Planned Divestiture of Latin American Business

3 Months Ended

Mar. 31, 2022

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 anticipate closing the transaction during the second 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 any of our other assumptions prove to be incorrect.

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 March 31,
	2022		2021
	(Dollars in millions)
Pre-tax net income	$	83	28

As of March 31, 2022 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 of the disposal group 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, we suspended recording depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets while these assets are classified as held for sale. We estimate that we would have recorded an additional $49 million of depreciation, intangible amortization, and amortization of right-of use assets for the three months ended March 31, 2022 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 for the three months ended March 31, 2022. 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 are as follows:

	March 31, 2022		December 31, 2021
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	58	39
Accounts receivable, less allowance of $3 and $3	93		83
Other current assets	83		81
Property, plant and equipment, net accumulated depreciation of $456 and $434	1,704		1,591
Goodwill (1)	733		713
Customer relationships and other intangibles, net	138		126
Other non-current assets	83		75
Total assets held for sale	$	2,892	2,708
Liabilities held for sale
Accounts payable	$	90	101
Salaries and benefits	25		23
Income and other taxes	34		27
Current portion of deferred revenue	26		26
Other current liabilities	7		7
Deferred income taxes, net	148		129
Other non-current liabilities	134		122
Total liabilities held for sale	$	464	435

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(1)    The assignment of goodwill was based on the relative fair value of the disposal group and the portion of the remaining reporting unit.