NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
References in the Notes to "Lumen Technologies" or "Lumen," "we," "us," the "Company," and "our" refer to Lumen Technologies, Inc. and its consolidated subsidiaries, unless the context otherwise requires. References in the Notes to "Level 3" refer to Level 3 Parent, LLC and its predecessor, Level 3 Communications, Inc., which we acquired on November 1, 2017.
(1) Background
General
We are an international facilities-based technology and communications company engaged primarily in providing a broad array of integrated services to our business and mass markets customers. Our specific products and services are detailed in Note 4—Revenue Recognition.
Basis of Presentation
Our consolidated balance sheet as of December 31, 2020, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading. We believe 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 on Form 10-K for the year ended December 31, 2020.
The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which we have a controlling interest. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated.
To simplify the overall presentation of our consolidated financial statements, we report immaterial amounts attributable to noncontrolling interests in certain of our subsidiaries as follows: (i) income attributable to noncontrolling interests in other income (expense), net, (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable to noncontrolling interests in other, net, financing activities.
We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and expenses in our segment reporting. See Note 14—Segment Information for additional information. These changes had no impact on total operating revenue, total operating expenses or net income for any period.
Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.
There were no book overdrafts included in accounts payable at September 30, 2021 or December 31, 2020.
Summary of Significant Accounting Policies
Refer to the significant accounting policies described in Note 1— Background and Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.
Assets Held for Sale
We classify assets and related liabilities as held for sale when: (i) management has committed to a plan to sell the assets, (ii) the net assets are available for immediate sale, (iii) there is an active program to locate a buyer and (iv) the sale and transfer of the net assets is probable within one year. Assets and liabilities held for sale are presented separately on our consolidated balance sheets with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less costs to sell. Depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale. For each period that assets are classified as being held for sale, they are tested for recoverability. Unless otherwise specified, the amounts and information presented in the notes do not include assets and liabilities that have been reclassified as held for sale as of September 30, 2021. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for additional information.
Recently Adopted Accounting Pronouncements
Debt
On January 1, 2021, we adopted ASU 2020-09, "Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762" ("ASU 2020-09"). This ASU amends and supersedes various SEC paragraphs to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The adoption of ASU 2020-09 did not have a material impact to our consolidated financial statements.
Investments
On January 1, 2021, we adopted ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815)" ("ASU 2020-01"). This ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments - Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. As of September 30, 2021, we determined there was no application or discontinuation of the equity method during the reporting periods. The adoption of ASU 2020-01 did not have a material impact to our consolidated financial statements.
Income Taxes
On January 1, 2021, we adopted ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)" ("ASU 2019-12"). This ASU removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU 2019-12 did not have a material impact to our consolidated financial statements.
Measurement of Credit Losses on Financial Instruments
We adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") on January 1, 2020 and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $9 million, net of tax effect of $2 million. Please refer to Note 6—Credit Losses on Financial Instruments for more information.
Recently Issued Accounting Pronouncements
In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope" ("ASU 2021-01"), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ASU 2021-01 provides option guidance for a limited time to ease the potential burden in accounting for reference rate reform. Based on our review of our key material contracts through September 30, 2021, we do not expect ASU 2021-01 to have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04" or "Reference Rate Reform"), designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period. Subject to certain criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications and hedging accounting relationships made until December 31, 2022. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. Based on our review of our key material contracts through September 30, 2021, we do not expect ASU 2020-04 to have a material impact on the consolidated financial statements.
(2) Planned Divestiture of the Latin American and ILEC Businesses
On July 25, 2021, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., entered into a definitive agreement to divest Lumen’s Latin American business to an affiliate of a fund advised by Stonepeak Partners LP in exchange for $2.7 billion cash, subject to certain working capital, other purchase price adjustments and related transaction expenses (estimated to be approximately $50 million). Level 3 Parent, LLC expects to close the transaction in the first half of 2022, upon receipt of all requisite regulatory approvals in the U.S. and certain countries where the Latin American business operates, as well as the satisfaction of other customary conditions.
On August 3, 2021, Lumen Technologies, Inc. and certain of its wholly-owned subsidiaries entered into a definitive agreement to divest their incumbent local exchange ("ILEC") business conducted within 20 Midwestern and Southern states to an affiliate of funds advised by Apollo Global Management, Inc. In exchange, Lumen and its subsidiaries would receive $7.5 billion, subject to (i) offsets for assumed indebtedness (expected to be approximately $1.4 billion) and (ii) certain purchaser’s transaction expenses along with working capital, tax, other customary purchase price adjustments and related transaction expenses (estimated to be approximately $1.7 billion). Lumen expects to close the transaction in the second half of 2022 upon receipt of all regulatory approvals and the satisfaction of other customary closing conditions.
The actual amount of our net after-tax proceeds from these divestitures could vary substantially from the amounts we currently estimate, particularly if we experience delays in completing the transactions or if there are changes in other assumptions that impact our estimates.
We do not believe these divestiture transactions represent a strategic shift for Lumen. Therefore, neither divested business meets the criteria to be classified as a discontinued operation. As a result, we will continue to report our operating results for the Latin American and ILEC businesses (the "disposal groups") in our consolidated operating results until the transactions are closed. The pre-tax net income of the disposal groups is estimated to be as follows in the tables below:
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Three Months Ended September 30,
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2021
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2020
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Low
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High
|
|
Low
|
High
|
|
|
(Dollars in millions)
|
|
Latin American business pre-tax net income
|
$
|
59
|
|
72
|
|
|
36
|
|
45
|
|
|
ILEC business pre-tax net income
|
221
|
|
271
|
|
|
139
|
|
169
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|
|
Total disposal groups pre-tax net income
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$
|
280
|
|
343
|
|
|
175
|
|
214
|
|
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Nine Months Ended September 30,
|
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2021
|
|
2020
|
|
|
Low
|
High
|
|
Low
|
High
|
|
|
(Dollars in millions)
|
|
Latin American business pre-tax net income
|
$
|
131
|
|
160
|
|
|
108
|
|
131
|
|
|
ILEC business pre-tax net income
|
518
|
|
633
|
|
|
455
|
|
556
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|
|
Total disposal groups pre-tax net income
|
$
|
649
|
|
793
|
|
|
563
|
|
687
|
|
As of September 30, 2021 in the accompanying consolidated balance sheets, the assets and liabilities of our Latin American and ILEC businesses are classified as held for sale and are measured at the lower of (i) the carrying value when we classified the disposal groups as held for sale and (ii) the fair value of the disposal groups, less costs to sell. Effective with the designation of both disposal groups as held for sale on July 25, 2021 and August 3, 2021, respectively, depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale. We estimate that we would have recorded an additional $107 million of depreciation, intangible amortization, and amortization of right-of-use assets for the three and nine months ended September 30, 2021 if the Latin American and ILEC businesses did not meet the held for sale criteria.
As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we did not record any estimated loss on disposal during the nine months ended September 30, 2021. The recoverability of each disposal group will be re-evaluated each reporting period until the closing of each transaction.
The principal components of the held for sale assets and liabilities as of September 30, 2021 are as follows:
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September 30, 2021
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Latin American Business
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ILEC Business
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Total (4)
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(Dollars in millions)
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Assets held for sale
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|
|
|
|
|
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Cash and cash equivalents
|
$
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37
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|
|
2
|
|
|
39
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|
|
Accounts receivable, less allowance of $3, $21 and $24
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83
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|
|
230
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|
|
313
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|
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Other current assets
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75
|
|
|
46
|
|
|
121
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|
|
Property, plant and equipment, net accumulated depreciation of $445, $10,976 and $11,421
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1,545
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|
|
3,386
|
|
|
4,931
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|
|
Goodwill (1)
|
244
|
|
|
2,615
|
|
|
2,859
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|
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Other intangible assets, net
|
129
|
|
|
158
|
|
|
287
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|
|
Other non-current assets
|
71
|
|
|
41
|
|
|
112
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|
|
Total assets held for sale
|
$
|
2,184
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|
|
6,478
|
|
|
8,662
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|
|
|
|
|
|
|
|
|
Liabilities held for sale
|
|
|
|
|
|
|
Accounts payable
|
$
|
76
|
|
|
79
|
|
|
155
|
|
|
Salaries and benefits
|
22
|
|
|
28
|
|
|
50
|
|
|
Income and other taxes
|
32
|
|
|
31
|
|
|
63
|
|
|
Interest
|
—
|
|
|
38
|
|
|
38
|
|
|
Current portion of deferred revenue
|
28
|
|
|
90
|
|
|
118
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|
|
Other current liabilities
|
10
|
|
|
43
|
|
|
53
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|
|
Long-term debt, net of discounts (2)
|
—
|
|
|
1,367
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|
|
1,367
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|
|
Deferred income taxes, net
|
116
|
|
|
—
|
|
|
116
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|
|
Pension and other post-retirement benefits (3)
|
2
|
|
|
56
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|
|
58
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|
|
Other non-current liabilities
|
126
|
|
|
147
|
|
|
273
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|
|
Total liabilities held for sale
|
$
|
412
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|
|
1,879
|
|
|
2,291
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______________________________________________________________________
(1)The assignment of goodwill was based on the relative fair values of the applicable reporting units prior to being reclassified as held for sale.
(2)Long-term debt, net of discounts includes $1.4 billion of Embarq Senior notes, $118 million of related unamortized discounts and $48 million of long-term finance lease obligations.
(3)Excludes pension obligation of approximately $2.5 billion for the ILEC business as of September 30, 2021, which will be transferred to the purchaser of the ILEC business upon closing. As of September 30, 2021, approximately $2.2 billion, or 89%, of this pension obligation is expected to be funded through the transfer of Lumen pension plan assets to the purchaser. The remaining portion of the obligation is expected to be separately funded with cash paid by Lumen at the time of closing.
(4)The totals shown here exclude $20 million of assets held for sale unrelated to these divestitures.
