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 March 31, ~~2018~~2019



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 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~~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. Yesx Noo

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 xo		Accelerated filero

Non-accelerated filerox		Smaller reporting companyo
~~(Do not check if a smaller reporting company)~~
		Emerging growth companyo
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

Nox

All of the limited liability company interest in the registrant is held by an affiliate of the registrant. None of the interest is publicly traded.

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TABLE OF CONTENTS




Part I	Financial Information:
	Special Note Regarding Forward-Looking Statements	3
Item 1.	Financial Statements	6
	Consolidated Statements of Operations (Unaudited)	6
	Consolidated Statements of Comprehensive (Loss) Income (Unaudited)	7
	Consolidated Balance Sheets (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	9
	Consolidated Statements of Member's/Stockholders' Equity (Unaudited)	10
	Notes to ~~Unaudited~~ Consolidated Financial Statements (Unaudited)*	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3735
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4642
Item 4.	Controls and Procedures	4743
Part II	Other ~~Information:~~Information
Item 1.	Legal Proceedings	4844
Item 1A.	Risk Factors	4844
Item 6.	Exhibits	4945
~~Signatures~~Signature		5046
~~Certifications~~
* All references to "Notes" in this quarterly report refer to these ~~notes~~Notes to ~~consolidated financial statements.~~ Consolidated Financial Statements.

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~~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~~This report and other documents filed by us under the federal securities law include, and future oral or written statements ~~other than~~or press releases by us and our management may include, forward-looking statements ~~of historical fact contained in this Quarterly Report on Form 10-Q~~about our business, financial condition, operating results and prospects. These "forward-looking" statements are ~~“forward-looking” statements, as~~ defined by, ~~(and~~and are subject to the ~~“safe harbor”~~"safe harbor" protections ~~under)~~under, the federal securities laws. ~~When used herein,~~These statements include, among others:

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

statements concerning the anticipated impact of our transactions, investments, product development and other initiatives;

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

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

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

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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 and services 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~~our key operating imperatives, including simplifying and consolidating our network, simplifying and automating our service support systems and strengthening our relationships with customers and attaining projected cost ~~savings, to use Level 3's net operating loss carryforwards in the amounts projected, to retain key personnel and to avoid unanticipated integration disruptions;~~savings;

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

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

our ability to avoid unanticipated integration disruptions;

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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data transmission services;

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

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

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~~maintain satisfactory relations with our ~~pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations;~~workforce;

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

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

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

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

our ability to collect our receivables from financially troubled customers;

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

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any adverse developments in legal or regulatory proceedings involving ~~us;~~us or our affiliates, including CenturyLink;

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

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

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

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

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

other risks ~~identified~~referenced in ~~our~~ "Risk Factors" ~~disclosures included~~in Item 1A or elsewhere in our annual report on Form 10-K ~~for~~or other of our filings with the ~~year ended December 31, 2017.~~

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SEC.

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

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PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

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



	Three Months Ended			Three Months Ended
	March 31, 2019			March 31, 2018
	(Dollars in millions)
OPERATING REVENUE
Operating revenue	$	1,991		2,062
Operating revenue - affiliates	55			25
Total operating revenue	2,046			2,087
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	967			998
Selling, general and administrative	328			344
Operating expenses - affiliates	46			53
Depreciation and amortization	390			431
Goodwill impairment	3,708			—
Total operating expenses	5,439			1,826
OPERATING (LOSS) INCOME	(3,393		)	261
OTHER INCOME (EXPENSE)
Interest income - affiliate	16			16
Interest expense	(131		)	(120	)
Other income, net	12			7
Total other income (expense), net	(103		)	(97	)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE	(3,496		)	164
Income tax expense	89			102
NET (LOSS) INCOME	$	(3,585	)	62

See accompanying notes to ~~unaudited~~ consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

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



	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
	(Dollars in millions)
NET (LOSS) INCOME	$	(3,585	)	62
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment, net of ($1) and ($14) tax	3			72
Other comprehensive income, net of tax	3			72
COMPREHENSIVE (LOSS) INCOME	$	(3,582	)	134

See accompanying notes to ~~unaudited~~ consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED BALANCE SHEETS

~~(UNAUDITED)~~


	Successor		Successor
	March 31,		December 31,	March 31, 2019			December 31, 2018
	2018		2017	(Unaudited)
	(Dollars in millions)			(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	259	297	$	217		243
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
Restricted cash				2			4
Accounts receivable, less allowance of $17 and $11				699			712
Note receivable - affiliate	1,825		1,825	1,825			1,825
Other	183		117	282			234
Total current assets	3,141		3,145	3,025			3,018
Property, plant and equipment, net of accumulated depreciation of $380 and $143, respectively	9,542		9,412
Restricted cash and securities	29		29
Property, plant and equipment, net of accumulated depreciation of $1,214 and $1,021				9,487			9,453
GOODWILL AND OTHER ASSETS
Goodwill	11,141		10,837	7,412			11,119
Operating lease assets				1,246			—
Restricted cash				25			25
Customer relationships, net	8,206		8,845	7,398			7,567
Other intangibles, net	390		378
Deferred tax assets	458		426
Other intangible assets, net				422			410
Other, net	96		63	657			699
Total goodwill and other assets	20,291		20,549	17,160			19,820
TOTAL ASSETS	$	33,003	33,135	$	29,672		32,291
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	9	8	$	7		6
Accounts payable	678		695	654			726
Accounts payable - affiliate	95		41
Accounts payable - affiliates				365			246
Accrued expenses and other liabilities
Salaries and benefits				151			233
Income and other taxes	87		100	105			130
Salary and benefits	163		136
Current operating lease liabilities				324			—
Interest	95		109	94			95
Other				62			78
Current portion of deferred revenue	273		258	310			310
Current portion of deferred revenue - affiliate	2		2
Other	67		57
Total current liabilities	1,469		1,406	2,072			1,824
LONG-TERM DEBT	10,872		10,882	10,828			10,838
DEFERRED CREDITS AND OTHER LIABILITIES
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	1,106		1,093	1,175			1,181
Deferred revenue - affiliate	6		6
Deferred tax liability	209		212
Deferred income taxes, net				253			202
Noncurrent operating lease liabilities				969			—
Other	321		264	305			369
Total deferred credits and other liabilities	1,642		1,575
COMMITMENTS AND CONTINGENCIES
Total deferred revenue and other liabilities				2,702			1,752
COMMITMENTS AND CONTINGENCIES (Note 9)
MEMBER'S EQUITY
Member's equity	18,924		19,254	14,238			18,048
Accumulated other comprehensive income	96		18
Accumulated other comprehensive loss				(168		)	(171	)
Total member's equity	19,020		19,272	14,070			17,877
Total liabilities and member's equity	33,003		33,135
TOTAL LIABILITIES AND MEMBER'S EQUITY				$	29,672		32,291

See accompanying notes to ~~unaudited~~ consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
	(Dollars in millions)
OPERATING ACTIVITIES
Net (loss) income	$	(3,585	)	62
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	390			431
Impairment of goodwill	3,708			—
Deferred income taxes	79			104
Changes in current assets and liabilities:
Accounts receivable	4			21
Accounts payable	(48		)	(18	)
Other assets and liabilities, net	(161		)	(50	)
Other assets and liabilities, affiliate	119			37
Changes in other noncurrent assets and liabilities, net	(23		)	(25	)
Other, net	—			9
Net cash provided by operating activities	483			571
INVESTING ACTIVITIES
Capital expenditures	(285		)	(252	)
Proceeds from sale of property, plant and equipment and other assets	—			1
Deposits received on assets held for sale	—			34
Net cash used in investing activities	(285		)	(217	)
FINANCING ACTIVITIES
Distributions	(225		)	(390	)
Other	(1		)	(2	)
Net cash used in financing activities	(226		)	(392	)
Net decrease in cash, cash equivalents and restricted cash	(28		)	(38	)
Cash, cash equivalents and restricted cash at beginning of period	272			331
Cash, cash equivalents and restricted cash at end of period	$	244		293

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 cash flow information:
Supplemental cash flow information
Income taxes paid, net				$	7	8
Interest paid	$	129	153	139		129
Income taxes paid, net	8		10

See accompanying notes to ~~unaudited~~ consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF ~~MEMBER'S/STOCKHOLDERS'~~MEMBER'S EQUITY

(UNAUDITED)


	Successor			Predecessor
	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017		Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
	(Dollars in millions)					(Dollars in millions)
MEMBER'S EQUITY
Balance at beginning of period	$	19,254		—		$	18,048		19,254
Net (loss) income						(3,585		)	62
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $- tax						—			9
Cumulative effect of 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	)
Distributions	(390		)	—		(225		)	(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			—		14,238			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
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance at beginning of period	18			(387	)	(171		)	18
Other comprehensive income	72			21		3			72
Adoption of ASU 2018-02, Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	6			—
Cumulative effect of 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	)	(168		)	96
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
TOTAL MEMBER'S EQUITY						$	14,070		19,020

See accompanying notes to ~~unaudited~~ consolidated financial statements.

