Planned Divestiture of the Latin American and ILEC Businesses

9 Months Ended

Sep. 30, 2021

Discontinued Operations and Disposal Groups [Abstract]

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:


	Three Months Ended September 30,
	2021			2020
	Low		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
Total disposal groups pre-tax net income	$	280	343	175	214


	Nine Months Ended September 30,
	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
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:


	September 30, 2021
	Latin American Business		ILEC Business	Total (4)
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	37	2	39
Accounts receivable, less allowance of $3, $21 and $24	83		230	313
Other current assets	75		46	121
Property, plant and equipment, net accumulated depreciation of $445, $10,976 and $11,421	1,545		3,386	4,931
Goodwill (1)	244		2,615	2,859
Other intangible assets, net	129		158	287
Other non-current assets	71		41	112
Total assets held for sale	$	2,184	6,478	8,662

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
Other current liabilities	10		43	53
Long-term debt, net of discounts (2)	—		1,367	1,367
Deferred income taxes, net	116		—	116
Pension and other post-retirement benefits (3)	2		56	58
Other non-current liabilities	126		147	273
Total liabilities held for sale	$	412	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.