(3) Goodwill, Customer Relationships and Other Intangible Assets
Goodwill, customer relationships and other intangible assets consisted of the following:
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|
|
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|
|
September 30, 2021
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|
December 31, 2020
|
|
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(Dollars in millions)
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Goodwill
|
$
|
15,987
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|
|
18,870
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|
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Indefinite-life intangible assets
|
$
|
9
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|
|
278
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|
|
Other intangible assets subject to amortization:
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|
|
|
Customer relationships, less accumulated amortization of $11,571 and $11,060
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5,535
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|
|
6,344
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|
|
Capitalized software, less accumulated amortization of $3,537 and $3,279
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1,464
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|
|
1,520
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|
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Trade names, patents and other, less accumulated amortization of $156 and $120
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152
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|
|
77
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|
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Total other intangible assets, net
|
$
|
7,160
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|
|
8,219
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When we acquired Embarq Corporation ("Embarq") in 2009, we acquired certain right-of-way assets and, because there were no legal, regulatory, contractual or other factors that would reasonably limit the useful life of these assets, we classified them as indefinite-lived and, as such, these assets were not amortized. However, as we leverage our fiber infrastructure assets, our reliance on the legacy infrastructure (largely copper-based) acquired from Embarq is diminishing. Our recent digital transformation efforts have prompted management to reassess and ultimately change the accounting treatment of these indefinite-lived assets to align with our focus on growth products versus our declining products. As a result, during the first quarter of 2021, we reclassified an indefinite-lived intangible asset to finite-lived intangible asset. As of January 1, 2021 we began amortizing the $268 million asset over its estimated nine-year remaining life. On August 3, 2021, upon entering into a definitive agreement to divest our ILEC business, we reclassified $158 million of the $268 million asset as held for sale. At this time, we discontinued recording amortization on the portion of the finite-lived intangible assets that had been reclassified as held for sale (see Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information). The above-described change in the estimated remaining economic life of these assets, as modified by the subsequent reclassification of a portion thereof, resulted in an increase in amortization expense of approximately $5 million and $20 million, respectively, for the three and nine months ended September 30, 2021, and is expected to increase amortization expense by approximately $23 million for the year ending December 31, 2021. The increase in amortization expense, net of tax, (i) reduced consolidated net income by approximately $4 million and $15 million, respectively, for the three and nine month periods ending September 30, 2021, with no impact per basic and diluted common share for the three months ended September 30, 2021 and a $0.01 reduction per basic and diluted common share for the nine months ended September 30, 2021 and (ii) is expected to reduce consolidated net income by approximately $17 million, or $0.02 per basic and diluted common share, for the year ending December 31, 2021.
Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired.
We assess our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our assessment determines the carrying value of equity of any of our reporting units exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess our reporting units. Our annual impairment assessment date for indefinite-lived intangible assets other than goodwill is December 31.
Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of multiple reporting units. For each reporting unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit. If the estimated fair value of the reporting unit is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the reporting unit is less than the carrying value, we record an impairment equal to the excess amount. Depending on the facts and circumstances, we typically estimate the fair value of our reporting units by considering either or both of (i) a discounted cash flow method, which is based on the present value of projected cash flows over a discrete projection period and a terminal value, which represents the value of expected normalized cash flows of the reporting units following the discrete projection period, and (ii) a market approach, which includes the use of market multiples of publicly-traded companies whose services are comparable to ours.
We completed an internal reorganization in January 2021. We now, as a result, report two segments: Business and Mass Markets. The following table shows the rollforward of goodwill assigned to our reportable segments, including the reorganization, from December 31, 2020 through September 30, 2021:
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International and Global Accounts
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Enterprise
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Small and Medium Business
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Wholesale
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Consumer
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Business
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Mass Markets
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Total
|
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(Dollars in millions)
|
|
As of December 31, 2020(1)
|
$
|
2,555
|
|
4,738
|
|
2,808
|
|
3,114
|
|
5,655
|
|
—
|
|
—
|
|
18,870
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|
|
January 2021 reorganization
|
(2,555)
|
|
(4,738)
|
|
(2,808)
|
|
(3,114)
|
|
(5,655)
|
|
12,173
|
|
6,697
|
|
—
|
|
|
Reclassified as held for sale(2)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(918)
|
|
(1,946)
|
|
(2,864)
|
|
|
Effect of foreign currency exchange rate change and other
|
—
|
|
—
|
|
—
|
|
—
|
|
—
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|
(19)
|
|
—
|
|
(19)
|
|
|
As of September 30, 2021(1)
|
$
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
11,236
|
|
4,751
|
|
15,987
|
|
______________________________________________________________________
(1)Goodwill at September 30, 2021 and December 31, 2020 is net of accumulated impairment losses of $7.7 billion and $12.9 billion, respectively. The change in accumulated impairment losses at September 30, 2021 is a result of amounts reclassified as held for sale related to our planned divestitures.
(2)Includes $2.9 billion of goodwill, net of accumulated impairment loss reclassified as held for sale related to our pending divestitures. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.
In January 2021, we began reporting under two segments: Business and Mass Markets. See Note 14—Segment Information for more information on these segments and the underlying sales channels. Since effecting this reorganization, we have used five reporting units for goodwill impairment testing, which are (i) Mass Markets, (ii) North America ("NA") Business (iii) Europe, Middle East and Africa region ("EMEA"), (iv) Asia Pacific region ("APAC") and (v) Latin America region ("LATAM"). Our January 2021 reorganization was considered an event or change in circumstance which required an assessment of our goodwill for impairment. We performed a qualitative impairment assessment in the first quarter of 2021 and concluded it is more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at January 31, 2021. Therefore, we concluded no impairment existed as of our assessment date.
The reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American and ILEC Businesses, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of July 31, 2021. We performed a pre-reclassification goodwill impairment test to determine whether there was an impairment prior to the reclassification of these assets and to determine the July 31, 2021 fair values to be utilized for goodwill allocation regarding the disposal groups to be reclassified as assets held for sale. We concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at July 31, 2021. We also performed a post-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to evaluate whether the fair value of our reporting units that will remain following the divestitures exceeds the carrying value of the equity of such reporting units after reclassification of assets held for sale.
At July 31, 2021, we estimated the fair value of our five above-mentioned reporting units by considering both a market approach and a discounted cash flow method. We discounted the projected cash flows of our Mass Markets and Business segments using a rate that represents our weighted average cost of capital, which we determined to be approximately 6.8% as of the assessment date (which comprised an after-tax cost of debt of 2.3% and a cost of equity of 9.7%). We discounted the projected cash flows of our EMEA, LATAM and APAC reporting units using a rate that represents their estimated weighted average cost of capital, which we determined to be approximately 7.2%, 11.2% and 8.6%, respectively, as of the measurement date (which was comprised of an after-tax cost of debt of 2.6%, 5.3% and 3.6% and a cost of equity of 10.1%, 15.0% and 11.9%, respectively). We utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values derived from annualized revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples between 2.1x and 5.8x and 4.8x and 14.8x, respectively. We selected a revenue and EBITDA multiple for each of our reporting units resulting in an overall company revenue and EBITDA multiple of 2.8x and 6.3x, respectively. We also reconciled the estimated fair values of the reporting units to our market capitalization as of July 31, 2021 and concluded that the indicated implied control premium of approximately 32% was reasonable based on recent market transactions. As of July 31, 2021, we determined that the estimated fair value of equity exceeded the carrying value of equity for our Mass Markets, NA Business, EMEA, LATAM and APAC reporting units by 150%, 24%, 58%, 100% and 134%, respectively. Based on our assessments performed, we concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at July 31, 2021. Therefore, we concluded no impairment existed as of our assessment date.
Total amortization expense for intangible assets for the three months ended September 30, 2021 and 2020 totaled $306 million and $443 million, respectively, and for the nine months ended September 30, 2021 and 2020 totaled $1.0 billion and $1.3 billion, respectively. As of September 30, 2021, the gross carrying amount of goodwill, customer relationships, capitalized software, indefinite-life and other intangible assets was $38.4 billion.
We estimate that total amortization expense for intangible assets for the years ending December 31, 2021 through 2025 will be as provided in the table below. As a result of reclassifying our disposal groups as being held for sale on our September 30, 2021 consolidated balance sheet, the amounts presented below do not include future amortization expense for intangible assets of those disposal groups. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
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|
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|
|
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|
(Dollars in millions)
|
|
2021 (remaining three months)
|
$
|
286
|
|
|
2022
|
1,027
|
|
|
2023
|
932
|
|
|
2024
|
842
|
|
|
2025
|
801
|
|
(4) Revenue Recognition
Product and Service Categories
Since the first quarter of 2021, we have categorized our products and services revenue among the following categories for the Business segment:
•Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;
•IP and Data Services, which include Ethernet, IP, and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;
•Fiber Infrastructure Services, which include dark fiber, optical services and equipment; and
•Voice and Other, which include Time Division Multiplexing ("TDM") voice, private line and other legacy services.
Since the first quarter of 2021, we have categorized our products and services revenue among the following categories for the Mass Markets segment:
•Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;
•Small Business Group ("SBG") Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;
•Voice and Other, which include primarily local and long-distance services, retail video services (including our linear and TV services), professional services and other ancillary services; and
•Connect America Fund ("CAF") II, which consists of Connect America Fund Phase II payments through the end of 2021 to support voice and broadband in FCC-designated high-cost areas.
