Completed Divestiture of the Latin American Business and Planned Divestiture of European, Middle Eastern and African Business

12 Months Ended

Dec. 31, 2022

Discontinued Operations and Disposal Groups [Abstract]

Completed Divestiture of the Latin American Business and Planned Divestiture of European, Middle Eastern and African Business

Latin American Business

On August 1, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., sold Lumen's Latin American business pursuant to a definitive agreement dated July 25, 2021 for pre-tax cash proceeds of approximately $2.7 billion.

For the year ended December 31, 2022, we recorded a $123 million net pre-tax gain on disposal associated with the sale of our Latin American business. This gain is reflected as operating income within the consolidated statements of operations.

In connection with the sale, Lumen has entered into a transition services agreement under which it will provide to the purchaser various support services. In addition, Lumen and the purchaser entered into commercial agreements whereby they provide each other various network and other commercial services. Lumen also agreed to indemnify the purchaser for certain matters for which future cash payments by Lumen could be required. Lumen has estimated the fair value of these indemnifications to be $86 million, which is included in other long-term liabilities in our consolidated balance sheet and has reduced our gain on the sale accordingly.

We do not believe this divestiture represented a strategic shift for Level 3. Therefore, the Latin American business did not meet the criteria to be classified as a discontinued operation. As a result, we continued to report our operating results for the Latin American business in our consolidated operating results through the disposal date of August 1, 2022. The pre-tax net income of the Latin American business is estimated to be as follows in the table below:


	Years Ended December 31,
	2022(1)		2021	2020
	(Dollars in millions)
Latin American business pre-tax net income	$	197	214	160

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(1)The pre-tax net income includes operating results prior to the close of the sale of the Latin American business on August 1, 2022

The Latin American business was included in our continuing operations and classified as assets and liabilities held for sale on our consolidated balance sheets through the closing of the transaction on August 1, 2022. As a result of closing the transaction, we derecognized $2.4 billion of net assets, the principal components of which were as follows:


	August 1, 2022
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	40
Accounts receivable, less allowance of $3	105
Other current assets	86
Property, plant and equipment, net accumulated depreciation of $447	1,703
Goodwill (1)	719
Customer relationships and other intangibles, net	140
Other non-current assets	70
Total assets held for sale	$	2,863

Liabilities held for sale
Accounts payable	$	105
Income and other taxes	42
Other current liabilities	59
Deferred income taxes	154
Other non-current liabilities	122
Total liabilities held for sale	$	482

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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.

EMEA Business

On November 2, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., granted an option to Colt Technology Services Group Limited, a portfolio company of Fidelity Investments, to purchase certain of their operations in Europe, the Middle East and Africa (the "EMEA business"), in exchange for $1.8 billion in cash, subject to certain working capital and other purchase price adjustments. Following the completion of a French consultative process, Colt exercised its option and on February 8, 2023, the parties entered into a definitive purchase agreement, which contains various customary covenants for transactions of this type including various indemnities. Level 3 Parent, LLC expects to close the transaction as early as late 2023, following receipt of all requisite regulatory approvals in the U.S. and certain countries where the EMEA 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 these divestitures represents a strategic shift for us. Therefore, neither the divested Latin American business, nor the planned divestiture of the EMEA business meet the criteria to be classified as discontinued operations. As a result, we continued to report our operating results for the Latin American business in our consolidated operating results through the disposal date of August 1, 2022, and we will continue to report our operating results for the EMEA business (the "disposal group") in our consolidated operating results until the transaction is closed.

The pre-tax net income of the disposal group is estimated to be and reported as follows in the table below:


	Years Ended December 31,
	2022		2021		2020
	(Dollars in millions)
EMEA business pre-tax net loss	$	(226)	$	(98)	$	(41)

As of December 31, 2022 in the accompanying consolidated balance sheet, the assets and liabilities of our EMEA business are classified as held for sale and 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 November 2, 2022, 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 $50 million of depreciation, intangible amortization, and amortization of right-of-use assets for the year ended December 31, 2022 if the EMEA business did not meet the held for sale criteria.

The classification of the EMEA business as held for sale was considered an event or change in circumstance which required an assessment of our goodwill for impairment. We performed a pre-classification and post-classification goodwill impairment test as described further in Note 3—Goodwill, Customer Relationships and Other Intangible Assets. As a result of our impairment tests, we determined the EMEA business disposal group was impaired resulting in a non-cash, non-tax-deductible goodwill impairment charge of $224 million. 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 recorded an estimated loss on disposal of $616 million during the year ended December 31, 2022 in the consolidated statement of operations and a valuation allowance included in assets held for sale on the consolidated balance sheet. We will perform this evaluation each reporting period until disposal and, based on subsequent remeasurements, we will adjust the valuation allowance in assets held for sale (including any gain, limited to the original value).

The principal components of the held for sale assets and liabilities of the EMEA business are as follows:


	December 31, 2022
	EMEA Business
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	43
Accounts receivable, less allowance of $5	76
Other current assets	56
Property, plant and equipment, net accumulated depreciation of $998	1,864
Goodwill (1)	—
Customer relationships and other intangibles, net	100
Operating lease assets	156
Valuation allowance on assets held for sale (2)	(616)
Deferred tax assets	131
Other non-current assets	32
Total assets held for sale	$	1,842

Liabilities held for sale
Accounts payable	$	78
Salaries and benefits	23
Current portion of deferred revenue	28
Current operating lease liabilities	33
Other current liabilities	28
Deferred income taxes	38
Asset retirement obligations	30
Deferred revenue, non-current	85
Operating lease liabilities, non-current	103
Total liabilities held for sale	$	446

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(1) The assignment of goodwill was based on the relative fair value of the disposal group prior to being classified as held for sale. Prior to classification as held for sale, the goodwill was fully impaired as described above.

(2) Includes the impact of $353 million, primarily related to loss on foreign currency translation, expected to be reclassified out of accumulated other comprehensive loss upon close of the sale.