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LEVEL 3 PARENT, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Background

General

We are aan international facilities-based communications provider (that is, a provider that owns or leases a substantial portion of the property, plant 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, effectiveEffective November 1, 2017, we were acquired by CenturyLink in a cash and stock transaction, including the assumption of our debt (the "CenturyLink Merger"). ~~See Note 2 - CenturyLink Merger.~~

Basis of Presentation

~~On November 1, 2017, we became a wholly owned subsidiary~~Our consolidated balance sheet as of ~~CenturyLink. On the date of the acquisition,~~December 31, 2018, which was derived from our ~~assets and liabilities were recognized at CenturyLink's preliminary estimates of fair value. This revaluation has been reflected in our~~audited consolidated financial statements, and ~~therefore, has resulted~~our unaudited interim consolidated financial statements provided herein have been prepared in ~~a new basis~~accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of ~~accounting~~America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"); however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the ~~successor period beginning on November 1, 2017. This new basis~~interim periods. The consolidated results of ~~accounting means~~operations and cash flows for the first three months of the year are not necessarily indicative of the consolidated results of operations and cash flows that ~~our~~might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the ~~successor periods are not comparable to our previously reported financial statements, including the predecessor period financial statements in this report.~~year ended December 31, 2018.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which we have a controlling interest. ~~All significant intercompany accounts~~Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (CenturyLink and its other subsidiaries, referred to herein as affiliates) have not been 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 first quarter of ~~2018.~~2019.

In conjunction with our acquisition on November 1, 2017, we changed the definitions we use to classify expenses as cost of services and products and selling, general and administrative, and as a result, weWe reclassified ~~previously reported~~certain prior period amounts to conform to the current period ~~presentation. We revised~~presentation, including the categorization of 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 the reclassification of $24 million from depreciation and amortization to cost of services and productsrevenue for ~~the predecessor~~ three months ended March 31, ~~2017. Although we continued as a surviving corporation~~2019 and legal entity after the acquisition, the accompanying consolidated statements of operations, comprehensive income, member's/stockholders' equity and cash flows are presented for two periods: predecessor and successor, which relates to the period preceding the acquisition and the period succeeding the acquisition. Our current definitions are as follows:

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2018.

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.Segments

~~Selling, general~~Our operations are integrated into and ~~administrative expenses are expenses incurred~~reported as part of CenturyLink. CenturyLink's chief operating decision maker ("CODM") is our CODM but reviews our financial information on an aggregate basis only in ~~selling products~~connection with our quarterly and ~~services to our customers, corporate overhead~~annual reports that we file with the Securities 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 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,~~Exchange Commission. Consequently, we do not ~~expect this one-time tax~~provide our discrete financial information to ~~materially impact us, but~~the CODM on a regular basis. As such, we ~~cannot provide any assurance that upon completion of the analysis the amount will not be material.~~have one reportable segment.

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 Adopted Accounting Pronouncements

~~In the first quarter or 2018, we~~

We adopted Accounting Standards Update ~~(“ASU”~~("ASU") ~~2014-09, “Revenue from Contracts with Customers”~~2016-02, Leases (Accounting Standard Codification "ASC" 842), as of January 1, 2019, using the non-comparative transition option pursuant to ASU ~~2016-16, “Intra-Entity Transfers~~2018-11. Therefore, we have not restated comparative period financial information for the effects of ~~Assets Other Than Inventory”,~~ASC 842, and ~~ASU 2018 - 02, “Income Statement-Reporting Comprehensive Income: Reclassification~~we will not make the new required lease disclosures for comparative periods beginning before January 1, 2019. Instead, we will recognize ASC 842's cumulative effect transition adjustment (discussed below) as of ~~Certain Tax Effects from Accumulated Other Comprehensive Income”.~~January 1, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things (i) allowed us to carry forward the historical lease classification; (ii) did not require us to reassess whether any expired or existing contracts are or contain leases under the new definition of a lease; and (iii) did not require us to reassess whether previously capitalized initial direct costs for any existing leases would qualify for capitalization under ASC 842. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. We did not elect the hindsight practical expedient regarding the likelihood of exercising a lessee purchase option or assessing any impairment of right-of-use assets for existing leases.

~~Each of these is described further below.~~

~~Revenue Recognition~~

On ~~May 28, 2014,~~March 5, 2019, the FASB issued ASU ~~2014-09 which replaces virtually all~~2019-01 - Leases (ASC 842): Codification Improvements, effective for public companies for fiscal years beginning after December 15, 2019. The new ASU aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in ASC 842, with that of existing ~~generally accepted accounting principles on revenue recognition~~guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and ~~replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle~~when the lease commences, the definition of fair value (in ASC 820, Fair Value Measurement) should be applied. More importantly, the ASU ~~2014-09 is that an entity should recognize revenue~~also exempts both lessees and lessors from having to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs.

~~ASU 2014-09 may be adopted by applying the provisions of this standard on a retrospective basis to the periods included~~provide certain interim disclosures in the ~~financial statements or~~fiscal year in which a company adopts the new leases standard. Early adoption permits public companies to adopt concurrent with the transition to ASC 842 on ~~a modified retrospective basis which would result~~leases. We adopted ASU 2019-01 as of January 1, 2019.

Adoption of the new standard resulted in the ~~recognition~~recording of ~~a cumulative effect~~operating lease assets and operating lease liabilities of ~~adopting ASU 2014-09~~approximately $1.3 billion and $1.4 billion, respectively, as of January 1, 2019. The standard did not materially impact our consolidated net earnings in the first quarter of ~~2018. We adopted the new revenue recognition standard under the modified retrospective transition method.~~2019 and had no impact on cash flows.

Upon adoption, we are deferring (i.e. capitalizing) incremental contract acquisition costs and are recognizing (i.e. amortizing) them over the term of the initial contract and anticipated renewal contracts to which the costs relate. Our deferred contract costs for our customers have average amortization periods of 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 material obligations to our customers in our indefeasible right of use arrangements, including certain long-term prepaid customer capacity arrangements, which are accounted for as operating leases and service contracts. As our service contracts contain a significant financing component that are not separately accounted for, we are required to estimate and record incremental revenue and interest cost associated with these contractual terms. 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~~Recently Issued 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 recognize and measure leases at the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply.

On January 25, 2018, the FASB issued ASU 2018-01, “Leases: Land Easement Practical Expedient for Transition to ASU 2016-02. ASU 2018-01permits the election of an optional transition practical expedient to not evaluate land easements that exist or 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 adopt ASU 2016-02.

We are in the process of implementing a new lease administrative and accounting system. We plan to adopt the standard when it becomes effective for us beginning January 1, 2019 and the adoption of the 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

In June ~~16,~~ 2016, the FASB issued ASU 2016-13, ~~"Measurement~~"Measurement of Credit Losses on Financial ~~Instruments"~~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~~no later than January 1, 2020. We expect to adopt ASU 2016-13 on January 1, 2020 ~~but could elect to early adopt the provisions as of January 1, 2019. We expect to~~and recognize the impacts ~~of adopting ASU 2016-13~~ through a cumulative adjustment to retained earnings as of the date of adoption.

Subsequent Event

As of the date of this report, ~~we have not yet determined~~$90 million of distributions were made to our parent in 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 valuesecond quarter 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.2019.

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 determined if we will elect to early adopt the provisions of ASU 2017-04. The provisions of ASU 2017-04 would not have affected our last goodwill impairment assessment, but no assurance can be provided that the simplified testing methodology will not affect our goodwill impairment assessment in the future.

~~(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, 2017 of $18.99;

the cash consideration of $26.50 per share on the 362.2 million common shares of Level 3 issued and outstanding as of October 31, 2017, and the cash consideration of $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~~

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~~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 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 may be prepaid by CenturyLink at any time.

The U.S. Department of 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 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.

Our results of operations have been included in the consolidated results of 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 “successor period” beginning on November 1, 2017. This new basis of accounting means that our financial statements for the successor periods will not be comparable to our previously reported financial statements, including the financial statements in this report.

Based solely on CenturyLink’s preliminary estimates, the aggregate consideration exceeds the aggregate estimated fair value of the acquired assets and assumed liabilities by $11.141 billion, which we have recognized as goodwill. The goodwill is attributable to strategic benefits, including enhanced financial and operational scale, market diversification and leveraged combined networks that CenturyLink expects to realize.

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~~The following is our updated assignment of the preliminary estimated aggregate consideration:~~

Adjusted November 1, 2017 Balance as of December 31, 2017
Purchase Price Adjustments⁽³⁾
Adjusted November 1, 2017 Balance as of 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

(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 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	March 31, 2019		December 31, 2018
	(Dollars in millions)			(Dollars in millions)
Goodwill	$	11,141	10,837	$	7,412	11,119
Customer relationships, less accumulated amortization of $300 and $126	8,206		8,845
Customer relationships, less accumulated amortization of $1,006 and $833				$	7,398	7,567
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
Trade names, less accumulated amortization of $37 and $30				93		100
Developed technology, less accumulated amortization of $84 and $67				329		310
Total other intangible assets, net	$	390	378	$	422	410

Our goodwill ~~balance at December~~was derived from CenturyLink's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We are required to perform an impairment test related to our goodwill annually, which we perform as of October 31, ~~2017 includes $16 million~~or sooner if an indicator of ~~goodwill that was allocated~~impairment occurs. Due to ~~us from CenturyLink associated with differences~~the decline in CenturyLink's stock price, we incurred an event in the ~~deferred state income taxes~~first quarter of 2019 that ~~CenturyLink expects~~triggered impairment testing. Due to ~~realize due~~this impairment indicator, we evaluated our goodwill as of March 31, 2019.