Reconciliation of Total Revenue to Revenue from Contracts with Customers
The following tables provide total revenue by segment, sales channel and product category. They also provide the amount of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
Three Months Ended September 30, 2020
|
|
|
Total revenue
|
Adjustments for non-ASC 606 revenue (1)
|
Total revenue from contracts with customers
|
|
Total revenue
|
Adjustments for non-ASC 606 revenue (1)
|
Total revenue from contracts with customers
|
|
|
(Dollars in millions)
|
|
Business Segment by Sales Channel and Product Category
|
|
|
|
|
|
|
|
|
International and Global Accounts ("IGAM")
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
$
|
178
|
|
(71)
|
|
107
|
|
|
188
|
|
(66)
|
|
122
|
|
|
IP and Data Services
|
429
|
|
—
|
|
429
|
|
|
431
|
|
—
|
|
431
|
|
|
Fiber Infrastructure Services
|
230
|
|
(33)
|
|
197
|
|
|
206
|
|
(28)
|
|
178
|
|
|
Voice and Other
|
182
|
|
—
|
|
182
|
|
|
188
|
|
—
|
|
188
|
|
|
Total IGAM Revenue
|
1,019
|
|
(104)
|
|
915
|
|
|
1,013
|
|
(94)
|
|
919
|
|
|
|
|
|
|
|
|
|
|
|
Large Enterprise
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
176
|
|
(16)
|
|
160
|
|
|
167
|
|
(22)
|
|
145
|
|
|
IP and Data Services
|
387
|
|
—
|
|
387
|
|
|
393
|
|
(1)
|
|
392
|
|
|
Fiber Infrastructure Services
|
137
|
|
(11)
|
|
126
|
|
|
162
|
|
(12)
|
|
150
|
|
|
Voice and Other
|
232
|
|
—
|
|
232
|
|
|
268
|
|
—
|
|
268
|
|
|
Total Large Enterprise Revenue
|
932
|
|
(27)
|
|
905
|
|
|
990
|
|
(35)
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Market Enterprise
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
31
|
|
(7)
|
|
24
|
|
|
32
|
|
(3)
|
|
29
|
|
|
IP and Data Services
|
432
|
|
(1)
|
|
431
|
|
|
460
|
|
(1)
|
|
459
|
|
|
Fiber Infrastructure Services
|
53
|
|
(2)
|
|
51
|
|
|
54
|
|
(1)
|
|
53
|
|
|
Voice and Other
|
150
|
|
—
|
|
150
|
|
|
191
|
|
—
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
Three Months Ended September 30, 2020
|
|
|
Total revenue
|
Adjustments for non-ASC 606 revenue (1)
|
Total revenue from contracts with customers
|
|
Total revenue
|
Adjustments for non-ASC 606 revenue (1)
|
Total revenue from contracts with customers
|
|
|
(Dollars in millions)
|
|
Total Mid-Market Enterprise Revenue
|
666
|
|
(10)
|
|
656
|
|
|
737
|
|
(5)
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
46
|
|
(39)
|
|
7
|
|
|
47
|
|
(41)
|
|
6
|
|
|
IP and Data Services
|
297
|
|
—
|
|
297
|
|
|
311
|
|
—
|
|
311
|
|
|
Fiber Infrastructure Services
|
155
|
|
(30)
|
|
125
|
|
|
157
|
|
(33)
|
|
124
|
|
|
Voice and Other
|
393
|
|
(63)
|
|
330
|
|
|
443
|
|
(64)
|
|
379
|
|
|
Total Wholesale Revenue
|
891
|
|
(132)
|
|
759
|
|
|
958
|
|
(138)
|
|
820
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment by Product Category
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
431
|
|
(133)
|
|
298
|
|
|
434
|
|
(132)
|
|
302
|
|
|
IP and Data Services
|
1,545
|
|
(1)
|
|
1,544
|
|
|
1,595
|
|
(2)
|
|
1,593
|
|
|
Fiber Infrastructure Services
|
575
|
|
(76)
|
|
499
|
|
|
579
|
|
(74)
|
|
505
|
|
|
Voice and Other
|
957
|
|
(63)
|
|
894
|
|
|
1,090
|
|
(64)
|
|
1,026
|
|
|
Total Business Segment Revenue
|
$
|
3,508
|
|
(273)
|
|
3,235
|
|
|
3,698
|
|
(272)
|
|
3,426
|
|
|
|
|
|
|
|
|
|
|
|
Mass Markets Segment by Product Category
|
|
|
|
|
|
|
|
|
Consumer Broadband
|
$
|
715
|
|
(52)
|
|
663
|
|
|
730
|
|
(56)
|
|
674
|
|
|
SBG Broadband
|
39
|
|
(4)
|
|
35
|
|
|
38
|
|
(3)
|
|
35
|
|
|
Voice and Other
|
502
|
|
(20)
|
|
482
|
|
|
578
|
|
(27)
|
|
551
|
|
|
CAF II
|
123
|
|
(123)
|
|
—
|
|
|
123
|
|
(123)
|
|
—
|
|
|
Total Mass Markets Segment
|
$
|
1,379
|
|
(199)
|
|
1,180
|
|
|
1,469
|
|
(209)
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
$
|
4,887
|
|
(472)
|
|
4,415
|
|
|
5,167
|
|
(481)
|
|
4,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Nine Months Ended September 30, 2020
|
|
|
Total revenue
|
Adjustments for non-ASC 606 revenue (1)
|
Total revenue from contracts with customers
|
|
Total revenue
|
Adjustments for non-ASC 606 revenue (1)
|
Total revenue from contracts with customers
|
|
|
(Dollars in millions)
|
|
Business Segment by Sales Channel and Product Category
|
|
|
|
|
|
|
|
|
International and Global Accounts ("IGAM")
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
$
|
536
|
|
(210)
|
|
326
|
|
|
581
|
|
(199)
|
|
382
|
|
|
IP and Data Services
|
1,283
|
|
—
|
|
1,283
|
|
|
1,300
|
|
—
|
|
1,300
|
|
|
Fiber Infrastructure Services
|
662
|
|
(95)
|
|
567
|
|
|
610
|
|
(82)
|
|
528
|
|
|
Voice and Other
|
555
|
|
—
|
|
555
|
|
|
594
|
|
—
|
|
594
|
|
|
Total IGAM Revenue
|
3,036
|
|
(305)
|
|
2,731
|
|
|
3,085
|
|
(281)
|
|
2,804
|
|
|
|
|
|
|
|
|
|
|
|
Large Enterprise
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
513
|
|
(47)
|
|
466
|
|
|
481
|
|
(61)
|
|
420
|
|
|
IP and Data Services
|
1,170
|
|
—
|
|
1,170
|
|
|
1,194
|
|
(2)
|
|
1,192
|
|
|
Fiber Infrastructure Services
|
388
|
|
(38)
|
|
350
|
|
|
436
|
|
(35)
|
|
401
|
|
|
Voice and Other
|
729
|
|
—
|
|
729
|
|
|
818
|
|
—
|
|
818
|
|
|
Total Large Enterprise Revenue
|
2,800
|
|
(85)
|
|
2,715
|
|
|
2,929
|
|
(98)
|
|
2,831
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Market Enterprise
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
103
|
|
(23)
|
|
80
|
|
|
101
|
|
(14)
|
|
87
|
|
|
IP and Data Services
|
1,323
|
|
(4)
|
|
1,319
|
|
|
1,389
|
|
(3)
|
|
1,386
|
|
|
Fiber Infrastructure Services
|
166
|
|
(6)
|
|
160
|
|
|
165
|
|
(8)
|
|
157
|
|
|
Voice and Other
|
472
|
|
—
|
|
472
|
|
|
598
|
|
—
|
|
598
|
|
|
Total Mid-Market Enterprise Revenue
|
2,064
|
|
(33)
|
|
2,031
|
|
|
2,253
|
|
(25)
|
|
2,228
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
143
|
|
(120)
|
|
23
|
|
|
138
|
|
(120)
|
|
18
|
|
|
IP and Data Services
|
899
|
|
—
|
|
899
|
|
|
942
|
|
—
|
|
942
|
|
|
Fiber Infrastructure Services
|
464
|
|
(89)
|
|
375
|
|
|
462
|
|
(93)
|
|
369
|
|
|
Voice and Other
|
1,219
|
|
(188)
|
|
1,031
|
|
|
1,343
|
|
(197)
|
|
1,146
|
|
|
Total Wholesale Revenue
|
2,725
|
|
(397)
|
|
2,328
|
|
|
2,885
|
|
(410)
|
|
2,475
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment by Product Category
|
|
|
|
|
|
|
|
|
Compute and Application Services
|
1,295
|
|
(400)
|
|
895
|
|
|
1,301
|
|
(394)
|
|
907
|
|
|
IP and Data Services
|
4,675
|
|
(4)
|
|
4,671
|
|
|
4,825
|
|
(5)
|
|
4,820
|
|
|
Fiber Infrastructure Services
|
1,680
|
|
(228)
|
|
1,452
|
|
|
1,673
|
|
(218)
|
|
1,455
|
|
|
Voice and Other
|
2,975
|
|
(188)
|
|
2,787
|
|
|
3,353
|
|
(197)
|
|
3,156
|
|
|
Total Business Segment Revenue
|
$
|
10,625
|
|
(820)
|
|
9,805
|
|
|
11,152
|
|
(814)
|
|
10,338
|
|
|
|
|
|
|
|
|
|
|
|
Mass Markets Segment by Product Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Nine Months Ended September 30, 2020
|
|
|
Total revenue
|
Adjustments for non-ASC 606 revenue (1)
|
Total revenue from contracts with customers
|
|
Total revenue
|
Adjustments for non-ASC 606 revenue (1)
|
Total revenue from contracts with customers
|
|
|
(Dollars in millions)
|
|
Consumer Broadband
|
$
|
2,169
|
|
(157)
|
|
2,012
|
|
|
2,178
|
|
(164)
|
|
2,014
|
|
|
SBG Broadband
|
117
|
|
(12)
|
|
105
|
|
|
116
|
|
(11)
|
|
105
|
|
|
Voice and Other
|
1,561
|
|
(60)
|
|
1,501
|
|
|
1,772
|
|
(85)
|
|
1,687
|
|
|
CAF II
|
368
|
|
(368)
|
|
—
|
|
|
369
|
|
(369)
|
|
—
|
|
|
Total Mass Markets Segment
|
$
|
4,215
|
|
(597)
|
|
3,618
|
|
|
4,435
|
|
(629)
|
|
3,806
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
$
|
14,840
|
|
(1,417)
|
|
13,423
|
|
|
15,587
|
|
(1,443)
|
|
14,144
|
|
_____________________________________________________________________
(1)Includes regulatory revenue and lease revenue not within the scope of ASC 606.
