All references to "Notes" in this Item 7 of Part II refer to the Notes to
Consolidated Financial Statements included in Item 8 of Part II of this report.
Certain statements in this report constitute forward-looking statements. See
"Special Note Regarding Forward-Looking Statements" immediately prior to Item 1
of Part I of this report for factors relating to these statements and "Risk
Factors" in Item 1A of Part I of this report for a discussion of certain risk
factors applicable to our business, financial condition, results of operations,
liquidity or prospects.

Overview

We are an international facilities-based technology and communications company
focused on providing our business and mass markets customers with a broad array
of integrated products and services necessary to fully participate in our
rapidly evolving digital world. We operate one of the world's most
interconnected networks. Our platform empowers our customers to rapidly adjust
digital programs to meet immediate demands, create efficiencies, accelerate
market access, and reduce costs - allowing customers to rapidly evolve their IT
programs to address dynamic changes. With approximately 190,000 on-net buildings
and 500,000 route miles of fiber optic cable globally, we are among the largest
providers of communications services to domestic and global enterprise
customers. Our terrestrial and subsea fiber optic long-haul network throughout
North America, Europe, Latin America and Asia Pacific connects to metropolitan
fiber networks that we operate. We provide services in over 60 countries, with
most of our revenue being derived in the United States.

Planned Divestiture of the Latin American and ILEC Businesses



On July 25, 2021, affiliates of Level 3 Parent, LLC, an indirect wholly-owned
subsidiary of Lumen, agreed to divest their Latin American business in exchange
for $2.7 billion cash, subject to certain working capital, other purchase price
adjustments and related transaction expenses (estimated to be approximately $50
million). On August 3, 2021, Lumen and certain of its subsidiaries agreed to
divest a substantial portion of their incumbent local exchange business in
exchange for $7.5 billion, subject to offsets for (i) assumed indebtedness
(expected to be approximately $1.4 billion) and (ii) our transaction expenses,
certain of purchaser's transaction expenses, income taxes and certain working
capital and other customary purchase price adjustments (currently estimated to
aggregate to approximately $1.7 billion). The actual amount of our net after-tax
proceeds from these divestitures could vary substantially from the amounts we
currently estimate, particularly if we experience delays in completing the
transactions or any of our other assumptions prove to be incorrect. For more
information, see (i) Note 2-Planned Divestiture of the Latin American and ILEC
Businesses to our consolidated financial statements in Item 8 of Part II of this
report and (ii) the risk factors included in Item 1A of Part I of this report.

Impact of COVID-19 Pandemic



In response to the safety and economic challenges arising out of the COVID-19
pandemic and in a continued attempt to mitigate the negative impact on our
stakeholders, we have taken a variety of steps to ensure the availability of our
network infrastructure, to promote the safety of our employees and customers, to
enable us to continue to adapt and provide our products and services worldwide
to our customers, and to strengthen our communities. As vaccination rates
increase, we expect to continue revising our responses to the pandemic or take
additional steps necessary to adjust to changed circumstances. To date, these
steps have included:

•taking the Federal Communications Commission's ("FCC") "Keep Americans
Connected Pledge," under which we waived certain late fees and suspended the
application of data caps and service terminations for non-payment by certain
mass markets customers through the end of the second quarter of 2020;

•establishing new protocols for the safety of our on-site technicians and customers, including our "Safe Connections" program;

•adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel, each of which remains in place;

•continuously monitoring our network to enhance its ability to respond to changes in usage patterns;


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•donating products or services in several of our communities to enhance their abilities to provide necessary support services; and

•taking steps to maintain our internal controls and the security of our systems and data in a remote work environment.



