

~~Delaware~~			~~47-0210602~~
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~~) (720) 888-1000

(Registrant’s telephone number,

including area code)

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

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

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

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

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

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

All of the limited liability company interest in the registrant is held by an affiliate of the registrant. NaN of the interest is publicly traded.

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TABLE OF CONTENTS



	Special Note Regarding Controlling M ember	3
	Special Note Regarding Forward-Looking Statements	3
Part I	Financial Information
Item 1.	Financial Statements	6
	Consolidated Statements of Operations (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	7
	Consolidated Balance Sheets (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	9
	Consolidated Statements of Member's Equity (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited)*	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3824
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4534
Item 4.	Controls and Procedures	4734
Part II	Other Information
Item 1.	Legal Proceedings	4836
Item 1A.	Risk Factors	4836
Item 6.	Exhibits	4938
Signature		5039

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

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Special Note Regarding Controlling Member

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

Special Note Regarding Forward-Looking Statements

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

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

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

•statements concerning the anticipated impact of our transactions, investments, product development, ~~transformation projects~~ and other initiatives, including synergies or costs associated with these initiatives;

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

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

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

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

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

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

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

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

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

~~our ability to 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 data transmission services;

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

•our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt ~~payments~~repayments and distributions;

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

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

•our ability to effectively retain and hire key personnel and maintain satisfactory relations with our workforce;

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

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

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

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

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

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

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

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

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

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changes in tax, communications, healthcare or other laws or ~~regulations;~~regulations or in general government funding levels, including those that might occur after the U.S. elections on November 3, 2020;

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

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

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

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

•other risks set forth or referenced in "Risk Factors" in Item 1A ~~or elsewhere in our annual~~of Part II of this report ~~on Form 10-K~~ or other of our filings with the ~~SEC.~~U.S. Securities and Exchange Commission (the "SEC").

Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned not to unduly rely upon our forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise. Furthermore, any information about our intentions contained in any of our forward-looking statements reflects our intentions as of the date of such forward-looking statement, and is based upon, among other things, existing regulatory, technological, industry, competitive, economic and market conditions, and our assumptions as of such date. We may change our intentions, strategies or plans (including our 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)


	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
OPERATING REVENUE
Operating revenue	$	1,918	1,911	5,782	5,694
Operating revenue - affiliates	53		41	153	134
Total operating revenue	1,971		1,952	5,935	5,828
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	857		848	2,623	2,550
Selling, general and administrative	300		289	922	964
Operating expenses - affiliates	101		76	274	209
Depreciation and amortization	429		430	1,250	1,209
Goodwill impairment	0		0	0	3,708
Total operating expenses	1,687		1,643	5,069	8,640
OPERATING INCOME (LOSS)	284		309	866	(2,812)
OTHER (EXPENSE) INCOME
Interest income - affiliate	13		15	39	47
Interest expense	(99)		(123)	(301)	(384)
Other income (expense), net	41		(13)	29	2
Total other expense, net	(45)		(121)	(233)	(335)
INCOME (LOSS) BEFORE INCOME TAXES	239		188	633	(3,147)
Income tax expense	42		74	147	214
NET INCOME (LOSS)	$	197	114	486	(3,361)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
OPERATING REVENUE
Operating revenue $ 2,023
1,984
5,990
6,071
Operating revenue - affiliates 41
26
134
78
Total operating revenue 2,064
2,010
6,124
6,149
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization) 960
976
2,846
2,954
Selling, general and administrative 289
311
964
1,043
Operating expenses - affiliates 76
65
209
173
Depreciation and amortization 430
431
1,209
1,295
Goodwill impairment —
—
3,708
—
Total operating expenses 1,755

1,783
8,936
5,465
OPERATING INCOME (LOSS) 309
227
(2,812 ) 684
OTHER (EXPENSE) INCOME
Interest income - affiliate 15
18
47
50
Interest expense (123 ) (137 ) (384 ) (381 )
Other (expense) income, net (13 ) 18
2
21
Total other expense, net (121 ) (101 ) (335 ) (310 )
INCOME (LOSS) BEFORE INCOME TAXES 188
126
(3,147 ) 374
Income tax expense 74
38
214
184
NET INCOME (LOSS) $ 114
88
(3,361 ) 190

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
NET INCOME (LOSS)	$	197	114	486	(3,361)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments, net of $(21), $22, $(2) and $24 tax	41		(110)	(179)	(115)
Other comprehensive income (loss), net of tax	41		(110)	(179)	(115)
COMPREHENSIVE INCOME (LOSS)	$	238	4	307	(3,476)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
NET INCOME (LOSS) $ 114
88
(3,361 ) 190
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustments, net of $22, $(1), $24 and $29 tax (110 ) (1 ) (115 ) (164 )
Other comprehensive loss, net of tax (110 ) (1 ) (115 ) (164 )
COMPREHENSIVE INCOME (LOSS) $ 4
87
(3,476 ) 26

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED BALANCE SHEETS


	September 30, 2020 (unaudited)		December 31, 2019
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	256	316
Accounts receivable, less allowance of $37 and $13	730		667
Note receivable - affiliate	1,468		1,590
Other	316		269
Total current assets	2,770		2,842
Property, plant and equipment, net of accumulated depreciation of $2,546 and $1,825	10,334		9,936
GOODWILL AND OTHER ASSETS
Goodwill	7,369		7,415
Other intangible assets, net	6,779		7,334
Other, net	1,490		1,571
Total goodwill and other assets	15,638		16,320
TOTAL ASSETS	$	28,742	29,098
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	13	11
Accounts payable	612		654
Accounts payable - affiliates	1,149		669
Accrued expenses and other liabilities
Salaries and benefits	196		240
Income and other taxes	127		152
Current operating lease liabilities	256		249
Other	137		162
Current portion of deferred revenue	305		309
Total current liabilities	2,795		2,446
LONG-TERM DEBT	10,377		10,356
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	1,389		1,343
Operating lease liabilities	930		854
Other	513		554
Total deferred revenue and other liabilities	2,832		2,751
COMMITMENTS AND CONTINGENCIES (Note 8)
MEMBER'S EQUITY
Member's equity	13,096		13,724
Accumulated other comprehensive loss	(358)		(179)
Total member's equity	12,738		13,545
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	28,742	29,098

September 30,
2019 December 31,
2018
(Unaudited)
(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,224
243
Restricted cash 3
4
Accounts receivable, less allowance of $14 and $11 718
712
Note receivable - affiliate 1,590
1,825
Other 294
234
Total current assets 3,829
3,018
Property, plant and equipment, net of accumulated depreciation of $1,610 and $1,021 9,719
9,453
GOODWILL AND OTHER ASSETS
Goodwill 7,389
11,119
Operating lease assets 1,102
—
Restricted cash 19
25
Customer relationships, net 7,026
7,567
Other intangible assets, net 458
410
Other, net 550
699
Total goodwill and other assets 16,544
19,820
TOTAL ASSETS $ 30,092
32,291
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 407
6
Accounts payable 753
726
Accounts payable - affiliates 552
246
Accrued expenses and other liabilities
Salaries and benefits 216
233
Income and other taxes 113
130
Current operating lease liabilities 244
—
Interest 78
95
Other 71
78
Current portion of deferred revenue 296
310
Total current liabilities 2,730
1,824
LONG-TERM DEBT 10,995
10,838
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue 1,264
1,181
Deferred income taxes, net 225
202
Noncurrent operating lease liabilities 900
—
Other 286
369
Total deferred revenue and other liabilities 2,675
1,752

COMMITMENTS AND CONTINGENCIES (Note 9)

MEMBER'S EQUITY
Member's equity 13,978
18,048
Accumulated other comprehensive loss (286 ) (171 )
Total member's equity 13,692
17,877
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 30,092
32,291

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
	2020		2019
	(Dollars in millions)
OPERATING ACTIVITIES
Net income (loss)	$	486	(3,361)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,250		1,209
Goodwill impairment	0		3,708
Deferred income taxes	124		165
Changes in current assets and liabilities:
Accounts receivable	(101)		(28)
Accounts payable	(139)		(72)
Other assets and liabilities, net	(195)		(126)
Other assets and liabilities, affiliate	364		306
Changes in other noncurrent assets and liabilities, net	116		57
Other, net	39		(14)
Net cash provided by operating activities	1,944		1,844
INVESTING ACTIVITIES
Capital expenditures	(1,124)		(982)
Payments of notes receivable - affiliates	122		235
Proceeds from sale of property, plant and equipment and other assets	105		27
Other, net	0		(25)
Net cash used in investing activities	(897)		(745)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	2,020		988
Distributions	(1,075)		(709)
Payments of long-term debt	(2,056)		(404)
Other	(4)		0
Net cash used in financing activities	(1,115)		(125)
Net (decrease) increase in cash, cash equivalents and restricted cash	(68)		974
Cash, cash equivalents and restricted cash at beginning of period	338		272
Cash, cash equivalents and restricted cash at end of period	$	270	1,246
Supplemental cash flow information:
Income taxes paid, net	$	(20)	(17)
Interest paid (net of capitalized interest of $18 and $9)	$	(323)	(416)

Cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	256	1,224
Restricted cash included in Other current assets	2		3
Restricted cash included in Other, net noncurrent assets	12		19
Total	$	270	1,246

Nine Months Ended September 30,
2019 2018
(Dollars in millions)
OPERATING ACTIVITIES
Net (loss) income $ (3,361 ) 190
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 1,209
1,295
Goodwill impairment 3,708
—
Deferred income taxes 165
175
Changes in current assets and liabilities:
Accounts receivable (28 ) 51
Accounts payable (72 ) (64 )
Other assets and liabilities, net (126 ) (118 )
Other assets and liabilities, affiliate 306
55
Changes in other noncurrent assets and liabilities, net 57
37
Other, net (14 ) 6
Net cash provided by operating activities 1,844
1,627
INVESTING ACTIVITIES
Capital expenditures (982 ) (726 )
Payments of notes receivable - affiliates 235
—
Proceeds from sale of property, plant and equipment and other assets 27
119
Other, net (25 ) —
Net cash used in investing activities (745 ) (607 )
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 988
—
Payments of long-term debt (404 ) (5 )
Distributions (709 ) (1,130 )
Net cash used in financing activities (125 ) (1,135 )
Net increase (decrease) in cash, cash equivalents and restricted cash 974
(115 )
Cash, cash equivalents and restricted cash at beginning of period 272
331
Cash, cash equivalents and restricted cash at end of period $ 1,246
216

Supplemental cash flow information:
Income taxes paid, net $ (17 ) (24 )
Interest paid (net of capitalized interest of $9 and $—) $ (416 ) (404 )

Cash, cash equivalents and restricted cash:
Cash and cash equivalents $ 1,224
188
Restricted cash - current 3
3
Restricted cash - noncurrent 19
25
Total $ 1,246
216

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY

(UNAUDITED)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
MEMBER'S EQUITY
Balance at beginning of period $ 14,008
18,749
18,048
19,254
Net income (loss) 114
88
(3,361 ) 190
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $3 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 (144 ) (525 ) (709 ) (1,130 )
Balance at end of period 13,978
18,312
13,978
18,312
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period (176 ) (139 ) (171 ) 18
Other comprehensive loss (110 ) (1 ) (115 ) (164 )
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 (286 ) (140 ) (286 ) (140 )
TOTAL MEMBER'S EQUITY $ 13,692
18,172
13,692
18,172


	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
MEMBER'S EQUITY
Balance at beginning of period	$	13,301	13,969	13,724	18,048
Net income (loss)	197		114	486	(3,361)
Cumulative effect of adoption of ASU 2016-02, Leases	—		—	—	(39)
Cumulative effect of adoption of ASU 2016-13, Credit losses	—		—	(3)	—
Distributions	(400)		(144)	(1,118)	(709)
Other	(2)		0	7	0
Balance at end of period	13,096		13,939	13,096	13,939
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period	(399)		(176)	(179)	(171)
Other comprehensive income (loss)	41		(110)	(179)	(115)
Balance at end of period	(358)		(286)	(358)	(286)
TOTAL MEMBER'S EQUITY	$	12,738	13,653	12,738	13,653

See accompanying notes to consolidated financial statements.

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LEVEL 3 PARENT, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

References in the Notes to “Level 3 Communications, Inc.,” "Level 3," “we,” “us,” "its," the “Company” and “our”, unless the context otherwise requires, refer to Level 3 Parent, LLC and its consolidated subsidiaries. References to "Lumen Technologies" or "Lumen" refer to our ultimate parent company, CenturyLink, Inc. and its consolidated subsidiaries including Qwest Corporation, referred to as "Qwest", and its direct parent company, Qwest Services Corporation.

(1) Background

General

We are an 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. We designed our network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.

Effective November 1, 2017, we were acquired by CenturyLink in a cash and stock transaction, including the assumption of our ~~debt (the "CenturyLink Merger").~~debt.

Basis of Presentation

Our consolidated balance sheet as of December 31, ~~2018,~~2019, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the ~~Securities and Exchange Commission ("SEC");~~SEC; however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations and cash flows for the first nine months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which we have a controlling interest. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates ~~(CenturyLink~~(Lumen Technologies and its other subsidiaries, referred to herein as affiliates) have not been eliminated. 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 third quarter of ~~2019.~~2020.

We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and expenses for three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

Operating lease assets are included in Other, net under goodwill and other assets on our consolidated balance sheets.

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Segments

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

Summary of Significant Accounting Policies

~~Table~~

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

Change in Accounting Policy

During the first quarter of 2020, we elected to change the presentation for taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, including federal and certain state Universal Service Fund (USF) regulatory fees, to present all such taxes on a net basis in our consolidated statements of operations. Prior to the first quarter of 2020, we assessed whether we were the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business. The previous policy resulted in presenting such USF fees on a gross basis within operating revenue and cost of services and products, and all other significant taxes on a net basis. We applied this change in accounting policy retrospectively during the first quarter of 2020. As a result, we have decreased both operating revenue and cost of services and products by $113 million and $112 million for the three months ended September 30, 2020 and 2019, respectively, and $301 million and $296 million for the nine months ended September 30, 2020 and 2019 respectively. The change has no impact on operating income (loss) or net income (loss) in our consolidated statements of operations. Refer to our Form 8-K filing dated May 7, 2020 for further information.

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

Operating Lease Income

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

For the three and nine months ended September 30, 2020, our gross rental income was $197 million and $565 million, respectively, which represents approximately 10% for both periods of our operating revenue. For the three and nine months ended September 30, 2019, our gross rental income was $52 million and $153 million, respectively, which represents approximately 3% for both periods of our operating revenue.

Recently Adopted Accounting Pronouncements

~~We adopted Accounting Standards Update ("ASU") 2016-02,~~ ~~"Leases (ASC 842)", as~~During the first quarter of ~~January 1, 2019, using~~2020, the ~~non-comparative transition option pursuant~~SEC made significant changes to ~~ASU 2018-11. Therefore, we have not restated comparative period financial information for the effects~~its disclosure requirements, Financial Disclosures About Guarantors and Issuers of ~~ASC 842,~~Guaranteed Securities and we will not make the new required lease disclosures for comparative periods beginning before January 1, 2019. Instead, we have recognized ASC 842's cumulative effect transition adjustment (discussed below) as of January 1, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard,Affiliates Whose Securities Collateralize a Registrant’s Securities, 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 expedientamended disclosure requirements related to ~~land easements, allowing us~~registered debt securities which have been updated and relocated to ~~carry forward our accounting treatment~~Rule 13-01 of Regulation S-X. The final rule allows for ~~land easements on existing agreements. We did not elect~~streamlined disclosure models and permits presentation to be included within Management’s Discussion and Analysis of Financial Condition and Results of Operations. The rules become effective January 4, 2021, with voluntary compliance permitted immediately as elected by 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.~~Company.

~~On March 5, 2019,~~Table of Contents

In June 2016, the Financial Accounting Standards Board ("FASB") ~~issued ASU 2019-01,~~ ~~"Leases (ASC 842): Codification Improvements"~~, effective for public companies for fiscal years beginning after December 15, 2019. The new ASU aligns the guidance in ASC 842 for determining fair value of the underlying asset by lessors that are not manufacturers or dealers, with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of ~~fair value~~ ~~(in ASC 820,~~ ~~"Fair ValueMeasurement"~~) should be applied. More importantly, the ASU also exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. Early adoption permits public companies to adopt concurrent with the transition to ASC 842 on leases. We adopted ASU 2019-01 as of January 1, 2019.

Adoption of the new standards resulted in the recording of operating lease assets and operating lease liabilities of approximately $1.3 billion and $1.4 billion, respectively, as of January 1, 2019. The standards did not materially impact our consolidated net earnings and had no impact on cash flows. Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new guidance, as discussed above, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.

~~Recently Issued Accounting Pronouncements~~

~~Financial Instruments~~

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

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

~~Over the fourth quarter we will complete our evaluation of the impact to our accounting and internal controls over financial reporting as a result of ASU 2016-13. We expect to adopt ASU 2016-13~~ on January 1, 2020 and ~~recognize the impacts through~~recognized a cumulative adjustment to our accumulated deficit as of the date of ~~adoption.~~adoption of $3 million, net of tax effect. Please refer to Note 4—Credit Losses on Financial Instruments for more information.

Recently Issued Accounting Pronouncements

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

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

Subsequent Event

As of the filing date of this report, ~~$250 million~~$1.2 billion of cash distributions were ~~declared and $225~~made to our parent during 2020, of which $125 million were ~~paid to our parent~~made in the fourth quarter ~~of 2019.~~in 2020.