Operating Lease Revenue
Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in our consolidated statements of operations.
For the three months ended September 30, 2021 and 2020, our gross rental income was $329 million and $332 million, respectively, which represents approximately 7% and 6%, respectively, of our operating revenue for the three months ended September 30, 2021 and 2020. For the nine months ended September 30, 2021 and 2020, our gross rental income was $988 million and $998 million, respectively, which represents 7% and 6%, respectively, of our operating revenue for the nine months ended September 30, 2021 and 2020.
Customer Receivables and Contract Balances
The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts reclassified as held for sale, as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
(Dollars in millions)
|
|
Customer receivables(1)(2)
|
$
|
1,491
|
|
|
1,889
|
|
|
Contract assets(3)
|
71
|
|
|
108
|
|
|
Contract liabilities(4)
|
703
|
|
|
950
|
|
______________________________________________________________________
(1)Reflects gross customer receivables of $1.6 billion and $2.1 billion, net of allowance for credit losses of $107 million and $174 million, at September 30, 2021 and December 31, 2020, respectively.
(2)As of September 30, 2021, amount excludes customer receivables, net reclassified as held for sale of $293 million.
(3)As of September 30, 2021, amount excludes contract assets reclassified as held for sale of $10 million.
(4)As of September 30, 2021, amount excludes contract liabilities reclassified as held for sale of $165 million.
Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue and liabilities held for sale in our consolidated balance sheets. During the three and nine months ended September 30, 2021, we recognized $61 million and $544 million, respectively, of revenue that was included in contract liabilities as of January 1, 2021. During the three and nine months ended September 30, 2020, we recognized $58 million and $612 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020.
Performance Obligations
As of September 30, 2021, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $6.4 billion. We expect to recognize approximately 70% of this revenue through 2023, with the balance recognized thereafter.
These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606 and (iii) the value of unsatisfied performance obligations for contracts which relate to our planned divestitures.
Contract Costs
The following tables provide changes in our contract acquisition costs and fulfillment costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
Three Months Ended September 30, 2020
|
|
|
Acquisition Costs
|
|
Fulfillment Costs
|
|
Acquisition Costs
|
|
Fulfillment Costs
|
|
|
(Dollars in millions)
|
|
(Dollars in millions)
|
|
Beginning of period balance
|
$
|
271
|
|
|
217
|
|
|
300
|
|
|
219
|
|
|
Costs incurred
|
43
|
|
|
37
|
|
|
45
|
|
|
35
|
|
|
Amortization
|
(51)
|
|
|
(37)
|
|
|
(53)
|
|
|
(37)
|
|
|
Reclassified as held for sale(1)
|
(35)
|
|
|
(31)
|
|
|
—
|
|
|
—
|
|
|
End of period balance
|
$
|
228
|
|
|
186
|
|
|
292
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Nine Months Ended September 30, 2020
|
|
|
Acquisition Costs
|
|
Fulfillment Costs
|
|
Acquisition Costs
|
|
Fulfillment Costs
|
|
|
(Dollars in millions)
|
|
(Dollars in millions)
|
|
Beginning of period balance
|
$
|
289
|
|
|
216
|
|
|
326
|
|
|
221
|
|
|
Costs incurred
|
132
|
|
|
112
|
|
|
130
|
|
|
105
|
|
|
Amortization
|
(158)
|
|
|
(111)
|
|
|
(164)
|
|
|
(109)
|
|
|
Reclassified as held for sale(1)
|
(35)
|
|
|
(31)
|
|
|
—
|
|
|
—
|
|
|
End of period balance
|
$
|
228
|
|
|
186
|
|
|
292
|
|
|
217
|
|
______________________________________________________________________
(1)Represents the amounts reclassified as held for sale related to our planned divestitures. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.
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 services to customers, including labor and materials consumed for these activities.
Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of approximately 30 months for mass markets and business customers. Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are anticipated to be amortized in the next 12 months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond the next 12 months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.
(5) Leases
We primarily lease to or from third parties various office facilities and colocation facilities, equipment and dark fiber. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
During the third quarter of 2021, we rationalized our lease footprint and ceased using 23 leased property locations that were underutilized. We determined that we no longer needed the leased space and, due to the limited remaining term on the contracts, concluded that we had neither the intent nor ability to sublease the properties. For the three and nine month periods ending September 30, 2021, we incurred accelerated lease costs of approximately $35 million. In conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and may incur additional costs in future periods.
(6) Credit Losses on Financial Instruments
In accordance with ASC 326, "Financial Instruments - Credit Losses," we aggregate financial assets with similar risk characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets. We monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change each reporting period. Financial assets that do not share risk characteristics with other financial assets are evaluated separately. Our financial assets measured at amortized cost primarily consist of accounts receivable.
We use a loss rate method to estimate our allowance for credit losses. Our determination of the current expected credit loss rate begins with our use of historical loss experience as a percentage of accounts receivable. We measure our historical loss period based on the average days to recognize accounts receivable as credit losses. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to adjust our historical loss rate. We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period. We measure our forecast period based on the average days to collect payment on billed accounts receivable. To determine our current allowance for credit losses, we combine the historical and expected credit loss rates and apply them to our period end accounts receivable.
In conjunction with our January 2021 internal reorganization, as referenced in Note 14—Segment Information, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns. Additionally, we reassessed our historical loss period for the segment portfolio reorganization.
If there is a deterioration of a customer's financial condition or if future default rates in general differ from currently anticipated default rates (including changes caused by COVID-19), we may need to adjust the allowance for credit losses, which would affect earnings in the period that adjustments are made.
The assessment of the correlation between historical observed default rates, current conditions and forecasted economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the allowance for credit losses. The amount of credit loss is sensitive to changes in circumstances and forecasted economic conditions. Our historical credit loss experience, current conditions and forecast of economic conditions may also not be representative of the customers' actual default experience in the future.
The following table presents the activity of our allowance for credit losses by accounts receivable portfolio for the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Mass Markets
|
|
Total
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Beginning balance at January 1, 2021(1)
|
$
|
109
|
|
|
82
|
|
|
191
|
|
|
|
|
|
|
Provision for expected losses
|
36
|
|
|
44
|
|
|
80
|
|
|
|
|
|
|
Write-offs charged against the allowance
|
(58)
|
|
|
(94)
|
|
|
(152)
|
|
|
|
|
|
|
Recoveries collected
|
11
|
|
|
11
|
|
|
22
|
|
|
|
|
|
|
Reclassified as held for sale(2)
|
(8)
|
|
|
(16)
|
|
|
(24)
|
|
|
|
|
|
|
Ending balance at September 30, 2021
|
$
|
90
|
|
|
27
|
|
|
117
|
|
|
|
|
|
______________________________________________________________________
(1)As described in Note 14—Segment Information, we completed an internal reorganization in January 2021. As a result of this change, allowance for credit losses previously included in the Consumer and Business portfolio of $70 million related to consumer and $12 million related to our small business group, respectively, were reclassified to the Mass Markets allowance for credit losses on January 1, 2021.
(2)Represents the amounts reclassified as held for sale related to our pending divestitures. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.
For the nine months ended September 30, 2021, we decreased our allowance for credit losses for our business and mass markets accounts receivable portfolios primarily due to higher write-off activity year to date 2021 with the easing of prior delays due to COVID-19 related restrictions in 2020 and lower receivable balances.
(7) Long-Term Debt and Credit Facilities
The following chart reflects the consolidated long-term debt of Lumen Technologies, Inc. and its subsidiaries, including unamortized discounts and premiums, net and unamortized debt issuance costs, but excluding intercompany debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates(1)
|
|
Maturities(1)
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Senior Secured Debt: (2)
|
|
|
|
|
|
|
|
|
Lumen Technologies, Inc.
|
|
|
|
|
|
|
|
|
Revolving Credit Facility(7)
|
LIBOR + 2.00%
|
|
2025
|
|
$
|
—
|
|
|
150
|
|
|
Term Loan A(3) (7)
|
LIBOR + 2.00%
|
|
2025
|
|
1,064
|
|
|
1,108
|
|
|
Term Loan A-1(3) (7)
|
LIBOR + 2.00%
|
|
2025
|
|
304
|
|
|
316
|
|
|
Term Loan B(4) (7)
|
LIBOR + 2.25%
|
|
2027
|
|
4,913
|
|
|
4,950
|
|
|
Senior notes
|
4.000%
|
|
2027
|
|
1,250
|
|
|
1,250
|
|
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
Level 3 Financing, Inc.
|
|
|
|
|
|
|
|
|
Tranche B 2027 Term Loan(5) (7)
|
LIBOR + 1.75%
|
|
2027
|
|
3,111
|
|
|
3,111
|
|
|
Senior notes
|
3.400% - 3.875%
|
|
2027 - 2029
|
|
1,500
|
|
|
1,500
|
|
|
Embarq Corporation subsidiaries
|
|
|
|
|
|
|
|
|
First mortgage bonds
|
7.125% - 8.375%
|
|
2023 - 2025
|
|
138
|
|
|
138
|
|
|
Senior Notes and Other Debt:
|
|
|
|
|
|
|
|
|
Lumen Technologies, Inc.
|
|
|
|
|
|
|
|
|
Senior notes
|
4.500% - 7.650%
|
|
2022 - 2042
|
|
8,414
|
|
|
8,645
|
|
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
Level 3 Financing, Inc.
|
|
|
|
|
|
|
|
|
Senior notes
|
3.625% - 5.375%
|
|
2025 - 2029
|
|
5,515
|
|
|
5,515
|
|
|
Qwest Corporation
|
|
|
|
|
|
|
|
|
Senior notes
|
6.500% - 7.750%
|
|
2021 - 2057
|
|
2,935
|
|
|
3,170
|
|
|
Term Loan(6) (7)
|
LIBOR + 2.00%
|
|
2027
|
|
215
|
|
|
215
|
|
|
Qwest Capital Funding, Inc.
|
|
|
|
|
|
|
|
|
Senior notes
|
6.875% - 7.750%
|
|
2028 - 2031
|
|
255
|
|
|
352
|
|
|
Embarq Corporation and subsidiary
|
|
|
|
|
|
|
|
|
Senior note(8)
|
7.995%
|
|
2036
|
|
—
|
|
|
1,437
|
|
|
Finance lease and other obligations
|
Various
|
|
Various
|
|
352
|
|
|
295
|
|
|
Unamortized premiums (discounts), net
|
|
|
|
|
23
|
|
|
(78)
|
|
|
Unamortized debt issuance costs
|
|
|
|
|
(228)
|
|
|
(237)
|
|
|
Total long-term debt
|
|
|
|
|
29,761
|
|
|
31,837
|
|
|
Less current maturities
|
|
|
|
|
(2,501)
|
|
|
(2,427)
|
|
|
Long-term debt, excluding current maturities
|
|
|
|
|
$
|
27,260
|
|
|
29,410
|
|
______________________________________________________________________
(1)As of September 30, 2021.