Social distancing, business and school closures, travel restrictions, and other
actions taken in response to the pandemic have impacted us, our customers and
our business since March 2020. In particular, beginning in the second half of
2020 and continuing into early 2022, we have rationalized our leased footprint
and ceased using 39 leased property locations that were underutilized due to the
COVID-19 pandemic. The Company determined that we no longer needed the leased
space and, due to the limited remaining term on the contracts, concluded that
the Company had neither the intent nor ability to sublease the properties. As a
result, we incurred accelerated lease costs of approximately $35 million and $41
million for the years ended December 31, 2021 and 2020, respectively. In
conjunction with our plans to continue to reduce costs, we expect to continue
our real estate rationalization efforts and incur additional costs during 2022.
Additionally, as discussed further elsewhere herein, the pandemic resulted in
(i) increases in certain revenue streams and decreases in others, (ii) increases
in allowances for credit losses through the end of 2020, (iii) increases in
overtime expenses, (iv) operational challenges resulting from shortages of
semiconductors and certain other supplies that we use in our business, and (v)
delays in our cost transformation initiatives. We have also experienced delayed
decision-making by certain of our customers. Thus far, these changes have not
materially impacted our financial performance or financial position. However, we
continue to monitor global disruptions and work with our vendors to mitigate
supply chain risks.

We intend to reopen our offices in 2022 under a "hybrid" working environment, which will permit some of our employees the flexibility to work remotely at least some of the time for the foreseeable future.



For additional information on the impacts of the pandemic, see (i) the remainder
of this item, including "-Liquidity and Capital Resources-Overview of Sources
and Uses of Cash" and (ii) Item 1A of this report.

Reporting Segments

As previously announced, we completed an internal reorganization of our reporting segments in January 2021. Our reporting segments are currently organized as follows, by customer focus:

•Business Segment: Under our Business segment, we provide our products and services under four sales channels:



•International and Global Accounts ("IGAM"): Our IGAM sales channel includes
multinational and enterprise customers. We provide our products and services to
approximately 350 of our highest potential enterprise customers and to
enterprise customers and carriers in three operating regions: Europe Middle East
and Africa, Latin America and Asia Pacific.

•Large Enterprise: Under our large enterprise sales channel, we provide our
products and services to large enterprises and the public sector, including the
U.S. Federal government, state and local governments and research and education
institutions.

•Mid-Market Enterprise: Under our mid-market enterprise sales channel, we provide our products and services to medium-sized enterprises directly and through our indirect channel partners.



•Wholesale: Under our wholesale sales channel, we provide our products and
services to a wide range of other communication providers across the wireline,
wireless, cable, voice and data center sectors.

•Mass Markets Segment. Under our Mass Markets segment, we provide products and services to consumer and small business customers. At December 31, 2021, we served 4.5 million broadband subscribers under our Mass Markets segment.

See Note 17-Segment Information to our consolidated financial statements in Item 8 of Part II of this report for additional information.


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We categorize our Business segment revenue among the following products and services categories:

•Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;

•IP and Data Services, which include Ethernet, IP, and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;

•Fiber Infrastructure Services, which include dark fiber, optical services and equipment; and

•Voice and Other, which include Time Division Multiplexing ("TDM") voice, private line, and other legacy services.

Under our Mass Markets segment, we provide the following products and services:

•Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;

•SBG Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

•Voice and Other, which includes local and long-distance services, state support and other ancillary services; and

•CAF II, which consists of Connect America Fund Phase II payments through the end of 2021 to support voice and broadband in FCC-designated high-cost areas.

Trends Impacting Our Operations

In addition to the above-described impact of the pandemic, our consolidated operations have been, and are expected to continue to be, impacted by the following company-wide trends:

•Customers' demand for automated products and services and competitive pressures will require that we continue to invest in new technologies and automated processes to improve the customer experience and reduce our operating expenses.

•The increasingly digital environment and the growth in online video and gaming require robust, scalable network services. We are continuing to enhance our product capabilities and simplify our product portfolio based on demand and profitability to enable customers to have access to greater bandwidth.



•Businesses continue to adopt distributed, global operating models. We are
expanding and enhancing our fiber network, connecting more buildings to our
network to generate revenue opportunities and reducing our reliance upon other
carriers.

•Industry consolidation, coupled with changes in regulation, technology and
customer preferences, are significantly reducing demand for our traditional
voice services and are pressuring some other revenue streams through volume or
rate reductions, while other advances, such as the need for lower latency
provided by Edge computing or the implementation of 5G networks, are expected to
create opportunities.

•The operating margins of several of our newer, more technologically advanced
services, some of which may connect to customers through other carriers, are
lower than the operating margins on our traditional, on-net wireline services.