The notes receivable - affiliate due to mature on November 1, 2020 was refinanced via a revolving credit facility on October 15, 2020 due upon demand, or on October 15, 2025, whichever occurs first. Level 3 Parent, LLC is the sole lender under the revolving credit facility, which was initially priced at 4.250%. The revolving credit facility has covenants, such as a maximum total leverage ratio, and is subject to other limitations. The revolving credit facility is subordinated in accordance to the terms required under the CenturyLink credit agreement.

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(2) Goodwill, Customer Relationships and Other Intangible Assets

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


	September 30, 2020		December 31, 2019
	(Dollars in millions)
Goodwill	$	7,369	7,415
Customer relationships, less accumulated amortization of $2,058 and $1,538	$	6,315	6,865
Capitalized software, less accumulated amortization of $229 and $146	409		395
Trade names, less accumulated amortization of $76 and $57	55		74
Total other intangible assets, net	$	6,779	7,334

September 30, 2019 December 31, 2018
(Dollars in millions)
Goodwill $ 7,389
11,119
Customer relationships, less accumulated amortization of $1,355 and $833 $ 7,026
7,567
Other intangible assets subject to amortization:
Trade names, less accumulated amortization of $50 and $30 80
100
Developed technology, less accumulated amortization of $121 and $67 378
310
Total other intangible assets, net $ 458
410

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

Table of Contents

We assess our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to ~~perform an impairment test related to~~write down the value of goodwill only when our ~~goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs. The decline in CenturyLink's stock price triggered impairment testing in~~assessment determines the ~~first quarter of 2019. Due to this impairment indicator, we evaluated our goodwill as of March 31, 2019. There was not an additional triggering event during the third quarter of 2019.~~

~~When we performed our October 31, 2018 annual impairment test, we estimated the fair~~carrying value of equity ~~by considering both a market approach and a discounted cash flow method. The market approach method includes~~of our reporting unit exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess goodwill at our reporting unit. In reviewing the ~~use of multiples of publicly traded companies whose services~~criteria for reporting units, we have determined that we 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. 1 reporting unit.

Because ~~CenturyLink's~~Lumen's low stock price was a trigger for impairment testing, we estimated the fair value of our operations using only the market approach in the quarter ended March 31, 2019. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry, which have historically supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple within this range. ~~For the three months ended~~As of March 31, 2019, based on our assessments performed as described above, we concluded that the estimated fair value of equity 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~~of $3.7 billion in the ~~first~~ quarter ofended March 31, 2019.

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

During 2020, we observed a decline in Lumen's stock price as a result of events occurring after the end of 2019, including the COVID-19 pandemic. We evaluated whether such events would indicate the fair value of our ~~profitability or cash flows or~~reporting unit was below its carrying value. We believe these events have impacted the ~~continued sustained low trading prices~~global economy more directly than us and, when considered with other factors, we have concluded it is not more likely than not that our fair value of ~~CenturyLink's common stock may result~~our reporting unit was less than its carrying value as of the period ended September 30, 2020. In light of the negative impacts of COVID-19 on the global economy, we will continue to evaluate the general economic trends which could have an impact on our assessment of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. Future changes could cause our reporting unit fair value to be less than our carrying value, resulting in ~~further impairment.~~

potential impairments of our goodwill which could have a material effect on our results of operations and financial condition. The extent of the impact, if any, will depend on future developments, including the length and severity of the pandemic and its long-term impacts on the overall economy.

The following table shows the rollforward of goodwill from December 31, 2019 through September 30, 2020:


	(Dollars in millions)
As of December 31, 2019	$	7,415
Effect of foreign currency exchange rate changes and other	(46)
As of September 30, 2020	$	7,369

Total amortization expense for intangible assets for the three months ended September 30, 2020 and 2019, was $210 million and ~~2018, was~~ $206 million, ~~and $204 million,~~ respectively,and for the nine months ended September 30, 2020 and 2019 ~~and 2018,~~ was ~~$604~~$626 million and~~$595~~ $604 million, respectively. As of September 30, ~~2019,~~2020, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was ~~$16.4~~$16.5 billion.

~~Table of Contents~~

We estimate that total amortization expense for intangible assets for the years ending December 31, ~~2019~~2020 through ~~2023~~2024 will be as follows:


	(Dollars in millions)
2020 (remaining three months)	$	211
2021	841
2022	780
2023	752
2024	740

(Dollars in millions)
2019 (remaining three months) $ 205
2020 825
2021 825
2022 764
2023 743

~~The following table shows the rollforward of goodwill from December 31, 2018 through September 30, 2019:~~

(Dollars in millions)
As of December 31, 2018 $ 11,119
Effect of foreign currency rate change and other (22 )
Impairment (3,708 )
As of September 30, 2019 $ 7,389

(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, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:


	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
Total revenue	$	1,971	1,952	5,935	5,828
Adjustments for non-ASC 606 revenue (1)	(234)		(94)	(687)	(288)
Total revenue from contracts with customers	$	1,737	1,858	5,248	5,540

(1)Includes lease revenue which is not within the scope of ASC 606.

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
Total revenue $ 2,064
2,010
6,124
6,149
Adjustments for non-ASC 606 revenue ⁽¹⁾
(94 ) (72 ) (288 ) (221 )
Total revenue from contracts with customers $ 1,970
1,938
5,836
5,928

~~_____________________________________________________________________~~


⁽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 September 30, ~~2019~~2020 and December 31, ~~2018:~~

2019:


	September 30, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(Dollars in millions)				(Dollars in millions)
Customer receivables ⁽¹⁾	$	737	712	Customer receivables (1)	$	766	678
Contract assets	31		19	Contract assets	32		32
Contract liabilities	412		393	Contract liabilities	383		423


~~(1)~~	~~Gross customer receivables of $751 million and $723 million, net of allowance for doubtful accounts of $14 million and $11 million, at September 30, 2019 and December 31, 2018, respectively.~~

(1)Reflects gross customer receivables of $803 million and $691 million, net of allowance for doubtful accounts of $37 million and $13 million, at September 30, 2020 and December 31, 2019, 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~~five 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~~ During the three months ended September 30, 2020 and 2019, we recognized $29 million and $27 million, respectively, and for the nine months ended September 30, 2020 and 2019, we recognized $158 million and ~~2018:~~$146 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020 and January 1, 2019, respectively.

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period (January 1, 2019 and 2018, respectively) $ 27
22
146
135
Performance obligations satisfied in previous periods —
—
—
—

Performance Obligations

As of September 30, ~~2019,~~2020, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts (including affiliates) that are ~~unsatisfied (or~~ partially ~~satisfied)~~or wholly unsatisfied is approximately ~~$5.2~~$3.9 billion. We expect to recognize approximately ~~69%~~84% of this revenue through ~~2021,~~2022, with the balance recognized thereafter.

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

Contract Costs

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


	Three Months Ended September 30,
	2020			2019
	(Dollars in millions)
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
Beginning of period balance	$	77	122	73	106
Costs incurred	14		21	13	26
Amortization	(15)		(22)	(12)	(17)
End of period balance	$	76	121	74	115

Three Months Ended September 30,
2019 2018
(Dollars in millions)
Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs
Beginning of period balance $ 73
106
34
52
Costs incurred 13
26
16
22
Amortization (12 ) (17 ) (5 ) (8 )
End of period balance $ 74
115
45
66


	Nine Months Ended September 30,
	2020			2019
	(Dollars in millions)
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
Beginning of period balance	$	79	121	64	84
Costs incurred	44		65	42	77
Amortization	(47)		(65)	(32)	(46)
End of period balance	$	76	121	74	115

Nine Months Ended September 30,
2019 2018
(Dollars in millions)
Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs
Beginning of period balance $ 64
84
13
14
Costs incurred 42
77
42
69
Amortization (32 ) (46 ) (10 ) (17 )
End of period balance $ 74
115
45
66

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

(4) ~~Leases~~Credit Losses on Financial Instruments

~~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~~In accordance with ~~previous guidance, as discussed in Note 1—Background and Summary of Significant Accounting Policies.~~

~~We primarily lease various office facilities, switching and colocation facilities, equipment and dark fiber. Leases~~ASC 326, "Financial Instruments - Credit Losses" ("ASC 326"), we aggregate financial assets with ~~an initial term of 12 months~~similar risk characteristics to align our expected credit losses with the credit quality or ~~less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis~~deterioration over the ~~lease term.~~

life of the asset. We ~~determine if an arrangement is a lease at inception~~monitor certain risk characteristics within our aggregated financial assets and ~~whether~~revise their composition accordingly, to the extent internal and external risk factors change each reporting period. Financial assets that ~~lease meets the classification criteria of a finance or operating lease. Lease-related assets, or right-of-use~~do not share risk characteristics with other financial assets are ~~recognized~~evaluated separately. Our financial assets measured at ~~the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value~~amortized cost primarily consist of ~~the remaining contractual fixed lease payments, discounted using~~accounts receivable.