When we performed our October 31, 2018 annual impairment test, we estimated the fair value of equity by considering both a market approach and a discounted cash flow method. The market approach method includes the use of multiples of publicly traded companies whose services are comparable to ~~its consolidation~~ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows beyond the cash flows from the discrete projection period. Because CenturyLink's low stock price was a trigger for impairment testing, we estimated the fair value of our operations using only the market approach as of March 31, 2019. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple within this range. For the three months ended March 31, 2019, based on our assessments performed as described above, we concluded that the estimated fair value was less than our carrying value of equity as of the date of our triggering event during the first quarter. As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge of $3.7 billion for the three months ended March 31, 2019.

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

Total amortization expense for intangible assets for the ~~successor~~ three months ended March 31, 2019 and 2018 ~~and the predecessor three months ended March 31, 2017~~ was ~~$194~~$193 million and ~~$52~~$194 million, respectively. As of ~~the successor date of~~ March 31, ~~2018,~~2019, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was ~~$20~~$16.4 billion. As

Table of March 31, 2018, the weighted average remaining useful lives of our finite-lived intangible assets was 11.6 years in total; 11.9 years for customer contracts and relationships, 4.6 years for trade names, and 4.6 years for developed technology.Contents

We estimate that total amortization expense for intangible assets for the ~~successor~~ years ending December 31, ~~2018~~2019 through ~~2022~~2023 will be as follows:


	(Dollars in millions)		(Dollars in millions)
2018 (remaining nine months)	$	599
2019	799
2019 (remaining nine months)			$	599
2020	799		800
2021	799		800
2022	787		796
2023			766

The following table shows the rollforward of goodwill from December 31, 2018 through March 31, 2019:



	(Dollars in millions)
As of December 31, 2018	$	11,119
Effect of foreign currency rate change	1
Impairment	(3,708		)
As of March 31, 2019	$	7,412

(3) Revenue Recognition

Refer to the Revenue Recognition section of Note 1—Background and Summary of Significant Accounting Policies and Note 4—Revenue Recognition in our annual report on Form 10-K for the year ended December 31, 2018 for further information regarding our application of ASC 606, “Revenue from Contracts with Customers”, including practical expedients and judgments applied in determining the amounts and timing of revenue from contracts with customers.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following table provides the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards:



	Three Months Ended
	March 31, 2019			March 31, 2018
	(Dollars in millions)
Total revenue	$	2,046		2,087
Adjustments for non-ASC 606 revenue ⁽¹⁾	(50		)	(44	)
Total revenue from contracts with customers	$	1,996		2,043

_____________________________________________________________________


⁽¹⁾	Includes sublease rental income and revenue from fiber capacity lease arrangements which are not within the scope of ASC 606.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of March 31, 2019 and January 1, 2019:



	March 31, 2019		December 31, 2018
	(Dollars in millions)
Customer receivables ⁽¹⁾	$	699	712
Contract assets	18		19
Contract liabilities	399		393


(1)	Gross customer receivables of $716 and $723 million, net of allowance for doubtful accounts of $17 and $11 million, at March 31, 2019 and December 31, 2018, respectively.

Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which ranges from one to seven years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets.

The following table provides information about revenue recognized for the three months ended March 31, 2019 and 2018:



	Three Months Ended
	March 31, 2019		March 31, 2018
	(Dollars in millions)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period (January 1, 2019 and 2018, respectively)	$	95	97
Performance obligations satisfied in previous periods	—		—

Performance Obligations

As of March 31, 2019, 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 $5.0 billion. We expect to recognize approximately 75% of this revenue through 2021, with the balance recognized thereafter.

We do not disclose the value of unsatisfied performance obligations for contracts for which we are contractually entitled to bill pre-determined amounts for future services (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 following table provides changes in our contract acquisition costs and fulfillment costs:



	Three Months Ended March 31, 2019					Three Months Ended March 31, 2018
	(Dollars in millions)
	Acquisition Costs			Fulfillment Costs		Acquisition Costs		Fulfillment Costs
Beginning of period balance	$	64		84		13		14
Costs incurred	18			26		15		23
Amortization	(8		)	(13	)	(2	)	(2	)
End of period balance	$	74		97		26		35

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

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average expected contract term of 12 to 60 months for our business customers and amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are expected to be amortized in the next twelve months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond the next twelve months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.

(4) Leases

Effective January 1, 2019, we adopted ASC 842 using the non-comparative transition option of applying the new standard at the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard. This allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of additional net operating lease assets and operating lease liabilities of approximately $1.3 billion and $1.4 billion, respectively, as of January 1, 2019. Additionally, the new standard resulted in the recording of approximately $30 million for both net lease assets and net lease liabilities with affiliates as of January 1, 2019, which are included in the lease balances. Financial position for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance.

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

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

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

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Lease expense consisted of the following:



	Three Months Ended March 31, 2019
	(Dollars in millions)
Operating and short-term lease cost	$	104
Finance lease cost:
Amortization of right-of-use assets	3
Interest on lease liability	3
Total finance lease cost	6
Total lease cost	$	110

Table of Contents

Supplemental unaudited consolidated balance sheet information and other information related to leases:



		March 31,
Leases (millions)	Classification on the Balance Sheet	2019
Assets
Operating lease assets	Operating lease assets	$	1,246
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	154
Total leased assets		$	1,400

Liabilities
Current
Operating	Other current liabilities	$	324
Finance	Current portion of long-term debt	7
Noncurrent
Operating	Noncurrent operating lease liabilities	969
Finance	Long-term debt	155
Total lease liabilities		$	1,455

Weighted-average remaining lease term (years)
Operating leases		9.0
Finance leases		13.9
Weighted-average discount rate
Operating leases		6.56		%
Finance leases		5.68		%

Supplemental unaudited consolidated cash flow statement information related to leases:



	Three Months Ended March 31, 2019
	(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	110
Operating cash flows from finance leases	2
Financing cash flows from finance leases	1

Table of Contents

As of March 31, 2019, maturities of lease liabilities were as follows:



	Operating Leases			Finance Leases
	(Dollars in millions)
2019 (remaining nine months)	$	269		12
2020	285			15
2021	244			16
2022	188			16
2023	155			17
Thereafter	590			164
Total lease payments	1,731			240
Less: interest	(438		)	(78	)
Total	1,293			162
Less: current portion	(324		)	(7	)
Long-term portion	$	969		155

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

For the three months ended March 31, 2019 and 2018, our gross rental income was $50 million and $43 million, respectively.

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

The future annual minimum payments under capital lease agreements as of December 31, 2018 were as follows:



	Future Minimum Payments
	(Dollars in millions)
Capital lease obligations:
2019	$	16
2020	15
2021	16
2022	16
2023	17
2024 and thereafter	164
Total minimum payments	244
Less: amount representing interest and executory costs	(81		)
Present value of minimum payments	163
Less: current portion	(6		)
Long-term portion	$	157

Table of Contents

At December 31, 2018, our future rental commitments for operating leases were as follows:



	Operating Leases
	(Dollars in millions)
2019	$	396
2020	259
2021	219
2022	164
2023	137
2024 and thereafter	613
Total future minimum payments ⁽¹⁾	$	1,788


(1)	Minimum payments have not been reduced by minimum sublease rentals of $29 million due in the future under non-cancelable subleases.

(5) Long-Term Debt

The following table summarizes our long-term debt:


	Interest Rates	Maturities	March 31, 2018			December 31, 2017			Interest Rates	Maturities	March 31, 2019			December 31, 2018
			(Dollars in millions)								(Dollars in millions)
Level 3 Parent, LLC
Senior notes⁽¹⁾	5.750%	2022	$	600		600			5.750%	2022	$	600		600
Subsidiaries
Level 3 Financing, Inc.
Senior notes⁽²⁾	5.125% - 6.125%	2021 - 2026	5,315			5,315			5.125%-6.125%	2021 - 2026	5,315			5,315
Term loan⁽³⁾	LIBOR + 2.25%	2024	4,611			4,611			LIBOR + 2.25%	2024	4,611			4,611
Capital Leases	Various	Various	177			179
Finance leases									Various	Various	162			163
Total long-term debt, excluding unamortized premiums			10,703			10,705					10,688			10,689
Unamortized premiums, net			178			185					147			155
Total long-term debt			10,881			10,890					10,835			10,844
Less current maturities			(9		)	(8		)			(7		)	(6	)
Long-term debt, excluding current maturities			$	10,872		$	10,882				$	10,828		10,838

⁽¹⁾The notes are not guaranteed by any of Level 3 Parent, LLC's subsidiaries.

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

⁽³⁾ The Tranche B 2024 Term Loan is a secured obligation and is guaranteed by Level 3 Parent, LLC and certain other subsidiaries. The Tranche B 2024 Term Loan had an interest rate of ~~4.111%~~4.736% as of March 31, ~~2018~~2019 and ~~3.557%~~4.754% as of December 31, ~~2017.~~2018. The interest rate on the Tranche B 2024 Term Loan is set with a minimum ~~LIBOR~~London Interbank Offered Rate ("LIBOR") of zero percent.