•Declines in our traditional wireline services and other more mature offerings have necessitated right-sizing our cost structures to remain competitive.


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The amount of support payments we receive from governmental agencies will decrease substantially after December 31, 2021. This and other developments and trends impacting our operations are discussed elsewhere in this Item 7.

Results of Operations

In this section, we discuss our overall results of operations and highlight special items that are not included in our segment results. In "Segment Results" we review the performance of our two reporting segments in more detail.

Revenue



The following table summarizes our consolidated operating revenue recorded under
each of our two segments and in our four above-described revenue sales channels
within the Business segment:
                                         Years Ended December 31,                                              Years Ended December 31,
                                        2021                 2020                % Change                  2020                         2019                % Change
                                          (Dollars in millions)                                                 (Dollars in millions)
Business Segment:
International & Global Accounts     $    4,053                4,118                      (2) %              4,118                        4,172                      (1) %
Large Enterprise                         3,722                3,915                      (5) %              3,915                        3,836                       2  %
Mid-Market Enterprise                    2,729                2,969                      (8) %              2,969                        3,152                      (6) %
Wholesale                                3,615                3,815                      (5) %              3,815                        4,079                      (6) %
Business Segment Revenue                14,119               14,817                      (5) %             14,817                       15,239                      (3) %
Mass Markets Segment Revenue             5,568                5,895                      (6) %              5,895                        6,219                      (5) %
Total operating revenue             $   19,687               20,712                      (5) %             20,712                       21,458                      (3) %



Our consolidated revenue decreased by $1.025 billion for the year ended December
31, 2021 as compared to the year ended December 31, 2020 due to revenue declines
in all of our above-listed revenue categories. See our segment results below for
additional information.

Our consolidated revenue decreased by $746 million for the year ended December
31, 2020 compared to the year ended December 31, 2019 primarily due to revenue
declines in most of our above-listed revenue categories. See our segment results
below for additional information.

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Operating Expenses



The following table summarizes our operating expenses for the year ended
December 31, 2021 and 2020. For information regarding expenses for the year
ended December 31, 2019, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 of Part II of our Annual Report
Form 10-K for the year ended December 31, 2020:

                                                                      Years Ended December 31,
                                                                     2021                 2020               % Change
                                                                      

(Dollars in millions) Cost of services and products (exclusive of depreciation and amortization)

$    8,488                8,934                    (5) %
Selling, general and administrative                                   2,895                3,464                   (16) %
Depreciation and amortization                                         4,019                4,710                   (15) %
Goodwill impairment                                                       -                2,642                       nm
Total operating expenses                                         $   15,402               19,750                   (22) %


_______________________________________________________________________________

nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.

Cost of Services and Products (exclusive of depreciation and amortization)



Cost of services and products (exclusive of depreciation and amortization)
decreased by $446 million for the year ended December 31, 2021 as compared to
the year ended December 31, 2020. This decrease was primarily due to reductions
in salaries and wages and other employee-related expense from lower headcount
and lower facility and real estate costs.

Selling, General and Administrative



Selling, general and administrative expenses decreased by $569 million for the
year ended December 31, 2021 as compared to the year ended December 31, 2020.
The decrease in selling, general and administrative expenses was primarily due
to reductions in salaries and wages and other employee-related expense from
lower headcount, lower bad debt expense, gain on sale of land and lower
marketing and advertising costs.

Depreciation and Amortization



The following table provides detail of our depreciation and amortization
expense:

                                              Years Ended December 31,
                                                  2021                  2020       % Change
                                                (Dollars in millions)
Depreciation                           $                   2,671       2,963          (10) %
Amortization                                               1,348       1,747          (23) %
Total depreciation and amortization    $                   4,019       

4,710 (15) %





Depreciation expense decreased by $292 million for the year ended December 31,
2021 as compared to the year ended December 31, 2020 primarily due to
discontinuing the depreciation of the tangible assets reclassified as held for
sale of our Latin American and ILEC businesses upon entering into our
divestiture agreements. We estimate we would have recorded an additional $247
million of depreciation expense during the year ended December 31, 2021 if we
had not agreed to sell these businesses. In addition, depreciation expense
decreased due to the impact of annual rate depreciable life changes of $151
million, which was partially offset by higher depreciation expense of $93
million associated with net growth in depreciable assets.