In developing our ~~incremental borrowing rates. As part of the present value calculation for the lease liabilities,~~accounts receivable portfolio, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a termpooled certain assets with similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

Some of our lease arrangements contain lease components (including fixed payments, such as, rent, real estate taxes and insurance costs) and non-lease components (including common-area maintenance costs). We generally account for each component separatelycredit risk characteristics based on the ~~estimated standalone price~~nature of ~~each component. For colocation leases, we account~~our customers, their industry, policies used to grant credit terms, and their historical and expected credit loss patterns.

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

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

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unlessIf there is a ~~transfer~~deterioration of ~~title~~a customer's financial condition or ~~purchase option reasonably certain~~if future default rates in general differ from currently anticipated default rates (including changes caused by COVID-19), we may need to ~~be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.~~adjust the allowance for credit losses, which would affect earnings in the period that adjustments are made.

~~Lease expense consisted~~

The assessment of the ~~following:~~correlation between historical observed default rates, current conditions and forecasted economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the allowance for credit losses. The amount of credit loss is sensitive to changes in circumstances and forecasted economic conditions. Our historical credit loss experience, current conditions and forecast of economic conditions may also not be representative of the customers' actual default experience in the future.

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
(Dollars in millions)
Operating and short-term lease cost $ 92
288
Finance lease cost:
Amortization of right-of-use assets 3
10
Interest on lease liability 2
8
Total finance lease cost 5
18
Total lease cost $ 97
306

~~Table~~The following table presents the activity of ~~Contents~~our allowance for credit losses for our accounts receivable portfolio:

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

September 30,
Leases (millions) Classification on the Balance Sheet 2019
Assets
Operating lease assets Operating lease assets $ 1,102
Finance lease assets Property, plant and equipment, net of accumulated depreciation 147
Total leased assets $ 1,249

Liabilities
Current
   Operating Current operating lease liabilities $ 244
   Finance Current portion of long-term debt 7
Noncurrent
   Operating Noncurrent operating lease liabilities 900
   Finance Long-term debt 153
Total lease liabilities $ 1,304

Weighted-average remaining lease term (years)
   Operating leases 11.1
   Finance leases 13.4
Weighted-average discount rate
   Operating leases 6.59 %
   Finance leases 5.68 %

~~Supplemental unaudited consolidated cash flow statement information related to leases:~~



		~~Nine Months Ended September 30, 2019~~
	(Dollars in millions)
~~Cash paid for amounts included in the measurement of lease liabilities:~~ Beginning balance at January 1, 2020 (1)		$	18
~~Operating cash flows from operating leases~~Provision for expected losses		~~296~~34
~~Operating cash flows from finance leases~~Write-offs charged against the allowance		8(21)
~~Financing cash flows from finance leases~~Recoveries collected		38
Foreign currency exchange rate changes adjustment		(2)
Ending balance at September 30, 2020		$	37

______________________________________________________________________

(1)The beginning balance includes the cumulative effect of the adoption of new credit loss standard

~~Table of Contents~~

~~As of September 30, 2019, maturities of lease liabilities were as follows:~~

Operating Leases Finance Leases
(Dollars in millions)
2019 (remaining three months) $ 75
6
2020 277
15
2021 231
16
2022 199
16
2023 169
16
Thereafter 701
165
Total lease payments 1,652
234
Less: interest (508 ) (74 )
Total 1,144
160
Less: current portion (244 ) (7 )
Long-term portion $ 900
153

~~As of September 30, 2019, we had no material operating or finance leases that had not yet commenced.~~

~~Operating Lease Income~~

We lease various IRUs, office facilities, switching facilities and other network sites to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations.

For the ~~three and~~ nine months ended September 30, ~~2019,~~2020, we increased our ~~gross rental income was $52 million~~allowance for credit losses for our accounts receivable portfolio due to an increase in historical and ~~$153 million, respectively,~~expected loss experience in certain classes of aged balances, which ~~represents 2.5%~~we believe were predominantly attributable to the COVID-19 induced economic slowdown. We believe that decreased write-offs (net of recoveries) driven by COVID-19 have further contributed to an increase in our ~~operating revenue~~allowance for both periods. For the three and nine months ended September 30, 2018, our gross rental income was $47 million and $143 million, respectively, which represents 2.3% of our operating revenue for both periods.credit losses.

~~Disclosures under ASC 840~~

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

~~Table of Contents~~

~~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

~~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

(5) Long-Term Debt

The following ~~table summarizes~~chart reflects our consolidated long-term debt, including finance leases, unamortized discounts and premiums, and unamortized debt issuance costs, but excluding intercompany debt:


									Interest Rates(1)		Maturities(1)			September 30, 2020			December 31, 2019
	Interest Rates	Maturities	September 30, 2019			December 31, 2018								(Dollars in millions)
			(Dollars in millions)
Level 3 Parent, LLC
Level 3 Financing, Inc.								Level 3 Financing, Inc.
Senior Secured Debt:(2)(3)								Senior Secured Debt:(2)(3)
Senior notes ⁽¹⁾	5.750%	2022	$	600		600		3.400% - 3.875%		2027 - 2029		$	1,500			1,500
Subsidiaries
Level 3 Financing, Inc.
Tranche B 2027 Term Loan (4)								Tranche B 2027 Term Loan (4)	LIBOR + 1.750%		2027			3,111			3,111
Senior Notes and other debt:								Senior Notes and other debt:
Senior notes ⁽²⁾⁽³⁾	4.625%-6.125%	2021 - 2027	5,915			5,315		3.625% - 5.375%		2024 - 2029		5,515				5,515
Term loan ⁽³⁾	LIBOR + 2.25%	2024	4,611			4,611
Finance leases	Various	Various	160			163		Finance leases	Various		Various			256			171
Total long-term debt, excluding unamortized premiums			11,286			10,689
Unamortized premiums, net			129			155		Unamortized premiums, net						63			104
Unamortized debt issuance costs			(13		)	—		Unamortized debt issuance costs						(55)			(34)
Total long-term debt			11,402			10,844		Total long-term debt						10,390			10,367
Less current maturities			(407		)	(6	)	Less current maturities						(13)			(11)
Long-term debt, excluding current maturities			$	10,995		10,838		Long-term debt, excluding current maturities						$	10,377		10,356

(1) ~~The notes are not guaranteed by any~~As of ~~Level 3 Parent, LLC's subsidiaries. See "Additional Information" within this Note for redemption~~

~~details.~~September 30, 2020.

(2)See Note 6—Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, 2019 for a description of certain parent or subsidiary guarantees and liens securing this debt.

(3)~~The notes are~~This debt is, or is expected to be, fully and unconditionally guaranteed ~~on an unsubordinated unsecured basis~~ by certain affiliates of Level 3 Financing, Inc., including Level 3 Parent, LLC and Level 3 Communications, LLC.

~~Communications, LLC. See "Subsequent Events" within this Note for redemption details.~~

~~(3)~~ (4)The Tranche B ~~2024 Term Loan is a secured obligation and is guaranteed by Level 3 Parent, LLC and certain of its subsidiaries. The Tranche~~

~~B 2024~~2027 Term Loan had an interest rate of ~~4.294% as of~~1.897% at September 30, ~~2019~~2020 and ~~4.754% as of~~3.549% at December 31, ~~2018. The interest rate on the~~2019.

~~Tranche B 2024 Term Loan is set with a minimum London Interbank Offered Rate ("LIBOR") of 0 percent.~~

~~Aggregate Maturities of~~ Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt and finance leases as of September 30, 2020 (excluding unamortized ~~premiums)~~premiums, net, and unamortized debt issuance costs), maturing during the following ~~years as of September 30, 2019:~~years:

Redemption of Senior Notes

~~During the nine months ended~~On September ~~30, 2019,~~11, 2020, Level 3 Financing, Inc. ~~repurchased approximately $400~~redeemed all $140 million aggregate principal amount of its ~~6.125%~~remaining outstanding 5.625% Senior Notes due ~~2021.~~2023 and all $700 million aggregate principal amount of its 5.125% Senior Notes due 2023. On July 15, 2020, Level 3 Financing, Inc. redeemed all $840 million aggregate principal amount of its outstanding 5.375% Senior Notes due 2022 and $360 million aggregate principal amount of its outstanding 5.625% Senior Notes due 2023. These transactions resulted in a gain of $27 million.

New ~~Issuance~~Issuances

On ~~September 25, 2019,~~August 12, 2020, Level 3 Financing, Inc. issued ~~$1.0 billion~~$840 million aggregate principal amount of ~~4.625%~~its 3.625% Senior Notes due ~~2027.~~2029 (the "2029 Notes"). The net proceeds from the offering ~~together with cash on hand will be~~were used ~~for general corporate purposes, including, without limitation,~~ to redeem ~~all~~certain of ~~Level 3 Financing, Inc.'s $240 million~~its outstanding ~~principal amount~~senior note indebtedness. See "—Redemption of ~~6.125%~~ Senior Notes" above. The 2029 Notes due 2021, all of Level 3 Parent, LLC's $600 million outstanding principal amount of 5.75% Senior Notes due 2022 and $160 million of Level 3 Financing, Inc.'s $1 billion in outstanding principal amount of 5.375% Senior Notes due 2022. See "Subsequent Event" below.

