Per Share~~

~~We compute basic earnings per share by dividing net income for the period by the weighted average number~~Our results of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the net income for the period by the weighted average number of shares of common stock outstanding during the period and including the dilutive effect of common stock that would be issued assuming exercise of stock-based compensation awards.

~~The effects of approximately 3 million total restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") outstanding at June 30, 2017~~operations have been included in the ~~computation~~consolidated results of ~~diluted earnings per share~~operations of CenturyLink beginning November 1, 2017. CenturyLink recognized our assets and liabilities based on CenturyLink’s preliminary estimates of the fair value of the acquired tangible and intangible assets and assumed liabilities of us as of November 1, 2017, the consummation date of the acquisition, with the excess aggregate consideration recorded as goodwill. The final determination of the allocation of the aggregate consideration paid by CenturyLink in the combination will be based on the fair value of such assets and liabilities as of the acquisition date with any excess aggregate consideration to be recorded as goodwill. The estimation of such fair values and the estimation of lives of depreciable tangible assets and amortizable intangible assets will require significant judgment. As such, CenturyLink has not completed its valuation analysis and calculations in sufficient detail necessary to arrive at the final estimates of the fair value of our assets acquired and liabilities assumed, along with the related allocation to goodwill. The fair values of certain tangible assets, intangible assets, certain liabilities and residual goodwill are the most significant areas not yet finalized and therefore are subject to change. CenturyLink expects to complete the final fair value determinations prior to the anniversary date of the acquisition. CenturyLink’s final fair value determinations may be significantly different than those reflected in our consolidated financial statements at March 31, 2018. The recognition of assets and liabilities at fair value are reflected in our financial statements and therefore result in a new basis of accounting for the ~~three and six months ended June 30,~~“successor period” beginning on November 1, 2017. ~~Less than 1 million~~This new basis of ~~PRSUs granted in 2016 were excluded from the computation of diluted earnings per share~~accounting means that our financial statements for the ~~three and six months ended June 30, 2017, as they were contingently issuable and no shares would have been issued if these~~successor periods ~~were~~will not be comparable to our previously reported financial statements, including the ~~end~~financial statements in this report.

Based solely on CenturyLink’s preliminary estimates, the aggregate consideration exceeds the aggregate estimated fair value of the ~~contingency period.~~acquired assets and assumed liabilities by $11.141 billion, which we have recognized as goodwill. The ~~effect of approximately 3 million total outperform stock appreciation rights ("OSOs"), RSUs~~goodwill is attributable to strategic benefits, including enhanced financial and ~~PRSUs outstanding at June 30, 2016 was included in the computation of diluted earnings per share for the three~~operational scale, market diversification and ~~six months ended June 30, 2016.~~leveraged combined networks that CenturyLink expects to realize.

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~~(4) Other Intangible Assets~~

~~Other intangible assets as~~The following is our updated assignment of ~~June 30, 2017 and December 31, 2016 were as follows (dollars in millions):~~the preliminary estimated aggregate consideration:

Gross
Carrying
Amount

Accumulated
Amortization
Net
June 30, 2017
Finite-Lived Intangible Assets:
Customer Contracts and Relationships $ 1,973
$ (1,205 ) $ 768
Trademarks 55
(55 ) —
Patents and Developed Technology 227
(201 ) 26
2,255
(1,461 ) 794
Indefinite-Lived Intangible Assets:
Trade Name 15
—
15
$ 2,270
$ (1,461 ) $ 809
December 31, 2016
Finite-Lived Intangible Assets:
Customer Contracts and Relationships $ 1,973
$ (1,113 ) $ 860
Trademarks 55
(55 ) —
Patents and Developed Technology 229
(189 ) 40
2,257
(1,357 ) 900
Indefinite-Lived Intangible Assets:
Trade Name 15
—
15
$ 2,272
$ (1,357 ) $ 915



	Adjusted November 1, 2017 Balance as of December 31, 2017			Purchase Price Adjustments⁽³⁾		Adjusted November 1, 2017 Balance as of March 31, 2018
	(Dollars in millions)
Cash, accounts receivable and other current assets ⁽¹⁾	$	3,317		(3	)	3,314
Property, plant and equipment	9,311			92		9,403
Identifiable intangible assets ⁽²⁾						—
Customer relationships	8,964			(476	)	8,488
Other	391			(13	)	378
Other noncurrent assets	782			156		938
Current liabilities, excluding current maturities of long-term debt	(1,461		)	—		(1,461	)
Current maturities of long-term debt	(7		)	—		(7	)
Long-term debt	(10,888		)	—		(10,888	)
Deferred revenue and other liabilities	(1,613		)	(65	)	(1,678	)
Goodwill	10,837			304		11,141
Total estimated aggregate consideration	$	19,633		(5	)	19,628

~~Finite-lived~~(1) Includes a preliminary estimated fair value of $863 million for accounts receivable, which had a gross contractual value of $884 million on November 1, 2017. The $21 million difference between the gross contractual value and the preliminary estimated fair value assigned represents our best estimate as of November 1, 2017 of contractual cash flows that will not be collected.

(2) The preliminary estimate of the weighted-average amortization period for the acquired intangible ~~asset~~assets is approximately 12.0 years.

(3) All purchase price adjustments occurred during the three months ended March 31, 2018.

Acquisition-Related Expenses

We have incurred acquisition-related expenses related to our activities surrounding the CenturyLink Merger. The table below summarizes our acquisition-related expenses, which consist of integration-related expenses, including severance and retention compensation expenses, and transaction-related expenses:



	Successor		Predecessor
	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017
	(Dollars in millions)
Transaction-related expenses	$	—	3
Integration-related expenses	18		18
Total acquisition-related expenses	$	18	21

Subsequent Events

In April 2018 we distributed $15 million to CenturyLink.

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On May 4, 2018, we sold network assets in Boise that we were required to divest as a condition to the merger. These assets were classified as assets held for sale on our March 31, 2018 and December 31, 2017 consolidated balance sheets and no gain or loss was recognized on this transaction.

On January 22, 2018, we entered an agreement to sell certain intangible assets for $68 million. We received a deposit of $34 million in the first quarter of 2018 and it is recorded in other current liabilities on our March 31, 2018 consolidated balance sheet. The receipt of this $34 million is reflected in our cash flows from investing activities on our March 31, 2018 statement of cash flows. The remaining $34 million was collected in the second quarter of 2018.

(3) Goodwill, Customer Relationships and Other Intangible Assets

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



	March 31, 2018		December 31, 2017
	(Dollars in millions)
Goodwill	$	11,141	10,837
Customer relationships, less accumulated amortization of $300 and $126	8,206		8,845
Other intangible assets subject to amortization:
Trade names, less accumulated amortization of $11 and $4	119		126
Developed technology, less accumulated amortization of $22 and $9	271		252
Total other intangible assets, net	$	390	378

Our goodwill balance at December 31, 2017 includes $16 million of goodwill that was allocated to us from CenturyLink associated with differences in the deferred state income taxes that CenturyLink expects to realize due to its consolidation of our results of operations into its state tax returns.

Total amortization expense ~~was~~ ~~$52 million~~ ~~and $104 million~~for intangible assets for the successor three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018 and ~~$53 million~~ ~~and $106 million for~~ the predecessor three ~~and six~~ months ended ~~June 30, 2016.~~

~~At June 30,~~March 31, 2017 was $194 million and $52 million, respectively. As of the successor date of March 31, 2018, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $20 billion. As of March 31, 2018, the weighted average remaining useful lives of our finite-lived intangible assets was ~~4.4~~11.6 years in total; ~~4.4~~11.9 years for customer contracts and relationships, 4.6 years for trade names, and ~~2.3~~4.6 years for ~~patents and~~ developed technology.

~~As of June 30, 2017, estimated~~We estimate that total amortization expense for ~~our finite-lived~~ intangible assets ~~over~~for the ~~next five~~successor years isending December 31, 2018 through 2022 will be as ~~follows (dollars in millions):~~

follows:

2017 (remaining six months) $ 95
2018 190
2019 179
2020 166
2021 143
2022 21
Thereafter —
$ 794

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~~(5) Fair Value of Financial Instruments~~

Our financial instruments consist of cash, cash equivalents, marketable securities, restricted cash and securities, receivables, accounts payable, capital leases, other liabilities and long-term debt (including the current portion). The carrying values of cash and cash equivalents, marketable securities, restricted cash and securities, receivables, accounts payable, capital leases and other liabilities approximated their fair values at June 30, 2017 and December 31, 2016.

GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements and disclosures for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as interest and foreign exchange rates, transfer restrictions, and risk of nonperformance.

~~Fair Value Hierarchy~~

GAAP establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value measurement of each class of assets and liabilities is dependent upon its categorization within the fair value hierarchy, based upon the lowest level of input that is significant to the fair value measurement of each class of asset and liability. GAAP establishes three levels of inputs that may be used to measure fair value:

~~Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities.~~

~~Level 2~~— Unadjusted quoted prices for similar assets or liabilities in active markets, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

~~Level 3— Unobservable inputs for the asset or liability.~~

We recognize transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the fair value hierarchy during each of the six months ended June 30, 2017 and June 30, 2016.

~~Marketable Securities~~

Our securities include U.S. Treasury Bills and commercial paper, which are classified as held to maturity. Held to maturity securities are carried at amortized cost. The contractual maturities of held to maturity securities as of June 30, 2017 were all within one year.

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~~The table below presents the fair values for our long-term debt as well as the input levels used to determine these fair values as of June 30, 2017 and December 31, 2016:~~

Fair Value Measurement Using
Total Carrying Value in Consolidated Balance Sheets
Unadjusted Quoted Prices in Active
Markets for Identical Assets or Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
(dollars in millions) June 30,
2017 December 31,
2016 June 30,
2017 December 31,
2016 June 30,
2017 December 31,
2016
Liabilities Not Recorded at Fair Value in the Financial Statements:
Long-term Debt, including the current portion:
Term Loans $ 4,569
$ 4,566
$ 4,622
$ 4,671
$ —
$ —
Senior Notes 6,140
6,135
6,436
6,283
—
—
Capital Leases and Other 181
183
—
—
181
183
Total Long-term Debt, including the current portion $ 10,890
$ 10,884
$ 11,058
$ 10,954
$ 181
$ 183

~~We do not have any assets or liabilities where the fair value is measured using significant unobservable inputs (Level 3).~~

~~Term Loans~~

The fair value of the Term Loans referenced above was approximately $4.6 billion and $4.7 billion at June 30, 2017 and December 31, 2016, respectively. The fair value of each loan is based on quoted prices. Each loan tranche is actively traded. For additional information on the refinancing of the Term Loans, see Note 6 - Long-Term Debt.

~~Senior Notes~~

The fair value of the Senior Notes referenced above was approximately $6.4 billion at June 30, 2017 and $6.3 billion at December 31, 2016, respectively, based on quoted prices for identical terms and maturities. Each series of notes is actively traded.

~~Capital Leases~~

The fair value of our capital leases is determined by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates.



	(Dollars in millions)
2018 (remaining nine months)	$	599
2019	799
2020	799
2021	799
2022	787

~~(6)~~(4) Long-Term Debt

The following table summarizes our long-term ~~debt (amounts in millions):~~debt:

Date of June 30, 2017 December 31, 2016
Issuance/Amendment Maturity Interest Payments Interest Rate Amount Amount
Senior Secured Term Loans:
Borrowed by Level 3 Financing, Inc.
Tranche B-III 2019 Term Loan ⁽¹⁾⁽⁴⁾
Aug 2013 — Quarterly LIBOR +3.00% $ —
$ 815
Tranche B 2020 Term Loan ⁽¹⁾⁽⁴⁾
Oct 2013 — Quarterly LIBOR +3.00% —
1,796
Tranche B-II 2022 Term Loan⁽¹⁾⁽⁴⁾
May 2015 — Quarterly LIBOR +2.75% —
2,000
Tranche B 2024 Term Loan ⁽¹⁾⁽⁴⁾
Feb 2017 Feb 2024 Quarterly LIBOR +2.25% 4,611
—
Senior Notes:
Issued by Level 3 Financing, Inc.
Floating Rate Senior Notes due 2018 ⁽²⁾⁽⁴⁾
Nov 2013 Jan 2018 May/Nov 6-Month LIBOR +3.50% 300
300
6.125% Senior Notes due 2021 ⁽²⁾
Nov 2013 Jan 2021 Apr/Oct 6.125% 640
640
5.375% Senior Notes due 2022⁽²⁾
Aug 2014 Aug 2022 May/Nov 5.375% 1,000
1,000
5.625% Senior Notes due 2023 ⁽²⁾
Jan 2015 Feb 2023 Jun/Dec 5.625% 500
500
5.125% Senior Notes due 2023⁽²⁾
Apr 2015 May 2023 Mar/Sept 5.125% 700
700
5.375% Senior Notes due 2025 ⁽²⁾
Apr 2015 May 2025 Mar/Sept 5.375% 800
800
5.375% Senior Notes due 2024 ⁽²⁾
Nov 2015 Jan 2024 Jan/Jul 5.375% 900
900
5.25% Senior Notes due 2026 ⁽²⁾
Mar 2016 Mar 2026 Apr/Oct 5.250% 775
775
Issued by Level 3 Communications, Inc.
5.75% Senior Notes due 2022⁽³⁾
Dec 2014 Dec 2022 Mar/Sept 5.750% 600
600
Capital Leases and Other Debt 181
183
Total Debt Obligations 11,007
11,009
Unamortized discounts —
(13 )
Unamortized debt issuance costs (117 ) (112 )
Current Portion (306 ) (7 )
Total Long-Term Debt $ 10,584
$ 10,877



	Interest Rates	Maturities	March 31, 2018			December 31, 2017
			(Dollars in millions)
Level 3 Parent, LLC
Senior notes⁽¹⁾	5.750%	2022	$	600		600
Subsidiaries
Level 3 Financing, Inc.
Senior notes⁽²⁾	5.125% - 6.125%	2021 - 2026	5,315			5,315
Term loan⁽³⁾	LIBOR + 2.25%	2024	4,611			4,611
Capital Leases	Various	Various	177			179
Total long-term debt, excluding unamortized premiums			10,703			10,705
Unamortized premiums, net			178			185
Total long-term debt			10,881			10,890
Less current maturities			(9		)	(8		)
Long-term debt, excluding current maturities			$	10,872		$	10,882

⁽¹⁾The ~~term loans~~notes are ~~secured obligations and~~not guaranteed by any of Level 3 ~~Communications, Inc. and Level 3 Communications, LLC and certain other~~Parent, LLC's subsidiaries.

⁽²⁾ The notes are fully and unconditionally guaranteed on an unsubordinated unsecured basis by Level 3 ~~Communications, Inc.~~Parent, LLC and Level 3 Communications, LLC.

⁽³⁾The ~~notes were not~~Tranche B 2024 Term Loan is a secured obligation and is guaranteed by ~~any of~~ Level 3 ~~Communications, Inc.'s~~Parent, LLC and certain other subsidiaries.

⁽⁴⁾ The Tranche B 2024 Term Loan had an interest rate of ~~3.466%~~4.111% as of ~~June 30, 2017. All other term loans were refinanced on February 22, 2017 as described below.The Tranche B-III 2019 Term Loan~~March 31, 2018 and ~~the Tranche B 2020 Term Loan each had an interest rate of 4.000%~~3.557% as of December 31, ~~2016.~~2017. The Tranche B-II 2022 Term Loan had an interest rate of 3.500% as of December 31, 2016. The interest rate on the Tranche B-III 2019 Term Loan and the Tranche B 2020 Term Loan were set with a minimum LIBOR of 1.00%. The interest rate on the Tranche B-II 2022 Term Loan was set with a minimum LIBOR of 0.75% and the interest rate on the Tranche B 2024 Term Loan is set with a minimum LIBOR of zero percent. ~~The Floating Rate Senior Notes due 2018 had an interest rate of 4.939% as of June 30, 2017 and 4.762% as of December 31, 2016.~~

~~Senior Secured Term Loans~~Capital Leases

As of ~~June 30, 2017, Level 3 Financing, Inc., Level 3 Communications, Inc.'s direct wholly owned subsidiary ("Level 3 Financing")~~March 31, 2018, we had ~~a senior secured credit facility consisting~~$177 million of ~~a $4.611 billion Tranche B Term Loan due 2024.~~capital leases. We lease property, equipment, certain dark fiber facilities and metro fiber under non-cancelable IRU agreements that are accounted for as capital leases. The weighted average interest rate on these capital leases approximated 5.8% as of March 31, 2018.

Issuances

On February 22, 2017, we completed the refinancing of all of our then outstanding $4.611 billion senior secured term loans through the issuance of a new Tranche B 2024 Term Loan in the principal

amount of $4.611 billion. The term loans refinanced were our Tranche B-III 2019 Term Loan, Tranche B 2020 Term Loan, and the Tranche B-II 2022 Term Loan. The new Tranche B 2024 Term Loan bears interest at LIBOR plus 2.25 percent, with a zero percent minimum LIBOR, and will mature on February 22, 2024. The Tranche B 2024 Term Loan was priced to lenders at par, with the payment to the lenders at closing of an upfront 25 basis point fee. We recognized a chargeof approximately $44 million for modification and extinguishment in the first quarter of 2017 related to this refinancing.

As the new Tranche B 2024 Term Loan represents a new tranche to our existing credit facility, new regulatory approvals are required for Level 3 Communications, LLC and certain other regulated subsidiaries of Level 3 Financing to guarantee and to provide security for the Tranche B 2024 Term Loan. As a result, the guarantees and a portion of the collateral provided by those entities to support the term loans that were refinanced are not available to support the Tranche B 2024 Term Loan unless and until those regulatory approvals are obtained.Long-Term Debt Maturities

~~Senior Notes~~

~~All of~~Set forth below is the notes pay interest semiannually, and allow for the redemption of the notes at the option of the issuer upon not less than 30 or more than 60 days’ prior notice by paying the greater of 101% of the principal amount or a “make-whole” amount, plus accrued interest. In addition, the notes also have a provision that allows for an additional right of optional redemption using cash proceeds received from the sale of equity securities. For specific details of these features and requirements, including the applicable premiums and timing, refer to the indentures for the respective senior notes in connection with the original issuances.

