Condensed Consolidating Financial Information

9 Months Ended

Sep. 30, 2018

Condensed Consolidating Financial Information [Abstract]

Condensed Consolidating Financial Information

(12) Condensed Consolidating Financial Information

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

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

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

Condensed Consolidating Statements of Comprehensive Income (Loss)

Three Months Ended September 30, 2018 (Successor)

	Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations		Total
	(Dollars in millions)
OPERATING REVENUES
Operating revenues	$	—		—		951		1,033		—		1,984
Operating revenues - affiliate	—			—		50		47		(71	)	26
Total operating revenues	—			—		1,001		1,080		(71	)	2,010
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—		538		438		—		976
Selling, general and administrative	—			—		333		49		(71	)	311
Operating expenses - affiliates	—			—		50		15		—		65
Depreciation and amortization	—			—		176		255		—		431
Total operating expenses	—			—		1,097		757		(71	)	1,783
OPERATING INCOME (LOSS)	—			—		(96	)	323		—		227
OTHER INCOME (EXPENSE)
Interest income	—			—		—		(2	)	1		(1	)
Interest income - affiliate	16			—		—		2		—		18
Interest expense	(8		)	(118	)	(2	)	(8	)	(1	)	(137	)
Interest income (expense) - intercompany, net	771			234		(997	)	(8	)	—		—
Equity in net earnings (losses) of subsidiaries	(690		)	(834	)	452		—		1,072		—
Other income, net	(3		)	—		(1	)	23		—		19
Total other income (expense)	86			(718	)	(548	)	7		1,072		(101	)
INCOME (LOSS) BEFORE INCOME TAXES	86			(718	)	(644	)	330		1,072		126
Income tax benefit (expense)	2			28		18		(86	)	—		(38	)
NET INCOME (LOSS)	88			(690	)	(626	)	244		1,072		88
Other comprehensive income (loss), net of income taxes	(1		)	—		—		(1	)	1		(1	)
COMPREHENSIVE INCOME (LOSS)	$	87		(690	)	(626	)	243		1,073		87

Condensed Consolidating Statements of Comprehensive Income (Loss)

Nine Months EndedSeptember 30, 2018 (Successor)

	Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations		Total
	(Dollars in millions)
OPERATING REVENUES
Operating revenues	$	—		—		2,884		3,187		—		6,071
Operating revenues - affiliate	—			—		81		151		(154	)	78
Total operating revenues	—			—		2,965		3,338		(154	)	6,149
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—		1,727		1,227		—		2,954
Selling, general and administrative	—			3		878		234		(72	)	1,043
Operating expenses - affiliate	—			—		140		115		(82	)	173
Depreciation and amortization	—			—		520		775		—		1,295
Total operating expenses	—			3		3,265		2,351		(154	)	5,465
OPERATING INCOME (LOSS)	—			(3	)	(300	)	987		—		684
OTHER INCOME (EXPENSE)
Interest income	—			—		1		(1	)	—		—
Interest income - affiliate	48			—		—		2		—		50
Interest expense	(24		)	(339	)	(3	)	(15	)	—		(381	)
Interest income (expense) - intercompany, net	1,474			1,446		(2,756	)	(164	)	—		—
Equity in net earnings (losses) of subsidiaries	(1,321		)	(2,505	)	451		—		3,375		—
Other income, net	(3		)	—		2		22		—		21
Total other income (expense)	174			(1,398	)	(2,305	)	(156	)	3,375		(310	)
INCOME (LOSS) BEFORE INCOME TAXES	174			(1,401	)	(2,605	)	831		3,375		374
Income tax benefit (expense)	16			80		(16	)	(264	)	—		(184	)
NET INCOME (LOSS)	190			(1,321	)	(2,621	)	567		3,375		190
Other comprehensive income (loss), net of income taxes	(164		)	—		—		(164	)	164		(164	)
COMPREHENSIVE INCOME (LOSS)	$	26		(1,321	)	(2,621	)	403		3,539		26