~~The term loan and senior notes of~~are (i) unconditionally guaranteed by Level 3 Parent, LLC and (ii) expected to be unconditionally guaranteed by Level 3 Communications, LLC upon receipt of all requisite material governmental authorizations.

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

The term loan, senior secured notes, 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~~its ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with ~~their~~its affiliates including ~~CenturyLink~~Lumen Technologies 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.~~LLC, or Level 3 Financing, Inc., Level 3 Financing, Inc. will be required to offer to repurchase or repay certain of its long-term debt at a price of 101% of the principal amount of debt repurchased or repaid, plus accrued and unpaid interest.

Certain of CenturyLink's and our debt instruments contain ~~cross acceleration~~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.~~

As of September 30, ~~2019, Level 3 Parent, LLC (as successor in interest to Level 3 Communications, Inc.) believes it and its subsidiaries~~2020, we believe we were in compliance with the ~~provisions and~~ financial covenants contained in ~~their respective material~~our debt agreements in all material respects.

~~Additional Information~~

For additional information on our long-term debt, see Note 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, 2018.

~~Subsequent Event~~

On October 25, 2019, Level 3 Financing, Inc. redeemed all of the $240 million outstanding aggregate principal amount of its 6.125% Senior Notes due 2021 and $160 million of the $1.0 billion outstanding principal amount of its 5.375% Senior Notes due 2022.

~~On October 17, 2019, Level 3 Parent, LLC. issued a notice of redemption on all $600 million outstanding principal amount of Level 3 Parent, LLC's 5.75% Senior Notes due 2022 on December 1, 2019.~~

~~(6) Severance and Leased Real Estate~~

Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions result primarily from the progression or completion of improvement and transformation initiatives, increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to the loss of customers purchasing certain services.

We have recognized liabilities to reflect our estimates of the fair values of the existing lease obligations for real estate which we have ceased using, net of estimated sublease rentals. In accordance with transitional guidance under the new lease standard (ASC 842), the existing lease obligation of $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 (1 )
Payments, net (10 )
Balance at September 30, 2019 $ 8

~~(7) Products and Services Revenue~~

~~We categorize our products, services and revenue among the following 5 categories:~~

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

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
IP and Data Services $ 972
970
2,917
2,961
Transport and Infrastructure 668
664
1,981
2,013
Voice and Collaboration 379
349
1,085
1,094
Other 4
1
7
3
Affiliate Services 41
26
134
78
Total operating revenue $ 2,064
2,010
6,124
6,149

We recognize revenue in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our customers. Our consolidated statements of operations also reflect the offsetting expense for the amounts we remit to the government agencies. These USF surcharges, where we record revenue and transaction taxes, are assigned to the products and services categories based on the underlying revenue. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to bill our customers, for which we do not record any revenue or expense because we only act as a pass-through agent.

~~The following table provides the amount of USF surcharges and transaction taxes:~~

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions)
USF surcharges and transaction taxes $ 116
96
326
301

~~(8)~~(6) Fair Value of Financial Instruments

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

The three input levels in the hierarchy of fair value measurements are defined by the Fair Value Measurement and Disclosure framework ~~provides a three-tiered fair value hierarchy based on the reliability~~are generally as follows:

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

~~(9)~~(7) Products and Services Revenues

We categorize our products, services and revenue among the following 5 categories:

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

•Transport and Infrastructure,which includes private line (including business data services), wavelength, colocation and data center services, including cloud, hosting and application management solutions, professional services, network security services, dark fiber services and other ancillary services;

•Voice and Collaboration, which includes primarily TDM voice services, VoIP and other ancillary services;

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

•Affiliate services, which includes telecommunication services that we also provide to our external customers.

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

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


	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020	2019
	(Dollars in millions)
IP and Data Services	$	889	910	2,687	2,748
Transport and Infrastructure	654		636	1,936	1,897
Voice and Collaboration	350		362	1,085	1,043
Other	25		3	74	6
Affiliate Services	53		41	153	134
Total operating revenue	$	1,971	1,952	5,935	5,828

(8) Commitments, Contingencies and Other Items

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

Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for our litigation and non-income tax contingencies at September 30, ~~2019~~2020 aggregated to approximately ~~$66~~$55 million and are included in ~~“Other”~~other current liabilities and ~~“Other Liabilities”~~other liabilities in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows.

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

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against ~~one~~1 of our Peruvian subsidiaries asserting $26 million, of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, we believe the total amount of our exposure was $8$3 million atas of September 30, ~~2019.~~2020.

We challenged the assessments via administrative and then judicial review processes. In October 2011, the highest administrative review tribunal (the ~~"Tribunal")~~Tribunal) decided the central issue underlying the 2002 assessments in SUNAT's favor. We appealed the Tribunal's decision to the first judicial level, which decided the central issue in favor of Level 3. SUNAT and we filed cross-appeals with the court of appeal. In May 2017, the court of appeal issued a decision reversing the first judicial level. In June 2017, we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level. Oral argument was held before the Supreme Court of Justice in October 2018. A decision on this case is pending.

In October 2013, the Tribunal decided the central issue underlying the 2001 assessments in SUNAT’s favor. We appealed that decision to the first judicial level in Peru, which decided the central issue in favor of SUNAT. In June 2017, we filed an appeal with the court of appeal. In November 2017, the court of appeals issued a decision affirming the first judicial level and we filed an appeal of the decision to the Supreme Court of Justice. Oral argument was held before the Supreme Court of Justice in June 2019. A decision on this case is pending.

Brazilian Tax Claims

In December 2004, March 2009, April 2009 and July 2014, the São Paulo state tax ~~authorities~~authority issued tax assessments against ~~one~~1 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~~authority issued tax assessments to the same Brazilian subsidiary on similar issues.

We ~~have~~ filed objections to these assessments in both states, arguing, among other things, that neither the lease of assets ~~and~~nor the provision of Internet access ~~are not communication services~~qualify as "communication services" subject to ICMS. The objections to the September 2002, December 2004 and March 2009 assessments were rejected by the respective state administrative courts, and we have appealed those decisions to the respective state judicial courts.

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

Regarding the September 2002 ~~assessment. The~~assessment, in July 2020, the Rio de Janeiro state court ruling in our favor became final once the appeals process had been exhausted. Accordingly, we released the related reserve. Our objections to the ~~April and~~ July 2009 and May 2012 assessments are still pending ~~final administrative~~state judicial decisions. ~~The July 2014 assessment was confirmed during the fourth quarter of 2014 at the first administrative level, and we appealed this decision to the second administrative level.~~

We are vigorously contesting all such assessments in both states and ~~in particular,~~ view the assessment of ICMS on revenue from equipment leasing and Internet access to be without merit. These assessments, if upheld, could result in a loss of up$16 million to ~~$37~~as high as $44 million atas of September 30, ~~2019~~2020, in excess of the accruals established for these matters.

We were notified in late 2017 of a qui tam action pending against Level 3 Communications, Inc. and others in the ~~United States~~U.S. District Court for the Eastern District of Virginia, captioned United States of America ex rel., Stephen Bishop v. Level 3 Communications, Inc. et al. The original qui tam complaint 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 2 former employees, submitted false claims and made false statements to the government in connection with 2 government contracts. The relator seeks damages in this lawsuit of approximately $50 million, subject to trebling, plus statutory penalties, pre-and-post judgment interest, and attorney’s fees. The case is currently stayed.

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 plaintiff prevails in this matter and proves damages at or near $50 million, and is successful in having those damages trebled, the outcome could have a material adverse effect on our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.

Several people, including 2 former Level 3 employees, were indicted in the ~~United States~~U.S. District Court for the Eastern District of Virginia on October 3, 2017, and charged with, among other things, accepting kickbacks from a subcontractor, who was also indicted, for work to be performed under a prime government contract. Of the 2 former employees, 1 entered a plea agreement, and the other is deceased. We are fully cooperating in the government’s investigations in this matter.

It is customary for us to use various financial instruments in the normal course of business. These instruments include letters of credit which are conditional commitments issued on our behalf in accordance with specified terms and conditions. As of both September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had outstanding letters of credit or other similar obligations of approximately ~~$24~~$17 million and ~~$30~~$23 million, respectively, of which $11 million and $18 million, ~~and $24 million~~respectively, 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~~during 2020 if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.

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

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

The matters listed above in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 1617 - Commitments, Contingencies and Other Items to the financial statements included in Item 8 of Part II of our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us.