~~Capital Leases~~

AsAggregate Maturities of March 31, 2018, we had $177 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 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 charge~~of approximately $44 million for modification and extinguishment in the first quarter of 2017 related to this refinancing.~~

Long-Term Debt ~~Maturities~~

Set forth below is the aggregate principal amount of our long-term debt and ~~capital~~finance leases (excluding unamortized premiums) maturing during the following years:


	(Dollars in millions)		(Dollars in millions)⁽¹⁾
2018 (remaining nine months)	$	9
2019	8
2019 (remaining nine months)			$	5
2020	10		6
2021	651		648
2022	1,726		1,609
2023			1,209
2023 and thereafter	8,299		7,211
Total long-term debt	$	10,703	$	10,688

(1) Actual principal paid in any year may differ due to the possible future refinancing of outstanding debt or the issuance of new debt.

Covenants

The term loan and senior notes of Level 3 Parent, LLC and ~~term loan and senior notes of~~ Level 3 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.

Certain of 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 a single debt instrument.

Compliance

At March 31, ~~2018,~~2019, we believe we were in compliance with the financial covenants contained in ~~their respective~~our debt agreements in all material ~~debt agreements.~~respects.

Other

For additional information on our long-term debt, see Note 4—~~Long-Term~~5 - 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.~~2018.

~~(5) Revenue Recognition~~(6) Severance and Leased Real Estate

~~Level 3 earns revenue~~Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions result primarily from ~~contracts with customers, primarily~~the progression or completion of our post-acquisition integration plans, increased competitive pressures, cost reduction initiatives, process improvements through ~~the provision of telecommunications~~automation 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~~reduced workload demands due to the ~~performance obligations in the contract; and,~~

~~Recognition~~loss of ~~revenue when, or as, we satisfy a performance obligation.~~customers purchasing certain services.

We ~~provide an array~~have recognized liabilities to reflect our estimates of ~~communications~~the fair values of the existing lease obligations for real estate which we have ceased using, net of estimated sublease rentals. In accordance

with transitional guidance under the new lease standard (ASC 842), the existing lease obligation of $47 million as of January 1, 2019 has been netted against the operating lease right of use assets at adoption. For additional information, see Note 4—Leases to our consolidated financial statements in Item 1 of Part I of this report.

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



	Severance
	(Dollars in millions)
Balance at January 1, 2019	$	19
Accrued to expense	—
Payments, net	(4		)
Balance at March 31, 2019	$	15

(7) Products and Services Revenue

We categorize our products, services ~~including local voice, broadband, private line~~and revenue among the following five categories:

IP and Data Services, which include primarily VPN data networks, Ethernet, IP, video (including ~~special access), network access, Ethernet, information technology, video~~our CDN services and Vyvx broadcast services) and other ancillary ~~services. Our customers include global/international, enterprise, wholesale, government~~services;

Transport and ~~small and medium business customers. Certain contracts also include the sale of equipment,~~ Infrastructure,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.

~~Disaggregated Revenue by Service Offering~~

The following table provides disaggregation of 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 other ancillary revenues.~~

~~(2) Includes IT services and managed services revenues.~~

~~(3) Includes primarily broadband,~~includes private line (including business data services), wavelength, colocation and data ~~centers, wavelength~~center services, including cloud, hosting and application management solutions, professional services, network security services, dark fiber services and other ancillary ~~revenues.~~services;

~~(4) Includes~~

Voice and Collaboration, which includes primarily ~~VPN data network, Ethernet, IP, video~~TDM voice services, VOIP and other ancillary ~~revenues.~~services;

~~(5) Includes~~

Other, which includes sublease rental ~~income.~~income and information technology services and managed services, which may be purchased in conjunction with our other network services; and

~~(6) Includes telecommunications~~

Affiliate Services, we provide our affiliates with telecommunication services that we also provide to external customers.

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

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



	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
	(Dollars in millions)
IP and Data Services	$	979	1,003
Transport and Infrastructure	658		676
Voice and Collaboration	352		382
Other	2		1
Affiliate Services	55		25
Total operating revenue	$	2,046	2,087

We recognize revenue in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our ~~affiliates.~~

~~(7) Includes sublease rental income~~customers. Our consolidated statements of operations also reflect the offsetting expense for the amounts we remit to the government agencies. The total amount of such surcharges and transaction taxes that we included in revenue ~~from fiber capacity lease arrangements.~~aggregated $109 million and $107 million for

~~Customer Receivables and Contract Balances~~

~~The following table provides balances of customer receivables and contract liabilities as of 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 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:~~

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~~2019 and March 31, 2018, respectively. These USF surcharges, where we record revenue and transaction taxes, are assigned 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.

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~~categories based on 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 weunderlying revenue. We also act as a ~~principal in the~~collection agent for certain other USF and transaction ~~and control the goods or services used~~taxes that we are required by government agencies to ~~fulfill the performance obligation(s) associated with the transaction.~~

~~We have service level commitments pursuant to contracts with certain of~~bill 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~~customers, for which we ~~recognize~~do not record any revenue ~~at the amount to which~~or expense because 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 following table provides changes in our contract acquisition costs and fulfillment costs for the three months ended March 31, 2018:~~

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

~~Acquisition costs include commission fees paid to employees~~only act as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities. The amount of these capitalized costs that are anticipated to 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 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.pass-through agent.

Acquisition and fulfillment costs are amortized based on the transfer of services to which the assets relate to which typically range from 12 months to 60 months, and are included in cost of services and products and selling, general and administrative 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.

~~Comparative Results~~

~~The following tables present our reported results under ASC 606 and a reconciliation to results using the historical accounting method:~~

Three Months Ended 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)~~(8) Fair Value of Financial Instruments

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

As of 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

2 $ 10,704
10,435
10,711
10,528



		March 31, 2019			December 31, 2018
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities-Long-term debt, excluding finance lease and other obligations	2	$	10,673	10,503	10,681	10,089

~~(7)~~(9) Commitments, Contingencies and Other Items

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

Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for ~~such~~our litigation contingencies ~~aggregate~~at March 31, 2019 aggregated to ~~$92~~approximately $70 million and are included in “Other” current liabilities and “Other Liabilities” in our consolidated balance sheet ~~at March 31, 2018.~~as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued ~~would~~could have no effect on our results of operations but nonetheless could ~~materially adversely affect~~have an adverse effect on our cash ~~flows for the affected period.~~flows.

~~Table of Contents~~

~~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~~In this Note, when we refer to a particular matter. Below is a description of material legal proceedings and other contingencies pending at March 31, 2018. Although we believe we have accrued for these matters in accordance with the accounting guidance for contingencies, contingencies are inherently unpredictable andclass action as "putative" it is possible that results of operations or cash flows could be materially and adversely affected in any particular period by 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 are not expected to materially affect our financial condition or future results of operations beyond the amounts accrued.

~~Rights-of-Way Litigation~~

We 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 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 sought damages on theories of trespass, unjust enrichment and slander of title and property, as well as punitive damages. We 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 expected that, absent settlement of these actions, plaintiffs in the pending lawsuits would continue to seek certification of statewide or multi-state classes. The only lawsuit in whichbecause 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~~alleged, but not certified 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 and thereafter presented these proposed settlements to the applicable 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 the remaining action and intends to defend 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.

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matter.

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of our Peruvian subsidiaries asserting $26 million of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, we believe the total amount of exposure is ~~$14~~$10 million at March 31, ~~2018, and is accrued for on the consolidated balance sheet.~~2019.

We challenged the assessments via administrative and then judicial review processes. In October 2011, the highest administrative review tribunal (the "Tribunal") decided the central issue underlying the 2002 assessments in SUNAT's favor. We appealed the Tribunal's decision to the first judicial level, which decided the central issue in favor of Level 3. SUNAT and we filed cross-appeals with the court of appeal. In May 2017, the court of appeal issued a decision reversing the first judicial level. In June 2017, we filed

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an appeal of the decision to the Supreme Court of Justice, the final judicial level. ~~That appeal~~Oral argument was held before the Supreme Court of Justice in October 2018. A decision on this case is pending.

In October 2013, the Tribunal decided the central issue underlying the 2001 assessments in SUNAT’s favor. We appealed that decision to the first judicial level in Peru, which decided the central issue in favor of SUNAT. In June 2017, we filed an appeal with the court of appeal. In November 2017, the court of appeals issued a decision affirming the first judicial level and we filed an appeal of the decision to the Supreme Court of Justice. That appeal is pending.

~~Employee Severance and Contractor Termination Disputes~~

A number of former employees and third-party contractors have asserted a variety of claims in litigation against certain of 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' fees and statutorily mandated inflation adjustments) as a result of their separation from us or termination of service relationships. We are vigorously defending against the asserted claims, which aggregate to approximately $32 million at 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 certain assets (in the case of the December 2004, March 2009 and July 2014 assessments) and revenue from the provision of Internet access services (in the case of the April 2009 and July 2014 assessments), by treating such activities as the provision of communications services, to which the ICMS tax applies. In September 2002, July 2009 and May 2012, the Rio de Janeiro state tax authorities issued tax assessments to the same Brazilian subsidiary on similar issues.