~~7% Senior Notes due 2020 and 5.25% Senior Notes due 2026~~

~~On March 22, 2016, Level 3 Financing issued $775 million in~~ aggregate principal amount of our ~~5.25% Senior Notes due 2026 (the “5.25% Senior Notes due 2026”).~~ long-term debt and capital leases (excluding unamortized premiums) maturing during the following years:



	(Dollars in millions)
2018 (remaining nine months)	$	9
2019	8
2020	10
2021	651
2022	1,726
2023 and thereafter	8,299
Total long-term debt	$	10,703

Covenants

The ~~5.25% Senior Notes due 2026 are fully and unconditionally guaranteed on an unsubordinated unsecured basis by~~senior notes of Level 3 ~~Communications, Inc.~~Parent, LLC and term loan and senior notes of Level 3 ~~Communications,~~Financing, Inc. contain extensive affirmative and negative covenants. Such covenants include, among other things and subject to certain significant exceptions, restrictions on their ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with their affiliates including CenturyLink and its other subsidiaries, dispose of assets and merge or consolidate with any other person. Also, Level 3 Parent, LLC, as well as Level 3 Financing, Inc., will be required to offer to purchase certain of its long-term debt securities under certain circumstances in connection with a "change of control" of Level 3 Parent, LLC.

~~On April 21, 2016, all~~Certain of ~~the outstanding principal amount~~CenturyLink's and our debt instruments contain cross acceleration provisions. When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of ~~the 7% Senior Notes Due 2020 was redeemed at~~ a redemption price equal to 104.138% of the principal amount, along with accrued and unpaid interest to but excluding the redemption date. To fund the redemption of these notes, Level 3 Financing used the net proceeds, along with cash on hand, from the March 22, 2016 issuance of our 5.25% Senior Notes due 2026. We recognized a charge of approximately $40 million for modification and extinguishment in the second quarter of 2016 related to this refinancing.single debt instrument.

~~Capital Leases~~

As of June 30, 2017, we had $181 million of capital leases. We lease property, equipment, certain dark fiber facilities and metro fiber under non-cancelable IRU agreements that are accounted for as capital leases. The weighted average interest rate on these capital leases approximated 5.8% as of June 30, 2017.

~~Covenant~~ Compliance

At ~~June 30, 2017 and December~~March 31, ~~2016,~~2018, we believe we were in compliance with the financial covenants contained in their respective material debt agreements.

For additional information on ~~all outstanding~~our long-term debt, ~~issuances.~~see Note 4—Long-Term Debt to our consolidated financial statements in Item 8 of Part II of our annual report on Form 10-K for the year ended December 31, 2017.

(5) Revenue Recognition

Level 3 earns revenue from contracts with customers, primarily through the provision of telecommunications and other services. Revenue from contracts with customers is accounted for under ASC 606, which we adopted on January 1, 2018 using the modified retrospective approach. We also earn revenues that are not accounted for under Accounting Standards Codification ("ASC") 606 from leasing arrangements (primarily fiber capacity agreements).

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. Revenue recognition is recognized based on the following five-step model:

Identification of the contract(s) with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and,

Recognition of revenue when, or as, we satisfy a performance obligation.

We provide an array of communications services, including local voice, broadband, private line (including special access), network access, Ethernet, information technology, video and other ancillary services. Our customers include global/international, enterprise, wholesale, government and small and medium business customers. Certain contracts also include the sale of equipment, which is not significant to our business.

For access services, we generally bill fixed monthly charges one month in advance to customers and recognize revenue as service is provided over the enforceable contract term in alignment with the period of customer benefit. For usage, installation and other ancillary services, we generally bill in arrears and recognize revenue as usage or delivery occurs. In most cases, the amount invoiced for our service offerings constitutes the price that would be billed on a standalone basis. To the extent certain products or services are discounted as part of a bundle arrangement, the bundle discounts are included in our calculation of the total transaction price with the customer which is allocated to the various services in the bundled offering based on the estimated selling price of services included in each bundled combination.

Promotional or performance-based incentives are estimated at contract inception (and updated on a periodic basis as needed) and accounted for as variable consideration. In certain cases, customers may be permitted to modify their contracts without incurring a penalty. We evaluate the change in scope or price to identify whether the modification should be treated as a separate contract, whether the modification is a termination of the existing contract and creation of a new contract, or if it is a change to the existing contract. The impact of contract modifications is not typically significant to our results.

Customer payments are made based on billing schedules included in our customer contracts, which is typically on a monthly basis. For certain products or services and customer types, payment is required before products or services are provided.

~~Long-Term Debt Maturities~~Disaggregated Revenue by Service Offering

~~Aggregate future contractual maturities~~The following table provides disaggregation of ~~long-term debt~~revenue from contracts with customers based on service offering for the three months ended March 31, 2018 as well as a reconciliation of adjustments to revenue from the adoption of ASC 606 to ASC 605:



	Successor
	Three Months Ended March 31, 2018
	(Dollars in millions)
	Total Revenues		Adjustments⁽⁷⁾		Total Revenue from Contracts with Customers
Voice & Collaboration⁽¹⁾	$	381	—		381
IT and Managed Services⁽²⁾	1		—		1
Transport & Infrastructure⁽³⁾	675		(42	)	633
IP & Data Services⁽⁴⁾	1,003		—		1,003
Regulatory revenues⁽⁵⁾	2		(2	)	—
Affiliate revenues⁽⁶⁾	25		—		25
Total revenues	$	2,087	(44	)	2,043

Timing of revenue
Goods transferred at a point in time					$	—
Services performed over time					2,043
Total revenue from contracts with customers					$	2,043

(1) Includes local, long-distance and ~~capital leases (excluding debt issuance costs) were as follows~~other ancillary revenues.

(2) Includes IT services and managed services revenues.

(3) Includes primarily broadband, private line (including business data services), colocation and data centers, wavelength and ancillary revenues.

(4) Includes primarily VPN data network, Ethernet, IP, video and ancillary revenues.

(5) Includes sublease rental income.

(6) Includes telecommunications and data services we bill to our affiliates.

(7) Includes sublease rental income and revenue from fiber capacity lease arrangements.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables and contract liabilities as of ~~June 30, 2017 (dollars~~March 31, 2018 and December 31, 2017:



	Successor
	March 31, 2018		January 1, 2018
	(Dollars in millions)
Customer receivables⁽¹⁾	$	726	748
Contract liabilities	373		353

(1) Gross customer receivables of $730 and $751, net of allowance for doubtful accounts of $4 and $3, respectively.

Contract liabilities are consideration we have received from our customers in ~~millions):~~advance of providing the goods or services promised in the contract. We defer this consideration 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 sheet.

The following table provides information about revenues recognized for the three months ended March 31, 2018:

2017 (remaining six months) $ 4
2018 307
2019 7
2020 8
2021 650
2022 1,610
Thereafter 8,421
$ 11,007



	Successor
	March 31, 2018
	(Dollars in millions)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	97
Performance obligations satisfied in previous periods	—

Performance Obligations

A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer. We recognize revenue for services when we satisfy our performance obligation as services are provided. Recognition of certain payments received in advance of services being provided is deferred until the service is provided. These advance payments include certain activation and certain installation charges, which we recognize as revenue over the actual or expected contract term, which ranges from one to five years depending on the service. Expected contract term periods are estimated using historical experience. In most cases, termination fees or other fees on existing contracts that are negotiated in conjunction with new contracts are deferred and recognized over the new contract term.

~~(7) Accumulated Other Comprehensive Loss~~We periodically transfer optical capacity assets on our network to other telecommunications service carriers. These transactions are structured as indefeasible rights of use, commonly referred to as IRUs, which are the exclusive right to use a specified amount of capacity or fiber for a specified term, typically 10 to 20 years. In most cases, we account for the cash consideration received on transfers of optical capacity assets and on all of the other elements deliverable under the capacity IRU as lease revenue ratably over the term of the agreement. IRUs that are not classified as leases are accounted for as service contracts under ASC 605. We do not recognize revenue on any contemporaneous exchanges of our optical capacity assets for other optical capacity assets.

In connection with offering products and services provided by third-party vendors, we review the relationship between us, the vendor and the end customer to assess whether revenue should be reported on a gross or net basis. In assessing whether revenue should be reported on a gross or net basis, we consider whether we act as a principal in the transaction and control the goods or services used to fulfill the performance obligation(s) associated with the transaction.

We have service level commitments pursuant to contracts with certain of our customers. To the extent that such service levels are not achieved or are otherwise disputed due to performance or service issues or other service interruptions or conditions, we will estimate the amount of credits to be issued and record a reduction to revenues in the period that the service level commitment was not met.

As of March 31, 2018, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts (including affiliates) that are unsatisfied (or partially satisfied) is approximately $7.5 billion. We expect to recognize approximately 56% of this revenue through 2019, with the balance recognized thereafter.

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

Contract Costs

The ~~accumulated balances~~following table provides changes in our contract acquisition costs and fulfillment costs for ~~each classification of other comprehensive income (loss) were as follows:~~the three months ended March 31, 2018:

(dollars in millions) Net Foreign Currency Translation Adjustment Defined Benefit Pension Plans Total
Balance at December 31, 2015 $ (273 ) $ (28 ) $ (301 )
Other comprehensive income (loss) before reclassifications, net of tax 24
(1 ) 23
Amounts reclassified from accumulated other comprehensive loss —
—
—
Balance at June 30, 2016 $ (249 ) $ (29 ) $ (278 )



	Successor
	Three Months Ended March 31, 2018
	(Dollars in millions)
	Acquisition Costs			Fulfillment Costs
Beginning of period balance	$	13		14
Costs incurred	15			23
Amortization	(2		)	(2	)
Impairments	—			—
End of period balance	$	26		35

Balance at December 31, 2016 $ (353 ) $ (34 ) $ (387 )
Other comprehensive income before reclassifications, net of tax 62
1
63
Amounts reclassified from accumulated other comprehensive loss —
(1 ) (1 )
Balance at June 30, 2017 $ (291 )
$ (34 )
$ (325 )

~~Table~~Acquisition costs include commission fees paid to employees as a result of ~~Contents~~

~~(8) Stock-Based Compensation~~

obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities. The ~~following table summarizes non-cash compensation expense for each~~amount of ~~the three and six months ended June 30, 2017 and 2016 (dollars in millions):~~

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Outperform Stock Appreciation Rights $ —
$ 1
$ —
$ 2
Restricted Stock Units 28
13
56
34
Performance Restricted Stock Units 3
10
12
24
401(k) Match Expense 8
8
19
19
39
32
87
79
Capitalized Non-Cash Comp —
(1 ) —
(1 )
Total $ 39
$ 31
$ 87
$ 78

~~As of June 30, 2017, there were approximately~~ ~~6 million~~ ~~total restricted stock and performance restricted stock units outstanding.~~

~~(9) Segment Information~~

Operating segments are defined under GAAP as components of an enterprise for which separate financial information is available and evaluated regularly by our chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. Our reportable segments consist of: 1) North America; 2) Europe, the Middle East and Africa (EMEA); and 3) Latin America. Other separate business interests that are not segments include interest, certain corporate assets and overhead costs, and certain other general and administrativethese capitalized costs that are ~~not allocated~~anticipated to ~~any~~be amortized in the next twelve months are included in other current assets on the consolidated balance sheet. The amount of capitalized costs expected to be amortized beyond the ~~operating segments.~~next twelve months is included on other assets on our consolidated balance. Deferred acquisition and fulfillment costs are assessed for impairment on a quarterly basis.

~~The CODM measures~~Acquisition and ~~evaluates segment performance primarily~~fulfillment costs are amortized based ~~upon revenue, revenue growth~~on the transfer of services to which the assets relate to which typically range from 12 months to 60 months, and ~~Adjusted EBITDA. Adjusted EBITDA, as defined by us, is equal to net income from the Consolidated Statements~~are included in cost of ~~Income before (1) income tax benefit (expense), (2) total other income (expense), (3) non-cash impairment charges included within~~services and products and selling, general and administrative expenses and network related expenses, (4) depreciation and amortization expense, and (5) non-cash stock-based compensation expense included within selling, general and administrative expenses and network related expenses.in our consolidated statement of operations. A portion of these costs are amortized on a portfolio basis using an average expected contract term of 30 months.

~~Adjusted EBITDA is not~~Comparative Results

The following tables present our reported results under ASC 606 and a ~~measurement under GAAP and may not be used in~~reconciliation to results using the ~~same way by other companies. Management believes that Adjusted EBITDA is an important part~~historical accounting method:



	Three Months Ended March 31, 2018
	(Dollars in millions)
	Reported Balances as of March 31, 2018		Impact of 606		ASC 605 Historical Adjusted Balances
Operating revenues	$	2,087	—		$	2,087
Cost of services and products (exclusive of depreciation and amortization)	998		—		998
Selling, general and administrative	344		13		357
Income tax expense	102		(3	)	99
Net income	62		(10	)	52



	As of March 31, 2018
	(Dollars in millions)
	Reported Balances as of March 31, 2018		Impact of 606		ASC 605 Historical Adjusted Balances
Other current assets	$	183	(11	)	$	172
Other long-term assets, net	96		(15	)	81
Deferred income taxes, net	249		3		252
Member's Equity	18,924		(19	)	18,905

(6) Fair Value of our internal reporting and is a key measure used by management to evaluate our profitability and operating performance and to make resource allocation decisions. Management believes such measurement is especially important in a capital-intensive industry such as telecommunications. Management also uses Adjusted EBITDA to compare our performance to that of our competitors and to eliminate certain non-cash and non-operating items in order to consistently measure from period to period our ability to fund capital expenditures, fund growth, service debt and determine bonuses.

Adjusted EBITDA excludes non-cash impairment charges and non-cash stock-based compensation expense because of the non-cash nature of these items. Adjusted EBITDA also excludes interest income, interest expense and income tax benefit (expense) because these items are associated with our capitalization and tax structures. Adjusted EBITDA also excludes depreciation and amortization expense because these non-cash expenses reflect the effect of capital investments which management

~~Table of Contents~~

~~believes are better evaluated through cash flow measures. Adjusted EBITDA excludes net other income (expense) because these items are not related to our primary operations.~~

There are limitations to using non-GAAP financial measures such as Adjusted EBITDA, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from our calculations. Additionally, this financial measure does not include certain significant items such as interest income, interest expense, income tax benefit (expense), depreciation and amortization expense, non-cash impairment charges, non-cash stock-based compensation expense, and net other income (expense). Adjusted EBITDA should not be considered a substitute for other measures of financial performance reported in accordance with GAAP.Financial Instruments

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

Three Months Ended Six Months Ended
(dollars in millions) June 30, 2017
June 30, 2016⁽¹⁾
June 30, 2017
June 30, 2016⁽¹⁾
Core Network Services Revenue:
North America $ 1,607
$ 1,605
$ 3,201
$ 3,206
EMEA 176
191
351
381
Latin America 182
160
359
315
Total Core Network Services Revenue 1,965
1,956
3,911
3,902

Wholesale Voice Services Revenue:
North America 91
95
189
194
EMEA 2
3
5
7
Latin America 3
2
4
4
Total Wholesale Voice Services Revenue 96
100
198
205

Total Revenue $ 2,061
$ 2,056
$ 4,109
$ 4,107

⁽¹⁾ ~~The 2016 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2017.~~

~~The following table presents Adjusted EBITDA by segment and reconciles Adjusted EBITDA to net income:~~

Three Months Ended Six Months Ended
(dollars in millions) June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016
Adjusted EBITDA:
North America $ 815
$ 819
$ 1,624
$ 1,631
EMEA 69
52
126
106
Latin America 77
64
157
138
Unallocated Corporate Expenses (239 ) (220 ) (480 ) (450 )
Adjusted EBITDA 722
715
1,427
1,425
Income Tax Expense (69 ) (34 ) (139 ) (124 )
Total Other Expense (130 ) (184 ) (302 ) (328 )
Depreciation and Amortization (330 ) (310 ) (650 ) (611 )
Non-Cash Stock Compensation (39 ) (31 ) (87 ) (78 )
Net Income $ 154
$ 156
$ 249
$ 284

~~Table of Contents~~

~~The following table presents capital expenditures by segment and reconciles capital expenditures by segment to total capital expenditures:~~

Three Months Ended Six Months Ended
(dollars in millions) June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016
Capital Expenditures:
North America $ 220
$ 237
$ 474
$ 432
EMEA 27
40
58
79
Latin America 43
51
78
74
Unallocated Corporate Capital Expenditures 38
39
86
79
Total Capital Expenditures $ 328
$ 367
$ 696
$ 664

~~The following table presents total assets by segment:~~

(dollars in millions) June 30, 2017 December 31, 2016
Assets:
North America $ 21,082
$ 20,818
EMEA 1,739
1,639
Latin America 2,339
2,304
Other 127
127
Total Assets $ 25,287
$ 24,888

~~The changes in the carrying amount of goodwill by segment during the six months endedJune 30, 2017 were as follows (in millions):~~

North America EMEA Latin America Total
Balance at December 31, 2016 $ 7,024

$ 109
$ 596
$ 7,729
Effect of foreign currency rate change —
8
—
8
Balance at June 30, 2017 $ 7,024

$ 117
$ 596
$ 7,737

~~There were no events or changes in circumstances during the first three and six months of 2017 that indicated the carrying value of goodwill may not be recoverable.~~

As of

March 31, 2018

December 31, 2017

Input Level

Carrying Amount

Fair Value

Carrying Amount

Fair Value

(Dollars in millions)

Liabilities-Long-term debt, excluding capital lease and other obligations

10,704

10,435

10,711

10,528

~~(10)~~(7) Commitments, Contingencies and Other Items

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. Amounts accrued for such contingencies aggregate to ~~$100~~$92 million and are included in “Other” current liabilities and “Other Liabilities” in our ~~Consolidated Balance Sheet~~consolidated balance sheet at ~~June 30, 2017.~~March 31, 2018. 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 would have no effect on our results of operations but could materially adversely affect our cash flows for the affected period.

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We review our accruals at least quarterly and adjust them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Below is a description of material legal proceedings and other contingencies pending at ~~June 30, 2017.~~March 31, 2018. Although we believe we have accrued for these matters in accordance with the accounting guidance for contingencies, contingencies are inherently unpredictable and it is possible that results of operations or cash flows could be materially and adversely affected in any particular period by

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unfavorable developments in, or resolution or disposition of, one or more of these matters. For those contingencies in respect of which we believe it is reasonably possible that a loss may result that is materially in excess of the accrual (if any) established for the matter, we have either provided an estimate of such possible loss or range of loss or included a statement that such an estimate cannot be made. In addition to the contingencies described below, we are party to many other legal proceedings and contingencies, the resolution of which isare not expected to materially affect our financial condition or future results of operations beyond the amounts accrued.