(2)See Note 6—Long-Term Debt and Credit Facilities in our Annual Report on Form 10-K for the year ended December 31, 2020 for a description of certain parent or subsidiary guarantees and liens securing this debt.
(3)Term Loans A and A-1 had interest rates of 2.085% and 2.147% as of September 30, 2021 and December 31, 2020, respectively.
(4)Term Loan B had interest rates of 2.335% and 2.397% as of September 30, 2021 and December 31, 2020, respectively.
(5)The Tranche B 2027 Term Loan had interest rates of 1.835% and 1.897% as of September 30, 2021 and December 31, 2020, respectively.
(6)Qwest Corporation Term Loan had interest rates of 2.090% and 2.150% as of September 30, 2021 and December 31, 2020, respectively.
(7)See Note 1— Background for our considerations of the impact of Reference Rate Reform on our debt subject to rate reference changes from LIBOR.
(8)As of September 30, 2021, the Embarq Senior notes have been reclassified as held for sale. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
Long-Term Debt Maturities
Set forth below is the aggregate principal amount of our long-term debt as of September 30, 2021 (excluding unamortized premiums (discounts), net, and unamortized debt issuance costs), maturing during the following years. As a result of reclassifying our disposal groups as being held for sale on our September 30, 2021 consolidated balance sheet, the amounts presented below do not include maturities of the debt obligations of those disposal groups. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
|
|
|
|
|
|
|
|
|
(Dollars in millions) (1)
|
|
2021 (remaining three months)
|
$
|
989
|
|
|
2022
|
1,551
|
|
|
2023
|
977
|
|
|
2024
|
1,158
|
|
|
2025
|
2,927
|
|
|
2026 and thereafter
|
22,364
|
|
|
Total long-term debt
|
$
|
29,966
|
|
______________________________________________________________________
(1)As of September 30, 2021, these amounts exclude $1.5 billion of debt and finance lease obligations that have been reclassified as held for sale. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
Repayments
During the nine months ended September 30, 2021, Lumen Technologies, Inc. and its affiliates repaid or redeemed approximately $2.7 billion of their respective debt obligations, which primarily included a $97 million repayment at maturity of Qwest Capital Funding, Inc. senior notes, $150 million of payments on our revolving credit facility, a $1.2 billion repayment at maturity of Lumen senior unsecured notes, a $900 million redemption of Level 3 Financing, Inc. senior notes, a $235 million redemption of Qwest Corporation senior notes, and $94 million of year to date payments on our term loans. These transactions resulted in a net gain of $8 million.
New Issuances
On June 15, 2021, Lumen Technologies, Inc. issued $1.0 billion aggregate principal amount of 5.375% Senior Notes due 2029 (the "2029 Notes"). The net proceeds were used, together with cash on hand, to repay at maturity our outstanding $1.2 billion 6.450% Senior Notes, Series S, due 2021.
On January 13, 2021, Level 3 Financing, Inc. issued $900 million aggregate principal amount of 3.750% Sustainability-Linked Senior Notes due 2029 (the "Sustainability-Linked Notes"). The net proceeds were used, together with cash on hand, to redeem $900 million of its outstanding senior note indebtedness. The Sustainability-Linked Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.
Covenants
Certain of our debt instruments contain affirmative and negative covenants. Debt at Lumen Technologies, Inc. and Level 3 Financing, Inc. contains more extensive covenants including, among other things and subject to certain exceptions, restrictions on the ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with affiliates, dispose of assets and merge or consolidate with any other person. Also, Lumen Technologies, Inc. and certain of its affiliates will be required to offer to purchase certain of their respective outstanding debt under defined circumstances in connection with specified "change of control" transactions.
Certain of our debt instruments contain cross-payment default or cross-acceleration provisions.
Compliance
As of September 30, 2021, Lumen Technologies, Inc. believes it and its subsidiaries were in compliance with the provisions and financial covenants in their respective material debt agreements in all material respects.
(8) Property, Plant and Equipment
Net property, plant and equipment is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
(Dollars in millions)
|
|
Land
|
$
|
751
|
|
|
848
|
|
|
Fiber, conduit and other outside plant(1)
|
18,500
|
|
|
26,522
|
|
|
Central office and other network electronics(2)
|
15,265
|
|
|
20,692
|
|
|
Support assets(3)
|
7,147
|
|
|
8,261
|
|
|
Construction in progress(4)
|
1,290
|
|
|
1,611
|
|
|
Gross property, plant and equipment
|
42,953
|
|
|
57,934
|
|
|
Accumulated depreciation
|
(22,027)
|
|
|
(31,596)
|
|
|
Net property, plant and equipment
|
$
|
20,926
|
|
|
26,338
|
|
_______________________________________________________________________________
(1)Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures.
(2)Central office and other network electronics consists of circuit and packet switches, routers, transmission electronics and electronics providing service to customers.
(3)Support assets consist of buildings, cable landing stations, data centers, computers and other administrative and support equipment.
(4)Construction in progress includes inventory held for construction and property of the aforementioned categories that has not been placed in service as it is still under construction.
As of September 30, 2021, we classified certain property, plant and equipment, net as held for sale and discontinued recording depreciation on these disposal groups. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
We recorded depreciation expense of $645 million and $2.1 billion for the three and nine months ended September 30, 2021 and $750 million and $2.2 billion for the three and nine months ended September 30, 2020.
(9) Severance
Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions result primarily from the progression or completion of our post-acquisition integration plans, increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to the loss of customers purchasing certain services.
Changes in our accrued liabilities for severance expenses were as follows:
|
|
|
|
|
|
|
|
|
Severance
|
|
|
(Dollars in millions)
|
|
Balance at December 31, 2020
|
$
|
103
|
|
|
Accrued to expense
|
—
|
|
|
Payments, net
|
(64)
|
|
|
Balance at September 30, 2021
|
$
|
39
|
|
(10) Employee Benefits
For detailed description of the various defined benefit pension plans (qualified and non-qualified), post-retirement benefits plans and defined contribution plan we sponsor, see Note 10—Employee Benefits to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.
Net periodic pension benefit expense (income) for the Lumen Combined Pension Plan ("Combined Pension Plan" or the "Plan") includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(Dollars in millions)
|
|
Service cost
|
$
|
14
|
|
|
15
|
|
|
42
|
|
|
44
|
|
|
Interest cost
|
49
|
|
|
81
|
|
|
148
|
|
|
243
|
|
|
Expected return on plan assets
|
(138)
|
|
|
(147)
|
|
|
(414)
|
|
|
(445)
|
|
|
Settlements
|
57
|
|
|
—
|
|
|
57
|
|
|
—
|
|
|
Recognition of prior service credit
|
(2)
|
|
|
(3)
|
|
|
(7)
|
|
|
(7)
|
|
|
Recognition of actuarial loss
|
49
|
|
|
50
|
|
|
147
|
|
|
152
|
|
|
Net periodic pension benefit expense (income)
|
$
|
29
|
|
|
(4)
|
|
|
(27)
|
|
|
(13)
|
|
Net periodic benefit expense for our post-retirement benefit plans includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement Benefit Plans
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(Dollars in millions)
|
|
Service cost
|
$
|
4
|
|
|
4
|
|
|
11
|
|
|
11
|
|
|
Interest cost
|
12
|
|
|
17
|
|
|
35
|
|
|
57
|
|
|
Recognition of prior service cost
|
3
|
|
|
4
|
|
|
11
|
|
|
12
|
|
|
Recognition of actuarial loss
|
2
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
Curtailment loss
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
Net periodic post-retirement benefit expense
|
$
|
21
|
|
|
32
|
|
|
61
|
|
|
87
|
|
Service costs are included in the cost of services and products and selling, general and administrative line items on our consolidated statements of operations and all other costs listed above are included in other (expense) income, net on our consolidated statements of operations.
Our pension plan contains provisions that allow us, from time to time, to offer lump sum payment options to certain former employees in settlement of their future retirement benefits. We record an accounting settlement charge, consisting of the recognition of certain deferred costs of the pension plan associated with these lump sum payments only if, in the aggregate, they exceed or are probable to exceed the sum of the annual service and interest costs for the plan’s net periodic pension benefit cost, which represents the settlement accounting threshold. During the third quarter, we determined lump sum pension settlement payments for 2021 are expected to exceed the settlement threshold. As a result, in the third quarter of 2021 we recognized a non-cash settlement charge of $57 million to accelerate the recognition of a portion of the previously unrecognized actuarial losses in the qualified pension plan, which is reflected in other (expense) income, net in our consolidated statement of operations for the three and nine months ended September 30, 2021. This non-cash charge reduced our recorded net income and increased our recorded accumulated deficit, with an offset to accumulated other comprehensive loss in shareholders' equity. We expect to recognize an additional non-cash settlement charge in the fourth quarter of 2021, as further described in Note 20—Subsequent Events. The amount of any future non-cash settlement charges after 2021 will be dependent on several factors, including the total amount of our future lump sum benefit payments.