We have filed objections to these assessments, arguing that the lease of assets and the provision of Internet access are not communication services subject to ICMS. The objections to the September 2002, December 2004 and March 2009 assessments were rejected by the respective state administrative courts, and we have appealed those decisions to the judicial courts. In October 2012 and June 2014, we received favorable rulings from the lower court on the December 2004 and March 2009 assessments regarding equipment leasing, but those rulings are subject to appeal by the state. No ruling has been obtained with respect to the September 2002 assessment. The objections to the April and July 2009 and May 2012 assessments are still pending final administrative decisions. The July 2014 assessment was confirmed during the fourth quarter of 2014 at the first administrative level, and we appealed this decision to the second administrative level.

We are vigorously contesting all such assessments in both states and, in particular, view the assessment of ICMS on revenue from equipment leasing to be without merit. These assessments, if upheld, could result in a loss of up to ~~$54~~$37 million at March 31, ~~2018~~2019 in excess of the accruals established for these matters.

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~~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.~~

~~Other Matters~~Qui Tam Action

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

The amended complaint alleges that 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 probable we will incur a material loss. If, contrary to our expectations, the ~~relator~~plaintiff prevails in this matter and proves damages at or near $50 million, and is successful in having those damages trebled, the outcome could have a material adverse effect on our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.

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Several people, including two former Level 3 employees, ~~named in the qui tam amended complaint and others~~ were ~~also~~ indicted in the United States District Court for the Eastern District of Virginia on October 3, 2017, and charged with, among other things, accepting kickbacks from a subcontractor, who was also indicted, for work to be performed under a prime government contract. Of the two former employees, one entered a plea agreement, and the other is deceased. We are fully cooperating in the 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 which are conditional commitments issued on our behalf in accordance with specified terms and conditions. As of both March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, we had outstanding letters of credit or other similar obligations of approximately ~~$36~~$30 million and $30 million, respectively, of which ~~$30~~$24 million and $24 million are collateralized by cash that is reflected on the consolidated balance sheets as restricted cash and securities.

Other Proceedings, Disputes and Contingencies

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

We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of which are seeking substantial recoveries. These cases have progressed to various stages and one or more may go to trial in the coming 24 months if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.

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

The outcome of these other proceedings is not predictable. However, based on current circumstances, we do not believe ~~exposure to loss related to our letters~~that the ultimate resolution of ~~credit is material.~~

~~(8) Other Financial Information~~

~~Other Current Assets~~these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.

The ~~following table presents details~~matters listed above in this Note do not reflect all of ~~other current assets~~our contingencies. For additional information on our contingencies, see Note 16 - Commitments, Contingencies and Other Items to the financial statements included in Item 8 of Part II of our ~~consolidated balance sheets:~~annual report on Form 10-K for the year ended December 31, 2018. The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us.

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.~~

~~(9)~~(10) Accumulated Other Comprehensive ~~Income (Loss)~~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:~~

2019:

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 )



	Pension Plans		Foreign Currency Translation Adjustment and Other			Total
	(Dollars in millions)
Balance at December 31, 2018	$	5	$	(176	)	(171	)
Other comprehensive income before reclassifications, net of tax	—		3			3
Net other comprehensive income	—		3			3
Balance at March 31, 2019	$	5	$	(173	)	(168	)

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



	Foreign Currency Translation Adjustment and Other		Total
	(Dollars in millions)
Balance at December 31, 2017	$	18	18
Other comprehensive income before reclassifications, net of tax	72		72
Amounts reclassified from accumulated other comprehensive income	6		6
Net other comprehensive income	78		78
Balance at March 31, 2018	$	96	96

~~(10)~~(11) 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 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 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 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 Parent, LLC. These transactions are eliminated in our consolidated results.

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Condensed Consolidating Statements of Comprehensive Income (Loss)

Three Months Ended March 31, ~~2018 (Successor)~~2019

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



	Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations		Total
	(Dollars in millions)
OPERATING REVENUE
Operating revenue	$	—		—		955		1,036		—		1,991
Operating revenue - affiliates	—			—		55		202		(202	)	55
Total operating revenue	—			—		1,010		1,238		(202	)	2,046
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—		504		463		—		967
Selling, general and administrative	—			1		369		160		(202	)	328
Operating expenses - affiliates	—			—		22		24		—		46
Depreciation and amortization	—			—		145		245		—		390
Goodwill Impairment	—			—		1,369		2,339		—		3,708
Total operating expenses	—			1		2,409		3,231		(202	)	5,439
OPERATING (LOSS) INCOME	—			(1	)	(1,399	)	(1,993	)	—		(3,393	)
OTHER (EXPENSE) INCOME
Interest income - affiliate	16			—		—		—		—		16
Interest expense	(8		)	(119	)	—		(4	)	—		(131	)
Interest income (expense) - intercompany, net	933			164		(1,760	)	663		—		—
Equity in net (losses) earnings of subsidiaries	(4,519		)	(4,593	)	(1,797	)	—		10,909		—
Other (expense) income, net	(8		)	—		13		7		—		12
Total other (expense) income, net	(3,586		)	(4,548	)	(3,544	)	666		10,909		(103	)
(LOSS) INCOME BEFORE INCOME TAXES	(3,586		)	(4,549	)	(4,943	)	(1,327	)	10,909		(3,496	)
Income tax (benefit) expense	—			(30	)	18		101		—		89
NET (LOSS) INCOME	(3,586		)	(4,519	)	(4,961	)	(1,428	)	10,909		(3,585	)
Other comprehensive income (loss), net of income taxes	3			—		—		3		(3	)	3
COMPREHENSIVE (LOSS) INCOME	$	(3,583	)	(4,519	)	(4,961	)	(1,425	)	10,906		(3,582	)

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Condensed Consolidating Statements of Comprehensive Income (Loss)

Three Months Ended March 31, ~~2017 (Predecessor)~~2018


	Level 3 Parent, LLC			Level 3 Financing, Inc.			Level 3 Communications, LLC			Other Non-Guarantor Subsidiaries			Eliminations			Total			Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations		Total
	(Dollars in millions)																		(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 REVENUE
Operating revenue																			$	—		—		956		1,106		—		2,062
Operating revenue - affiliates																			—			—		25		40		(40	)	25
Total operating revenue																			—			—		981		1,146		(40	)	2,087
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—			583			497			(29		)	1,051			—			—		589		409		—		998
Selling, general and administrative expenses	1			1			277			85			—			364			—			1		259		124		(40	)	344
Operating expenses - affiliate	—			—			—			—			—			—
Operating expenses - affiliates																			—			—		53		—		—		53
Depreciation and amortization	—			—			87			209			—			296			—			—		170		261		—		431
Total cost and expenses	1			1			947			791			(29		)	1,711
Total operating expenses																			—			1		1,071		794		(40	)	1,826
OPERATING INCOME (LOSS)	(1		)	(1		)	(27		)	366			—			337			—			(1	)	(90	)	352		—		261
OTHER INCOME (EXPENSE)
Interest income	—			—			2			—			—			2
Interest income - affiliate	—			—			—			—			—			—			16			—		—		—		—		16
Interest expense	(9		)	(120		)	(1		)	(4		)	—			(134		)	(8		)	(108	)	(1	)	(3	)	—		(120	)
Interest income (expense) - intercompany, net	377			574			(869		)	(82		)	—			—			355			608		(881	)	(82	)	—		—
Equity in net earnings (losses) of subsidiaries	(275		)	(646		)	203			—			718			—			(315		)	(839	)	(1	)	—		1,155		—
Loss on modification and extinguishment of debt	—			(44		)	—			—			—			(44		)
Other income, net	—			—			5			(1		)	—			4			—			—		1		6		—		7
Total other income (expense)	93			(236		)	(660		)	(87		)	718			(172		)
Total other income (expense), net																			48			(339	)	(882	)	(79	)	1,155		(97	)
INCOME (LOSS) BEFORE INCOME TAXES	92			(237		)	(687		)	279			718			165			48			(340	)	(972	)	273		1,155		164
Income tax expense	3			(38		)	(1		)	(34		)	—			(70		)
Income tax (benefit) expense																			(14		)	(25	)	47		94		—		102
NET INCOME (LOSS)	95			(275		)	(688		)	245			718			95			62			(315	)	(1,019	)	179		1,155		62
Other comprehensive income (loss), net of income taxes	21			—			—			21			(21		)	21			72			—		—		72		(72	)	72
COMPREHENSIVE INCOME (LOSS)	$	116		$	(275	)	$	(688	)	$	266		$	697		$	116		$	134		(315	)	(1,019	)	251		1,083		134

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Condensed Consolidating Balance Sheets