Rights-of-Way Litigation

We ~~are~~have been party to a number of purported class action lawsuits involving our right to install fiber optic cable network in railroad right-of-ways adjacent to plaintiffs' land. In general, we obtained the rights to construct our networks from railroads, utilities, and others, and have installed our networks along the rights-of-way so granted. Plaintiffs in the purported class actions ~~assert~~asserted that they are the owners of lands over which the fiber optic cable networks pass, and that the railroads, utilities and others who granted us the right to construct and maintain our network did not have the legal authority to do so. The complaints ~~seek~~sought damages on theories of trespass, unjust enrichment and slander of title and property, as well as punitive damages. We ~~have~~ also received, and may in the future receive, claims and demands related to rights-of-way issues similar to the issues in these cases that may be based on similar or different legal theories. We have defeated motions for class certification in a number of these actions but ~~expect~~expected that, absent settlement of these actions, plaintiffs in the pending lawsuits ~~will~~would continue to seek certification of statewide or multi-state classes. The only lawsuit in which a class was certified against us, absent an agreed upon settlement, occurred in Koyle, et. al. v. Level 3 Communications, Inc., et. al., a purported two state class action filed in the United States District Court for the District of Idaho. The Koyle lawsuit has been dismissed pursuant to a settlement reached in November 2010 as described further below.

We negotiated a series of class settlements affecting all persons who own or owned land next to or near railroad rights of way in which we have installed our fiber optic cable networks. The United States District Court for the District of Massachusetts in Kingsborough v. Sprint Communications Co. L.P. granted preliminary approval of the proposed settlement; however, on September 10, 2009, the court denied a motion for final approval of the settlement on the basis that the court lacked subject matter jurisdiction and dismissed the case.

In November 2010, we negotiated revised settlement terms for a series of state class settlements affecting all persons who own or owned land next to or near railroad rights of way in which we have installed our fiber optic cable ~~networks. We are currently pursuing presentment of~~networks and thereafter presented these proposed settlements to the ~~settlement in~~ applicable ~~jurisdictions.~~courts. The settlements, affecting current and former landowners, have received final federal court approval in all but one of the applicable states and the parties are actively engaged in, or have completed, the claims process for the vast majority of the applicable states, including payment of claims. We continue to seek approval in the remaining state.

Management believes that we have substantial defenses to the claims asserted in ~~all of these actions~~the remaining action and intends to defend ~~them~~it vigorously if a satisfactory settlement is not ultimately approved for all affected landowners. Additionally, given the now-final resolution of all but the last of these matters, management anticipates excluding specific discussion of them in our future reports.

~~Peruvian Tax Litigation~~

Beginning in 2005, one of our Peruvian subsidiaries received a number of assessments for tax, penalties and interest for calendar years 2001 and 2002. Peruvian tax authorities ("SUNAT") took the position that the Peruvian subsidiary incorrectly documented its importations resulting in additional income tax withholding and value-added taxes ("VAT"). The total amount of the asserted claims, including potential interest and penalties, was $26 million, consisting of $3 million for income tax withholding in connection with the import of services for calendar years 2001 and 2002, $7 million for VAT in connection with the import of services for calendar years 2001 and 2002, and $16 million in connection with the

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~~disallowance~~Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of ~~VAT credits~~our Peruvian subsidiaries asserting $26 million of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for ~~periods beginning in 2005.~~calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, the total amount of exposure is ~~$17~~$14 million at ~~June 30, 2017.~~March 31, 2018, and is accrued for on the consolidated balance sheet.

We challenged the ~~tax~~ assessments ~~during 2005 by filing~~via administrative ~~claims before SUNAT. During August 2006~~ and June 2007, SUNAT rejected our administrative claims, thereby confirming the assessments. Appeals were filed in September 2006 and July 2007 with the Tribunal Fiscal, the highest level of administrativethen judicial review which is not part of the Peru judiciary (the "Tribunal"). The 2001 and 2002 assessed withholding tax assessments were resolved in our favor in separate administrative resolutions; however, the penalties with respect to withholding tax remain at issue in the administrative appeals.

processes. In October 2011, the ~~Tribunal issued its~~highest administrative ~~resolution with respect to the calendar year 2002 tax period regarding VAT, associated penalties and penalties associated with withholding taxes, deciding~~review tribunal (the "Tribunal") decided the central issue underlying the 2002 assessments in ~~the government's favor, while confirming the assessment in part and denying a portion of the assessment on procedural grounds.~~SUNAT's favor. We appealed the Tribunal's ~~October 2011 administrative resolutions to the judicial court in Peru. In September 2014, the first judicial court rendered a~~ decision ~~largely in our favor on the central issue underlying the assessments. SUNAT appealed the court’s decision to the next judicial level. The court of appeal remanded the case~~ to the first judicial ~~court for further development of the facts and legal analysis supporting its decision. In April 2016, the first judicial~~ level, ~~rendered a decision in our favor on~~which decided the central issue ~~underlying~~in favor of Level 3. SUNAT and we filed cross-appeals with the ~~assessments. SUNAT has appealed the substantive issue to the next judicial level. We also appealed certain procedural points.~~court of appeal. In May 2017, the court of appeal issued a decision reversing ~~the favorable decision reached by~~ the first judicial level. In June 2017, we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level.

That appeal is pending.

In October 2013, the Tribunal notified us of its July 2013 administrative resolution with respect to the calendar year 2001 tax period regarding VAT, associated penalties and penalties associated with withholding taxes, determiningdecided the central issue underlying the 2001 assessments in ~~the government's favor, while confirming the assessment in part and denying a portion of the assessment on procedural grounds.~~SUNAT’s favor. We appealed ~~the Tribunal's July 2013 administrative resolutions to the judicial court in Peru. In April 2015, the first judicial court rendered a~~that decision largely in SUNAT’s favor on the central issue underlying the assessments. We appealed the court’s decision to the next judicial level. In April 2016, the court of appeal rendered a decision that declared null the April 2015 decision and remanded the case to the first judicial ~~court for further development~~level in Peru, which decided the central issue in favor of ~~the facts and legal analysis supporting its decision. In June 2017, the first judicial court issued a ruling against us primarily based on the same grounds from the original decision.~~SUNAT. In June 2017, we filed an appeal with the court of appeal.

In ~~December 2013, SUNAT initiated an audit~~November 2017, the court of ~~calendar year 2001. In June 2014,~~appeals issued a decision affirming the first judicial level and we were served with SUNAT’s assessments of the 2001 VAT credits declared null by the Tribunal and the corresponding fine. In July 2014, we challenged these assessments by filing administrative claims before SUNAT. In January 2015, SUNAT rejected the administrative claims, thereby confirming the assessments. We filed an appeal ~~with~~of the Tribunal in February 2015. In May 2015, the Tribunal notified us of its administrative resolution declaring the assessments and corresponding fines null. The time for SUNAT to appeal this resolution has closed. Under local practice, notification of an appeal can take several months. Counsel confirmed in the first quarter of 2016 that SUNAT has not filed an appealdecision to the resolution. Nevertheless, SUNAT retains the right to reissue the assessments declared null or start a new audit. However, we are under no obligation to provide additional information and any fine issued by SUNAT based on the same information that it has already used in the past would be declared null. Accordingly, in March 2016, we released an accrualSupreme Court of ~~approximately $15 million for an assessment and associated interest.~~

In addition, based on a change in legal interpretation by the Peruvian judicial courts, the statute of limitations with respect to the 2001 fines has expired. Accordingly, in the fourth quarter of 2016, we released an accrual of approximately $11 million of fines and associated interest.

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Justice. That appeal is pending.

Employee Severance and Contractor Termination Disputes

A number of former employees and third-party contractors have asserted a variety of claims in litigation against certain of our Latin American subsidiaries for separation pay, severance, commissions, pension benefits, unpaid vacation pay, breach of employment contracts, unpaid performance bonuses, property damages, moral damages and related statutory penalties, fines, costs and expenses (including accrued interest, ~~attorneys~~attorneys' fees and statutorily mandated inflation adjustments) as a result of their separation from us or termination of service relationships. We are vigorously defending ~~ourselves~~ against the asserted claims, which aggregate to approximately ~~$33~~$32 million at ~~June 30, 2017.~~March 31, 2018.

Brazilian Tax Claims

In December 2004, March 2009, April 2009 and July 2014, the São Paulo state tax authorities issued tax assessments against one of our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”) with respect to revenue from leasing ~~movable properties~~certain assets (in the case of the December 2004, March 2009 and July 2014 assessments) and revenue from the provision of Internet access services (in the case of the April 2009 and July 2014 assessments), by treating such activities as the provision of communications services, to which the ICMS tax applies. During the third quarter of 2014, we released an accrual of $6 million for tax, penalty and associated interest corresponding to the ICMS applicable on the provision of Internet access services due to the expiration of the statute of limitations for the January 2008 to June 2009 tax periods. In September 2002, July 2009 and May 2012, the Rio de Janeiro state tax authorities issued tax assessments to the same Brazilian subsidiary on similar issues.

We have filed objections to these assessments, arguing that the lease of assets and the provision of Internet access are not communication services subject to ICMS. The objections to the September 2002, December 2004 and March 2009 assessments were rejected by the respective state administrative courts, and we have appealed those decisions to the judicial courts. In October 2012 and June 2014, we received favorable rulings from the lower court on the December 2004 and March 2009 assessments regarding equipment leasing, but those rulings are subject to appeal by the state. No ruling has been obtained with respect to the September 2002 assessment. The objections to the April and July 2009 and May 2012 assessments are still pending final administrative decisions. The July 2014 assessment was confirmed during the fourth quarter of 2014 at the first administrative level, and we appealed this decision to the second administrative level. ~~During~~We are vigorously contesting all such assessments in both states and, in particular, view the ~~fourth quarter~~assessment of ~~2014, we entered into an amnesty with~~ICMS on revenue from equipment leasing to be without merit. These assessments, if upheld, could result in a loss of up to $54 million at March 31, 2018 in excess of the ~~Rio de Janeiro state tax authorities with respect to potential ICMS liability~~accruals established for ~~the 2008 tax period. As a result, we paid~~ ~~$5 million~~ ~~and released an accrual~~these matters.

Table of ~~$3 million~~ ~~of tax corresponding to the ICMS applicable on the provision of Internet access services in the fourth quarter of 2014.~~Contents

We are vigorously contesting all such assessments in both states and, in particular, view the assessment of ICMS on revenue from leasing movable properties to be without merit. ~~Nevertheless,~~

Other Matters

We have recently been notified of a qui tam action pending against Level 3 Communications, Inc., certain former employees and others in the United States District Court for the Eastern District of Virginia, captioned United States of America ex rel., Stephen Bishop v. Level 3 Communications, Inc. et al. The original qui tam complaint was filed under seal on November 26, 2013, and an amended complaint was filed under seal on June 16, 2014. The court unsealed the complaints on October 26, 2017.

The amended complaint alleges that we, principally through two former employees, submitted false claims and made false statements to the government in connection with two government contracts. The relator seeks damages in this lawsuit of approximately $50 million, subject to trebling, plus statutory penalties, pre-and-post judgment interest, and attorney’s fees. The case is currently stayed.

We are evaluating our defenses to the claims. At this time, we do not believe it is ~~reasonably possible that these assessments~~probable we will incur a material loss. If, contrary to our expectations, the relator prevails in this matter and proves damages at or near $50 million, and is successful in having those damages trebled, the outcome could ~~result~~have a material adverse effect on our results of operations in the period in which a ~~loss~~liability is recognized and on our cash flows for the period in which any damages are paid.

The two former Level 3 employees named in the qui tam amended complaint and others were also indicted in the United States District Court for the Eastern District of upVirginia on October 3, 2017, and charged with, among other things, accepting kickbacks from a subcontractor, who was also indicted, for work to ~~$50 million~~ ~~at June 30, 2017~~be performed under a prime government contract. We are fully cooperating in ~~excess of~~ the ~~accruals established for these matters.~~government’s investigations in this matter.

Letters of Credit

It is customary for us to use various financial instruments in the normal course of business. These instruments include letters of credit. Letters of credit are conditional commitments issued on our behalf in accordance with specified terms and conditions. As of ~~June 30, 2017~~both March 31, 2018 and December 31, ~~2016,~~2017, we had outstanding letters of credit or other similar obligations of approximately ~~$35~~$36 million, ~~and~~ ~~$39 million, respectively,~~ of which $30 million ~~and~~ ~~$33 million~~ are collateralized by cash that is reflected on the ~~Consolidated Balance Sheets~~consolidated balance sheets as restricted cash and securities. We do not believe exposure to loss related to our letters of credit is material.

(8) Other Financial Information

Other Current Assets

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



	March 31, 2018		December 31, 2017
	(Dollars in millions)
Prepaid expenses	$	90	68
Material, supplies and inventory	4		3
Deferred activation and installation charges	18		17
Deferred commissions	12		—
Other	59		29
Total other current assets	$	183	117

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Other Current Liabilities

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



	March 31, 2018		December 31, 2017
	(Dollars in millions)
Self insurance	$	6	11
Legal and tax reserves	15		31
Other	46		15
Total other current liabilities	$	67	57

Included in accounts payable at March 31, 2018 and December 31, 2017 were $73 million and $74 million, respectively, associated with capital expenditures.

~~(11)~~(9) Accumulated Other Comprehensive Income (Loss)

The tables below summarize changes in accumulated other comprehensive income recorded on our consolidated balance sheets by component for the successor three months ended March 31, 2018:



	Foreign Currency Translation Adjustments and Other		Total

Balance at December 31, 2017	$	18	18
Other comprehensive income (loss) before reclassifications, net of tax	72		72
Adoption of ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	6		6
Net other comprehensive (loss) income	78		78
Balance at March 31, 2018	$	96	96

The tables below summarize changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the predecessor three months ended March 31, 2017:



	Pension Plans			Foreign Currency Translation Adjustments and Other		Total
	(Dollars in millions)
Balance at December 31, 2016	$	(34	)	(353	)	(387	)
Other comprehensive income before reclassifications, net of tax	—			20		20
Amounts reclassified from accumulated other comprehensive loss	1			—		1
Net other comprehensive (loss) income	1			20		21
Balance at March 31, 2017	$	(33	)	(333	)	(366	)

(10) Condensed Consolidating Financial Information

Level 3 Financing, Inc., a wholly owned subsidiary, has issued Senior Notes that are unsecured obligations of Level 3 Financing, Inc.; however, they are also fully and unconditionally and jointly and severally guaranteed on an unsecured senior basis by Level 3 ~~Communications, Inc.~~Parent, LLC and Level 3 Communications, LLC.

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In conjunction with the registration of the Level 3 Financing, Inc. Senior Notes, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 ~~“Financial~~"Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.”"

The operating activities of the separate legal entities included in our ~~Consolidated Financial Statements~~consolidated financial statements are interdependent. The accompanying condensed consolidating financial information presents the statements of comprehensive income (loss), balance sheets and statements of cash flows of each legal entity and, on an aggregate basis, the other non-guarantor subsidiaries based on amounts incurred by such entities, and is not intended to present the operating results of those legal entities on a stand-alone basis. Level 3 Communications, LLC leases equipment and certain facilities from other wholly owned subsidiaries of Level 3 ~~Communications, Inc.~~Parent, LLC. These transactions are eliminated in our consolidated results.

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Condensed Consolidating Statements of Comprehensive Income (Loss)

Three Months Ended ~~June 30, 2017~~March 31, 2018 (Successor)

Level 3 Communications, Inc. Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(dollars in millions)
Revenue $ —
$ —
$ 933
$ 1,174
$ (46 ) $ 2,061
Costs and Expense:
Network Access Costs —
—
339
382
(46 ) 675
Network Related Expenses —
—
246
91
—
337
Depreciation and Amortization —
—
109
221
—
330
Selling, General and Administrative Expenses 1
1
294
70
—
366
Total Costs and Expenses 1
1
988
764
(46 ) 1,708
Operating Income (Loss) (1 ) (1 ) (55 ) 410
—
353
Other Income (Expense):
Interest income —
—
3
—
—
3
Interest expense (9 ) (117 ) (1 ) (5 ) —
(132 )
Interest income (expense) affiliates, net 378
567
(868 ) (77 ) —
—
Equity in net earnings (losses) of subsidiaries (216 ) (632 ) 200
—
648
—
Other, net —
—
(1 ) —
—
(1 )
Total Other Income (Expense) 153
(182 ) (667 ) (82 ) 648
(130 )
Income (Loss) before Income Taxes 152
(183 ) (722 ) 328
648
223
Income Tax Benefit (Expense) 2
(33 ) (1 ) (37 ) —
(69 )
Net Income (Loss) 154
(216 ) (723 ) 291
648
154
Other Comprehensive Income (Loss), Net of Income Taxes 41
—
—
41
(41 ) 41
Comprehensive Income (Loss) $ 195
$ (216 ) $ (723 ) $ 332
$ 607
$ 195

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~~Condensed Consolidating Statements of Comprehensive Income (Loss)~~

~~Six Months Ended June 30, 2017~~

Level 3 Communications, Inc. Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(dollars in millions)
Revenue $ —
$ —
$ 1,853
$ 2,331
$ (75 ) $ 4,109
Costs and Expense:
Network Access Costs —
—
662
779
(75 ) 1,366
Network Related Expenses —
—
489
184
—
673
Depreciation and Amortization —
—
213
437
—
650
Selling, General and Administrative Expenses 2
2
571
155
—
730
Total Costs and Expenses 2
2
1,935
1,555
(75 ) 3,419
Operating Income (Loss) (2 ) (2 ) (82 ) 776
—
690
Other Income (Expense):
Interest income —
—
5
—
—
5
Interest expense (18 ) (237 ) (2 ) (9 ) —
(266 )
Interest income (expense) affiliates, net 755
1,141
(1,737 ) (159 ) —
—
Equity in net earnings (losses) of subsidiaries (491 ) (1,278 ) 403
—
1,366
—
Other, net —
(44 ) 4
(1 ) —
(41 )
Total Other Income (Expense) 246
(418 ) (1,327 ) (169 ) 1,366
(302 )
Income (Loss) before Income Taxes 244
(420 ) (1,409 ) 607
1,366
388
Income Tax Benefit (Expense) 5
(71 ) (1 ) (72 ) —
(139 )
Net Income (Loss) 249
(491 ) (1,410 ) 535
1,366
249
Other Comprehensive Income (Loss), Net of Income Taxes 62
—
—
62
(62 ) 62
Comprehensive Income (Loss) $ 311
$ (491 ) $ (1,410 ) $ 597
$ 1,304
$ 311