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Amortization expense decreased by $399 million for the year ended December 31,
2021 as compared to the year ended December 31, 2020. The decrease was primarily
due to a decrease of $394 million as a result of certain customer relationship
intangible assets becoming fully amortized at the end of the first quarter 2021,
decreases of $29 million associated with net reductions in amortizable assets
and a decrease of $13 million due to discontinuing the amortization of the
intangible assets reclassified as held for sale of our Latin American and ILEC
businesses upon entering into our divestiture agreements. These decreases were
partially offset by $21 million of accelerated amortization for decommissioned
applications and $22 million of additional amortization expense recognized as a
result of reclassification of certain right-of-way assets, as discussed in Note
3-Goodwill, Customer Relationships and Other Intangible Assets to our
consolidated financial statements in Item 8 of Part II of this report.

Further analysis of our segment operating expenses by segment is provided below in "Segment Results."



Goodwill Impairments

We are required to perform impairment tests related to our goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs.



In January 2021, we began reporting under two segments: Business and Mass
Markets. See Note 17-Segment Information to our consolidated financial
statements in Item 8 of Part II of this report for more information on these
segments and the underlying sales channels. Since effecting this reorganization,
we have used five reporting units for goodwill impairment testing, which are (i)
Mass Markets, (ii) North America ("NA") Business (iii) Europe, Middle East and
Africa region ("EMEA"), (iv) Asia Pacific region ("APAC") and (v) Latin America
region ("LATAM"). Our January 2021 reorganization was considered an event or
change in circumstance which required an assessment of our goodwill for
impairment. We performed a qualitative impairment assessment in the first
quarter of 2021 and concluded it was more likely than not that the fair value of
each of our reporting units exceeded the carrying value of equity of our
reporting units at January 31, 2021. Therefore, we did not have any impairment
as of our assessment date.

The reclassification of held for sale assets, as described in Note 2-Planned
Divestiture of the Latin American and ILEC Businesses, was considered an event
or change in circumstance which required an assessment of our goodwill for
impairment as of July 31, 2021. We performed a pre-reclassification goodwill
impairment test using our estimated post-divestiture cash flows and carrying
value of equity to determine whether there was an impairment prior to the
reclassification of these assets to held for sale and to determine the July 31,
2021 fair values to be utilized for goodwill allocation regarding the Latin
American and ILEC businesses to be reclassified as assets held for sale. We
concluded it was more likely than not that the fair value of each of our
reporting units exceeded the carrying value of equity of our reporting units at
July 31, 2021.

We also performed a post-reclassification goodwill impairment test using our
estimated post-divestiture cash flows and carrying value of equity to determine
whether the fair value of our reporting units that will remain following the
divestitures exceeded the carrying value of the equity of such reporting units
after reclassification of assets held for sale. At July 31, 2021, we estimated
the fair value of our remaining reporting units by considering both a market
approach and a discounted cash flow method. Based on our assessments performed,
we concluded it was more likely than not that the fair value of each of our
remaining reporting units exceeded the carrying value of equity of our remaining
reporting units at July 31, 2021. Therefore, we concluded we did not have any
impairment as of our assessment date.

When we performed our annual impairment test in the fourth quarter of 2021, we
concluded it was more likely than not that the fair value of each of our
reporting units exceeded the carrying value of equity of our reporting units.
Therefore, we concluded no impairment existed as of our annual assessment date
in the fourth quarter of 2021. When we performed our impairment tests during the
fourth quarter of 2020, we concluded that the estimated fair value of certain of
our reporting units was less than our carrying value of equity as of the date of
our impairment test during the fourth quarter of 2020. As a result, we recorded
non-cash, non-tax-deductible goodwill impairment charges aggregating to $2.6
billion in the fourth quarter of 2020. Additionally, when we performed
impairment tests in January 2019 and March 31, 2019 due to our January 2019
internal reorganization and the decline in our stock price, we concluded that
the estimated fair value of our reporting units was less than our carrying value
of equity as of the date of each of our impairment tests during the first
quarter of 2019. As a result, we recorded a non-cash, non-tax-deductible
goodwill impairment charges aggregating to $6.5 billion in the quarter ended
March 31, 2019.
                                       42
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See Note 3-Goodwill, Customer Relationships and Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report for further details on these tests and impairment charges.