Condensed Consolidating Statements of Comprehensive Income (Loss)

Three Months Ended September 30, 2017 (Predecessor)

	Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations		Total
	(Dollars in millions)
OPERATING REVENUES
Operating revenues	$	—		—		932		1,168		(41	)	2,059
Operating revenues - affiliate	—			—		—		—		—		—
Total operating revenues	—			—		932		1,168		(41	)	2,059
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—		600		487		(41	)	1,046
Selling, general and administrative expenses	2			1		272		79		—		354
Operating expenses - affiliate	—			—		—		—		—		—
Depreciation and amortization	—			—		97		213		—		310
Total operating expenses	2			1		969		779		(41	)	1,710
OPERATING INCOME (LOSS)	(2		)	(1	)	(37	)	389		—		349
OTHER INCOME (EXPENSE)
Interest income	—			—		6		—		—		6
Interest income - affiliate	—			—		—		—		—		—
Interest expense	(9		)	(121	)	—		(4	)	—		(134	)
Interest income (expense) - intercompany, net	377			562		(868	)	(71	)	—		—
Equity in net earnings (losses) of subsidiaries	(212		)	(614	)	215		—		611		—
Other income, net	—			—		12		—		—		12
Total other income (expense)	156			(173	)	(635	)	(75	)	611		(116	)
INCOME (LOSS) BEFORE INCOME TAXES	154			(174	)	(672	)	314		611		233
Income tax benefit (expense)	3			(38	)	(1	)	(40	)	—		(76	)
NET INCOME (LOSS)	157			(212	)	(673	)	274		611		157
Other comprehensive income (loss), net of income taxes	44			—		—		44		(44	)	44
COMPREHENSIVE INCOME (LOSS)	$	201		(212	)	(673	)	318		567		201

Condensed Consolidating Statements of Comprehensive Income (Loss)

Nine Months EndedSeptember 30, 2017 (Predecessor)

	Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations		Total
	(Dollars in millions)
OPERATING REVENUES
Operating revenues	$	—		—		2,786		3,499		(116	)	6,169
Operating revenues - affiliate	—			—		—		—		—		—
Total operating revenues	—			—		2,786		3,499		(116	)	6,169
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	—			—		1,785		1,463		(116	)	3,132
Selling, general and administrative expenses	4			3		843		235		—		1,085
Operating expenses - affiliate	—			—		—		—		—		—
Depreciation and amortization	—			—		276		637		—		913
Total operating expenses	4			3		2,904		2,335		(116	)	5,130
OPERATING INCOME (LOSS)	(4		)	(3	)	(118	)	1,164		—		1,039
OTHER INCOME (EXPENSE)
Interest income	—			—		11		—		—		11
Interest income - affiliate	—			—		—		—		—		—
Interest expense	(27		)	(358	)	(2	)	(12	)	—		(399	)
Interest income (expense) - intercompany, net	1,132			1,703		(2,605	)	(230	)	—		—
Equity in net earnings (losses) of subsidiaries	(703		)	(1,892	)	618		—		1,977		—
Loss on modification and extinguishment of debt	—			(44	)	—		—		—		(44	)
Other income, net	—			—		15		(1	)	—		14
Total other income (expense)	402			(591	)	(1,963	)	(243	)	1,977		(418	)
INCOME (LOSS) BEFORE INCOME TAXES	398			(594	)	(2,081	)	921		1,977		621
Income tax benefit (expense)	8			(109	)	(3	)	(111	)	—		(215	)
NET INCOME (LOSS)	406			(703	)	(2,084	)	810		1,977		406
Other comprehensive income (loss), net of income taxes	106			—		—		106		(106	)	106
COMPREHENSIVE INCOME (LOSS)	$	512		(703	)	(2,084	)	916		1,871		512

Condensed Consolidating Balance Sheets

September 30, 2018 (Successor)

	Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations		Total
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	36		—		73		79		—		188
Restricted cash and securities	—			—		1		2		—		3
Assets held for sale	—			—		1		14		—		15
Accounts receivable	—			—		24		691		—		715
Accounts receivable - affiliate	—			—		—		—		—		—
Intercompany advances	16,935			23,527		(106	)	10,478		(50,834	)	—
Note receivable - affiliate	1,825			—		—		—		—		1,825
Other	—			—		122		168		—		290
Total current assets	18,796			23,527		115		11,432		(50,834	)	3,036
Property, plant, and equipment, net	—			—		3,137		6,137		—		9,274
Restricted cash and securities	15			—		10		—		—		25
GOODWILL AND OTHER ASSETS
Goodwill	—			—		9,576		1,556		—		11,132
Customer relationships, net	—			—		3,815		3,986		—		7,801
Other intangible assets, net	—			—		373		28		—		401
Investment in subsidiaries	16,265			18,667		4,057		—		(38,989	)	—
Deferred tax assets	283			1,902		203		(154	)	(1,771	)	463
Other, net	—			—		75		57		—		132
Total goodwill and other assets	16,548			20,569		18,099		5,473		(40,760	)	19,929
TOTAL ASSETS	$	35,359		44,096		21,361		23,042		(91,594	)	32,264
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—		—		1		5		—		6
Accounts payable	17			57		215		330		—		619
Accounts payable - affiliate	(4		)	(3	)	93		2		—		88
Income and other taxes	17			3		59		35		—		114
Salaries and benefits	—			—		196		37		—		233
Interest	3			87		1		5		—		96
Current portion of deferred revenue	—			—		147		141		—		288

Current portion of deferred revenue, affiliate	—		—	45,320		5,514	(50,834	)	—
Intercompany payables	—		—	—		—	—		—
Other	—		1	1		70	—		72
Total current liabilities	33		145	46,033		6,139	(50,834	)	1,516
LONG-TERM DEBT	614		10,075	7		152	—		10,848
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenues	—		—	962		219	—		1,181
Deferred income taxes	651		19	837		453	(1,771	)	189
Other	—		—	170		188	—		358
Total deferred revenue and other liabilities	651		19	1,969		860	(1,771	)	1,728
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY (DEFICIT)	34,061		33,857	(26,648	)	15,891	(38,989	)	18,172
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	35,359	44,096	21,361		23,042	(91,594	)	32,264

Condensed Consolidating Balance Sheets

December 31, 2017 (Successor)

	Level 3 Parent, LLC		Level 3 Financing, Inc.	Level 3 Communications, LLC	Other Non-Guarantor Subsidiaries	Eliminations		Total
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	13	—	175	109	—		297
Restricted cash and securities	—		—	1	4	—		5
Assets held for sale	68		—	5	67	—		140
Accounts receivable	—		—	26	722	—		748
Accounts receivable - affiliate	—		—	60	4	(51	)	13
Intercompany advances	16,251		21,032	—	5,200	(42,483	)	—
Note receivable - affiliate	1,825		—	—	—	—		1,825
Other	—		—	54	63	—		117
Total current assets	18,157		21,032	321	6,169	(42,534	)	3,145
Property, plant, and equipment, net	—		—	3,237	6,175	—		9,412
Restricted cash and securities	19		—	10	—	—		29
GOODWILL AND OTHER ASSETS
Goodwill	—		—	1,200	9,637	—		10,837
Customer relationships, net	—		—	4,324	4,521	—		8,845
Other intangible assets, net	—		—	378	—	—		378
Investment in subsidiaries	16,954		18,403	3,616	—	(38,973	)	—
Deferred tax assets	280		1,795	—	122	(1,771	)	426
Other, net	—		—	32	31	—		63
Total goodwill and other assets	17,234		20,198	9,550	14,311	(40,744	)	20,549
TOTAL ASSETS	$	35,410	41,230	13,118	26,655	(83,278	)	33,135
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—	—	2	6	—		8
Accounts payable	—		1	323	371	—		695
Accounts payable - affiliate	11		—	—	81	(51	)	41
Income and other taxes	—		—	55	45	—		100
Salaries and benefits	—		—	109	27	—		136
Interest	11		91	—	7	—		109
Current portion of deferred revenue	—		—	129	131	—		260
Intercompany payables	—		—	42,483	—	(42,483	)	—