	Level 3 Parent, LLC			Level 3 Financing, Inc.			Level 3 Communications, LLC			Other Non-Guarantor Subsidiaries			Eliminations			Total
	(Dollars in millions)
OPERATING REVENUES
Operating revenues	$	—		$	—		$	956		$	1,146		$	(40	)	2,062
Operating revenues - affiliate	—			—			25			—			—			25
Total operating revenues	—			—			981			1,146			(40		)	2,087
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—			589			449			(40		)	998
Selling, general and administrative	—			1			259			84			—			344
Operating expenses - affiliate	—			—			53			—			—			53
Depreciation and amortization	—			—			170			261			—			431
Total cost and expenses	—			1			1,071			794			(40		)	1,826
OPERATING INCOME (LOSS)	—			(1		)	(90		)	352			—			261
OTHER INCOME (EXPENSE)
Interest income	—			—			—			1			—			1
Interest income - affiliate	16			—			—			—			—			16
Interest expense	(8		)	(108		)	(1		)	(3		)	—			(120	)
Interest income (expense) - intercompany, net	355			608			(881		)	(82		)	—			—
Equity in net earnings (losses) of subsidiaries	(315		)	(839		)	(1		)	—			1,155			—
Other income, net	—			—			1			5			—			6
Total other income (expense)	48			(339		)	(882		)	(79		)	1,155			(97	)
INCOME (LOSS) BEFORE INCOME TAXES	48			(340		)	(972		)	273			1,155			164
Income tax benefit (expense)	14			25			(47		)	(94		)	—			(102	)
NET INCOME (LOSS)	62			(315		)	(1,019		)	179			1,155			62
Other comprehensive income (loss), net of income taxes	72			—			—			72			(72		)	72
COMPREHENSIVE INCOME (LOSS)	$	134		(315		)	(1,019		)	251			1,083			134

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~~Condensed Consolidating Statements of Comprehensive Income (Loss)~~

~~Three Months Ended June 30, 2016~~

Level 3 Communications, Inc. Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(dollars in millions)
Revenue $ —
$ —
$ 879
$ 1,211
$ (34 ) $ 2,056
Costs and Expense:
Network Access Costs —
—
315
395
(34 ) 676
Network Related Expenses —
—
237
102
—
339
Depreciation and Amortization —
—
92
218
—
310
Selling, General and Administrative Expenses 1
2
263
91
—
357
Total Costs and Expenses 1
2
907
806
(34 ) 1,682
Operating (Loss) Income (1 ) (2 ) (28 ) 405
—
374
Other Income (Expense):
Interest income —
—
1
—
—
1
Interest expense (9 ) (128 ) —
(3 ) —
(140 )
Interest income (expense) affiliates, net 343
528
(802 ) (69 ) —
—
Equity in net earnings (losses) of subsidiaries (187 ) (489 ) 201
—
475
—
Other, net —
(39 ) 1
(7 ) —
(45 )
Total Other Income (Expense) 147
(128 ) (599 ) (79 ) 475
(184 )
Income (Loss) before Income Taxes 146
(130 ) (627 ) 326
475
190
Income Tax Expense 3
(50 ) (1 ) 14
—
(34 )
Net Income (Loss) 149
(180 ) (628 ) 340
475
156
Other Comprehensive Income (Loss), Net of Income Taxes (22 ) —
—
(22 ) 22
(22 )
Comprehensive Income (Loss) $ 127
$ (180 ) $ (628 ) $ 318
$ 497
$ 134

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Condensed Consolidating Statements of Comprehensive Income (Loss)

~~Six~~Three Months Ended ~~June 30, 2016~~March 31, 2017 (Predecessor)

Level 3 Communications, Inc. Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(dollars in millions)
Revenue $ —
$ —
$ 1,745
$ 2,430
$ (68 ) $ 4,107
Costs and Expense:
Network Access Costs —
—
635
803
(68 ) 1,370
Network Related Expenses —
—
474
203
—
677
Depreciation and Amortization —
—
180
431
—
611
Selling, General and Administrative Expenses 2
3
513
195
—
713
Total Costs and Expenses 2
3
1,802
1,632
(68 ) 3,371
Operating (Loss) Income (2 ) (3 ) (57 ) 798
—
736
Other Income (Expense):
Interest income —
—
1
1
—
2
Interest expense (18 ) (256 ) (1 ) —
—
(275 )
Interest income (expense) affiliates, net 685
1,059
(1,603 ) (141 ) —
—
Equity in net earnings (losses) of subsidiaries (399 ) (1,030 ) 400
—
1,029
—
Other, net —
(39 ) 3
(19 ) —
(55 )
Total Other Income (Expense) 268
(266 ) (1,200 ) (159 ) 1,029
(328 )
Income (Loss) before Income Taxes 266
(269 ) (1,257 ) 639
1,029
408
Income Tax Expense 7
(119 ) (2 ) (10 ) —
(124 )
Net Income (Loss) 273
(388 ) (1,259 ) 629
1,029
284
Other Comprehensive Income (Loss), Net of Income Taxes 23
—
—
23
(23 ) 23
Comprehensive Income (Loss) $ 296
$ (388 ) $ (1,259 ) $ 652
$ 1,006
$ 307



	Level 3 Parent, LLC			Level 3 Financing, Inc.			Level 3 Communications, LLC			Other Non-Guarantor Subsidiaries			Eliminations			Total
	(Dollars in millions)
OPERATING REVENUES
Operating revenues	$	—		$	—		$	920		$	1,157		$	(29	)	$	2,048
Operating revenues - affiliate	—			—			—			—			—			—
Total operating revenues	—			—			920			1,157			(29		)	2,048
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—			583			497			(29		)	1,051
Selling, general and administrative expenses	1			1			277			85			—			364
Operating expenses - affiliate	—			—			—			—			—			—
Depreciation and amortization	—			—			87			209			—			296
Total cost and expenses	1			1			947			791			(29		)	1,711
OPERATING INCOME (LOSS)	(1		)	(1		)	(27		)	366			—			337
OTHER INCOME (EXPENSE)
Interest income	—			—			2			—			—			2
Interest income - affiliate	—			—			—			—			—			—
Interest expense	(9		)	(120		)	(1		)	(4		)	—			(134		)
Interest income (expense) - intercompany, net	377			574			(869		)	(82		)	—			—
Equity in net earnings (losses) of subsidiaries	(275		)	(646		)	203			—			718			—
Loss on modification and extinguishment of debt	—			(44		)	—			—			—			(44		)
Other income, net	—			—			5			(1		)	—			4
Total other income (expense)	93			(236		)	(660		)	(87		)	718			(172		)
INCOME (LOSS) BEFORE INCOME TAXES	92			(237		)	(687		)	279			718			165
Income tax expense	3			(38		)	(1		)	(34		)	—			(70		)
NET INCOME (LOSS)	95			(275		)	(688		)	245			718			95
Other comprehensive income (loss), net of income taxes	21			—			—			21			(21		)	21
COMPREHENSIVE INCOME (LOSS)	$	116		$	(275	)	$	(688	)	$	266		$	697		$	116

Table of Contents

Condensed Consolidating Balance Sheets

~~June 30, 2017~~March 31, 2018 (Successor)

Level 3 Communications, Inc. Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(dollars in millions)
Assets
Current Assets:
Cash and cash equivalents $ 14
$ —
$ 938
$ 104
$ —
$ 1,056
Marketable Securities —
—
1,127
—
—
1,127
Restricted cash and securities —
—
1
4
—
5
Receivables, less allowances for doubtful accounts —
—
4
703
—
707
Due from affiliates 17,832
22,581
—
2,824
(43,237 ) —
Other —
—
116
25
—
141
Total Current Assets 17,846
22,581
2,186
3,660
(43,237 ) 3,036
Property, Plant, and Equipment, net —
—
4,105
6,287
—
10,392
Restricted Cash and Securities 19
—
10
—
—
29
Goodwill and Other Intangibles, net —
—
352
8,194
—
8,546
Investment in Subsidiaries 16,926
17,664
3,639
—
(38,229 ) —
Deferred Tax Assets 55
2,617
(1 ) 564
—
3,235
Other Assets, net —
—
14
35
—
49
Total Assets $ 34,846
$ 42,862
$ 10,305
$ 18,740
$ (81,466 ) $ 25,287

Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ —
$ 1
$ 324
$ 368
$ —
$ 693
Current portion of long-term debt —
299
2
5
—
306
Accrued payroll and employee benefits —
—
149
29
—
178
Accrued interest 11
79
—
7
—
97
Current portion of deferred revenue —
—
111
151
—
262
Due to affiliates —
—
43,237
—
(43,237 ) —
Other —
(1 ) 130
33
—
162
Total Current Liabilities 11
378
43,953
593
(43,237 ) 1,698
Long-Term Debt, less current portion 593
9,816
12
163
—
10,584
Deferred Revenue, less current portion —
—
781
277
—
1,058
Other Liabilities 16
—
164
452
—
632
Commitments and Contingencies

—

Stockholders' Equity (Deficit) 34,226
32,668
(34,605 ) 17,255
(38,229 ) 11,315
Total Liabilities and Stockholders' Equity (Deficit) $ 34,846
$ 42,862
$ 10,305
$ 18,740
$ (81,466 ) $ 25,287



	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC	Other Non-Guarantor Subsidiaries	Eliminations		Total
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	39	—	133	87	—		259
Restricted cash and securities	—		—	1	4	—		5
Assets held for sale	68		—	5	67	—		140
Accounts receivable	—		—	10	716	—		726
Accounts receivable - affiliate	—		—	—	3	—		3
Intercompany advances	16,493		21,422	—	5,368	(43,283	)	—
Note receivable - affiliate	1,825		—	—	—	—		1,825
Other	—		—	95	88	—		183
Total current assets	18,425		21,422	244	6,333	(43,283	)	3,141
Property, plant, and equipment, net	—		—	3,103	6,439	—		9,542
Restricted cash and securities	19		—	10	—	—		29
GOODWILL AND OTHER ASSETS
Goodwill	—		—	1,658	9,483	—		11,141
Customer relationships, net	—		—	3,979	4,227	—		8,206
Other intangible assets, net	—		—	390	—	—		390
Investment in subsidiaries	16,955		18,788	3,609	—	(39,352	)	—
Deferred tax assets	279		1,826	114	10	(1,771	)	458
Other, net	—		—	54	42	—		96
Total goodwill and other assets	17,234		20,614	9,804	13,762	(41,123	)	20,291
TOTAL ASSETS	$	35,678	42,036	13,161	26,534	(84,406	)	33,003

LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	—	—	2	7	—		9
Accounts payable	—		1	318	359	—		678
Accounts payable - affiliate	27		—	66	2	—		95
Accrued expenses and other liabilities
Income and other taxes	—		1	45	41	—		87
Salaries and benefits	—		—	129	34	—		163
Interest	3		85	—	7	—		95

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Current portion of deferred revenue	—		—	135		138	—		273
Current portion of deferred revenue - affiliate	—		—	2		—	—		2
Intercompany payables	—		—	43,283		—	(43,283	)	—
Other	—		—	16		51	—		67
Total Current Liabilities	30		87	43,996		639	(43,283	)	1,469
LONG-TERM DEBT	615		10,088	13		156	—		10,872
DEFERRED REVENUES AND OTHER LIABILITIES
Deferred revenues	—		—	843		263	—		1,106
Deferred revenues - affiliate	—		—	5		1	—		6
Deferred tax liability	648		—	849		483	(1,771	)	209
Other	1		—	174		146	—		321
Total deferred credits and other	649		—	1,871		893	(1,771	)	1,642
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY (DEFICIT)	34,384		31,861	(32,719	)	24,846	(39,352	)	19,020
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	35,678	42,036	13,161		26,534	(84,406	)	33,003

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Condensed Consolidating Balance Sheets

December 31, ~~2016~~2017 (Successor)

Level 3 Communications, Inc. Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(dollars in millions)
Assets
Current Assets:
Cash and cash equivalents $ 15
$ —
$ 1,700
$ 104
$ —
$ 1,819
Restricted cash and securities —
—
1
6
—
7
Receivables, less allowances for doubtful accounts —
—
26
686
—
712
Due from affiliates 17,032
21,715
—
2,180
(40,927 ) —
Other —
—
87
28
—
115
Total Current Assets 17,047
21,715
1,814
3,004
(40,927 ) 2,653
Property, Plant, and Equipment, net —
—
3,869
6,270
—
10,139
Restricted Cash and Securities 22
—
9
—
—
31
Goodwill and Other Intangibles, net —
—
353
8,291
—
8,644
Investment in Subsidiaries 16,869
17,599
3,674
—
(38,142 ) —
Deferred Tax Assets 51
2,687
—
632
—
3,370
Other Assets, net —
—
16
35
—
51
Total Assets $ 33,989
$ 42,001
$ 9,735
$ 18,232
$ (79,069 ) $ 24,888

Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ —
$ —
$ 307
$ 399
$ —
$ 706
Current portion of long-term debt —
—
2
5
—
7
Accrued payroll and employee benefits —
—
160
35
—
195
Accrued interest 11
110
—
8
—
129
Current portion of deferred revenue —
—
116
150
—
266
Due to affiliates —
—
40,927
—
(40,927 ) —
Other —
—
127
41
—
168
Total Current Liabilities 11
110
41,639
638
(40,927 ) 1,471
Long-Term Debt, less current portion 592
10,108
13
164
—
10,877
Deferred Revenue, less current portion —
—
719
282
—
1,001
Other Liabilities 16
—
155
451
—
622
Commitments and Contingencies

Stockholders' Equity (Deficit) 33,370
31,783
(32,791 ) 16,697
(38,142 ) 10,917
Total Liabilities and Stockholders' Equity (Deficit) $ 33,989
$ 42,001
$ 9,735
$ 18,232
$ (79,069 ) $ 24,888



	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC	Other Non-Guarantor Subsidiaries	Eliminations		Total
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	13	—	175	109	—		297
Restricted cash and securities	—		—	1	4	—		5
Assets held for sale	68		—	5	67	—		140
Accounts receivable	—		—	26	722	—		748
Accounts receivable - affiliate	—		—	60	4	(51	)	13
Intercompany advances	16,251		21,032	—	5,200	(42,483	)	—
Note receivable - affiliate	1,825		—	—	—	—		1,825
Other	—		—	54	63	—		117
Total current assets	18,157		21,032	321	6,169	(42,534	)	3,145
Property, plant, and equipment, net	—		—	3,237	6,175	—		9,412
Restricted cash and securities	19		—	10	—	—		29
GOODWILL AND OTHER ASSETS
Goodwill	—		—	1,200	9,637	—		10,837
Customer relationships, net	—		—	4,324	4,521	—		8,845
Other intangible assets, net	—		—	378	—	—		378
Investment in subsidiaries	16,954		18,403	3,616	—	(38,973	)	—
Deferred tax assets	280		1,795	—	122	(1,771	)	426
Other, net	—		—	32	31	—		63
Total goodwill and other assets	17,234		20,198	9,550	14,311	(40,744	)	20,549
TOTAL ASSETS	$	35,410	41,230	13,118	26,655	(83,278	)	33,135

LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—	—	2	6	—		8
Accounts payable	—		1	323	371	—		695
Accounts payable - affiliate	11		—	—	81	(51	)	41
Accrued expenses and other liabilities
Income and other taxes	—		—	55	45	—		100
Salaries and benefits	—		—	109	27	—		136
Interest	11		91	—	7	—		109

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Current portion of deferred revenue	—		—	127		131	—		258
Current portion of deferred revenue - affiliate	—		—	2		—	—		2
Intercompany payables	—		—	42,483		—	(42,483	)	—
Other	16		—	23		18	—		57
Total current liabilities	38		92	43,124		686	(42,534	)	1,406
LONG-TERM DEBT	616		10,096	13		157	—		10,882
DEFERRED REVENUES AND OTHER LIABILITIES
Deferred revenues	—		—	841		252	—		1,093
Deferred revenues - affiliate	—		—	5		1	—		6
Deferred tax liability	648		—	870		465	(1,771	)	212
Other	1		1	98		164	—		264
Total deferred credits and other liabilities	649		1	1,814		882	(1,771	)	1,575
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY (DEFICIT)	34,107		31,041	(31,833	)	24,930	(38,973	)	19,272
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	35,410	41,230	13,118		26,655	(83,278	)	33,135

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Condensed Consolidating Statements of Cash Flows

~~Six~~Three Months Ended ~~June 30, 2017~~March 31, 2018 (Successor)

Level 3 Communications, Inc. Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities $ (14 ) $ (267 ) $ 352
$ 1,029
$ —
$ 1,100
Cash Flows from Investing Activities:
Capital expenditures —
—
(427 ) (269 ) —
(696 )
Decrease (increase) in restricted cash and securities, net 3
—
(1 ) 2
—
4
Purchases of marketable securities —
—
(1,127 ) —
—
(1,127 )
Proceeds from the sale of property, plant and equipment and other assets —
—
—
—
—
—
Net Cash Provided by (Used in) Investing Activities 3
—
(1,555 ) (267 ) —
(1,819 )
Cash Flows from Financing Activities:
Long-term debt borrowings, net of issuance costs —
4,569
—
—
—
4,569
Payments on and repurchases of long-term debt and capital leases —
(4,611 ) (1 ) (3 ) —
(4,615 )
Increase (decrease) due from/to affiliates, net 10
309
442
(761 ) —
—
Net Cash Provided by (Used in) Financing Activities 10
267
441
(764 ) —
(46 )
Effect of Exchange Rates on Cash and Cash Equivalents —
—
—
2
—
2
Net Change in Cash and Cash Equivalents (1 ) —
(762 ) —
—
(763 )
Cash and Cash Equivalents at Beginning of Period 15
—
1,700
104
—
1,819
Cash and Cash Equivalents at End of Period $ 14
$ —
$ 938
$ 104
$ —
$ 1,056



	Level 3 Parent, LLC			Level 3 Financing, Inc.	Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations	Total
	(Dollars in millions)
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	(8	)	—	490		89		—	571
INVESTING ACTIVITIES
Capital expenditures	—			—	(142	)	(110	)	—	(252	)
Proceeds from the sale of property, plant and equipment and other assets	—			—	—		1		—	1
Deposits received on assets held for sale	34			—	—		—		—	34
Net cash provided by (used in) investing activities	34			—	(142	)	(109	)	—	(217	)
FINANCING ACTIVITIES
Payments of long-term debt	—			—	—		(1	)	—	(1	)
Distributions	(390		)	—	—		—		—	(390	)
Increase (decrease) due from/to affiliates, net	390			—	(390	)	—		—	—
Net cash provided by (used in) financing activities	—			—	(390	)	(1	)	—	(391	)
Effect of exchange rates on cash, cash equivalents and restricted cash and securities	—			—	—		(1	)	—	(1	)
Net increase (decrease) in cash, cash equivalents and restricted cash and securities	26			—	(42	)	(22	)	—	(38	)
Cash, cash equivalents and restricted cash and securities and beginning of period	32			—	186		113		—	331
Cash, cash equivalents and restricted cash and securities and end of period	$	58		—	144		91		—	293