March 31, ~~2018 (Successor)~~2019


	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC	Other Non-Guarantor Subsidiaries	Eliminations		Total	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC	Other Non-Guarantor Subsidiaries		Eliminations		Total
	(Dollars in millions)								(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	39	—	133	87	—		259	$	18	—	140	59		—		217
Restricted cash and securities	—		—	1	4	—		5
Assets held for sale	68		—	5	67	—		140
Restricted cash									—		—	—	2		—		2
Accounts receivable	—		—	10	716	—		726	—		—	45	654		—		699
Accounts receivable - affiliate	—		—	—	3	—		3
Intercompany advances	16,493		21,422	—	5,368	(43,283	)	—	17,556		24,004	7,829	2,887		(52,276	)	—
Note receivable - affiliate	1,825		—	—	—	—		1,825	1,825		—	—	—		—		1,825
Other	—		—	95	88	—		183	—		9	138	135		—		282
Total current assets	18,425		21,422	244	6,333	(43,283	)	3,141	19,399		24,013	8,152	3,737		(52,276	)	3,025
Property, plant, and equipment, net	—		—	3,103	6,439	—		9,542	—		—	3,225	6,262		—		9,487
Restricted cash and securities	19		—	10	—	—		29
GOODWILL AND OTHER ASSETS
Goodwill	—		—	1,658	9,483	—		11,141	—		—	362	7,050		—		7,412
Operating lease assets									—		—	1,294	500		(548	)	1,246
Restricted cash									16		—	8	1		—		25
Customer relationships, net	—		—	3,979	4,227	—		8,206	—		—	3,627	3,771		—		7,398
Other intangible assets, net	—		—	390	—	—		390	—		—	420	2		—		422
Investment in subsidiaries	16,955		18,788	3,609	—	(39,352	)	—	11,023		13,322	2,064	—		(26,409	)	—
Deferred tax assets	279		1,826	114	10	(1,771	)	458
Other, net	—		—	54	42	—		96	274		1,450	102	221		(1,390	)	657
Total goodwill and other assets	17,234		20,614	9,804	13,762	(41,123	)	20,291	11,313		14,772	7,877	11,545		(28,347	)	17,160
TOTAL ASSETS	$	35,678	42,036	13,161	26,534	(84,406	)	33,003	$	30,712	38,785	19,254	21,544		(80,623	)	29,672

LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	—	—	2	7	—		9
Current maturities of long-term debt									$	—	—	—	7		—		7
Accounts payable	—		1	318	359	—		678	—		—	336	318		—		654
Accounts payable - affiliate	27		—	66	2	—		95
Accounts payable - affiliates									80		16	283	(14	)	—		365
Accrued expenses and other liabilities
Income and other taxes	—		1	45	41	—		87
Salaries and benefits	—		—	129	34	—		163	—		—	120	31		—		151
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



Income and other taxes	—		6	57		42	—		105
Current operating lease liabilities	—		—	288		153	(117	)	324
Interest	3		86	1		4	—		94
Intercompany payables	—		—	47,248		5,028	(52,276	)	—
Other	2		1	4		55	—		62
Current portion of deferred revenue	—		—	162		148	—		310
Total current liabilities	85		109	48,499		5,772	(52,393	)	2,072
LONG-TERM DEBT	612		10,061	6		149	—		10,828

DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	—		—	964		211	—		1,175
Deferred income taxes, net	56		—	817		770	(1,390	)	253
Noncurrent operating lease liabilities	—		—	1,037		363	(431	)	969
Other	—		—	148		157	—		305
Total deferred revenue and other liabilities	56		—	2,966		1,501	(1,821	)	2,702
MEMBER'S EQUITY (DEFICIT)	29,959		28,615	(32,217	)	14,122	(26,409	)	14,070
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	30,712	38,785	19,254		21,544	(80,623	)	29,672

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Condensed Consolidating Balance Sheets

December 31, ~~2017 (Successor)~~2018


	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC	Other Non-Guarantor Subsidiaries	Eliminations		Total	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC	Other Non-Guarantor Subsidiaries	Eliminations		Total
	(Dollars in millions)								(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	13	—	175	109	—		297	$	2	—	164	77	—		243
Restricted cash and securities	—		—	1	4	—		5
Assets held for sale	68		—	5	67	—		140
Restricted cash									—		—	—	4	—		4
Accounts receivable	—		—	26	722	—		748	—		—	70	642	—		712
Accounts receivable - affiliate	—		—	60	4	(51	)	13
Intercompany advances	16,251		21,032	—	5,200	(42,483	)	—	16,852		23,957	7,744	2,707	(51,260	)	—
Note receivable - affiliate	1,825		—	—	—	—		1,825	1,825		—	—	—	—		1,825
Other	—		—	54	63	—		117	1		3	97	133	—		234
Total current assets	18,157		21,032	321	6,169	(42,534	)	3,145	18,680		23,960	8,075	3,563	(51,260	)	3,018
Property, plant, and equipment, net	—		—	3,237	6,175	—		9,412	—		—	3,136	6,317	—		9,453
Restricted cash and securities	19		—	10	—	—		29

GOODWILL AND OTHER ASSETS
Goodwill	—		—	1,200	9,637	—		10,837	—		—	1,665	9,454	—		11,119
Restricted cash									15		—	9	1	—		25
Customer relationships, net	—		—	4,324	4,521	—		8,845	—		—	3,823	3,744	—		7,567
Other intangible assets, net	—		—	378	—	—		378	—		—	409	1	—		410
Investment in subsidiaries	16,954		18,403	3,616	—	(38,973	)	—	15,541		17,915	3,861	—	(37,317	)	—
Deferred tax assets	280		1,795	—	122	(1,771	)	426
Other, net	—		—	32	31	—		63	275		1,421	110	225	(1,332	)	699
Total goodwill and other assets	17,234		20,198	9,550	14,311	(40,744	)	20,549	15,831		19,336	9,877	13,425	(38,649	)	19,820
TOTAL ASSETS	$	35,410	41,230	13,118	26,655	(83,278	)	33,135	$	34,511	43,296	21,088	23,305	(89,909	)	32,291

LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—	—	2	6	—		8	$	—	—	1	5	—		6
Accounts payable	—		1	323	371	—		695	—		—	380	346	—		726
Accounts payable - affiliate	11		—	—	81	(51	)	41
Accounts payable - affiliates									62		11	162	11	—		246
Accrued expenses and other liabilities
Salaries and benefits									—		—	189	44	—		233
Income and other taxes	—		—	55	45	—		100	—		4	72	54	—		130
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
Interest										11		78	1		5	—		95
Intercompany payables	—		—	42,483		—	(42,483	)	—	—		—	45,347		5,913	(51,260	)	—
Other	16		—	23		18	—		57	3		1	8		66	—		78
Current portion of deferred revenue										—		—	168		142	—		310
Total current liabilities	38		92	43,124		686	(42,534	)	1,406	76		94	46,328		6,586	(51,260	)	1,824
LONG-TERM DEBT	616		10,096	13		157	—		10,882	613		10,068	7		150	—		10,838
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
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue										—		—	971		210	—		1,181
Deferred income taxes, net										56		—	841		637	(1,332	)	202
Other	1		1	98		164	—		264	—		—	197		172	—		369
Total deferred credits and other liabilities	649		1	1,814		882	(1,771	)	1,575
COMMITMENTS AND CONTINGENCIES
Total deferred revenue and other liabilities										56		—	2,009		1,019	(1,332	)	1,752
MEMBER'S EQUITY (DEFICIT)	34,107		31,041	(31,833	)	24,930	(38,973	)	19,272	33,766		33,134	(27,256	)	15,550	(37,317	)	17,877
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	35,410	41,230	13,118		26,655	(83,278	)	33,135	$	34,511	43,296	21,088		23,305	(89,909	)	32,291

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Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, ~~2018 (Successor)~~2019

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



	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 operating activities	$	17		—	389		77		—	483
INVESTING ACTIVITIES
Capital expenditures	—			—	(189	)	(96	)	—	(285	)
Net cash used in investing activities	—			—	(189	)	(96	)	—	(285	)
FINANCING ACTIVITIES
Distributions	(225		)	—	—		—		—	(225	)
Other	—			—	—		(1	)	—	(1	)
Increase (decrease) due from affiliate, net	225			—	(225	)	—		—	—
Net cash used in financing activities	—			—	(225	)	(1	)	—	(226	)
Net increase (decrease) in cash, cash equivalents and restricted cash	17			—	(25	)	(20	)	—	(28	)
Cash, cash equivalents and restricted cash at beginning of period	17			—	173		82		—	272
Cash, cash equivalents and restricted cash at end of period	$	34		—	148		62		—	244

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Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, ~~2017 (Predecessor)~~2018

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



	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 (used in) provided by operating activities	$	(8	)	—	490		89		—	571
INVESTING ACTIVITIES
Capital expenditures	—			—	(142	)	(110	)	—	(252	)
Proceeds from 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
Distributions	(390		)	—	—		—		—	(390	)
Other	—			—	—		(2	)	—	(2	)
Increase (decrease) due from/to affiliates, net	390			—	(390	)	—		—	—
Net cash used in financing activities	—			—	(390	)	(2	)	—	(392	)
Net increase (decrease) in cash, cash equivalents and restricted cash	26			—	(42	)	(22	)	—	(38	)
Cash, cash equivalents and restricted cash at beginning of period	32			—	186		113		—	331
Cash, cash equivalents and restricted cash at end of period	$	58		—	144		91		—	293

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

Effective November ~~1,2017,~~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 this report to “Level 3 Communications, Inc.,” "Level 3," “we,” “us,” "its," the “Company” and “our” refer to Level 3 Parent, LLC and its consolidated subsidiaries.

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~~the Notes to ~~consolidated financial statements~~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~~statements. See "Special Note Regarding Forward-Looking Statements" appearing at 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. See the last paragraphbeginning of this ~~Item 2 of Part I~~report and "Risk Factors" in Item 1A of Part III of ~~this~~our annual report on Form 10-K for the year ended December 31, 2018 for a discussion of certain factors that could cause our actual results to differ from our anticipated results or otherwise impact our business, financial condition, results of operations, liquidity or prospects.

