Divestiture of Latin American Business

6 Months Ended

Jun. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

Divestiture of Latin American Business

Recently Completed Divestiture of the Latin American Business

On August 1, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., closed the sale of Lumen's Latin American business pursuant to a definitive agreement dated July 25, 2021. See Note 11—Subsequent Events for additional information regarding this divestiture.

We do not believe this divestiture 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 continue to report our operating results for the Latin American business in our consolidated operating results through the disposal date. The pre-tax net income of the Latin American business is estimated to be as follows in the table below:

	Three Months Ended June 30,			Six Months Ended June 30,
	2022		2021	2022	2021
	(Dollars in millions)
Pre-tax net income	$	95	47	178	75

As of June 30, 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 $48 million and $97 million of depreciation, intangible amortization, and amortization of right-of use assets for the three and six months ended June 30, 2022, respectively 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 six months ended June 30, 2022. We re-evaluate the recoverability of the disposal group each reporting period through the disposal date. For information on the August 1, 2022 disposal of the Latin American business, see Note 11—Subsequent Events.

The principal components of the held for sale assets and liabilities as of the dates below are as follows:

	June 30, 2022		December 31, 2021
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	48	39
Accounts receivable, less allowance of $2 and $3	94		83
Other current assets	79		81
Property, plant and equipment, net accumulated depreciation of $431 and $434	1,714		1,591
Goodwill (1)	720		713
Customer relationships and other intangibles, net	130		126
Other non-current assets	80		75
Total assets held for sale	$	2,865	2,708
Liabilities held for sale
Accounts payable	$	110	101
Salaries and benefits	21		23
Income and other taxes	37		27
Current portion of deferred revenue	27		26
Other current liabilities	7		7
Deferred income taxes, net	149		129
Other non-current liabilities	128		122
Total liabilities held for sale	$	479	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.