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Condensed Consolidating Statements of Cash Flows

~~Six~~Three Months Ended ~~June 30, 2016~~March 31, 2017 (Predecessor)

Level 3 Communications, Inc. Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities $ (18 ) $ (225 ) $ 274
$ 1,110
$ —
$ 1,141
Cash Flows from Investing Activities:
Capital expenditures —
—
(333 ) (331 ) —
(664 )
Decrease in restricted cash and securities, net 5
—
6
—
—
11
Proceeds from the sale of property, plant and equipment and other assets —
—
—
1
—
1
Net Cash Used in Investing Activities 5
—
(327 ) (330 ) —
(652 )
Cash Flows from Financing Activities:
Long-term debt borrowings, net of issuance costs —
764
—
—
—
764
Payments on and repurchases of long-term debt and capital leases —
(806 ) —
(10 ) —
(816 )
Increase (decrease) due from/to affiliates, net 12
267
528
(807 ) —
—
Net Cash Provided by (Used in) Financing Activities 12
225
528
(817 ) —
(52 )
Effect of Exchange Rates on Cash and Cash Equivalents —
—
—
—
—
—
Net Change in Cash and Cash Equivalents (1 ) —
475
(37 ) —
437
Cash and Cash Equivalents at Beginning of Period 12
6
727
109
—
854
Cash and Cash Equivalents at End of Period $ 11
$ 6
$ 1,202
$ 72
$ —
$ 1,291



	Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations	Total
	(Dollars in millions)
OPERATING ACTIVITIES
Net Cash Provided by (Used in) Operating Activities	$	(16	)	(135	)	109		581		—	539
INVESTING ACTIVITIES
Capital expenditures	—			—		(233	)	(135	)	—	(368	)
Net cash provided by (used in) investing activities	—			—		(233	)	(135	)	—	(368	)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	—			4,569		—		—		—	4,569
Payments of long-term debt	—			(4,611	)	—		(2	)	—	(4,613	)
Increase (decrease) due from/to affiliates, net	16			177		262		(455	)	—	—
Net cash provided by (used in) financing activities	16			135		262		(457	)	—	(44	)
Effect of exchange rates on cash, cash equivalents and restricted cash and securities	—			—		—		1		—	1
Net increase (decrease) in cash, cash equivalents and restricted cash and securities	—			—		138		(10	)	—	128
Cash, cash equivalents and restricted cash and securities and beginning of period	37			—		1,710		110		—	1,857
Cash, cash equivalents and restricted cash and securities and end of period	$	37		—		1,848		100		—	1,985

Table of Contents

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

~~The following discussion should be read~~Effective November 1,2017, Level 3 Communications, Inc. became a wholly owned subsidiary of CenturyLink, Inc. Upon completion of the acquisition, Level 3 Communications, Inc. was merged into an acquisition subsidiary, which survived the merger under the name Level 3 Parent, LLC. Unless the context requires otherwise, references in ~~conjunction with our Consolidated Financial Statements (including~~this report to “Level 3 Communications, Inc.,” "Level 3," “we,” “us,” the ~~notes thereto), included elsewhere herein~~“Company” and ~~our Form 10-K for the year ended December 31, 2016, filed with the Securities~~“our” refer to Level 3 Parent, LLC and ~~Exchange Commission.~~its consolidated subsidiaries.

~~This document contains forward looking~~Unless context requires otherwise, references to the period ended March 31, 2017 covers the predecessor period from January 1, 2017 through March 31, 2017, and the period ended March 31, 2018 covers the successor period from January 1, 2018 through March 31, 2018.

All references to "Notes" in this Item 2 of Part I refer to notes to consolidated financial statements included in Item 1 of Part I of this report.

Certain statements in this report constitute forward-looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to us. When used in this document, the words “anticipate”, “believe”, “plan”, “estimate” and “expect” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this document. ~~For~~See the last paragraph of this Item 2 of Part I and "Risk Factors" in Item 1A of Part II of this report for a ~~more detailed description~~discussion of ~~these risks~~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 ~~factors, please see our~~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 annual report on Form 10-K for the year ended December 31, ~~2016, filed~~2017, and with the ~~Securities~~consolidated financial statements and ~~Exchange Commission and~~related notes in Item ~~1A in~~I of Part III of this ~~Form 10-Q.~~

~~Executive Summary~~

~~Overview~~report. The results of operations and cash flows for the first three months of the year are not necessarily indicative of the results of operations and cash flows that might be expected for the entire year.

We are a facilities-based provider of a broad range of communications services. Revenue for communications services is generally recognized on a monthly basis as these services are provided. For contracts involving private line, wavelength and the lease of dark fiber services, we may receive upfront payments for services to be delivered for a period of ~~generally~~ up to 25 years. In these situations, we defer the revenue and amortize it on a straight-line basis to earnings over the term of the contract.

~~On October 31, 2016,~~As discussed in Note 2 - CenturyLink Merger, on November 1, 2017, we ~~entered into an agreement and plan of merger (the "Merger Agreement") with CenturyLink, Inc.,~~became a ~~Louisiana corporation ("CenturyLink"), Wildcat Merger Sub 1 LLC, a Delaware limited liability company and an indirect~~ wholly owned subsidiary of CenturyLink ("Merger Sub 1"), and WWG Merger Sub LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of CenturyLink ("Merger Sub 2"), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, we will be acquired by CenturyLink in a cash and stock transaction, including the assumption of our debt (the "CenturyLink Merger").

We pursue the strategies discussed in Item 1. Business, "Business Overview and Strategy” as discussed in our Form 10-K for the year ended December 31, 2016. In particular, with respect to strategic financial objectives, we focus our attention on the following:

~~growing revenue by increasing sales generated by our Core Network Services;~~

~~focusing on our Enterprise customers, as this customer group has the largest potential for growth;~~

~~continually improving the customer experience to increase customer retention and reduce customer churn;~~

~~launching new products and services to meet customer needs, in particular for enterprise customers;~~

~~improving profitability by reducing network costs and operating expenses;~~

~~achieving and maintaining sustainable generation of positive cash flows from operations;~~CenturyLink.

Table of Contents

~~continuing~~Since November 1, 2017, our results of operations have been included in the consolidated results of operations of CenturyLink. CenturyLink has accounted for its acquisition of us under the acquisition method of accounting, which resulted in the assignment of the purchase price to ~~show improvement~~the assets acquired and liabilities assumed based on preliminary estimates of their acquisition date fair values and have been updated through March 31, 2018. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. CenturyLink expects to complete its final fair value determinations no later than the fourth quarter of 2018. CenturyLink's final fair value determinations may be significantly different than those reflected in ~~Adjusted EBITDA (as defined~~our consolidated financial statements as of and for the successor period ended March 31, 2018. The recognition of assets and liabilities at fair value is reflected in our financial statements and therefore has resulted in a new basis of accounting for the "successor period" beginning on November 1, 2017. This new basis of accounting means that our financial statements for the successor periods are not comparable to our previously reported financial statements, including the predecessor period financial statements in this ~~Item below) as a percentage of revenue;~~

~~localizing certain decision-making and interaction with our mid-market enterprise customers, including leveraging our existing network assets;~~

~~concentrating our capital expenditures on those technologies and assets that enable us to develop our Core Network Services;~~

~~managing Wholesale Voice Services for profit contribution; and~~

~~refinancing our future debt maturities.~~

Our management continues to review all existing lines of business and service offerings to determine how they enhance our focus on the delivery of communications services and meeting our financial objectives. To the extent that certain lines of business or service offerings are not considered to be compatible with the delivery of our services or with meeting our financial objectives, we may exit those lines of business or stop offering those services in part or in whole.report.

We have ~~also been focused on improving our liquidity and financial condition, and extending the maturity dates~~recognized $18 million of certain ~~debt.~~expenses associated with activities related to CenturyLink's acquisition of us during the successor period ended March 31, 2018. These expenses were comprised of severance, retention bonuses, share-based compensation and system integration consulting. During the predecessor period ended March 31, 2017, we recognized $20 million of expenses associated with our activities related to the acquisition. As part of the acquisition accounting, on November 1, 2017, we also included in our goodwill approximately $1 million for certain restricted stock awards and $47 million related to transaction costs, all of which were contingent on the completion of the acquisition and had no benefit to CenturyLink after the acquisition.

Since the November 1, 2017 closing of CenturyLink's acquisition of us, our operations are integrated into and are reported as part of the segments of CenturyLink. CenturyLink's chief operating decision maker ("CODM") has become 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 Securities and Exchange Commission ("SEC"). Otherwise, we do not provide our discrete financial information to the CODM on a regular basis.

Results of Operations

The following table summarizes the results of our consolidated operations for the successor three months ended March 31, 2018 and predecessor three months ended March 31, 2017:



	Successor			Predecessor
	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
	(Dollars in millions)
Operating revenues	$	2,087		2,048
Operating expenses	1,826			1,711
Operating income	261			337
Other income (expense)	(97		)	(172	)
Income tax expense	(102		)	(70	)
Net income	$	62		95

Operating Revenues

We ~~will continue to look for opportunities to improve~~categorize our ~~financial position~~products, services and ~~focus our resources on growing revenue and managing costs for~~revenues among the ~~business.~~following six categories:

~~Total Revenue consists of:~~

Voice and collaboration, which includes local, long-distance and other ancillary revenues.

~~Core Network Services revenue from Internet Protocol ("IP")~~

IT and ~~data services; transport and fiber; local and enterprise voice services; colocation and data center services; and security services.~~

~~Wholesale Voice Services revenue from sales of long distance voice~~managed services, ~~to wholesale customers.~~

~~Core Network Services revenue represents higher profit~~which includes IT services and Wholesale Voice Services revenue represents lower profit services. Core Network Services revenue requires different levels of investment and focus and provides different contributions to our operating results than Wholesale Voice Services revenue. Management believes that growth in revenue from our Core Network Services is critical to the long-term success of our business. We also believe we must continue to effectively manage the profitability of the Wholesale Voice Services revenue. We believe performance in our communications business is best gauged by analyzing revenue changes in Core Network Services.

~~Core Network Services~~

~~IP and data~~managed services primarily include our Internet services, Virtual Private Network ("VPN"), Content Delivery Network ("CDN"), media delivery, Vyvx broadcast and Managed Services. Our IP and high speed IP service is high quality and is offered in a variety of capacities. Our VPN service permits businesses of any size to replace multiple networks with a single, cost-effective solution that greatly simplifies the converged transmission of voice, video, and data. This convergence to a single platform can be obtained without sacrificing the quality of service or security levels of traditional ATM and frame relay offerings. VPN service also permits customers to prioritize network application traffic so that high priority applications, such as voice and video, are not compromised in performance by the flow of low priority applications such as email.

revenues.

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~~Growth in transport (such as~~

Transport and infrastructure, which includes primarily broadband, private line (including business data services), colocation and ~~wavelengths)~~data centers, wavelength and ancillary revenues.

IP and data services, which includes primarily VPN data network, Ethernet, IP, video and ancillary revenues.

Regulatory, which includes sublease rental income and revenue from fiber ~~revenue is largely dependent on increased demand for bandwidth~~capacity lease arrangements.

Affiliate, which includes telecommunications and data services and available capital of companies requiring communications capacity for their own use or in providing capacity as a service provider to their customers. These expenditures may be in the form of monthly payments or, in the case of private line, wavelength or dark fiber services, either monthly payments or upfront payments. We are focused on providing end-to-end transport and fiber serviceswe bill to our ~~customers to directly connect customer locations with a private network.~~affiliates.

Voice services comprise a broad range of local and enterprise voice services using Voice over Internet Protocol ("VoIP") and traditional circuit-switch based technologies, including VoIP enhanced local service, SIP Trunking, local inbound service, Primary Rate Interface service, long distance service and toll-free service. Our voice services also include our comprehensive suite of audio, Web and video collaboration services.

Colocation and data center services allow customers to place their network equipment and servers in suitable environments maintained by us with high-speed links providing on-net access to more than 60 countries. These services are secure, redundant and flexible to fit the varying needs of our customers. Services, which vary by location, include hosting network equipment used to transport high speed data and voice over our global network; providing managed IT services, installation, maintenance, storage and monitoring of enterprise services; and providing comprehensive IT outsource solutions.

Security Services can be used to enable customers to address the growing threat of cyber-attack and allow customers to create a secure network, safeguard brand value, enable business continuity, and avoid complexity and cost. Our Security Services include: Secure Access which provides secure and encrypted connectivity for mobile users or remote offices; Cloud and Premises based Managed Firewall and Unified Threat Management Services including Intrusion Prevention and Detection service and Web Content filtering; network-based Distributed Denial of Service (DDoS) Mitigation, which protects against Internet based DDoS attacks; and Security Consulting services for Governance, Risk Management and Compliance. Security Services are sold stand-alone or in conjunction with Data Services.

We believe a source of future incremental demand for our Core Network Services will be from customers that are seeking to distribute their feature rich content or video over the Internet. Revenue growth in this area is dependent on the continued increase in demand from customers and the pricing environment. An increase in the reliability and security of information transmitted over the Internet and declines in the cost to transmit data have resulted in increased utilization of e-commerce or Web-based services by businesses. Although the pricing for data services is currently relatively stable, the IP market is generally characterized by price compression and high unit growth rates depending upon the type of service. We have continued to experience price compression in the high-speed IP and voice services markets.

The following ~~provides a discussion of~~tables summarize our ~~Core Network Services~~consolidated operating revenues recorded under our six revenue ~~in terms of the enterprise~~categories:



	Successor		Predecessor
	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017	Increase/(Decrease)		% Change
	(Dollars in millions)
Voice and collaboration	$	381	396	(15	)	(4	)%
IT and managed services	1		—	1		nm
Transport and infrastructure	675		678	(3	)	—	%
IP and data services	1,003		972	31		3	%
Regulatory	2		2	—		—	%
Affiliate	25		—	25		nm
Total revenues	$	2,087	2,048	39		2	%

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

Our total operating revenues increased by $39 million, or 2%, for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The ~~enterprise channel includes large, multi-national enterprises requiring large amounts~~increase in our total operating revenues was primarily due to an increase in IP and data services of ~~bandwidth to support their business operations, such as financial services companies, healthcare companies, content providers,~~$31 million, an increase in affiliate revenues of $25 million, partially offset by a decrease in voice and portal and search engine companies. It also includes medium sized enterprises, regional service providers, as well as government markets, the U.S. federal government, the systems integrators supporting the U.S. federal government, U.S. state and local governments, academic consortia, and certain academic institutions.collaboration revenues of $15 million.

Voice and collaboration revenues decreased by $15 million, or 4%, for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The ~~wholesale channel includes revenue from incumbent~~decrease in voice and ~~alternative carriers~~collaboration revenues was primarily due to a decline in ~~each~~voice of $23 million and a decline in collaboration of $2 million, offset by a $10 million increase in VoIP revenues.

IT and managed services revenues increased $1 million for the ~~regions, global carriers, wireless carriers, cable companies, satellite companies~~successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017 due to a $1 million increase in managed services for the successor three months ended March 31, 2018.

Transport and ~~voice service providers.~~infrastructure revenues decreased $3 million, or less than 1%, for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The decrease in transport and infrastructure revenues was primarily due to a decrease in private line revenues of $26 million, partially offset by an increase in wavelength revenues of $13 million, a $5 million increase in professional services, a $4 million increase in dark fiber revenues.

IP and data services revenues increased $31 million, or 3%, for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The increase in IP and data services revenues was primarily due to a $12 million increase in VPN data networks, an $11 million increase in CDN revenues and a $9 million increase in IP revenues for the successor three months ended March 31, 2018.

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~~We believe~~Regulatory revenues remained flat for the ~~alignment of Core Network Services around channels should allow us~~successor three months ended March 31, 2018, as compared to ~~drive growth while enabling us to better focus on~~ the needs of our customers. Each of these channels is supported by dedicated employees in sales. Each of these channels is also supported by non-dedicated, centralized service delivery and management, product management and development, corporate marketing, global network services, engineering, information technology, and corporate functions, including legal, finance, strategy and human resources.predecessor three months ended March 31, 2017.

~~Wholesale Voice Services~~Affiliate revenues increased by $25 million for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The increase in affiliate revenues was due to our acquisition by CenturyLink on November 1, 2017. Since CenturyLink's acquisition of us, we have recorded revenues from telecommunications and data services we bill to CenturyLink and certain of its subsidiaries as affiliate revenues. In the predecessor periods, since they were not affiliates, revenue associated with CenturyLink and its subsidiaries was recorded in the other operating revenue categories.

We offer wholesale voice services that target large and existing markets. The revenue potential for wholesale voice services is large; however, pricing is expected to continue to decline over time as a result of the new low-cost IP and optical-based technologies. In addition, the market for wholesale voice services is being targeted by many competitors, several of which are larger and have more financial resources than us.

For a detailed description of our broad range of communications services, please see Item 1. "Business - Our Service Offerings" of our Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission.

~~Seasonality and Fluctuations~~

We continue to expect business fluctuations to affect sequential quarterly trends in revenue, costs and cash flow. This includes the timing, as well as any seasonality of sales and service installations, usage, rate changes and repricing for contract renewals. Historically, our revenue and expense in the first quarter has been affected by the slowing of our customers' purchasing activities during the holidays and the resetting of payroll taxes in the new year. We conduct a portion of our business in currencies other than the U.S. dollar, the currency in which our Consolidated Financial Statements are reported. Accordingly, our operating results could also be adversely affected by foreign currency exchange rate volatility relative to the U.S. dollar. Our historical experience with quarterly fluctuations may not necessarily be indicative of future results.