As a result of our lump sum payments exceeding the settlement threshold, we also remeasured the Combined Pension Plan on September 30, 2021 using the same assumptions as of December 31, 2020, with the exception of increasing the discount rate to 2.79% from 2.43%. The remeasurement resulted in a decrease in the Plan's unfunded status, which we recognized with a corresponding decrease in our net actuarial loss recognized in accumulated other comprehensive loss of $133 million, net of tax effect of $43 million.
In 2020, we recognized a one-time curtailment accounting charge of $7 million upon remeasurement of our medical obligations under our post-retirement benefit plans for the three and nine months ended September 30, 2020.
Benefits paid by the Combined Pension Plan are paid through a trust that holds all of the Plan's assets. The amount of required contributions to the Combined Pension Plan in 2022 and beyond will depend on a variety of factors, most of which are beyond our control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations. We occasionally make voluntary contributions in addition to required contributions. Based on current laws and circumstances, we do not believe we are required to make any contributions to the Combined Pension Plan in 2021, but we could make voluntary contributions to the trust for the Combined Pension Plan in the upcoming years.
(11) Earnings Per Common Share
Basic and diluted earnings per common share were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(Dollars in millions, except per share amounts, shares in thousands)
|
|
Income (Numerator):
|
|
|
|
|
|
|
|
|
Net income
|
$
|
544
|
|
|
366
|
|
|
1,525
|
|
|
1,057
|
|
|
Net income applicable to common stock for computing basic earnings per common share
|
544
|
|
|
366
|
|
|
1,525
|
|
|
1,057
|
|
|
Net income as adjusted for purposes of computing diluted earnings per common share
|
$
|
544
|
|
|
366
|
|
|
1,525
|
|
|
1,057
|
|
|
Shares (Denominator):
|
|
|
|
|
|
|
|
|
Weighted-average number of shares:
|
|
|
|
|
|
|
|
|
Outstanding during period
|
1,079,917
|
|
|
1,097,496
|
|
|
1,095,223
|
|
|
1,096,017
|
|
|
Non-vested restricted stock
|
(17,833)
|
|
|
(16,991)
|
|
|
(18,117)
|
|
|
(17,345)
|
|
|
Weighted-average shares outstanding for computing basic earnings per common share
|
1,062,084
|
|
|
1,080,505
|
|
|
1,077,106
|
|
|
1,078,672
|
|
|
Incremental common shares attributable to dilutive securities:
|
|
|
|
|
|
|
|
|
Shares issuable under convertible securities
|
10
|
|
|
10
|
|
|
10
|
|
|
10
|
|
|
Shares issuable under incentive compensation plans
|
7,063
|
|
|
5,151
|
|
|
6,763
|
|
|
4,686
|
|
|
Number of shares as adjusted for purposes of computing diluted earnings per common share
|
1,069,157
|
|
|
1,085,666
|
|
|
1,083,879
|
|
|
1,083,368
|
|
|
Basic earnings per common share
|
$
|
0.51
|
|
|
0.34
|
|
|
1.42
|
|
|
0.98
|
|
|
Diluted earnings per common share
|
$
|
0.51
|
|
|
0.34
|
|
|
1.41
|
|
|
0.98
|
|
Our calculation of diluted earnings per common share excludes unvested restricted stock awards that are antidilutive as a result of unrecognized compensation cost. Such shares were 3.9 million and 0.4 million for the three months ended September 30, 2021 and 2020, respectively, and 3.0 million and 4.0 million for nine months ended September 30, 2021 and 2020, respectively.
(12) Fair Value of Financial Instruments
Our financial instruments consist of cash, cash equivalents and restricted cash, accounts receivable, accounts payable, long-term debt, excluding finance lease and other obligations, and interest rate swap contracts. Due to their short-term nature, the carrying amounts of our cash, cash equivalents and restricted cash, accounts receivable and accounts payable approximate their fair values.
The three input levels in the hierarchy of fair value measurements defined by the FASB generally as follows:
|
|
|
|
|
|
|
|
|
|
|
Input Level
|
|
Description of Input
|
|
Level 1
|
|
Observable inputs such as quoted market prices in active markets.
|
|
Level 2
|
|
Inputs other than quoted prices in active markets that are either directly or indirectly observable.
|
|
Level 3
|
|
Unobservable inputs in which little or no market data exists.
|
The following table presents the carrying amounts and estimated fair values of our financial liabilities as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
Input
Level
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
|
|
(Dollars in millions)
|
|
Long-term debt, excluding finance lease and other obligations(1)
|
2
|
|
$
|
29,409
|
|
|
30,309
|
|
|
31,542
|
|
|
33,217
|
|
|
Interest rate swap contracts (see Note 13)
|
2
|
|
$
|
47
|
|
|
47
|
|
|
107
|
|
|
107
|
|
______________________________________________________________________
(1)As of September 30, 2021, these amounts exclude $1.4 billion of carrying amount and $1.5 billion of fair value of debt that has been reclassified as held for sale. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
(13) Derivative Financial Instruments
From time to time, we use derivative financial instruments, primarily interest rate swaps, to manage our exposure to fluctuations in interest rates. Our primary objective in managing interest rate risk is to decrease the volatility of our earnings and cash flows affected by changes in the underlying rates. We have floating rate long-term debt (see Note 7—Long-Term Debt and Credit Facilities). These obligations expose us to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. We have designated our currently outstanding interest rate swap agreements as cash flow hedges. As described further below, under these hedges, we receive variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the lives of the agreements without exchange of the underlying notional amount. The change in the fair value of the interest rate swap agreements is reflected in accumulated other comprehensive income ("AOCI") and, as described below, is subsequently reclassified into earnings in the period that the hedged transaction affects earnings by virtue of qualifying as effective cash flow hedges. We do not use derivative financial instruments for speculative purposes.
As of September 30, 2021 and December 31, 2020, we evaluated the effectiveness of our hedges quantitatively and any hedges we had entered into at the time qualified as effective hedge relationships.
We may be exposed to credit-related losses in the event of non-performance by counterparties. The counterparties to any of the financial derivatives we enter into are major institutions with investment grade credit ratings. We evaluate counterparty credit risk before entering into any hedge transaction and continue to closely monitor the financial market and the risk that our counterparties will default on their obligations as part of our quarterly qualitative effectiveness evaluation.
Amounts accumulated in AOCI related to derivatives are indirectly recognized in earnings as periodic settlement payments are made throughout the term of the swaps.
The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheets at September 30, 2021 and December 31, 2020, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Derivatives designated as
|
Balance Sheet Location
|
|
Fair Value
|
|
Cash flow hedging contracts
|
Other current and noncurrent liabilities
|
|
$
|
47
|
|
|
107
|
|
The amount of unrealized losses recognized in AOCI consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
2021
|
|
2020
|
|
Cash flow hedging contracts
|
|
|
|
|
|
Three Months Ended September 30,
|
|
$
|
1
|
|
|
(1)
|
|
|
Nine Months Ended September 30,
|
|
$
|
1
|
|
|
115
|
|
The amount of realized losses reclassified from AOCI to the statement of operations consists of the following
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
2021
|
|
2020
|
|
Cash flow hedging contracts
|
|
|
|
|
|
Three Months Ended September 30,
|
|
$
|
21
|
|
|
20
|
|
|
Nine Months Ended September 30,
|
|
$
|
62
|
|
|
41
|
|
Amounts currently included in AOCI will be reclassified into earnings prior to the ongoing settlements of these cash flow hedging contracts until 2022. We estimate that $47 million of net losses on the interest rate swaps (based on the estimated LIBOR curve as of September 30, 2021) will be reflected in our consolidated statements of operations within the next 12 months.
(14) Segment Information
Jeff Storey, our chief operating decision maker ("CODM"), made changes to our segment and customer-facing sales channel reporting categories beginning in 2021 to align with operational changes designed to better support our customers. Following these changes, we now report two segments: Business and Mass Markets. The Business segment includes four sales channels: International and Global Accounts, Large Enterprise, Mid-Market Enterprise and Wholesale. These changes also include both the creation of new product categories and the realignment of products and services within previously reported product categories to better reflect product life cycles and our go-to-market approach. For Business segment revenue, we report the following product categories: Compute and Application Services, IP and Data Services, Fiber Infrastructure Services and Voice and Other, in each case through the sales channels outlined above. For Mass Markets segment revenue, we report the following product categories: Consumer Broadband, SBG Broadband, Voice and Other and CAF II. See detailed descriptions of these product and service categories in Note 4—Revenue Recognition.
As described in more detail below, our segments are managed based on the direct costs of providing services to their customers and the associated selling, general and administrative costs (primarily salaries and commissions). Shared costs are managed separately and included in "Operations and Other" in the tables below. As referenced above, we reclassified certain prior period amounts to conform to the current period presentation. See Note 1— Background for additional detail on these changes.
At September 30, 2021, we had the following two reportable segments:
•Business Segment: Under our Business segment, we provide our products and services under four distinct sales channels to meet the needs of our enterprise and commercial customers; and
•Mass Markets Segment: Under our Mass Markets segment, we provide products and services to consumer and small business customers.
