Planned Divestiture of Latin American Business

9 Months Ended

Sep. 30, 2021

Discontinued Operations and Disposal Groups [Abstract]

Planned Divestiture of Latin American Business

Planned Divestiture of the Latin American Business

On July 25, 2021, affiliates of Level 3 Parent, LLC executed a definitive agreement to divest our 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 and other purchase price adjustments and related transaction expenses (estimated to be approximately $50 million). We expect 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.

The actual amount of our net after-tax proceeds from this divestiture could vary substantially from the amounts we currently estimate, particularly if we experience delays in completing the transaction or if there are changes in other assumptions that impact our estimates.

We do not believe this divestiture transaction represents a strategic shift for Level 3. Therefore, the Latin American business does not meet the criteria to be classified as a discontinued operation. As a result, we will continue to report our operating results for the Latin American business in our consolidated operating results until the transaction is closed. The pre-tax net income of the Latin American business is estimated to be as follows in the table below:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
	Low		High	Low	High	Low		High	Low	High
	(Dollars in millions)
Pre-tax net income	$	59	72	36	45	$	131	160	108	131

As of September 30, 2021 in the accompanying consolidated balance sheets, the assets and liabilities of our Latin American business (the "disposal group") are classified as held for sale and are measured at the lower of (i) the carrying value when we classified the disposal group as held for sale and (ii) the fair value of the disposal group less costs to sell. Effective with the designation of the disposal group as held for sale on July 25, 2021, 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 $26 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 business 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 the disposal group will be evaluated each reporting period until the closing of the transaction.

The principal components of the held for sale assets and liabilities as of September 30, 2021 are as follows:

	September 30, 2021
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	36
Accounts receivable, less allowance of $3	83
Other current assets	75
Property, plant and equipment, net accumulated depreciation of $445	1,545
Goodwill (1)	718
Customer relationships and other intangibles, net	129
Other non-current assets	71
Total assets held for sale	$	2,657
Liabilities held for sale
Accounts payable	$	76
Salaries and benefits	22
Income and other taxes	32
Current portion of deferred revenue	28
Other current liabilities	10
Deferred income taxes, net	116
Other non-current liabilities	128
Total liabilities held for sale	$	412

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(1)    The assignment of goodwill was based on the relative fair value of the disposal group compared to the fair value of the total Company prior to being reclassified as held for sale.