Because revenue subject to billing disputes where collection is uncertain is not recognized until the dispute is resolved, the timing of dispute resolutions and settlements may positively or negatively affect our revenue in a particular quarter. The timing of disconnection may also affect our results in a particular quarter, with disconnection early in the quarter generally having a greater effect. The timing of capital and other expenditures may affect our costs or cash flow. The convergence of any of these or other factors such as fluctuations in usage, increases or decreases in certain taxes and fees or pricing declines upon contract renewals in a particular quarter may result in our revenue growing more or less than previous trends, may affect our profitability and other financial results and may not be indicative of future financial performance. We also establish appropriate reserves for disputes of incorrect network access cost billings from our suppliers of network services, which may include disputes for circuits that are not disconnected by the supplier on a timely basis, charges from suppliers for circuits that were not timely installed and incorrect rate or other inadequate information needed to determine the appropriate billing from the supplier. The network access cost reserves for disputed supplier billings are based on an analysis of our historical experience in resolving disputes with our suppliers and regulatory analysis regarding certain specific supplier billing matters. The timing and ultimate outcome of the dispute resolution process could differ from our initial estimates and these differences could be material.

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~~Critical Accounting Policies~~

~~Income Taxes~~

We recognize deferred tax assets and liabilities for our United States and non-U.S. operations, for operating loss and other credit carry forwards and the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.Operating Expenses

The ~~evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in~~following tables summarize our financial statements or tax returns, and future profitability by tax jurisdiction. We provide a valuation allowance to reduce our U.S. federal, state and non-U.S. deferred tax assets to the amount that is more likely than not to be realized.

Given our current level of pre-tax income, and assuming we maintain into the future this current level of pre-tax income at a minimum, we expect to generate income before taxes in the United States in future periods at a level that would fully utilize our U.S. federal and the majority of our state netconsolidated operating loss carryforward balances. We continue to maintain a valuation allowance of approximately $0.9 billion as of June 30, 2017, against net deferred tax assets, primarily in non-U.S. and certain of our state jurisdictions where we do not currently believe the realization of our deferred tax assets is more likely than not.

We evaluate our deferred tax assets quarterly to determine whether adjustments to the valuation allowance are appropriate in light of changes in facts or circumstances, such as changes in expected future pre-tax earnings, tax law, interactions with taxing authorities and developments in case law. In making this evaluation, we rely on our recent history of pre-tax earnings. Our material assumptions are our forecasts of future pre-tax earnings and the nature and timing of future deductions and income represented by the deferred tax assets and liabilities, all of which involve the exercise of significant judgment.

We had a valuation allowance on many of our non-U.S. jurisdictions as of June 30, 2017. We monitor our cumulative loss position in these non-U.S. jurisdictions and other evidence each quarter to determine the appropriateness of our valuation allowance.

With respect to certain foreign subsidiaries deemed branches for U.S. income tax purposes, we had historically established deferred tax liabilities for foreign branches with an overall cumulative translation gain, but had not established deferred tax assets for those with an overall translation loss as we had no plans to trigger realization of the losses in the foreseeable future. On December 7, 2016, the Internal Revenue Service issued new regulations under Internal Revenue Code Section 987 addressing the taxation of foreign currency translation gains and losses arising from foreign branches. The new regulations require a “fresh start” recalculation of the unrealized gains and losses as of the adoption date. The regulations provide that the tax bases of specified assets, such as fixed assets, will be translated at historic foreign exchange rates. As a result, the deferred taxes related to such foreign currency translation are expected to reverse through the operations of the branch thereby allowing the recognition of deferred tax assets arising from translation losses as well.

Although we believe our estimates are reasonable, the ultimate determination of the appropriate amount of valuation allowance, as well as the effect of recently issued tax regulations addressing the complex area of foreign currency translation involves significant judgment.

~~Refer to Item 7 of our Form 10-K for the year ended December 31, 2016 for a description of our other critical accounting policies.~~expenses:

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	Successor		Predecessor
	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017	Increase/(Decrease)		% Change
	(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	$	998	1,051	(53	)	(5	)%
Selling, general and administrative	344		364	(20	)	(5	)%
Operating expenses - affiliate	53		—	53		nm
Depreciation and amortization	431		296	135		46	%
Total costs and expenses	$	1,826	1,711	115		7	%

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

~~Results~~Cost of ~~Operations~~Services and Products (Exclusive of Depreciation and Amortization)

Cost of services and products (exclusive of depreciation and amortization) decreased by $53 million, or 5%, for the ~~Three and Six Months Ended June 30, 2017 vs. 2016~~

Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2017 2016 Change % 2017 2016 Change %
Revenue $ 2,061
$ 2,056
— % $ 4,109
$ 4,107
— %
Network access costs 675
676
— % 1,366
1,370
— %
Network related expenses 337
339
(1 )% 673
677
(1 )%
Depreciation and amortization 330
310
6 % 650
611
6 %
Selling, general and administrative expenses 366
357
3 % 730
713
2 %
Total Costs and Expenses 1,708
1,682
2 % 3,419
3,371
1 %
Operating Income 353
374
(6 )% 690
736
(6 )%
Other Income (Expense):
Interest income 3
1
NM 5
2
NM
Interest expense (132 ) (140 ) (6 )% (266 ) (275 ) (3 )%
Loss on modification and extinguishment of debt —
(40 ) NM
(44 ) (40 ) 10 %
Other, net (1 ) (5 ) NM
3
(15 ) NM
Total Other Expense (130 ) (184 ) (29 )% (302 ) (328 ) (8 )%
Income Before Income Taxes 223
190
17 % 388
408
(5 )%
Income Tax Expense (69 ) (34 ) 103 % (139 ) (124 ) 12 %
Net Income $ 154
$ 156
(1 )% $ 249
$ 284
(12 )%

~~___________________~~

~~NM — Not meaningful~~

~~Discussion of all significant variances:~~

~~Revenue by Channel:~~

Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2017
2016⁽¹⁾
Change % 2017
2016⁽¹⁾
Change %
Core Network Services Revenue:
North America - Wholesale Channel $ 415
$ 443
(6 )% $ 818
$ 877
(7 )%
North America - Enterprise Channel 1,192
1,162
3 % 2,383
2,329
2 %
EMEA - Wholesale Channel 55
61
(10 )% 110
125
(12 )%
EMEA - Enterprise Channel 121
130
(7 )% 241
256
(6 )%
Latin America - Wholesale Channel 36
37
(3 )% 72
76
(5 )%
Latin America - Enterprise Channel 146
123
19 % 287
239
20 %
Total Core Network Services Revenue 1,965
1,956
— % 3,911
3,902
— %
Wholesale Voice Services 96
100
(4 )% 198
205
(3 )%
Total Revenue $ 2,061
$ 2,056
— % $ 4,109
$ 4,107
— %

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⁽¹⁾ ~~The 2016 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2017.~~

~~Revenue by Service Offering:~~

Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2017
2016⁽¹⁾
Change % 2017 2016(1) Change %
Core Network Services Revenue:

Colocation and Datacenter Services $ 146
$ 164
(11 )% $ 292
$ 311
(6 )%
Transport and Fiber 590
575
3 % 1,171
1,154
1 %
IP and Data Services 940
915
3 % 1,864
1,833
2 %
Voice Services (Local and Enterprise) 289
302
(4 )% 584
604
(3 )%
Total Core Network Services Revenue 1,965
1,956
— % 3,911
3,902
— %
Wholesale Voice Services 96
100
(4 )% 198
205
(3 )%
Total Revenue $ 2,061
$ 2,056
— % $ 4,109
$ 4,107
— %

⁽¹⁾ ~~The 2016 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2017.~~

~~Revenue~~ remained essentially flat at $2.061 billion and $4.109 billion in the three and six months ended June 30, 2017, respectively, compared to $2.056 billion and $4.107 billion in the same periods of 2016, respectively. Core Network Services revenue remained essentially flat at $1.965 billion in thesuccessor three months ended June 30, 2017 compared to $1.956 billion in the same period in 2016, consisting of a $44 million increase in enterprise channel revenue, partially offset by a $35 million decrease in wholesale channel revenue. Core Network Services revenue also remained essentially flat at $3.911 billion in the six months ended June 30, 2017, compared to $3.902 billion in the same period in 2016, consisting of an $87 million increase in enterprise channel revenue, partially offset by a $78 million decrease in wholesale channel revenue.

~~Enterprise channel revenue increased $30 million and $54 million in North America in the three and six months ended June 30, 2017, respectively,~~March 31, 2018, as compared to the ~~same periods~~predecessor three months ended March 31, 2017. The decrease in ~~2016,~~our cost of services and products for the successor three months ended March 31, 2018 was primarily due to ~~continued growth in professional, VPN, transport,~~our acquisition by CenturyLink on November 1, 2017. In the predecessor period, since they were not an affiliate, the expense associated with CenturyLink and IPits subsidiaries was recorded as cost of services and ~~data services driven by growth in our large, multinational, enterprise customers, partially offset by a decline in voice~~products and ~~colocation~~selling, general and datacenter services. Enterprise channel revenue increased $23 million and $48 million in Latin America in the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, primarily due to growth in IP, transport, VPN, voice, and colocation and datacenter services, as well as the effect of the weakening of the U.S. dollar against Latin American currencies, primarily Brazil, in 2017 compared to the exchange rates in 2016. Enterprise channel revenue in EMEA decreased $9 million and $15 million in the three and six months ended June 30, 2017, respectively, compared to the same periods of 2016, primarily due to the effect of the stronger U.S. dollar against European currencies and a decline in voice services, partially offset by growth in professional, VPN, and IP services.administrative expenses.

North America wholesale channel revenue decreased $28 million and $59 million in the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, primarily due to declines in colocation and datacenter, transport and IP services. EMEA wholesale channel revenue decreased $6 million and $15 million in the three and six months ended June 30, 2017, respectively, compared to the same period in 2016, primarily due to the effect of the stronger U.S. dollar against European currencies and declines in transport and IP services. Wholesale channel revenue decreased $1 m

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illion and $4 million in Latin America in the three and six months ended June 30, 2017, compared to the same period in 2016, primarily due to a decline in IP services, partially offset by the effect of the weakening of the U.S. dollar against Latin American currencies, primarily Brazil, in 2017 compared to the exchange rates in 2016. Wholesale channel revenue continued to be affected by industry consolidation across all regions.

From a service and product offering perspective, we continued to grow our IP and data services by $25 million in the three months ended June 30, 2017, compared to the same period of 2016, driven primarily by an increase in VPN, CDN and IP services. IP and data services also continued to grow by $31 million in the six months ended June 30, 2017, compared to the same period of 2016, driven primarily by an increase in VPN and CDN services, which were partially offset by a decline in IP services. Transport and Fiber revenue increased $15 million and $17 million for the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, due primarily to growth in wavelength, professional services, and dark fiber, partially offset by a decrease in private line. Colocation and Datacenter services decreased $18 million and $19 million in the three and six months ended June 30, 2017, respectively, compared to the same periods of 2016 primarily due to a decrease in colocation. Voice Services declined $13 million and $20 million in the three and six months ended June 30, 2017, respectively, compared to the same periods of 2016, due to competitive pressures.

Wholesale Voice Services revenue decreased by a total of $4 million and $7 million, in the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, primarily due to competitive pressures caused by industry consolidation and our focus on maintaining or growing Wholesale Voice Services profitability.

~~Network Access Costs~~ include leased capacity, right-of-way costs, access charges, satellite transponder lease costs and other third-party costs directly attributable to providing access to customer locations from our network, but excludes Network Related Expenses, and depreciation and amortization. Network Access Costs do not include any employee expenses or impairment expenses; these expenses are allocated to Network Related Expenses or Selling, General and Administrative ~~Expenses.~~

~~Network Access Costs as a percentage of total revenue was essentially flat at 33% for both the three~~Selling, general and ~~six months ended June 30, 2017 and 2016.~~

~~Network Related Expenses~~ include certain expenses associated with the delivery of services to customers and the operation and maintenance of our network, such as facility rent, utilities, maintenance and other costs, each related to the operation of our communications network, as well as salaries, wages and related benefits (including non-cash stock-based compensation expenses) associated with personnel who are responsibleadministrative decreased by $20 million, or 5%, for the ~~delivery of services, operation and maintenance of our communications network, and accretion expense on asset retirement obligations, but excludes depreciation and amortization.~~

Network Related Expenses decreased to $337 million and $673 million in the three and six months ended June 30, 2017, respectively, from $339 million and $677 million in the same periods in 2016. These decreases were primarily related to decreased facilities and network based expenses as we continued to optimize our facilities, partially offset by an increase in employee related expenses.

~~Depreciation and Amortization~~ ~~increased 6% to $330 million in the~~successor three months ended ~~June 30, 2017 from $310 million in~~March 31, 2018, as compared to the same period of 2016. This increase is primarily attributable to $22 million of depreciation and amortization associated with additional capital expenditures, partially offset by $2 million of foreign currency exchange rate changes in EMEA and LATAM.

Depreciation and amortization increased 6% to $650 million in the six months ended June 30, 2017 from $611 million in the same period of 2016. This increase is primarily attributable to $42 million of

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~~depreciation and amortization associated with additional capital expenditures, partially offset by $3 million of foreign currency exchange rate changes in EMEA and LATAM.~~

~~Selling, General and Administrative Expenses ("SG&A Expenses")~~ includes the salaries, wages and related benefits (including non-cash stock-based compensation expenses) and the related costs of corporate and sales personnel, travel, insurance, non-network related rent, advertising and other administrative expenses.

~~SG&A Expenses increased 3% to $366 million in the~~predecessor three months ended June 30, 2017 compared to $357 million in the same period of 2016 and 2% to $730 million in the six months ended June 30, 2017 compared to $713 million in the same period of 2016. These increases were primarily related to integration expenses associated with the CenturyLink Merger and non-cash stock-based compensation.

~~Non-cash stock-based compensation expense, which is included in both SG&A and Network Related Expenses, is~~ related to performance restricted stock units ("PRSUs"), restricted stock units, shares issued for our matching contribution to our 401(k) plan, and outperform stock appreciation rights ("OSO"). Non-cash stock-based compensation expense for the three months ended ~~June 30, 2017~~ ~~and~~ ~~2016~~ ~~was $39 million and $31 million, respectively. Non-cash stock-based compensation expense for the six months ended~~ ~~June 30, 2017~~ ~~and~~ ~~2016~~ ~~was $87 million and $78 million, respectively. The increase for the three and~~ ~~six months ended June 30, 2017~~ ~~compared to the same periods of~~ ~~2016~~ ~~was primarily related to additional grants of restricted stock units in~~ March ~~of 2017, partially offset by more individuals obtaining retirement eligibility in the first quarter of 2016, a~~31, 2017. This decrease in PRSU expense related to awards vesting in the three months ended June 30, 2017 and outperform stock appreciation right awards reaching full amortization by the third quarter of 2016. Approximately $33 million and $27 million of non-cash stock-based compensation expense was recorded in SG&A Expenses during the three months ended June 30, 2017 and 2016, respectively, and approximately $75 million and $67 million of non-cash stock-based compensation expense was recorded in SG&A Expenses during the ~~six months ended June 30, 2017~~ and 2016, respectively. Approximately $6 million and $4 million of non-cash stock-based compensation expense was recorded in Network Related Expenses during the three months ended June 30, 2017 and 2016, respectively, and approximately $12 million and $11 million of non-cash stock-based compensation was recorded in Network Related Expenses during the ~~six months ended June 30, 2017~~ ~~and 2016, respectively.~~

~~Adjusted EBITDA, as defined by us, is net income from the Consolidated Statements of Income before (1) income tax benefit (expense), (2) total other income (expense), (3) non-cash impairment charges included within~~our selling, general and administrative expenses ~~and network related expenses, (4) depreciation and amortization expense and (5) non-cash stock-based~~was primarily due to a $16 million decrease in stock based compensation expense as a result of accelerated vesting for certain restricted stock awards associated with the CenturyLink acquisition as well as the vesting of performance restricted stock units, a decrease of $12 million for affiliate expenses which were included ~~within~~in selling, general and administrative ~~expenses and network related expenses and (6) discontinued operations.~~

~~Adjusted EBITDA is not a measurement under GAAP and may not be used in~~during the ~~same way~~predecessor period, offset by ~~other companies. We believe that Adjusted EBITDA is~~ an important part of our internal reporting and is a key measure used by us to evaluate our profitability and operating performance and to make resource allocation decisions. We believe such measurement is especially important in a capital-intensive industry such as telecommunications. We also use Adjusted EBITDA to compare our performance to that of our competitors and to eliminate certain non-cash and non-operating items in order to consistently measure from period to period our ability to fund capital expenditures, fund growth, service debt and determine bonuses.

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expense because these non-cash expenses reflect the effect of capital investments which we believe are better evaluated through cash flow measures. Adjusted EBITDA excludes net other income (expense) because these items are not related to our primary operations.

There are limitations to using non-GAAP financial measures such as Adjusted EBITDA, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from our calculations. Additionally, this financial measure does not include certain significant items such as interest income, interest expense, income tax benefit (expense), depreciation and amortization expense, non-cash impairment charges, non-cash stock-based compensation expense and net other income (expense). Adjusted EBITDA should not be considered a substitute for other measures of financial performance reported in accordance with GAAP.

~~The following information provides a reconciliation of Net Income to Adjusted EBITDA as defined by us along with Adjusted EBITDA by reportable segment:~~

Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2017 2016 2017 2016
Net Income $ 154
$ 156
$ 249
$ 284
Income Tax Expense 69
34
139
124
Total Other Expense 130
184
302
328
Depreciation and Amortization 330
310
650
611
Non-Cash Stock Compensation 39
31
87
78
Adjusted EBITDA $ 722
$ 715
$ 1,427
$ 1,425

North America $ 815
$ 819
$ 1,624
$ 1,631
EMEA 69
52
126
106
Latin America 77
64
157
138
Unallocated Corporate Expenses (239 ) (220 ) (480 ) (450 )
Adjusted EBITDA $ 722
$ 715
$ 1,427
$ 1,425

~~Adjusted EBITDA was $722~~$8 million in the three months ended June 30, 2017 compared to $715 million in the same period of 2016 and $1.427 billion in the six months ended June 30, 2017 compared to $1.425 billion in the same period of 2016. The increase in Adjusted EBITDA is primarily attributable to a slight increase in revenue and a decrease in network access costs and network related expenses, partially offset by increased SG&A expenses primarily attributable to integration expenses related to the CenturyLink Merger. See Note 9 - Segment Information in the notes to unaudited Consolidated Financial Statements for additional information on Adjusted EBITDA by region.

Adjusted EBITDA decreased $4 million and $7 million in the North America region in the three and six months ended June 30, 2017, respectively, compared to the same period of 2016. The decrease in the three months ended June 30, 2017 was primarily due to decreased Core Network Services revenue of $2 million and increased network access costs of $13 million, partially offset by decreased operating costs of $11 million, which consisted primarily of reduced employee related expenses. The decrease in the six months ended June 30, 2017 was primarily due to decreased Core Network Services revenue of $5 million and increased network access costs of $9 million, partially offset by decreased operating costs of $11 million, which consisted primarily of reduced employee relatedother expenses.