The following tables summarize our segment results for the three months ended September 30, 2021 and 2020, based on the segment categorization we were operating under at September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
|
Business
|
Mass Markets
|
Total Segments
|
Operations and Other
|
Total
|
|
|
(Dollars in millions)
|
|
Revenue
|
$
|
3,508
|
|
1,379
|
|
4,887
|
|
—
|
|
4,887
|
|
|
Expenses:
|
|
|
|
|
|
|
Cost of services and products
|
868
|
|
36
|
|
904
|
|
1,247
|
|
2,151
|
|
|
Selling, general and administrative
|
296
|
|
125
|
|
421
|
|
233
|
|
654
|
|
|
Less: share-based compensation
|
—
|
|
—
|
|
—
|
|
(27)
|
|
(27)
|
|
|
Total expense
|
1,164
|
|
161
|
|
1,325
|
|
1,453
|
|
2,778
|
|
|
Total adjusted EBITDA
|
$
|
2,344
|
|
1,218
|
|
3,562
|
|
(1,453)
|
|
2,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
Business
|
Mass Markets
|
Total Segments
|
Operations and Other
|
Total
|
|
|
(Dollars in millions)
|
|
Revenue
|
$
|
3,698
|
|
1,469
|
|
5,167
|
|
—
|
|
5,167
|
|
|
Expenses:
|
|
|
|
|
|
|
Cost of services and products
|
912
|
|
55
|
|
967
|
|
1,269
|
|
2,236
|
|
|
Selling, general and administrative
|
299
|
|
148
|
|
447
|
|
403
|
|
850
|
|
|
Less: share-based compensation
|
—
|
|
—
|
|
—
|
|
(31)
|
|
(31)
|
|
|
Total expense
|
1,211
|
|
203
|
|
1,414
|
|
1,641
|
|
3,055
|
|
|
Total adjusted EBITDA
|
$
|
2,487
|
|
1,266
|
|
3,753
|
|
(1,641)
|
|
2,112
|
|
The following tables summarize our segment results for the nine months ended September 30, 2021 and 2020, based on the segment categorization we were operating under at September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
|
Business
|
Mass Markets
|
Total Segments
|
Operations and Other
|
Total
|
|
|
(Dollars in millions)
|
|
Revenue
|
$
|
10,625
|
|
4,215
|
|
14,840
|
|
—
|
|
14,840
|
|
|
Expenses:
|
|
|
|
|
|
|
Cost of services and products
|
2,611
|
|
118
|
|
2,729
|
|
3,673
|
|
6,402
|
|
|
Selling, general and administrative
|
900
|
|
408
|
|
1,308
|
|
864
|
|
2,172
|
|
|
Less: share-based compensation
|
—
|
|
—
|
|
—
|
|
(89)
|
|
(89)
|
|
|
Total expense
|
3,511
|
|
526
|
|
4,037
|
|
4,448
|
|
8,485
|
|
|
Total adjusted EBITDA
|
$
|
7,114
|
|
3,689
|
|
10,803
|
|
(4,448)
|
|
6,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
Business
|
Mass Markets
|
Total Segments
|
Operations and Other
|
Total
|
|
|
(Dollars in millions)
|
|
Revenue
|
$
|
11,152
|
|
4,435
|
|
15,587
|
|
—
|
|
15,587
|
|
|
Expenses:
|
|
|
|
|
|
|
Cost of services and products
|
2,738
|
|
152
|
|
2,890
|
|
3,813
|
|
6,703
|
|
|
Selling, general and administrative
|
975
|
|
432
|
|
1,407
|
|
1,191
|
|
2,598
|
|
|
Less: share-based compensation
|
—
|
|
—
|
|
—
|
|
(120)
|
|
(120)
|
|
|
Total expense
|
3,713
|
|
584
|
|
4,297
|
|
4,884
|
|
9,181
|
|
|
Total adjusted EBITDA
|
$
|
7,439
|
|
3,851
|
|
11,290
|
|
(4,884)
|
|
6,406
|
|
Revenue and Expenses
Our segment revenue includes all revenue from our two segments as described in more detail above. Our segment revenue is based upon each customer's classification. We report our segment revenue based upon all services provided to that segment's customers. Our segment expenses include specific cost of service expenses incurred as a direct result of providing services and products to segment customers, along with selling, general and administrative expenses that are directly associated with specific segment customers or activities.
The following items are excluded from our segment results, because they are centrally managed and not monitored by or reported to our CODM by segment:
•network expenses not incurred as a direct result of providing services and products to segment customers;
•centrally managed expenses such as Operations, Finance, Human Resources, Legal, Marketing, Product Management and IT, which are reported as "Operations and Other";
•depreciation and amortization expense or impairments;
•interest expense, because we manage our financing on a consolidated basis and have not allocated assets or debt to specific segments;
•stock-based compensation; and
•other income and expense items are not monitored as a part of our segment operations.
The following table reconciles total segment adjusted EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(Dollars in millions)
|
|
(Dollars in millions)
|
|
Total segment adjusted EBITDA
|
$
|
3,562
|
|
|
3,753
|
|
|
10,803
|
|
|
11,290
|
|
|
Depreciation and amortization
|
(951)
|
|
|
(1,193)
|
|
|
(3,142)
|
|
|
(3,515)
|
|
|
Other operating expenses
|
(1,453)
|
|
|
(1,641)
|
|
|
(4,448)
|
|
|
(4,884)
|
|
|
Stock-based compensation
|
(27)
|
|
|
(31)
|
|
|
(89)
|
|
|
(120)
|
|
|
Operating income
|
1,131
|
|
|
888
|
|
|
3,124
|
|
|
2,771
|
|
|
Total other expense, net
|
(415)
|
|
|
(408)
|
|
|
(1,102)
|
|
|
(1,345)
|
|
|
Income before income taxes
|
716
|
|
|
480
|
|
|
2,022
|
|
|
1,426
|
|
|
Income tax expense
|
172
|
|
|
114
|
|
|
497
|
|
|
369
|
|
|
Net income
|
$
|
544
|
|
|
366
|
|
|
1,525
|
|
|
1,057
|
|
(15) Commitments, Contingencies and Other Items
We are subject to various claims, legal proceedings and other contingent liabilities, including the matters described below, which individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. As a matter of course, we are prepared to both litigate these matters to judgment as needed, as well as to evaluate and consider reasonable settlement opportunities.
Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously established 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, 2021 aggregated to approximately $104 million and are included in other current liabilities, other liabilities and liabilities held for sale in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows.
In this Note, when we refer to a class action as "putative" it is because a class has been alleged, but not certified, in that matter.
Principal Proceedings
Shareholder Class Action Suit
Lumen and certain Lumen Board of Directors members and officers were named as defendants in a putative shareholder class action lawsuit filed on June 12, 2018 in the Boulder County District Court of the state of Colorado, captioned Houser et al. v. CenturyLink, et al. The complaint asserts claims on behalf of a putative class of former Level 3 shareholders who became CenturyLink, Inc. shareholders as a result of our acquisition of Level 3. It alleges that the proxy statement provided to the Level 3 shareholders failed to disclose various material information of several kinds, including information about strategic revenue, customer loss rates, and customer account issues, among other items. The complaint seeks damages, costs and fees, rescission, rescissory damages, and other equitable relief. In May 2020, the court dismissed the complaint. Plaintiffs appealed that decision, and the appeal is pending.
State Tax Suits
Since 2012, a number of Missouri municipalities have asserted claims in the Circuit Court of St. Louis County, Missouri, alleging that we and several of our subsidiaries have underpaid taxes. These municipalities are seeking, among other things, declaratory relief regarding the application of business license and gross receipts taxes and back taxes from 2007 to the present, plus penalties and interest. In a February 2017 ruling in connection with one of these pending cases, the court entered an order awarding plaintiffs $4 million and broadening the tax base on a going-forward basis. We appealed that decision to the Missouri Supreme Court. In December 2019, it affirmed the circuit court's order in some respects and reversed it in others, remanding the case to the circuit court for further proceedings. The Missouri Supreme Court's decision reduced our exposure in the case. In a June 2021 ruling in one of the pending cases, another trial court awarded the cities of Columbia and Joplin approximately $55 million, plus statutory interest. We have appealed that decision to the Missouri Court of Appeals. That appeal is pending. If the trial court’s decision is not overturned or modified in light of the Missouri Supreme Court’s decision, it will result in a tax liability to us in excess of the reserved accruals established for these matters. We continue to vigorously defend against these claims.
Billing Practices Suits
In June 2017, a former employee filed an employment lawsuit against us claiming that she was wrongfully terminated for alleging that we charged some of our retail customers for products and services they did not authorize. Thereafter, based in part on the allegations made by the former employee, several legal proceedings were filed, including consumer class actions in federal and state courts, a series of securities investor class actions in federal courts and several shareholder derivative actions in federal and Louisiana state courts. The derivative cases were brought on behalf of CenturyLink, Inc. against certain current and former officers and directors of the Company and seek damages for alleged breaches of fiduciary duties.
The consumer class actions, the securities investor class actions, and the federal derivative actions were transferred to the U.S. District Court for the District of Minnesota for coordinated and consolidated pretrial proceedings as In Re: CenturyLink Sales Practices and Securities Litigation. We have settled the consumer and securities investor class actions. Those settlements are final. The derivative actions remain pending.
We have engaged in discussions regarding related claims with a number of state attorneys general, and have entered into agreements settling certain of the consumer practices claims asserted by state attorneys general. While we do not agree with allegations raised in these matters, we have been willing to consider reasonable settlements where appropriate.
Peruvian Tax Litigation
In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of our Peruvian subsidiaries asserting $26 million of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. In May 2021, the Company paid the remaining amount on the fractioning regimes entered into by the Company to pay the amount assessed while it was appealed.
We challenged the assessments via administrative and then judicial review processes. In October 2011, the highest administrative review tribunal (the Tribunal) decided the central issue underlying the 2002 assessments in SUNAT's favor. We appealed the Tribunal's decision to the first judicial level, which decided the central issue in favor of Level 3. SUNAT and we filed cross-appeals with the court of appeal. In May 2017, the court of appeal issued a decision reversing the first judicial level. In June 2017, we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level. Oral argument was held before the Supreme Court of Justice in October 2018. A decision on this case is pending.