Overview

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with MD&A and the other information included in our annual report on Form 10-K for the year ended December 31, ~~2017,~~2018, and with the consolidated financial statements and related notes in Item I1 of Part I of this 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 aan international facilities-based ~~provider of~~communications company engaged in providing a broad ~~range~~array of integrated communication services to our business customers. We created our communications ~~services. Revenue for~~network by constructing our own assets and through a combination of purchasing other companies and purchasing or leasing facilities from others. We designed our network to provide communications services ~~is generally recognized on a monthly basis as these services are provided. For contracts involving private line, wavelength~~that employ and ~~the lease~~take advantage of ~~dark fiber services, we may receive upfront payments for services to be delivered for a period of up to 25 years. In these situations, we defer the revenue~~rapidly improving underlying optical, Internet Protocol, computing and ~~amortize it on a straight-line basis to earnings over the term of the contract.~~storage technologies.

~~As discussed in Note 2 - CenturyLink Merger, on November 1, 2017, we became a wholly owned subsidiary of CenturyLink.~~

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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 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 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 report.

We have recognized $18 million of certain 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~~2019 and ~~predecessor three months ended~~ March 31, ~~2017:~~

2018:

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 categorize our products, services and revenues among the following six categories:~~

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

~~IT and managed services,~~ ~~which includes IT services and managed services revenues.~~



	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
	(Dollars in millions)
Operating revenue	$	2,046		2,087
Operating expenses	5,439			1,826
OPERATING (LOSS) INCOME	(3,393		)	261
Other expense, net	(103		)	(97	)
INCOME BEFORE INCOME TAX EXPENSE	(3,496		)	164
Income tax expense	89			102
NET (LOSS) INCOME	$	(3,585	)	62

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Operating Revenue

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

IP and Data Services, which include primarily VPN data networks, Ethernet, IP, video (including our CDN services and Vyvx broadcast services) and other ancillary services;

Transport and ~~infrastructure,~~ Infrastructure, which includes ~~primarily broadband,~~ private line (including business data services), wavelength, colocation and data ~~centers, wavelength~~center facilities and services, including cloud, hosting and application management solutions professional services, dark fiber services and other ancillary ~~revenues.~~services;

IPVoice and ~~data services,~~ Collaboration, which includes primarily ~~VPN data network, Ethernet, IP, video~~TDM voice services, VoIP and other ancillary ~~revenues.~~services;

~~Regulatory,~~ Other, which includes sublease rental income and ~~revenue from fiber capacity lease arrangements.~~information technology services and managed services, which may be purchased in conjunction with our other network services; and

Affiliate Services, ~~, which includes telecommunications~~we provide our affiliates with telecommunication services that we also provide to external customers.

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

services.

The following tables summarize our consolidated operating ~~revenues~~revenue recorded under our ~~six~~five revenue 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 comparisons between positive and negative values or to/from zero values are considered not meaningful.~~



	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018	Increase/(Decrease)		% Change
	(Dollars in millions)
IP and Data Services	$	979	1,003	(24	)	(2	)%
Transport and Infrastructure	658		676	(18	)	(3	)%
Voice and Collaboration	352		382	(30	)	(8	)%
Other	2		1	1		100	%
Affiliate Services	55		25	30		120	%
Total operating revenue	$	2,046	2,087	(41	)	(2	)%

Our total operating ~~revenues increased~~revenue decreased by ~~$39~~$41 million, or 2%, for the ~~successor~~ three months ended March 31, ~~2018,~~2019, as compared to the predecessor three months ended March 31, 2017. The increase in our total operating revenues was primarily due to an increase in IP and data services of $31 million, an increase in affiliate revenues of $25 million, partially offset by a decrease in voice and 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 decrease in voice and collaboration revenues was primarily due to a decline in 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 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 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~~our total operating revenue was primarily due to ~~a decrease~~the declines in ~~private line revenues of $26 million,~~voice and collaboration, IP and data services and transport and infrastructure partially offset by an increase in ~~wavelength revenues of $13 million, a $5 million~~affiliate services due to an increase in ~~professional~~the level of 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~~we provide 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.our affiliates.

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~~Regulatory revenues remained flat for the successor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017.~~

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.

Operating Expenses

The following tables summarize our consolidated operating expenses:



	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018	Increase/(Decrease)		% Change
	(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	$	967	998	(31	)	(3	)%
Selling, general and administrative	328		344	(16	)	(5	)%
Operating expenses - affiliates	46		53	(7	)	(13	)%
Depreciation and amortization	390		431	(41	)	(10	)%
Goodwill Impairment	3,708		—	3,708		nm
Total operating expenses	$	5,439	1,826	3,613		198	%

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~~



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

Cost of Services and Products (Exclusive of ~~Depreciation~~depreciation and ~~Amortization)~~amortization)

Cost of services and products (exclusive of depreciation and amortization) decreased by ~~$53~~$31 million, or 5%3%, for the ~~successor~~ three months ended March 31, ~~2018,~~2019, as compared to the ~~predecessor~~ three months ended March 31, ~~2017.~~2018. The decrease in our cost of services and products for the ~~successor three months ended March 31, 2018~~period was primarily due to ~~our acquisition~~lower salaries and wages and employee related expenses from lower headcount, reductions in network expense and voice usage costs and a decline in professional services, which were partially offset by ~~CenturyLink on November 1, 2017. In the predecessor period, since they were not~~higher customer installation costs and an ~~affiliate, the expense associated with CenturyLink~~increase in right of way and ~~its subsidiaries was recorded as cost of services and products and selling, general and administrative~~dark fiber expenses.

Selling, General and Administrative

Selling, general and administrative decreased by ~~$20~~$16 million, or 5%, for the ~~successor~~ three months ended March 31, ~~2018,~~2019, as compared to the ~~predecessor~~ three months ended March 31, ~~2017. This~~2018. The decrease in ~~our~~ selling, general and administrative expenses was primarily due to lower salaries and wages and employee related expenses from lower headcount, a ~~$16~~decline in property and other taxes and lower rent costs, which were partially offset by higher internal commissions and bad debt expense.

Operating Expenses - Affiliates

Operating expenses - affiliate decreased by $7 million, or 13%, for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018. The decrease in ~~stock based compensation expense as a result~~operating expenses - affiliates was primarily due to the decline in the level 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 in selling, general and administrative during the predecessor period, offsetservices provided to us by ~~an $8 million increase in other expenses.~~our affiliates.

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~~Operating Expenses - Affiliate~~

Operating expenses - affiliate increased by $53 million, for the successor three months ended March 31, 2018, as compared to the 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		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018	Increase/(Decrease)		% Change
	(Dollars in millions)							(Dollars in millions)
Depreciation	$	237	251	(14	)	(6	)%	$	197	237	(40	)	(17	)%
Amortization	194		45	149		331	%	193		194	(1	)	(1	)%
Total depreciation and amortization	$	431	296	135		46	%	$	390	431	(41	)	(10	)%

Depreciation expense decreased by ~~$14~~$40 million, or 6%17%, for the ~~successor~~ three months ended March 31, ~~2018,~~2019, as compared to the predecessor three months ended March 31, 2017. As of November 1, 2017, 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 CenturyLink's acquisition of us. This decrease in asset value resulted in lower depreciation expense for the successor three months ended 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 of amortization expense for the successor three months ended March 31, 2018. ~~In addition, trade names and developed technology were recorded at~~The decrease was primarily due to a ~~fair value~~net decline in depreciable assets of ~~$423~~$54 million, offset by purchase price depreciation adjustments of $13 million in 2018.

Amortization expense changed by an ~~increase of $401 million, which resulted in an additional $14 million of amortization expense~~immaterial amount for the ~~successor~~ three months ended March 31, 2019, as compared to the three months ended March 31, 2018.

Goodwill Impairment

Our goodwill was derived from CenturyLink's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We are required to perform an impairment test related to our goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs. Due to the decline in CenturyLink's stock price, we incurred an event in the first quarter of 2019 that triggered impairment testing. Due to this impairment indicator, we evaluated our goodwill as of March 31, 2019.

When we performed our October 31, 2018 annual impairment test, we estimated the fair value of equity by considering both a market approach and a discounted cash flow method. The market approach method includes the use of multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows beyond the cash flows from the discrete projection period. Because CenturyLink's low stock price was a trigger for impairment testing, we estimated the fair value of our operations using only the market approach as of March 31, 2019. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple within this range. For the three months ended March 31, 2019, based on our assessments performed as described above, we concluded that the estimated fair value was less than our carrying value of equity as of the date of our triggering event during the first quarter. As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge aggregating to $3.7 billion for the three months ended March 31, 2019.

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Other Consolidated Results

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

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 comparisons between positive and negative values or to/from zero values are considered not meaningful.~~

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~~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 cash equivalents balance.



	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018		Increase/(Decrease)	% Change
	(Dollars in millions)
Interest income - affiliate	$	16		16		—	—	%
Interest expense	(131		)	(120	)	11	9	%
Other income, net	12			7		5	71	%
Total Other Expense	$	(103	)	(97	)	6	6	%
Income tax expense	$	89		102		13	(13	)%

Interest Income - Affiliate

Interest income - affiliate ~~increased by $16 million~~did not change for the ~~successor~~ three months ended March 31, ~~2018,~~2019, 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.~~2018.