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~~Adjusted EBITDA~~Operating Expenses - Affiliate

Operating expenses - affiliate increased ~~$17~~by $53 million, ~~and $20 million in~~for the ~~EMEA region in the~~successor three ~~and six~~ months ended ~~June 30, 2017, respectively,~~March 31, 2018, as compared to the ~~same periods of 2016.~~predecessor three months ended March 31, 2017. The increase in our operating expenses - affiliate was due to our acquisition by CenturyLink on November 1, 2017. In the predecessor period, since they were not affiliates, the expense associated with CenturyLink and its subsidiaries was recorded as cost of services and products and selling, general and administrative expenses.

Depreciation and Amortization

The following table provides detail regarding depreciation and amortization expense:



	Successor		Predecessor
	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017	Increase/(Decrease)		% Change
	(Dollars in millions)
Depreciation	$	237	251	(14	)	(6	)%
Amortization	194		45	149		331	%
Total depreciation and amortization	$	431	296	135		46	%

Depreciation expense decreased by $14 million, or 6%, for the successor three months ended June 30, 2017 was due to a decrease in network access costs of $20 million and decreased operating costs of $12 million, partially offset by a decline in Core Network Services revenue of $15 million. The increase in the six months ended June 30, 2017 was due to a decrease in network access costs of $27 million and decreased operating costs of $23 million, partially offset by a decline in Core Network Services revenue of $30 million.

~~Adjusted EBITDA increased $13 million and $19 million in the Latin American region in the three and six months ended June 30, 2017, respectively,~~March 31, 2018, as compared to the ~~same periods in 2016. The increase in the~~predecessor three months ended ~~June 30,~~March 31, 2017. As of November 1, 2017, ~~was primarily~~our property, plant and equipment were recorded at preliminary fair value and as a result net property, plant and equipment decreased $1 billion due to ~~increased Core Network Services revenue~~CenturyLink's acquisition of ~~$22 million, partially offset by increased network access costs of $6 million and operating costs of $4 million. The increase~~us. This decrease in asset value resulted in lower depreciation expense for the ~~six months ended June 30, 2017 was due to increased Core Network Services revenue of $44 million, partially offset by increased network access costs of $12 million and operating costs of $14 million.~~

~~Interest Expensedecreased~~6% ~~to $132 million in the~~successor three months ended ~~June 30, 2017 from~~ ~~$140~~March 31, 2018 than would have been recorded had the acquisition not occurred. The accounting for CenturyLink's acquisition of us also resulted in an additional $8.740 billion in amortizable intangible customer relationship assets, which resulted in an additional $128 million in of amortization expense for the ~~same period of 2016 and 3% to $266 million in the six~~successor three months ended ~~June 30, 2017 from $275~~March 31, 2018. In addition, trade names and developed technology were recorded at a fair value of $423 million, an increase of $401 million, which resulted in an additional $14 million of amortization expense for the same period of 2016. Interest expense decreased primarily due to a lower weighted average interest cost of debt of 4.6% at June 30, 2017 compared to 4.7% at June 30, 2016, primarily due to refinancing activities in 2017.

~~We expect annual interest expense in 2017 of approximately $540 million.~~

~~Loss on Modification and Extinguishment of Debt~~

In the first quarter of 2017, we recorded a charge of approximately $44 million related to the February 2017 refinancing of all our outstanding $4.611 billion senior secured term loans through the issuance of a new Tranche B 2024 Term Loan in the principal amount of $4.611 billion. The term loans refinanced were our Tranche B-III 2019 Term Loan, Tranche B 2020 Term Loan, and the Tranche B-II 2022 Term Loan. The new Tranche B 2024 Term Loan bears interest at LIBOR plus 2.25 percent, with a zero percent minimum LIBOR, and will mature on February 22, 2024.

~~Other, net~~ ~~is primarily comprised of gains and losses on the sale of non-operating assets, foreign currency gains and losses and other income and expense.~~successor three months ended March 31, 2018.

Other net was $1 million of expense in the three months ended June 30, 2017 compared to $5 million of expense in the same period of 2016 and $3 million of income in the six months ended June 30, 2017 compared to $15 million of expense in the same period of 2016. The change in Other, net in the three and six months ended June 30, 2017 and 2016 was primarily due to a foreign currency losses in 2016, attributable to the appreciation of the U.S. dollar and other currencies for certain intercompany balances denominated in the local currency of foreign subsidiaries in EMEA and Latin America that are not considered to be long-term in nature.Consolidated Results

~~Income Tax Expense~~ ~~was $69 million in the three months ended June 30, 2017 compared to $34 million in the same period of 2016~~The following tables summarize our total other expense, net and ~~$139 million in the six months ended June 30, 2017 compared to $124 million in the same period of 2016. Income~~income tax expense in the three months ended June 30, 2017 consisted of $48 million U.S. and $21 million foreign tax expense. Our effective tax rate for the quarter is lower than the statutory rate primarily due to more pre-tax income in jurisdictions that are carrying full valuation allowances, partially offset by limitations on certain deductions.expense:

~~We incur tax expense attributable to income in the U.S.~~



	Successor			Predecessor
	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017		Increase/(Decrease)		% Change
	(Dollars in millions)
Interest income	$	1		2		(1	)	(50	)%
Interest income - affiliate	16			—		16		nm
Interest expense	(120		)	(134	)	(14	)	(10	)%
Loss on modification and extinguishment of debt	—			(44	)	(44	)	(100	)%
Other income	6			4		2		50	%
Total other income (expense)	(97		)	(172	)	(75	)	(44	)%
Income tax expense	$	(102	)	(70	)	32		46	%

nm-Percentages greater than 200% and ~~in various subsidiaries that~~comparisons between positive and negative values or to/from zero values are required to file state or foreign income tax returns on a separate legal entity basis. We also recognize accrued interest and penalties in income tax expense related to uncertain tax benefits. Our tax rate isconsidered not meaningful.

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~~volatile~~Interest Income

Interest income decreased by $1 million, or 50%, for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The decrease in interest income was primarily due to the decrease in our cash and ~~may move up~~cash equivalents balance.

Interest Income - Affiliate

Interest income - affiliate increased by $16 million for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The increase in interest income - affiliate was due to the interest associated with our $1.825 billion loan made to CenturyLink in connection with the closing of the Merger Agreement.

Interest Expense

Interest expense decreased by $14 million, or ~~down~~10%, for thesuccessor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The decrease in interest expenses was primarily due to refinancing of all of our then outstanding $4.611 billion senior secured term loans during the predecessor three months ended March 31, 2017 resulting in a lower effective interest rate.

Loss on Modification and Extinguishment of Debt

Loss on modification and extinguishment of debt decreased by $44 million or 100%, for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The decrease in loss on modification and extinguishment of debt was due to the refinancing of all of our then outstanding $4.611 billion senior secured term loans during the predecessor three months ended March 31, 2017.

Other Income (Expense)

Other income (expense) increased by $2 million, or 50%, for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The increase in other income (expense) was due to a $4 million foreign currency gain in the successor three months ended March 31, 2018, as compared to a $2 million foreign currency gain in the predecessor three months ended March 31, 2017.

Income Tax Expense

For the successor three months ended March 31, 2018 and the predecessor three months ended March 31, 2017, our effective income tax rate was 62% and 42%, respectively. The effective tax rate for the successor three months ended March 31, 2018 was significantly impacted by the enactment of the Tax Cuts and Jobs Act legislation in December 2017 which resulted in a re-measurement of our deferred tax assets and liabilities at the new federal corporate tax rate. See "Other Matters-Recent Tax Changes." This increase was partially offset by a tax benefit from releasing liabilities from uncertain tax positions due to statute expiration.

Liquidity and Capital Resources

Overview

At March 31, 2018, we held cash and cash equivalents of $259 million. At March 31, 2018, cash and cash equivalents of $226 million were held in foreign bank accounts for the purpose of funding our foreign operations. Due to various factors, our access to foreign cash is generally much more restricted than our access to domestic cash.

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Impact of Merger with CenturyLink

As of November 1, 2017, we became a wholly owned subsidiary of CenturyLink. As such, factors relating to, or affecting, CenturyLink'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.

In connection with the closing of the Merger Agreement, we loaned $1.825 billion to CenturyLink in exchange for an unsecured demand note that bears interest at 3.5% per annum. The principal amount of such note is payable upon demand by Level 3 Parent but no later than November 1, 2020, and is prepayable by CenturyLink at any time.

A significant component of our liquidity is dependent upon CenturyLink's ability to repay its obligation to us.

We anticipate that any future liquidity needs will be met through (i) our cash provided by operating activities (ii) amounts due to us from CenturyLink (iii) our ability to refinance our debt obligations at maturity and (iv) capital contributions, advances or loans from CenturyLink or its affiliates if and to the extent they have available funds or access to 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 our service offerings. CenturyLink and we evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and the expected return on investment. The amount of CenturyLink's consolidated capital investment is influenced by, among other things, ~~the amount~~demand for CenturyLink's services and ~~source of income or loss, our ability to utilize foreign tax credits, changes in tax laws, our deferred tax valuation allowance,~~products, cash flow generated by operating activities and ~~the movement of liabilities established~~cash required for ~~uncertain tax positions as statutes of limitations expire or positions are otherwise effectively settled.~~other purposes.

~~Financial Condition— For the Six Months Ended June 30, 2017~~Debt and ~~2016~~Other Financing Arrangements

~~Cash flows~~As of March 31, 2018, our long-term debt (including current maturities and capital leases) totaled $10.881 billion, compared to $10.890 billion outstanding as of December 31, 2017.

Subject to market conditions, from ~~operating activities, investing activities~~time to time, we expect to continue to issue term debt or senior notes to refinance our maturing debt. The availability, interest rate and ~~financing activities~~other terms of any new borrowings will depend on the ratings assigned us by the three major credit rating agencies, among other factors. As of the date of this report, the credit ratings for the ~~six months ended June 30, 2017~~senior unsecured debt of Level 3 Parent, LLC and ~~2016 are summarized~~Level 3 Financing, Inc. were as follows:

Six Months Ended June 30,
(dollars in millions) 2017 2016 Change
Net Cash Provided by Operating Activities $ 1,100
$ 1,141
$ (41 )
Net Cash Used in Investing Activities (1,819 ) (652 ) (1,167 )
Net Cash Used in Financing Activities (46 ) (52 ) 6
Effect of Exchange Rates on Cash and Cash Equivalents 2
—
2
Net Change in Cash and Cash Equivalents $ (763 ) $ 437
$ (1,200 )



Borrower	Moody's Investor Services, Inc.	Standard & Poor's	Fitch Ratings
Level 3 Parent, LLC
Unsecured	B1	B+	BB-

Level 3 Financing, Inc.
Unsecured	Ba3	BB	BB
Secured	Ba1	BBB-	BBB-

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Historical Information

The following table summarizes our consolidated cash flow activities:



	Successor			Predecessor
	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017		Increase/(Decrease)
	(Dollars in millions)
Net cash provided by operating activities	$	571		539		32
Net cash used in investing activities	(217		)	(368	)	(151	)
Net cash used in financing activities	$	(391	)	(44	)	347

Operating Activities

~~Cash provided by operating activities was $1.100 billion for the six months ended June 30, 2017 compared to~~Net cash provided by operating activities ~~of $1.141 billion in~~increased $32 million for the ~~same period of 2016~~. successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017, primarily resulting from increased revenues. Cash provided by operating activities is subject to variability period over period as a result of the timing of the collection of receivables and payments related to interest expense, accounts payable, ~~bonuses,~~ and ~~capital expenditures.~~bonuses.

Investing Activities

~~Cash~~Net cash used in investing activities ~~increased~~decreased $151 million for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017 primarily due to capital expenditures of $368 million in the ~~six~~predecessor three months ended ~~June 30,~~March 31, 2017 compared to ~~the same period of 2016 primarily as a result of the purchase of $1.127 billion of marketable securities in the second quarter of 2017. Capital expenditures totaled $696~~$252 million in the ~~six~~successor three months ended ~~June 30, 2017 and~~ ~~$664~~March 31, 2018, partially offset by $34 million of deposits received on assets held for sale in the ~~same period~~successor three months ended March 31, 2018 related to an agreement we entered into to sell $68 million of ~~2016.~~our assets held for sale.

Financing Activities

~~Financing~~Net cash used in financing activities ~~used cash~~increased $347 million for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017 primarily due to the $390 million of ~~$46 million~~distributions we made to CenturyLink in the ~~six~~successor three months ended ~~June 30, 2017~~March 31, 2018, partially offset by the $44 million of cash used for the refinancing of ~~debt. In~~debt in the ~~six~~predecessor three months ended ~~June 30, 2016, financing activities used $52 million~~March 31, 2017.

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 ~~cash.~~operations or cash flows. See Note 67 - ~~Long-Term Debt in the notes to the unaudited Consolidated Financial Statements~~Commitments, Contingencies and Other Items for ~~more details regarding our debt transactions during the six months ended June 30, 2017 and 2016.~~additional information.

~~Effect~~CenturyLink is involved in several legal proceedings to which we are not a party that, if resolved against them, could have a material adverse effect on their business and financial condition. As a wholly owned subsidiary of ~~Exchange Rates on Cash~~CenturyLink, our business and ~~Cash Equivalents~~

~~The effect~~financial condition could be similarly affected. You can find descriptions of ~~exchange rates on cash~~these legal proceedings in CenturyLink's quarterly and ~~cash equivalents in~~annual reports filed with the ~~six months ended June 30, 2017 was an increase in cash~~SEC. Because we are not a party to any of ~~$2 million~~.

the matters, we have not accrued any liabilities for these matters.

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~~Liquidity~~On December 22, 2017, the Tax Cuts and ~~Capital Resources~~

~~We had $2.183 billion of cash, cash equivalents~~Jobs Act (the "Act") was signed into law and marketable securities on hand at June 30, 2017. We also had $34 million of current and non-current restricted cash and securities used to collateralize outstanding letters of credit and certain performance and operating obligations and other deposits at June 30,in December 2017,.

~~Free Cash Flow is defined by us as net cash provided by (used in) operating activities less capital expenditures as disclosed in~~ the ~~Consolidated Statements of Cash Flows. Management believes that Free Cash Flow is a relevant metric~~SEC staff issued Staff Accounting Bulletin (SAB) 118 to provide guidance for companies that have not completed their accounting for the income tax effects of the Act. As of March 31, 2018, we have not completed our accounting for the tax effects of the Act. In order to ~~investors, as it is an indicator of~~complete our ~~ability to generate cash to service our debt. Free Cash Flow excludes cash used~~accounting for ~~acquisitions, debt repayments and~~ the impact of ~~exchange rate changes on cash~~the Act, we continue to obtain, analyze and ~~cash equivalents balances.~~interpret additional guidance as such guidance becomes available from the U.S. Treasury Department, the Internal Revenue Service (“IRS”), state taxing jurisdictions, the FASB, and other standard-setting and regulatory bodies. New guidance or interpretations may materially impact our provision for income taxes in future periods.

~~There are material limitations~~Additional information that is needed to ~~using Free Cash Flow~~complete the analysis but is currently unavailable includes, but is not limited to, ~~measure~~the amount of earnings of foreign subsidiaries, the final determination of certain net deferred tax assets subject to remeasurement due to purchase accounting adjustments and other matters and the tax treatment of such provisions of the Act by various state tax authorities. We have provisionally recognized the tax impacts related to the re-measurement of deferred tax assets and liabilities. The ultimate impact may differ from our ~~performance as it excludes certain material items such as principal payments on~~provisional amount due to additional analysis, changes in interpretations and ~~repurchases of long-term debt and cash used to fund acquisitions. Comparisons of our Free Cash Flow to~~assumptions we have made, additional regulatory guidance that ~~of some of our competitors~~ may be ~~of limited usefulness since~~issued, and actions we do not currently pay a significant amount of income taxes due to net operating loss carryforwards, and therefore, generate higher cash flow than a comparable business that does pay income taxes. Additionally, this financial measure is subject to variability quarter over quartermay take as a result of the Act. The change from our current provisional estimates will be reflected in our future statements of operations and could be material. We expect to complete the accounting in the fourth quarter of 2018, although we cannot assure you of this.

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21%, we provisionally re-measured our net deferred tax assets at December 31, 2017 and recognized a tax expense of approximately $195 million in our consolidated statement of operations for the year ended December 31, 2017. During the first three months of 2018, we increased the tax expense from tax reform by $64 million due to changes in certain purchase accounting adjustments related to CenturyLink’s acquisition of us.

The Act imposed a one-time repatriation tax on certain earnings of foreign subsidiaries. Although we have not determined a reasonable estimate of the impact of the one-time repatriation tax, we do not expect this one-time tax to materially impact us, but we cannot provide any assurance that upon completion of the analysis the amount will not be material.

Certain Matters Related to the Merger with CenturyLink

Until November 1, 2017, we filed a consolidated federal income tax return of Level 3 Communications, Inc. Since CenturyLink's acquisition of us on November 1, 2017, we have been included in the consolidated federal income tax return of CenturyLink. Under CenturyLink's tax allocation policy, CenturyLink treats our consolidated results as if we were a separate taxpayer. The policy requires us to pay our tax liabilities to CenturyLink in cash based upon our separate return taxable income. We are also included in the combined state tax returns filed by CenturyLink and the same payment and allocation policy applies.

As of the successor date of March 31, 2018, we had paid certain costs that were associated with the CenturyLink acquisition. These costs include compensation costs comprised of retention bonuses and severance. The final amounts and timing of ~~payments related~~the compensation costs to be paid is partially dependent upon personnel decisions that continue to be made as part of the continuing integration. These amounts may be material.

In accounting for the CenturyLink's acquisition of us, we recorded our debt securities at their preliminary estimated fair values, which totaled $10.716 billion as of November 1, 2017. Our acquisition date fair value estimates were based primarily on inputs other than quoted market prices in active markets that are either directly or indirectly observable. The fair value of our debt securities exceeded their stated principal balances on the acquisition date by $190 million, which is being recognized as a reduction to interest expense accounts receivable and accounts payable and capital expenditures. Free Cash Flow should not be used as a substitute for net change in cash and cash equivalents on the Consolidated Statements of Cash Flows.