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

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


	Pension Plans		Foreign Currency Translation Adjustment and Other	Total
	(Dollars in millions)
Balance at December 31, 2019	$	2	(181)	(179)
Other comprehensive loss, net of tax	0		(179)	(179)
Net other comprehensive loss	0		(179)	(179)
Balance at September 30, 2020	$	2	(360)	(358)

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the nine months ended September 30, 2019:


	Pension Plans		Foreign Currency Translation Adjustment and Other	Total
	(Dollars in millions)
Balance at December 31, 2018	$	5	(176)	(171)
Other comprehensive loss, net of tax	0		(115)	(115)
Net other comprehensive loss	0		(115)	(115)
Balance at September 30, 2019	$	5	(291)	(286)

Pension Plans Foreign Currency Translation Adjustment and Other Total
(Dollars in millions)
Balance at December 31, 2018 $ 5
(176 ) (171 )
Other comprehensive loss, net of tax —
(115 ) (115 )
Net other comprehensive loss —
(115 ) (115 )
Balance at September 30, 2019 $ 5
(291 ) (286 )

~~The table below summarizes changes in~~During the three and nine month periods ended September 30, 2020 and 2019 there were no reclassifications out of accumulated other comprehensive income ~~recorded on~~(loss) in our ~~consolidated balance sheets by component for the nine months ended September 30, 2018:~~statements of operations.

Foreign Currency Translation Adjustment and Other Total
(Dollars in millions)
Balance at December 31, 2017 $ 18
18
Other comprehensive loss before reclassifications, net of tax (164 ) (164 )
Amounts reclassified from accumulated other comprehensive loss 6
6
Net other comprehensive loss (158 ) (158 )
Balance at September 30, 2018 $ (140 ) (140 )

~~(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 fully and unconditionally and jointly and severally guaranteed on an unsecured senior basis by Level 3 Parent, LLC and Level 3 Communications, LLC.

In conjunction with the registration of certain of the Level 3 Financing, Inc. Senior Notes, we have presented below the accompanying condensed consolidating financial information 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, our 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.

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

~~Three Months Ended September 30, 2019~~

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 $ —
—
995
1,028
—
2,023
Operating revenue - affiliates —
—
61
179
(199 ) 41
Total operating revenue —
—
1,056
1,207
(199 ) 2,064
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization) —
—
516
444
—
960
Selling, general and administrative (25 ) 2
322
189
(199 ) 289
Operating expenses - affiliates —
—
54
22
—
76
Depreciation and amortization —
—
169
261
—
430
Total operating expenses (25 ) 2
1,061
916
(199 ) 1,755
OPERATING INCOME (LOSS) 25
(2 ) (5 ) 291
—
309
OTHER INCOME (EXPENSE)
Interest income - affiliate 15
—
—
—
—
15
Interest (expense) income (8 ) (115 ) 4
(4 ) —
(123 )
Interest income (expense) - intercompany, net 963
161
(1,125 ) 2
(1 ) —
Equity in net (losses) earnings of subsidiaries (860 ) (934 ) 188
—
1,606
—
Other (expense) income, net (17 ) 4
2
(2 ) —
(13 )
Total other income (expense), net 93
(884 ) (931 ) (4 ) 1,605
(121 )
INCOME (LOSS) BEFORE INCOME TAXES 118
(886 ) (936 ) 287
1,605
188
Income tax expense (benefit) 4
(26 ) 2
94
—
74
NET INCOME (LOSS) 114
(860 ) (938 ) 193
1,605
114
Other comprehensive (loss), net of income taxes (110 ) —
—
(110 ) 110
(110 )
COMPREHENSIVE INCOME (LOSS) $ 4
(860 ) (938 ) 83
1,715
4

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

~~Three Months Ended September 30, 2018~~

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 $ —
—
951
1,033
—
1,984
Operating revenue - affiliates —
—
50
47
(71 ) 26
Total operating revenue —
—
1,001
1,080
(71 ) 2,010
OPERATING EXPENSES

Cost of services and products (exclusive of depreciation and amortization) —
—
538
438
—
976
Selling, general and administrative expenses —
—
333
49
(71 ) 311
Operating expenses - affiliates —
—
50
15
—
65
Depreciation and amortization —
—
176
255
—
431
Total operating expenses —
—
1,097
757
(71 ) 1,783
OPERATING (LOSS) INCOME —
—
(96 ) 323
—
227
OTHER INCOME (EXPENSE)

Interest income - affiliate 16
—
—
2
—
18
Interest expense (8 ) (118 ) (2 ) (8 ) (1 ) (137 )
Interest income (expense) - intercompany, net 771
234
(997 ) (8 ) —
—
Equity in net (losses) earnings of subsidiaries (690 ) (834 ) 452
—
1,072
—
Other income (expense), net (3 ) —
(1 ) 21
1
18
Total other income (expense), net 86
(718 ) (548 ) 7
1,072
(101 )
INCOME (LOSS) BEFORE INCOME TAXES 86
(718 ) (644 ) 330
1,072
126
Income tax (benefit) expense (2 ) (28 ) (18 ) 86
—
38
NET INCOME (LOSS) 88
(690 ) (626 ) 244
1,072
88
Other comprehensive loss, net of income taxes (1 ) —
—
(1 ) 1
(1 )
COMPREHENSIVE INCOME (LOSS) $ 87
(690 ) (626 ) 243
1,073
87

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

~~Nine Months Ended September 30, 2019~~

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 $ —
—
2,903
3,087
—
5,990
Operating revenue - affiliates —
—
170
596
(632 ) 134
Total operating revenue —
—
3,073
3,683
(632 ) 6,124
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization) —
—
1,484
1,362
—
2,846
Selling, general and administrative (25 ) 5
1,084
532
(632 ) 964
Operating expenses - affiliates —
—
141
68
—
209
Depreciation and amortization —
—
477
732
—
1,209
Goodwill impairment —
—
1,369
2,339
—
3,708
Total operating expenses (25 ) 5
4,555
5,033
(632 ) 8,936
OPERATING INCOME (LOSS) 25
(5 ) (1,482 ) (1,350 ) —
(2,812 )
OTHER (EXPENSE) INCOME
Interest income - affiliate 47
—
—
—
—
47
Interest (expense) income (24 ) (354 ) 7
(13 ) —
(384 )
Interest income (expense) - intercompany, net 2,844
487
(4,671 ) 1,340
—
—
Equity in net losses of subsidiaries (6,227 ) (6,445 ) (1,048 ) —
13,720
—
Other (expense) income, net (19 ) 4
10
7
—
2
Total other (expense) income, net (3,379 ) (6,308 ) (5,702 ) 1,334
13,720
(335 )
(LOSS) INCOME BEFORE INCOME TAXES (3,354 ) (6,313 ) (7,184 ) (16 ) 13,720
(3,147 )
Income tax expense (benefit) 7
(86 ) 2
291
—
214
NET (LOSS) INCOME (3,361 ) (6,227 ) (7,186 ) (307 ) 13,720
(3,361 )
Other comprehensive (loss), net of income taxes (115 ) —
—
(115 ) 115
(115 )
COMPREHENSIVE LOSS $ (3,476 ) (6,227 ) (7,186 ) (422 ) 13,835
(3,476 )

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

~~Nine Months Ended September 30, 2018~~

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 $ —
—
2,884
3,187
—
6,071
Operating revenue - affiliates —
—
81
151
(154 ) 78
Total operating revenue —
—
2,965
3,338
(154 ) 6,149
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization) —
—
1,727
1,227
—
2,954
Selling, general and administrative —
3
878
234
(72 ) 1,043
Operating expenses - affiliates —
—
140
115
(82 ) 173
Depreciation and amortization —
—
520
775
—
1,295
Total operating expenses —
3
3,265
2,351
(154 ) 5,465
OPERATING (LOSS) INCOME —
(3 ) (300 ) 987
—
684
OTHER (EXPENSE) INCOME
Interest income - affiliate 48
—
—
2
—
50
Interest expense (24 ) (339 ) (3 ) (15 ) —
(381 )
Interest income (expense) - intercompany, net 1,474
1,446
(2,756 ) (164 ) —
—
Equity in net (losses) earnings of subsidiaries (1,321 ) (2,505 ) 451
—
3,375
—
Other income (expense), net (3 ) —
3
21
—
21
Total other income (expense), net 174
(1,398 ) (2,305 ) (156 ) 3,375
(310 )
INCOME (LOSS) BEFORE INCOME TAXES 174
(1,401 ) (2,605 ) 831
3,375
374
Income tax (benefit) expense (16 ) (80 ) 16
264
—
184
NET INCOME (LOSS) 190
(1,321 ) (2,621 ) 567
3,375
190
Other comprehensive loss, net of income taxes (164 ) —
—
(164 ) 164
(164 )
COMPREHENSIVE INCOME (LOSS) $ 26
(1,321 ) (2,621 ) 403
3,539
26

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3
—
1,156
65
—
1,224
Restricted cash —
—
—
3
—
3
Accounts receivable —
—
69
649
—
718
Intercompany advances 19,145
24,656
7,542
3,030
(54,373 ) —
Note receivable - affiliate 1,590
—
—
—
—
1,590
Other —
—
131
178
(15 ) 294
Total current assets 20,738
24,656
8,898
3,925
(54,388 ) 3,829
Property, plant, and equipment, net —
—
3,574
6,145
—
9,719
GOODWILL AND OTHER ASSETS
Goodwill —
—
382
7,007
—
7,389
Operating lease assets —
—
1,213
378
(489 ) 1,102
Restricted cash 12
—
5
2
—
19
Customer relationships, net —
—
3,465
3,561
—
7,026
Other intangible assets, net —
—
434
24
—
458
Investment in subsidiaries 9,314
11,471
2,813
—
(23,598 ) —
Other, net 268
1,508
86
200
(1,512 ) 550
Total goodwill and other assets 9,594
12,979
8,398
11,172
(25,599 ) 16,544
TOTAL ASSETS $ 30,332
37,635
20,870
21,242
(79,987 ) 30,092

LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ —
400
—
7
—
407
Accounts payable —
2
420
331
—
753
Accounts payable - affiliates 80
16
471
—
(15 ) 552
Accrued expenses and other liabilities
Salaries and benefits —
—
174
42
—
216
Income and other taxes —
7
67
39
—
113
Current operating lease liabilities —
—
252
89
(97 ) 244
Interest 3
71
1
3
—
78

Intercompany payables —
—
50,785
3,588
(54,373 ) —
Other 1
1
8
61
—
71
Current portion of deferred revenue —
—
159
137
—
296
Total current liabilities 84
497
52,337
4,297
(54,485 ) 2,730
LONG-TERM DEBT 611
10,231
6
147
—
10,995

DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue —
—
1,055
209
—
1,264
Deferred income taxes, net 56
—
781
900
(1,512 ) 225
Noncurrent operating lease liabilities —
—
989
303
(392 ) 900
Other —
—
141
145
—
286
Total deferred revenue and other liabilities 56
—
2,966
1,557
(1,904 ) 2,675
MEMBER'S EQUITY (DEFICIT) 29,581
26,907
(34,439 ) 15,241
(23,598 ) 13,692
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 30,332
37,635
20,870
21,242
(79,987 ) 30,092

~~Condensed Consolidating Balance Sheets~~

~~December 31, 2018~~

Level 3 Parent, LLC Level 3 Financing, Inc. Level 3 Communications, LLC Other Non-Guarantor Subsidiaries Eliminations Total
(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2
—
164
77
—
243
Restricted cash —
—
—
4
—
4
Accounts receivable —
—
70
642
—
712
Intercompany advances 16,852
23,957
7,744
2,707
(51,260 ) —
Note receivable - affiliate 1,825
—
—
—
—
1,825
Other 1
3
97
133
—
234
Total current assets 18,680
23,960
8,075
3,563
(51,260 ) 3,018
Property, plant, and equipment, net —
—
3,136
6,317
—
9,453

GOODWILL AND OTHER ASSETS
Goodwill —
—
1,665
9,454
—
11,119
Restricted cash 15
—
9
1
—
25
Customer relationships, net —
—
3,823
3,744
—
7,567
Other intangible assets, net —
—
409
1
—
410
Investment in subsidiaries 15,541
17,915
3,861
—
(37,317 ) —
Other, net 275
1,421
110
225
(1,332 ) 699
Total goodwill and other assets 15,831
19,336
9,877
13,425
(38,649 ) 19,820
TOTAL ASSETS $ 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 $ —
—
1
5
—
6
Accounts payable —
—
380
346
—
726
Accounts payable - affiliates 62
11
162
11
—
246
Accrued expenses and other liabilities
Salaries and benefits —
—
189
44
—
233
Income and other taxes —
4
72
54
—
130
Interest 11
78
1
5
—
95
Intercompany payables —
—
45,347
5,913
(51,260 ) —
Other 3
1
8
66
—
78

Current portion of deferred revenue —
—
168
142
—
310
Total current liabilities 76
94
46,328
6,586
(51,260 ) 1,824
LONG-TERM DEBT 613
10,068
7
150
—
10,838
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue —
—
971
210
—
1,181
Deferred income taxes, net 56
—
841
637
(1,332 ) 202
Other —
—
197
172
—
369
Total deferred revenue and other liabilities 56
—
2,009
1,019
(1,332 ) 1,752
MEMBER'S EQUITY (DEFICIT) 33,766
33,134
(27,256 ) 15,550
(37,317 ) 17,877
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 34,511
43,296
21,088
23,305
(89,909 ) 32,291

~~Condensed Consolidating Statements of Cash Flows~~

~~Nine Months EndedSeptember 30, 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 (used in) provided by operating activities $ (262 ) —
1,692
414
—
1,844
INVESTING ACTIVITIES
Capital expenditures —
—
(558 ) (424 ) —
(982 )
Payments of notes receivable - affiliates 235
—
—
—
—
235
Proceeds from sale of property, plant and equipment and other assets 25
—
1
1
—
27
Other, net —
—
(25 ) —
—
(25 )
Net cash provided by (used in) investing activities 260
—
(582 ) (423 ) —
(745 )
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt —
—
988
—
—
988
Payments of long-term debt —
—
(401 ) (3 ) —
(404 )
Distributions (709 ) —
—
—
—
(709 )
Increase (decrease) due from affiliate, net 709
—
(709 ) —
—
—
Net cash used in financing activities —
—
(122 ) (3 ) —
(125 )
Net (decrease) increase in cash, cash equivalents and restricted cash (2 ) —
988
(12 ) —
974
Cash, cash equivalents and restricted cash at beginning of period 17
—
173
82
—
272
Cash, cash equivalents and restricted cash at end of period $ 15
—
1,161
70
—
1,246

~~Condensed Consolidating Statements of Cash Flows~~

~~Nine Months Ended September 30, 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 (used in) provided by operating activities $ (49 ) —
1,420
256
—
1,627
INVESTING ACTIVITIES
Capital expenditures —
—
(392 ) (334 ) —
(726 )
Proceeds from sale of property, plant and equipment and other assets 68
—
—
51
—
119
Net cash provided by (used in) investing activities 68
—
(392 ) (283 ) —
(607 )
FINANCING ACTIVITIES
Payments of long-term debt —
—
—
(5 ) —
(5 )
Distributions (1,130 ) —
—
—
—
(1,130 )
Increase (decrease) due from/to affiliates, net 1,130
—
(1,130 ) —
—
—
Net cash used in financing activities —
—
(1,130 ) (5 ) —
(1,135 )
Net increase (decrease) in cash, cash equivalents and restricted cash 19
—
(102 ) (32 ) —
(115 )
Cash, cash equivalents and restricted cash at beginning of period 32
—
186
113
—
331
Cash, cash equivalents and restricted cash at end of period $ 51
—
84
81
—
216

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

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.

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

Certain statements in this report constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements" appearing at the beginning of this report and "Risk Factors" set forth or referenced in Item 1A of Part III of this report or other of our ~~annual report on Form 10-K for~~filings with the ~~year ended December 31, 2018~~SEC for a discussion of certain factors that could cause our actual results to differ from our anticipated results or otherwise impact our business, financial condition, results of operations, liquidity or prospects.

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~~Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, and with the consolidated financial statements and related notes in Item 1 of Part I of this report. The results of operations and cash flows for the first nine months of the year are not necessarily indicative of the results of operations and cash flows that might be expected for the entire year.

We are an international facilities-based communications company engaged in providing a broad array of integrated communication services to our business customers. We designed our network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.

Impact of COVID-19 Pandemic

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

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

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

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

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

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

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

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

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

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

•Transport and Infrastructure, which includes private line (including business data services), wavelength, colocation and data center facilities and services, including cloud, hosting and application management solutions, professional services, dark fiber services and other ancillary services;

•Voice and Collaboration, which includes primarily TDM voice services, VoIP and other ancillary services;

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

•Affiliate Services, which includestelecommunication services that we also provide to our external customers.

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

Results of Operations

The following table summarizes the results of our consolidated operations for the three and nine months ended September 30, ~~2019~~2020 and September 30, ~~2018:~~

2019:

For a discussion of certain trends that impact our business, see the MD&A discussion of trends impacting ~~CenturyLink’s~~Lumen’s non-consumer business included in ~~CenturyLink’s~~Lumen’s reports filed with the SEC, including its Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2019.~~2020.