Other	16		—	23		18	—		57
Total current liabilities	38		92	43,124		686	(42,534	)	1,406
LONG-TERM DEBT	616		10,096	13		157	—		10,882
DEFERRED REVENUE AND OTHER LIABILITIES
Deferred revenues	—		—	846		253	—		1,099
Deferred income taxes	648		—	870		465	(1,771	)	212
Other	1		1	98		164	—		264
Total deferred revenue and other liabilities	649		1	1,814		882	(1,771	)	1,575
MEMBER'S EQUITY (DEFICIT)	34,107		31,041	(31,833	)	24,930	(38,973	)	19,272
TOTAL LIABILITIES AND MEMBER'S EQUITY	$	35,410	41,230	13,118		26,655	(83,278	)	33,135

Condensed Consolidating Statements of Cash Flows

Nine Months EndedSeptember 30, 2018 (Successor)

	Level 3 Parent, LLC			Level 3 Financing, Inc.	Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations	Total
	(Dollars in millions)
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities	$	(49	)	—	1,420		256		—	1,627
INVESTING ACTIVITIES
Capital expenditures	—			—	(392	)	(334	)	—	(726	)
Proceeds from the sale of property, plant and equipment and other assets	68			—	—		51		—	119
Net cash provided by (used in) investing activities	68			—	(392	)	(283	)	—	(607	)
FINANCING ACTIVITIES
Payments of long-term debt	—			—	—		(5	)	—	(5	)
Distributions	(1,130		)	—	—		—		—	(1,130	)
Increase (decrease) due from/to affiliates, net	1,130			—	(1,130	)	—		—	—
Net cash provided by (used in) financing activities	—			—	(1,130	)	(5	)	—	(1,135	)
Effect of exchange rates on cash, cash equivalents and restricted cash and securities	—			—	—		—		—	—
Net increase (decrease) in cash, cash equivalents and restricted cash and securities	19			—	(102	)	(32	)	—	(115	)
Cash, cash equivalents and restricted cash and securities at beginning of period	32			—	186		113		—	331
Cash, cash equivalents and restricted cash and securities at end of period	$	51		—	84		81		—	216

Condensed Consolidating Statements of Cash Flows

Nine Months EndedSeptember 30, 2017 (Predecessor)

	Level 3 Parent, LLC			Level 3 Financing, Inc.		Level 3 Communications, LLC		Other Non-Guarantor Subsidiaries		Eliminations	Total
	(Dollars in millions)
OPERATING ACTIVITIES
Net Cash Provided by (Used in) Operating Activities	$	(32	)	(378	)	698		1,503		—	1,791
INVESTING ACTIVITIES
Capital expenditures	—			—		(614	)	(404	)	—	(1,018	)
Purchase of marketable securities	—			—		(1,127	)	—		—	(1,127	)
Maturity of marketable securities	—			—		1,127		—		—	1,127
Proceeds from the sale of property, plant, and equipment and other assets	—			—		1		—		—	1
Net cash provided by (used in) investing activities	—			—		(613	)	(404	)	—	(1,017	)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	—			4,569		—		—		—	4,569
Payments of long-term debt	—			(4,911	)	1		(7	)	—	(4,917	)
Increase (decrease) due from/to affiliates, net	28			720		356		(1,104	)	—	—
Net cash provided by (used in) financing activities	28			378		357		(1,111	)	—	(348	)
Effect of exchange rates on cash, cash equivalents and restricted cash and securities	—			—		—		3		—	3
Net increase (decrease) in cash, cash equivalents and restricted cash and securities	(4		)	—		442		(9	)	—	429
Cash, cash equivalents and restricted cash and securities at beginning of period	37			—		1,710		110		—	1,857
Cash, cash equivalents and restricted cash and securities at end of period	$	33		—		2,152		101		—	2,286