Interest Expense

Interest expense ~~decreased~~increased by ~~$14~~$11 million, or ~~10%~~9%, for the ~~successor~~ three months ended March 31, ~~2018,~~2019, as compared to the ~~predecessor~~ three months ended March 31, ~~2017.~~2018. The ~~decrease in interest expenses~~increase was primarily ~~due to refinancing of all of our then outstanding $4.611 billion senior secured~~driven by a 1% LIBOR rate increase on Level 3 Financing Inc.'s term ~~loans during~~loan.

Other Income, net

Other income increased by $5 million, or 71%, for 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~~2019, as compared to the s~~uccessor~~ three months ended March 31, ~~2018, as compared to the predecessor three months ended March 31, 2017.~~2018. The ~~decrease in loss on modification and extinguishment of debt~~increase was primarily 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~~ s~~uccessor three months ended March 31, 2018, as compared to the predecessor three months ended March 31, 2017. The~~an increase in ~~other income (expense) was due to a $4 million~~ foreign currency ~~gain in the~~ s~~uccessor three months ended March 31, 2018, as compared to a $2 million foreign currency gain in the predecessor three months ended March 31, 2017.~~gains.

Income Tax Expense

For the ~~successor~~three months ended March 31, 2019 and the three months ended March 31, 2018, ~~and the predecessor three months ended March 31, 2017,~~ our effective income tax rate was ~~62%~~(2.5%) and ~~42%~~62.2%, respectively. The effective tax rate for the s~~uccessor~~three months ended March 31, 2019 was significantly impacted by the goodwill impairment and the new base erosion and anti-abuse provisions of the Tax Cuts and Jobs Act. Without the goodwill impairment, the rate would be 42.0%. The effective tax rate for the 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,~~2019, we held cash and cash equivalents of ~~$259~~$217 million. At March 31, ~~2018,~~2019, cash and cash equivalents of ~~$226~~$61 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.

~~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, demand for CenturyLink's services and products, cash flow generated by operating activities and cash required for other purposes.

Debt and Other Financing Arrangements

As of March 31, ~~2018,~~2019, our long-term debt (including current maturities and capital leases) totaled ~~$10.881~~$10.8 billion, which was flat when compared to ~~$10.890~~$10.8 billion outstanding as of December 31, ~~2017.~~2018.

Subject to market conditions, from time to time, we expect to continue to issue term debt or senior notes to refinance our maturing debt. The availability, interest rate and 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 senior unsecured debt of Level 3 Parent, LLC and Level 3 Financing, Inc. were as follows:



Borrower	Moody's Investor Services, Inc.	Standard & Poor's	Fitch Ratings
Level 3 Parent, LLC
Unsecured	B1	B+	~~BB-~~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)		Three Months Ended March 31, 2019			Three Months Ended March 31, 2018		Change
	(Dollars in millions)							(Dollars in millions)
Net cash provided by operating activities	$	571		539		32		$	483		571		(88	)
Net cash used in investing activities	(217		)	(368	)	(151	)	$	(285	)	(217	)	68
Net cash used in financing activities	$	(391	)	(44	)	347		$	(226	)	(392	)	(166	)

Operating Activities

Net cash provided by operating activities ~~increased $32~~decreased $88 million for the s~~uccessor~~three months ended March 31, 2019, as compared to the three months ended March 31, 2018, ~~as compared~~primarily due to a decrease in other current assets and liabilities, net and accounts payable partially offset by the ~~predecessor three months ended March 31, 2017, primarily resulting from increased revenues.~~increase in other current assets and liabilities, affiliate. Cash provided by operating activities is subject to variability period over period as a result of the timing of the collection of receivables and payments related to interest expense, accounts payable, and bonuses.

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Investing Activities

Net cash used in investing activities ~~decreased $151~~increased $68 million for the ~~successor~~three months ended March 31, 2019, as compared to the three months ended March 31, 2018 ~~as compared to the predecessor three months ended March 31, 2017~~ primarily due to an increase in capital expenditures ~~of $368 million~~and a decrease in ~~the predecessor three months ended March 31, 2017 compared to $252 million in the successor three months ended March 31, 2018, partially offset by $34 million of~~ deposits received on ~~assets held for sale in the successor three months ended March 31, 2018 related to an agreement we entered into to sell $68 million of our~~ assets held for sale.

Financing Activities

Net cash used in financing activities ~~increased $347~~decreased $166 million for the ~~successor~~three months ended March 31, 2019, as compared to the three months ended March 31, 2018 ~~as compared to the predecessor three months ended March 31, 2017~~ primarily due to ~~the $390 million of distributions we made to CenturyLink~~a decrease in ~~the successor three months ended March 31, 2018, partially offset by the $44 million of cash used for the refinancing of debt in the predecessor three months ended March 31, 2017.~~distributions.

Other Matters

We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. See Note 79 - Commitments, Contingencies and Other Items for additional information.

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

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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 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 over the remaining terms of the debt.

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Market Risk

~~We are~~At March 31, 2019, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations. We seek to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates.

As of the ~~successor~~ date of March 31, ~~2018,~~2019, we have approximately ~~$10.526~~$10.5 billion (excluding ~~capital~~unamortized premiums and finance lease and other obligations) of long-term debt outstanding, 56% of which bears interest at fixed rates and is therefore not exposed to interest rate risk. We also held ~~$4.611~~$4.6 billion of floating rate debt exposed to changes in the London InterBank Offered Rate ~~(LIBOR)~~("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 are exposed to the risk of fluctuations in the foreign currencies used by our international subsidiaries, including the British Pound, the Euro, the Brazilian Real and the Argentinian ~~Peso, in each case as of March 31, 2018.~~Peso. Although the percentages of our consolidated ~~revenues~~revenue 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 number of foreign currency transactions.

Certain shortcomings are inherent in the method of analysis presented in the computation of exposures to market risks. Actual values may differ materially from those presented above if market conditions vary from the assumptions used in the analyses performed. These analyses only incorporate the risk exposures that existed at March 31, 2019.

Off-Balance Sheet Arrangements

WeAs of March 31, 2019, we have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support and we dodid not engage in leasing, hedging or other similar activities that expose us to any significant liabilities that are not (i) reflected on the face of the consolidated financial statements, (ii) disclosed in Note 16 - Commitments and Contingencies to our consolidated financial statements in Item 8 of Part II of our annual report on

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Form 10-K for the year ended December 31, 2018, or ~~(ii)~~in the Future Contractual Obligations table included in Item 7 of Part II of the same report, or (iii) discussed under the heading "Market Risk" above.

Other Information

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

~~We have omitted this information~~Omitted pursuant to General Instruction H(2).

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer, ~~Glen F. Post, III,~~Jeff K. Storey, and our Executive Vice President and Chief Financial Officer, ~~Sunit S. Patel,~~Indraneel Dev, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, ~~2018.~~2019. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective, as of March 31, 2019, due to the material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the fiscal year ended in December 31, 2018.

Remediation Plans

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

Changes in Internal Control Over Financial Reporting

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

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

Inherent Limitations of Internal Controls

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

~~Changes in Internal Control Over Financial Reporting~~

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

CenturyLink completed the acquisition of Level 3, Inc. on November 1, 2017. The Company is currently integrating policies, processes, people, technology, and operations of the combined Company. Management will continue to evaluate the Company's internal controls over financial reporting as it continues the integration of Level 3. Other than the internal controls related to the adoption of ASC606 referenced above there were no changes in the Company's internal control over financial reporting that occurred during the first quarter of 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~For~~

The information ~~regarding legal proceedings~~contained in ~~which we are involved, see~~ Note 79 - Commitments, Contingencies and Other Items, ~~to our unaudited consolidated financial statements~~ included in Item 1 of Part I of this quarterly report on Form ~~10-Q.~~10-Q is incorporated herein by reference. The ultimate outcome of the matters described in Note 9 may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing in such Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us. For more information, see “Risk Factors—Risks Relating to Legal and Regulatory Matters—Our pending legal proceedings could have a material adverse impact on our financial condition and operating results, on the trading price of our securities and on our ability to access the capital markets” in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2018.

ITEM 1A. RISK FACTORS

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

2018.

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ITEM 6. EXHIBITS



(a)	Exhibits incorporated by reference are indicated in parentheses.
12	~~Statements re computation of ratios.~~
~~31.1~~31.1*	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
~~31.2~~31.2*	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
~~32.1~~32*	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~~and 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~~101*	The following materials from the Quarterly Report on Form 10-Q of Level 3 Parent, LLC for the quarter ended March 31, ~~2018,~~2019, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive (Loss) Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of ~~Member's/Stockholders'~~Member's Equity and (vi) Notes to Consolidated Financial Statements.


*	Exhibit filed herewith.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May ~~10, 2018.~~13, 2019.



	LEVEL 3 PARENT, LLC
By:	/s/ Eric J. Mortensen
By:		Eric J. Mortensen
	Senior Vice President - ~~Interim~~ Controller
	(Principal Accounting Officer)

5046



	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



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



	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