~~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~~, which includes private line (including business data services), wavelength, colocation and data center facilities and services, including cloud, hosting and application management solutions professional services, dark fiber services and other ancillary services;

~~Voice and Collaboration, which includes primarily TDM voice services, VoIP and other ancillary services;~~

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

~~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 services.~~

The following tables summarize our consolidated operating revenue recorded under our five above-described revenue categories:


	Nine Months Ended September 30,
	2020		2019	% Change
	(Dollars in millions)
IP and Data Services	$	2,687	2,748	(2)	%
Transport and Infrastructure	1,936		1,897	2	%
Voice and Collaboration	1,085		1,043	4	%
Other	74		6	nm
Affiliate Services	153		134	14	%
Total operating revenue	$	5,935	5,828	2	%

__________________________________________________________________

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


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



		September 30, 2019			December 31, 2018
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities-Long-term debt, excluding finance lease	2	$	11,242	11,225	10,681	10,089


		September 30, 2020			December 31, 2019
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases	2	$	10,134	10,225	10,196	10,244



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



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



	September 30, 2019			December 31, 2018
	(Unaudited)
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,224		243
Restricted cash	3			4
Accounts receivable, less allowance of $14 and $11	718			712
Note receivable - affiliate	1,590			1,825
Other	294			234
Total current assets	3,829			3,018
Property, plant and equipment, net of accumulated depreciation of $1,610 and $1,021	9,719			9,453
GOODWILL AND OTHER ASSETS
Goodwill	7,389			11,119
Operating lease assets	1,102			—
Restricted cash	19			25
Customer relationships, net	7,026			7,567
Other intangible assets, net	458			410
Other, net	550			699
Total goodwill and other assets	16,544			19,820
TOTAL ASSETS	$	30,092		32,291
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	407		6
Accounts payable	753			726
Accounts payable - affiliates	552			246
Accrued expenses and other liabilities
Salaries and benefits	216			233
Income and other taxes	113			130
Current operating lease liabilities	244			—
Interest	78			95
Other	71			78
Current portion of deferred revenue	296			310
Total current liabilities	2,730			1,824
LONG-TERM DEBT	10,995			10,838
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	1,264			1,181
Deferred income taxes, net	225			202
Noncurrent operating lease liabilities	900			—
Other	286			369
Total deferred revenue and other liabilities	2,675			1,752

COMMITMENTS AND CONTINGENCIES (Note 9)
MEMBER'S EQUITY
Member's equity	13,978			18,048
Accumulated other comprehensive loss	(286		)	(171	)
Total member's equity	13,692			17,877
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	30,092		32,291



	Nine Months Ended September 30,
	2019			2018
	(Dollars in millions)
OPERATING ACTIVITIES
Net (loss) income	$	(3,361	)	190
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	1,209			1,295
Goodwill impairment	3,708			—
Deferred income taxes	165			175
Changes in current assets and liabilities:
Accounts receivable	(28		)	51
Accounts payable	(72		)	(64	)
Other assets and liabilities, net	(126		)	(118	)
Other assets and liabilities, affiliate	306			55
Changes in other noncurrent assets and liabilities, net	57			37
Other, net	(14		)	6
Net cash provided by operating activities	1,844			1,627
INVESTING ACTIVITIES
Capital expenditures	(982		)	(726	)
Payments of notes receivable - affiliates	235			—
Proceeds from sale of property, plant and equipment and other assets	27			119
Other, net	(25		)	—
Net cash used in investing activities	(745		)	(607	)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	988			—
Payments of long-term debt	(404		)	(5	)
Distributions	(709		)	(1,130	)
Net cash used in financing activities	(125		)	(1,135	)
Net increase (decrease) in cash, cash equivalents and restricted cash	974			(115	)
Cash, cash equivalents and restricted cash at beginning of period	272			331
Cash, cash equivalents and restricted cash at end of period	$	1,246		216



	(Dollars in millions)
2019 (remaining three months)	$	205
2020	825
2021	825
2022	764
2023	743



	(Dollars in millions)
As of December 31, 2018	$	11,119
Effect of foreign currency rate change and other	(22		)
Impairment	(3,708		)
As of September 30, 2019	$	7,389



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
	(Dollars in millions)
Operating and short-term lease cost	$	92	288
Finance lease cost:
Amortization of right-of-use assets	3		10
Interest on lease liability	2		8
Total finance lease cost	5		18
Total lease cost	$	97	306



		September 30,
Leases (millions)	Classification on the Balance Sheet	2019
Assets
Operating lease assets	Operating lease assets	$	1,102
Finance lease assets	Property, plant and equipment, net of accumulated depreciation	147
Total leased assets		$	1,249

Liabilities
Current
Operating	Current operating lease liabilities	$	244
Finance	Current portion of long-term debt	7
Noncurrent
Operating	Noncurrent operating lease liabilities	900
Finance	Long-term debt	153
Total lease liabilities		$	1,304

Weighted-average remaining lease term (years)
Operating leases		11.1
Finance leases		13.4
Weighted-average discount rate
Operating leases		6.59		%
Finance leases		5.68		%



	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


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



	Severance
	(Dollars in millions)
Balance at January 1, 2019	$	19
Accrued to expense	(1		)
Payments, net	(10		)
Balance at September 30, 2019	$	8


•	~~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~~,which includes private line (including business data services), wavelength, colocation and data center services, including cloud, hosting and application management solutions, professional services, network security services, dark fiber services and other ancillary services;


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



	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	$	—		—		995		1,028		—		2,023
Operating revenue - affiliates	—			—		61		179		(199	)	41
Total operating revenue	—			—		1,056		1,207		(199	)	2,064
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—		516		444		—		960
Selling, general and administrative	(25		)	2		322		189		(199	)	289
Operating expenses - affiliates	—			—		54		22		—		76
Depreciation and amortization	—			—		169		261		—		430
Total operating expenses	(25		)	2		1,061		916		(199	)	1,755
OPERATING INCOME (LOSS)	25			(2	)	(5	)	291		—		309
OTHER INCOME (EXPENSE)
Interest income - affiliate	15			—		—		—		—		15
Interest (expense) income	(8		)	(115	)	4		(4	)	—		(123	)
Interest income (expense) - intercompany, net	963			161		(1,125	)	2		(1	)	—
Equity in net (losses) earnings of subsidiaries	(860		)	(934	)	188		—		1,606		—
Other (expense) income, net	(17		)	4		2		(2	)	—		(13	)
Total other income (expense), net	93			(884	)	(931	)	(4	)	1,605		(121	)
INCOME (LOSS) BEFORE INCOME TAXES	118			(886	)	(936	)	287		1,605		188
Income tax expense (benefit)	4			(26	)	2		94		—		74
NET INCOME (LOSS)	114			(860	)	(938	)	193		1,605		114
Other comprehensive (loss), net of income taxes	(110		)	—		—		(110	)	110		(110	)
COMPREHENSIVE INCOME (LOSS)	$	4		(860	)	(938	)	83		1,715		4



Intercompany payables	—		—	50,785		3,588	(54,373	)	—
Other	1		1	8		61	—		71
Current portion of deferred revenue	—		—	159		137	—		296
Total current liabilities	84		497	52,337		4,297	(54,485	)	2,730
LONG-TERM DEBT	611		10,231	6		147	—		10,995

DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	—		—	1,055		209	—		1,264
Deferred income taxes, net	56		—	781		900	(1,512	)	225
Noncurrent operating lease liabilities	—		—	989		303	(392	)	900
Other	—		—	141		145	—		286
Total deferred revenue and other liabilities	56		—	2,966		1,557	(1,904	)	2,675
MEMBER'S EQUITY (DEFICIT)	29,581		26,907	(34,439	)	15,241	(23,598	)	13,692
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	30,332	37,635	20,870		21,242	(79,987	)	30,092



Current portion of deferred revenue	—		—	168		142	—		310
Total current liabilities	76		94	46,328		6,586	(51,260	)	1,824
LONG-TERM DEBT	613		10,068	7		150	—		10,838
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenue	—		—	971		210	—		1,181
Deferred income taxes, net	56		—	841		637	(1,332	)	202
Other	—		—	197		172	—		369
Total deferred revenue and other liabilities	56		—	2,009		1,019	(1,332	)	1,752
MEMBER'S EQUITY (DEFICIT)	33,766		33,134	(27,256	)	15,550	(37,317	)	17,877
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	34,511	43,296	21,088		23,305	(89,909	)	32,291



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


	Nine Months Ended September 30, 2020
	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC
	(Dollars in millions)
Operating revenue	$	—	—	2,922
Operating revenue-affiliates	—		—	170
Operating expenses	(75)		2	2,881
Operating expenses-affiliates	—		—	210
Operating income (loss)	75		(2)	1
Net income (loss)	3,121		327	(3,629)



31.1*4.1			Indenture, dated August 12 , 2020, among Level 3 Parent, LLC, as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 3.625 % Senior Notes due 202 9 of Level 3 Financing, Inc. (incorporated by reference to Exhibit 4.1 to CenturyLink, Inc.’s Current Report on Form 8-K (File No. 001-35134) filed with the Securities and Exchange Commission on August 12 , 2020).
~~Rule 13a-14(a)/15d-14(a)~~ 22.1*			Guaranteed Securities
31.1*			Certification of the Chief Executive ~~Officer.~~Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			~~Rule 13a-14(a)/15d-14(a)~~ Certification of the Chief Financial ~~Officer.~~Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*			Certification of Chief Executive Officer ~~pursuant to 18 U.S.C. Section 1350, as adopted~~ pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*			Certification of Chief Financial Officer ~~pursuant to 18 U.S.C. Section 1350, as adopted~~ pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*			The following materials from the Quarterly Report on Form 10-Q of Level 3 Parent, LLC for the quarter ended September 30, ~~2019,~~2020, formatted in Inline XBRL (eXtensible Business Reporting Language); (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Member's Equity and (vi) Notes to Consolidated Financial Statements.
104*			Cover page formatted as Inline XBRL and contained in Exhibit 101.



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