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. In May 2021, the Company was served with a favorable and final decision from the Supreme Court of Justice. The Company expects an order for SUNAT to comply with the Supreme Court of Justice's decision.
Brazilian Tax Claims
The São Paulo and Rio de Janeiro state tax authorities have issued tax assessments against our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”), mainly with respect to revenue from leasing certain assets and revenue from the provision of Internet access services by treating such activities as the provision of communications services, to which the ICMS tax applies. We filed objections to these assessments in both states, arguing, among other things that neither the lease of assets nor the provision of Internet access qualifies as “communication services” subject to ICMS.
We have appealed to the respective state judicial courts the decisions by the respective state administrative courts that rejected our objections to these assessments. In cases in which state lower courts ruled partially in our favor finding that the lease assets are not subject to ICMS in connection, the State appealed those rulings. In other cases, the assessment was affirmed at the first administrative level and our appeal to the second administrative level is pending. Other assessments are still pending state judicial decisions.
We are vigorously contesting all such assessments in both states and view the assessment of ICMS on revenue from equipment leasing and Internet access to be without merit. These assessments, if upheld, could result in a loss of up to $47 million as of September 30, 2021, in excess of the reserved accruals established for these matters.
Other Proceedings, Disputes and Contingencies
From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, regulatory hearings relating primarily to our rates or services, actions relating to employee 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 during the fourth quarter of 2021 or during 2022 if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.
We are subject to various foreign, federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $300,000 in fines and penalties.
The outcome of these other proceedings described under this heading is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.
The matters listed above in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 17—Commitments, Contingencies and Other Items to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us.
(16) Other Financial Information
Other Current Assets
The following table presents details of other current assets reflected in our consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
(Dollars in millions)
|
|
Prepaid expenses
|
$
|
294
|
|
|
290
|
|
|
Income tax receivable
|
15
|
|
|
7
|
|
|
Materials, supplies and inventory
|
103
|
|
|
105
|
|
|
Contract assets
|
49
|
|
|
66
|
|
|
Contract acquisition costs
|
144
|
|
|
173
|
|
|
Contract fulfillment costs
|
104
|
|
|
114
|
|
|
Note receivable
|
56
|
|
|
—
|
|
|
Receivable for sale of land
|
56
|
|
|
—
|
|
|
Other
|
22
|
|
|
53
|
|
|
Total other current assets
|
$
|
843
|
|
|
808
|
|
(17) Repurchases of Lumen Common Stock
Effective August 3, 2021, our Board of Directors authorized a 24-month program to repurchase up to an aggregate of $1.0 billion of our outstanding common stock (the "August 2021 stock repurchase program"). During the three and nine months ended September 30, 2021, we repurchased 73.8 million shares of our outstanding common stock in the open market. These shares were repurchased for an aggregate market price of $909 million. The figures set forth above exclude 3.5 million shares that, as of September 30, 2021, we had agreed to purchase under the program for an additional $45 million in transactions that settled in October of 2021. All repurchased common stock has been retired.
(18) Accumulated Other Comprehensive Loss
Information Relating to 2021
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheet by component for the nine months ended September 30, 2021:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Post-Retirement
Benefit Plans
|
|
Foreign Currency
Translation
Adjustment
and Other
|
|
Interest Rate Swap
|
|
Total
|
|
|
(Dollars in millions)
|
|
Balance at December 31, 2020
|
$
|
(2,197)
|
|
|
(272)
|
|
|
(265)
|
|
|
(79)
|
|
|
(2,813)
|
|
|
Other comprehensive loss before reclassifications
|
133
|
|
|
—
|
|
|
(103)
|
|
|
(1)
|
|
|
29
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
149
|
|
|
11
|
|
|
—
|
|
|
47
|
|
|
207
|
|
|
Net current-period other comprehensive income (loss)
|
282
|
|
|
11
|
|
|
(103)
|
|
|
46
|
|
|
236
|
|
|
Balance at September 30, 2021
|
$
|
(1,915)
|
|
|
(261)
|
|
|
(368)
|
|
|
(33)
|
|
|
(2,577)
|
|
The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the three and nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
Decrease (Increase)
in Net Income
|
|
Affected Line Item in Consolidated Statement of Operations
|
|
|
|
(Dollars in millions)
|
|
|
|
Interest rate swaps
|
|
$
|
21
|
|
|
Interest expense
|
|
Income tax benefit
|
|
(5)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension & post-retirement plans(1)
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
108
|
|
|
Other (expense) income, net
|
|
Prior service cost
|
|
1
|
|
|
Other (expense) income, net
|
|
Total before tax
|
|
109
|
|
|
|
|
Income tax benefit
|
|
(27)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Decrease (Increase)
in Net Income
|
|
Affected Line Item in Consolidated Statement of Operations
|
|
|
|
(Dollars in millions)
|
|
|
|
Interest rate swaps
|
|
$
|
62
|
|
|
Interest expense
|
|
Income tax benefit
|
|
(15)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension & post-retirement plans(1)
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
208
|
|
|
Other (expense) income, net
|
|
Prior service cost
|
|
4
|
|
|
Other (expense) income, net
|
|
Total before tax
|
|
212
|
|
|
|
|
Income tax benefit
|
|
(52)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
160
|
|
|
|
(1)See Note 10—Employee Benefits for additional information on our net periodic benefit (income) expense related to our pension and post-retirement plans.
Information Relating to 2020
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the three and nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Post-Retirement
Benefit Plans
|
|
Foreign Currency
Translation
Adjustment
and Other
|
|
Interest Rate Swap
|
|
Total
|
|
|
(Dollars in millions)
|
|
Balance at December 31, 2019
|
$
|
(2,229)
|
|
|
(184)
|
|
|
(228)
|
|
|
(39)
|
|
|
(2,680)
|
|
|
Other comprehensive loss before reclassifications
|
—
|
|
|
—
|
|
|
(181)
|
|
|
(87)
|
|
|
(268)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
110
|
|
|
12
|
|
|
—
|
|
|
31
|
|
|
153
|
|
|
Net current-period other comprehensive income (loss)
|
110
|
|
|
12
|
|
|
(181)
|
|
|
(56)
|
|
|
(115)
|
|
|
Balance at September 30, 2020
|
$
|
(2,119)
|
|
|
(172)
|
|
|
(409)
|
|
|
(95)
|
|
|
(2,795)
|
|
The tables below present further information about our reclassifications out of accumulated other comprehensive loss by component for the nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Decrease (Increase)
in Net Income
|
|
Affected Line Item in Consolidated Statement of Operations
|
|
|
|
(Dollars in millions)
|
|
|
|
Interest rate swaps
|
|
$
|
20
|
|
|
Interest expense
|
|
Income tax expense
|
|
(5)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
15
|
|
|
|
|
Amortization of pension & post-retirement plans(1)
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
50
|
|
|
Other (expense) income, net
|
|
Prior service cost
|
|
1
|
|
|
Other (expense) income, net
|
|
Curtailment loss
|
|
4
|
|
|
Other (expense) income, net
|
|
Total before tax
|
|
55
|
|
|
|
|
Income tax benefit
|
|
(13)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Decrease (Increase)
in Net Income
|
|
Affected Line Item in Consolidated Statement of Operations
|
|
|
|
(Dollars in millions)
|
|
|
|
Interest rate swaps
|
|
$
|
41
|
|
|
Interest expense
|
|
Income tax expense
|
|
(10)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
31
|
|
|
|
|
Amortization of pension & post-retirement plans(1)
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
152
|
|
|
Other (expense) income, net
|
|
Prior service cost
|
|
5
|
|
|
Other (expense) income, net
|
|
Curtailment loss
|
|
4
|
|
|
Other (expense) income, net
|
|
Total before tax
|
|
161
|
|
|
|
|
Income tax benefit
|
|
(39)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
122
|
|
|
|
(1)See Note 10—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
(19) Labor Union Contracts
As of September 30, 2021, approximately 22% of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). Approximately 9% of our represented employees are subject to collective bargaining agreements that are scheduled to expire over the 12 month period ending September 30, 2022.
(20) Subsequent Events
Pension Annuitization
On October 19, 2021, we, as sponsor of the Combined Pension Plan, along with the Plan’s independent fiduciary, entered into an agreement committing the Plan to use a portion of its plan assets to purchase an annuity from an insurance company (the "Insurer") to transfer approximately $1.4 billion of the Plan’s pension liabilities. This agreement will irrevocably transfer to the Insurer future Plan benefit obligations for approximately 22,600 U.S. Lumen participants (“Transferred Participants”) effective on December 31, 2021. This annuity transaction will be funded entirely by existing Plan assets.
The Insurer is committed to assume responsibility for administrative and customer service support, including distribution of payments to the Transferred Participants. Transferred Participants’ benefits are not being reduced as a result of this transaction.
The transaction will result in Lumen recognizing a noncash settlement charge in the fourth quarter of 2021 to accelerate recognition of a portion of the actuarial loss included in accumulated other comprehensive loss. We currently estimate that the pension settlement charges recognized in the fourth quarter will be approximately $350 million, dependent upon the completion of the annuity transaction discussed above and the amount of our lump sum pension payments as discussed in Note 10—Employee Benefits. The settlement charge will be recognized in other (expense) income, net in our consolidated statements of operations. The Plan will be remeasured for the annuity and lump sum payments in the fourth quarter of 2021.
For more information on our Combined Pension Plan, see Note 10—Employee Benefits.
Repurchases of Lumen Common Stock
As of October 5, 2021, we completed the August 2021 stock repurchase program, settling 3.5 million shares for $45 million that were previously executed and accrued as of September 30, 2021 and repurchasing an additional 3.6 million shares for $46 million subsequent to the end of the third quarter. Upon completion of the program, we repurchased a total of 80.9 million shares for an average purchase price of $12.36 per share.
For more information, see Note 17—Repurchases of Lumen Common Stock.