~~The following information provides a reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow as defined by us:~~

Six Months Ended June 30,
(dollars in millions) 2017 2016 Change
Net Cash Provided by Operating Activities $ 1,100
$ 1,141
$ (41 )
Capital Expenditures (696 ) (664 ) (32 )
Free Cash Flow $ 404
$ 477
$ (73 )

Free Cash Flow was $404 million for the six months ended June 30, 2017 compared to $477 million for the same period of 2016, reflecting a $73 million decrease driven by $41 million less cash provided by operating activities, as discussed further above, and $32 million of higher spending on capital expenditures in the six months ended June 30, 2017. Free Cash Flow includes $5 million of integration costs related to the CenturyLink Merger in the six months ended June 30, 2017. For the full year 2017~~, we expect to generate Free Cash Flow of $1.10 to $1.16 billion excluding any CenturyLink Merger related expenses.~~

Capital expenditures for 2017 are expected to be approximately 16% of revenue, consistent with 16% of revenue in 2016 as we invest in base capital expenditures (estimated capital required to keep the network operating efficiently and support new service development) withover the remaining ~~capital expenditures expected to be partly success-based, which is tied to a specific customer revenue opportunity, and partly project-based where capital is used to expand~~terms of the ~~network based on our expectation that the project will eventually lead to incremental revenue.~~

~~Net cash interest payments are expected to approximate $520 million in 2017 based on forecasted interest rates on our variable rate debt outstanding as of June 30, 2017.~~

debt.

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As of June 30, 2017, we had contractual debt obligations, including capital lease obligations, but excluding interest and unamortized debt issuance costs, of $4 million that mature in the remaining six months of 2017, $307 million in 2018 and $7 million in 2019.

We currently have the ability to repatriate cash and cash equivalents into the United States without paying or accruing U.S. taxes. We do not currently intend to repatriate to the United States any of our foreign cash and cash equivalents from operating entities outside of Latin America. We have no material restrictions on our ability to repatriate to the United States foreign cash and cash equivalents. We had approximately $111 million of cash and cash equivalents outside the United States at June 30, 2017.

~~We believe our current liquidity and anticipated future cash flows from operations will be sufficient to fund our business for at least the next twelve months.~~Market Risk

We ~~may need~~are exposed to ~~refinance all or~~market risk from changes in interest rates on our variable rate long-term debt obligations. We seek to maintain a ~~portion~~favorable mix of ~~our indebtedness at or before maturity~~fixed and cannot provide assurances that we will be able to refinance any such indebtedness on commercially reasonable terms or at all. In addition, we may elect to secure additional capital in the future, at acceptable terms, to improve our liquidity or fund acquisitions. In addition,variable rate debt in an effort to ~~reduce future~~limit interest costs and cash flow volatility resulting from changes in rates.

As of the successor date of March 31, 2018, we have approximately $10.526 billion (excluding capital lease and other obligations) of long-term debt outstanding, 56% of which bears interest ~~payments as well as future amounts due~~ at ~~maturity or~~fixed rates and is therefore not exposed to ~~extend~~interest rate risk. We also held $4.611 billion of floating rate debt ~~maturities, we may, from time~~exposed to ~~time, issue new debt, enter into debt for debt, debt for equity or cash transactions to purchase our outstanding debt securities~~changes in the ~~open market or through privately negotiated transactions. In addition,~~London InterBank Offered Rate (LIBOR). A hypothetical increase of 100 basis points in LIBOR relative to this debt would decrease our annual pre-tax earnings by $46 million.

By operating internationally, we ~~may consider other uses~~are exposed to the risk of ~~capital or opportunities to return cash to stockholders. We will evaluate any such transactions~~fluctuations in ~~light of~~ the ~~existing market conditions~~foreign currencies used by our international subsidiaries, including the British Pound, the Euro, the Brazilian Real and the ~~possible dilutive effect to stockholders. The amounts involved~~Argentinian Peso, in ~~any such transaction, individually~~each case as of March 31, 2018. Although the percentages of our consolidated revenues and costs that are denominated in these currencies are immaterial, our consolidated results of operations could be adversely impacted by volatility in exchange rates or an increase in the ~~aggregate, may be material.~~

~~In addition to raising capital through the debt and equity markets, we may sell or dispose~~number of ~~existing businesses, investments or other non-core assets.~~

~~Consolidation of the communications industry may continue. We will continue to evaluate consolidation opportunities and could make additional acquisitions in the future.~~

~~In pursuing any of these various actions, we would also need to address any restrictions contained in the CenturyLink Merger agreement or obtain a waiver of those restrictions.~~foreign currency transactions.

Off-Balance Sheet Arrangements

We have ~~not entered into~~no special purpose or limited purpose entities that provide off-balance sheet ~~arrangements.~~financing, liquidity, or market or credit risk support and we do not engage in hedging or other similar activities that expose us to any significant liabilities that are not (i) reflected on the face of the consolidated financial statements or (ii) discussed under the heading "Market Risk" above.

Other Information

CenturyLink's and our website is www.centurylink.com. We routinely post important investor information in the "Investor Relations" section of our website at ir.centurylink.com. The information contained on, or that may be accessed through, our website is not part of this quarterly report. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports in the "Investor Relations" section of our website (ir.centurylink.com) under the heading "SEC Filings." These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. From time to time, we also use our website to webcast our earnings calls and certain of our meetings with investors or other members of the investment community.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Interest Rate Risk~~

We ~~are subject to market risks arising from changes in interest rates. As of June 30, 2017, we had borrowed a total of approximately $4.9 billion primarily under term loans~~have omitted this information pursuant to a senior secured credit facility and Floating Rate Senior Notes due 2018 that bear interest at LIBOR plus an applicable margin. As LIBOR fluctuates, so too will the interest expense on amounts borrowed under the debt instruments. The weighted average interest rate on these variable rate instruments at June 30, 2017 was approximately 3.6%General Instruction H(2).

The senior secured credit facility's variable interest rate is based on a fixed rate of 2.25% plus LIBOR, with a zero percent minimum LIBOR for the $4.611 billion Tranche B 2024 Term Loan. A hypothetical increase in LIBOR by 1% point would increase our annual interest expense on all of our variable rate instruments by approximately $50 million as of June 30, 2017.

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At June 30, 2017, we had $6.1 billion of fixed rate debt bearing a weighted average interest rate of 5.5%. A decline in interest rates in the future will not generally benefit us with respect to the fixed rate debt due to the terms and conditions of the indentures relating to that debt that would require us to repurchase the debt at specified premiums if redeemed early. Indicated changes in interest rates are based on hypothetical movements and are not necessarily indicative of the actual results that may occur.

~~Foreign Currency Exchange Rate Risk~~

We conduct a portion of our business in currencies other than the U.S. dollar, the currency in which our Consolidated Financial Statements are reported. Accordingly, our operating results could be adversely affected by foreign currency exchange rate volatility relative to the U.S. dollar. Our European subsidiaries and certain Latin American subsidiaries use the local currency as their functional currency, as the majority of their revenue and purchases are transacted in their local currencies. Certain Latin American countries previously designated as highly inflationary economies use the U.S. dollar as their functional currency. Although we continue to evaluate strategies to mitigate risks related to the effect of fluctuations in currency exchange rates, we will likely recognize gains or losses from international transactions. Changes in foreign currency rates could adversely affect our operating results.

~~Future earnings and losses will be affected by actual fluctuations in interest rates and foreign currency rates.~~

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ITEM 4. CONTROLS AND PROCEDURES

~~(a)~~ Disclosure ~~controls~~Controls and ~~procedures.~~ ~~Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our~~Procedures

We maintain disclosure controls and procedures as(as defined in ~~Rules~~Rule 13a-15(e) ~~and 15d-15(e)~~promulgated under the Securities Exchange Act of 1934 ~~as amended~~ (the “Exchange Act”)~~, as of June 30, 2017. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective and are~~) designed to ~~ensure~~provide reasonable assurance that the information required to be disclosed by usthe Company in the reports ~~we file~~that it files or ~~submit~~submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the ~~Securities and Exchange Commission~~SEC’s rules and forms. ~~Disclosure controls and procedures~~These include ~~without limitation,~~ controls and procedures designed to ensure that this information ~~required to be disclosed by an issuer in reports it files or submits under the Exchange Act~~ is accumulated and communicated to ~~our~~the Company’s management, including ~~our principal executive officer~~its Chief Executive Officer and ~~principal financial officer,~~Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer, Glen F. Post, III, and our Chief Financial Officer, Sunit S. Patel, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2018. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, as of March 31, 2018, in providing reasonable assurance that the information required to be disclosed by us in this report was accumulated and communicated in the manner provided above.

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

Changes in Internal ~~controls.~~ ~~There~~Control Over Financial Reporting

Beginning January 1, 2018, we adopted Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the new accounting standard related to revenue recognition on our consolidated financial statements.

CenturyLink completed the acquisition of Level 3, Inc. on November 1, 2017. The Company is currently integrating policies, processes, people, technology, and operations of the combined Company. Management will continue to evaluate the Company's internal controls over financial reporting as it continues the integration of Level 3. Other than the internal controls related to the adoption of ASC606 referenced above there were no changes in ~~our~~the Company's internal control over financial reporting ~~identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15~~ that occurred during the ~~second~~first quarter of ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company's internal control over financial reporting.

Table of Contents

~~Part II - Other Information~~PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding legal proceedings in which we are involved, see Note 107 - Commitments, Contingencies and Other Items, to our unaudited ~~Consolidated Financial Statements~~consolidated financial statements included in this quarterly report on Form 10-Q.

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition or future results. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, ~~“Item 1A. Risk Factors” in~~Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016, which could materially affect~~2017. There have been no material changes to our ~~business, financial condition or future results. The risks described herein and in~~risk factors since our Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. The Risk Factors included in ourAnnual Report on Form 10-K for the year ended December 31, ~~2016 have not materially changed.~~2017.

Table of Contents

ITEM 6. EXHIBITS



(a)	Exhibits incorporated by reference are indicated in parentheses.
12	Statements re computation of ratios.
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from the Quarterly Report on Form 10-Q of Level 3 ~~Communications, Inc.~~Parent, LLC for the quarter ended ~~June 30, 2017,~~March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Statements of ~~Income,~~Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Member's/Stockholders' Equity and ~~(v)~~(vi) Notes to ~~Unaudited~~ Consolidated Financial Statements.

Table of Contents

~~SIGNATURES~~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.~~authorized on May 10, 2018.



			LEVEL 3 PARENT, LLC
		~~LEVEL 3 COMMUNICATIONS, INC.~~


~~Dated:~~	~~August 4, 2017~~	/s/ Eric J. Mortensen
		Eric J. Mortensen
		Senior Vice President - Interim Controller ~~and~~
		(Principal Accounting ~~Officer~~Officer)

4950



	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in millions, except per share data)	2017			2016			2017			2016

Revenue	$	2,061		$	2,056		$	4,109		$	4,107
Costs and Expenses:
Network access costs	675			676			1,366			1,370
Network related expenses	337			339			673			677
Depreciation and amortization	330			310			650			611
Selling, general and administrative expenses	366			357			730			713
Total Costs and Expenses	1,708			1,682			3,419			3,371
Operating Income	353			374			690			736
Other Income (Expense):
Interest income	3			1			5			2
Interest expense	(132		)	(140		)	(266		)	(275		)
Loss on modification and extinguishment of debt	—			(40		)	(44		)	(40		)
Other, net	(1		)	(5		)	3			(15		)
Total Other Expense	(130		)	(184		)	(302		)	(328		)
Income Before Income Taxes	223			190			388			408
Income Tax Expense	(69		)	(34		)	(139		)	(124		)
Net Income	$	154		$	156		$	249		$	284

Basic Earnings per Common Share
Net Income Per Share	$	0.42		$	0.44		$	0.69		$	0.79
Weighted-Average Shares Outstanding (in thousands)	362,385			357,924			361,942			357,355

Diluted Earnings per Common Share
Net Income Per Share	$	0.42		$	0.43		$	0.68		$	0.79
Weighted-Average Shares Outstanding (in thousands)	365,002			361,250			364,569			360,804



Supplemental Disclosure of Cash Flow Information:
Cash interest paid	$	282	$	245
Income taxes paid, net of refunds	$	32	$	18



	Gross Carrying Amount		Accumulated Amortization			Net
June 30, 2017
Finite-Lived Intangible Assets:
Customer Contracts and Relationships	$	1,973	$	(1,205	)	$	768
Trademarks	55		(55		)	—
Patents and Developed Technology	227		(201		)	26
	2,255		(1,461		)	794
Indefinite-Lived Intangible Assets:
Trade Name	15		—			15
	$	2,270	$	(1,461	)	$	809
December 31, 2016
Finite-Lived Intangible Assets:
Customer Contracts and Relationships	$	1,973	$	(1,113	)	$	860
Trademarks	55		(55		)	—
Patents and Developed Technology	229		(189		)	40
	2,257		(1,357		)	900
Indefinite-Lived Intangible Assets:
Trade Name	15		—			15
	$	2,272	$	(1,357	)	$	915



2017 (remaining six months)	$	95
2018	190
2019	179
2020	166
2021	143
2022	21
Thereafter	—
	$	794



					Fair Value Measurement Using
	Total Carrying Value in Consolidated Balance Sheets				Unadjusted Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)
(dollars in millions)	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Liabilities Not Recorded at Fair Value in the Financial Statements:
Long-term Debt, including the current portion:
Term Loans	$	4,569	$	4,566	$	4,622	$	4,671	$	—	$	—
Senior Notes	6,140		6,135		6,436		6,283		—		—
Capital Leases and Other	181		183		—		—		181		183
Total Long-term Debt, including the current portion	$	10,890	$	10,884	$	11,058	$	10,954	$	181	$	183



	Date of				June 30, 2017			December 31, 2016
	Issuance/Amendment	Maturity	Interest Payments	Interest Rate	Amount			Amount
Senior Secured Term Loans:
Borrowed by Level 3 Financing, Inc.
Tranche B-III 2019 Term Loan ⁽¹⁾⁽⁴⁾	Aug 2013	—	Quarterly	LIBOR +3.00%	$	—		$	815
Tranche B 2020 Term Loan ⁽¹⁾⁽⁴⁾	Oct 2013	—	Quarterly	LIBOR +3.00%	—			1,796
Tranche B-II 2022 Term Loan⁽¹⁾⁽⁴⁾	May 2015	—	Quarterly	LIBOR +2.75%	—			2,000
Tranche B 2024 Term Loan ⁽¹⁾⁽⁴⁾	Feb 2017	Feb 2024	Quarterly	LIBOR +2.25%	4,611			—
Senior Notes:
Issued by Level 3 Financing, Inc.
Floating Rate Senior Notes due 2018 ⁽²⁾⁽⁴⁾	Nov 2013	Jan 2018	May/Nov	6-Month LIBOR +3.50%	300			300
6.125% Senior Notes due 2021 ⁽²⁾	Nov 2013	Jan 2021	Apr/Oct	6.125%	640			640
5.375% Senior Notes due 2022⁽²⁾	Aug 2014	Aug 2022	May/Nov	5.375%	1,000			1,000
5.625% Senior Notes due 2023 ⁽²⁾	Jan 2015	Feb 2023	Jun/Dec	5.625%	500			500
5.125% Senior Notes due 2023⁽²⁾	Apr 2015	May 2023	Mar/Sept	5.125%	700			700
5.375% Senior Notes due 2025 ⁽²⁾	Apr 2015	May 2025	Mar/Sept	5.375%	800			800
5.375% Senior Notes due 2024 ⁽²⁾	Nov 2015	Jan 2024	Jan/Jul	5.375%	900			900
5.25% Senior Notes due 2026 ⁽²⁾	Mar 2016	Mar 2026	Apr/Oct	5.250%	775			775
Issued by Level 3 Communications, Inc.
5.75% Senior Notes due 2022⁽³⁾	Dec 2014	Dec 2022	Mar/Sept	5.750%	600			600
Capital Leases and Other Debt					181			183
Total Debt Obligations					11,007			11,009
Unamortized discounts					—			(13		)
Unamortized debt issuance costs					(117		)	(112		)
Current Portion					(306		)	(7		)
Total Long-Term Debt					$	10,584		$	10,877



(dollars in millions)	Net Foreign Currency Translation Adjustment			Defined Benefit Pension Plans			Total
Balance at December 31, 2015	$	(273	)	$	(28	)	$	(301	)
Other comprehensive income (loss) before reclassifications, net of tax	24			(1		)	23
Amounts reclassified from accumulated other comprehensive loss	—			—			—
Balance at June 30, 2016	$	(249	)	$	(29	)	$	(278	)



	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
Outperform Stock Appreciation Rights	$	—	$	1		$	—	$	2
Restricted Stock Units	28		13			56		34
Performance Restricted Stock Units	3		10			12		24
401(k) Match Expense	8		8			19		19
	39		32			87		79
Capitalized Non-Cash Comp	—		(1		)	—		(1		)
Total	$	39	$	31		$	87	$	78



	North America		EMEA		Latin America		Total
Balance at December 31, 2016	$	7,024	$	109	$	596	$	7,729
Effect of foreign currency rate change	—		8		—		8
Balance at June 30, 2017	$	7,024	$	117	$	596	$	7,737



	Level 3 Communications, Inc.			Level 3 Financing, Inc.			Level 3 Communications, LLC			Other Non-Guarantor Subsidiaries			Eliminations			Total
	(dollars in millions)
Revenue	$	—		$	—		$	933		$	1,174		$	(46	)	$	2,061
Costs and Expense:
Network Access Costs	—			—			339			382			(46		)	675
Network Related Expenses	—			—			246			91			—			337
Depreciation and Amortization	—			—			109			221			—			330
Selling, General and Administrative Expenses	1			1			294			70			—			366
Total Costs and Expenses	1			1			988			764			(46		)	1,708
Operating Income (Loss)	(1		)	(1		)	(55		)	410			—			353
Other Income (Expense):
Interest income	—			—			3			—			—			3
Interest expense	(9		)	(117		)	(1		)	(5		)	—			(132		)
Interest income (expense) affiliates, net	378			567			(868		)	(77		)	—			—
Equity in net earnings (losses) of subsidiaries	(216		)	(632		)	200			—			648			—
Other, net	—			—			(1		)	—			—			(1		)
Total Other Income (Expense)	153			(182		)	(667		)	(82		)	648			(130		)
Income (Loss) before Income Taxes	152			(183		)	(722		)	328			648			223
Income Tax Benefit (Expense)	2			(33		)	(1		)	(37		)	—			(69		)
Net Income (Loss)	154			(216		)	(723		)	291			648			154
Other Comprehensive Income (Loss), Net of Income Taxes	41			—			—			41			(41		)	41
Comprehensive Income (Loss)	$	195		$	(216	)	$	(723	)	$	332		$	607		$	195