Other Consolidated Results



The following tables summarize our total other expense, net and income tax
expense:

                                   Years Ended December 31,
                                      2021                  2020        % Change
                                    (Dollars in millions)
Interest expense           $                 (1,522)       (1,668)          (9) %
Other expense, net                              (62)          (76)         (18) %
Total other expense, net   $                 (1,584)       (1,744)          (9) %
Income tax expense         $                    668           450           48  %



Interest Expense

Interest expense decreased by $146 million for the year ended December 31, 2021
as compared to the year ended December 31, 2020. The decrease was primarily due
to the decrease in average long-term debt from $33.3 billion to $30.4 billion
and the decrease in the average interest rate of 5.23% to 4.82%.

Other Expense, Net



Other expense, net reflects certain items not directly related to our core
operations, including (i) gains and losses on extinguishments of debt, (ii)
components of net periodic pension and post-retirement benefit costs, (iii)
foreign currency gains and losses, (iv) our share of income from partnerships we
do not control, (v) interest income, (vi) gains and losses from non-operating
asset dispositions and (vii) other non-core items.

                                                                 Years Ended December 31,
                                                                 2021                 2020                % Change
                                                                   (Dollars in millions)
Gain (loss) on extinguishment of debt                       $          8                (105)                       nm
Pension and post-retirement net periodic expense                    (295)                (31)                       nm
Foreign currency (loss) gain                                         (28)                 30                        nm
Gain on investment in limited partnership                            138                   -                        nm
Other                                                                115                  30                        nm
Total other expense, net                                    $        (62)                (76)                   (18) %


_______________________________________________________________________________

nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.



The increase of $264 million in pension and post-retirement net periodic expense
for the year ended December 31, 2021 as compared to the year ended December 31,
2020 is primarily driven by settlement charges associated with the acceleration
of the recognition of a portion of previously unrecognized actuarial losses in
the qualified pension plan. Other expense, net for the year ended December 31,
2021 also included a gain on investment in a limited partnership as a result of
the underlying investments held by the limited partnership which began trading
in active markets, resulting in an increase to our net asset value of our
investment. Other expense, net for the year ended December 31, 2021 also
included a distribution from a previously dissolved captive insurance company
and other non-core items. See Note 14-Fair Value of Financial Instruments for
more information regarding the gain recognized on the investment in a limited
partnership.

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Income Tax Expense



For the years ended December 31, 2021 and 2020, our effective income tax rate
was 24.7% and (57.5)%, respectively. The effective tax rate for the year ended
December 31, 2020 includes the $555 million unfavorable impact of a
non-deductible goodwill impairment. See Note 16-Income Taxes to our consolidated
financial statements in Item 8 of Part II of this report and "Critical
Accounting Policies and Estimates-Income Taxes" below for additional
information.

Segment Results

General

Reconciliation of segment revenue to total operating revenue is below:



                                                          Years Ended December 31,
                                                      2021                  2020          2019
                                                           (Dollars in millions)
                 Operating revenue
                 Business                  $                 14,119        14,817        15,239
                 Mass Markets                                 5,568         5,895         6,219
                 Total operating revenue   $                 19,687        20,712        21,458


Reconciliation of segment EBITDA to total adjusted EBITDA is below:



                                                   Years Ended December 31,
                                               2021                  2020          2019
                                                    (Dollars in millions)
      Adjusted EBITDA
      Business                      $                   9,446        9,899        10,277
      Mass Markets                                      4,886        5,118         5,375
      Total segment EBITDA                             14,332       15,017        15,652
      Operations and Other EBITDA                      (5,908)      (6,528)       (6,881)
      Total adjusted EBITDA         $                   8,424        8,489         8,771


For additional information on our reportable segments and product and services categories, see Note 17-Segment Information to our consolidated financial statements in Item 8 of Part II of this report.


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Business Segment

                                         Years Ended December 31,                                               Years Ended December 31,
                                         2021                 2020                % Change                  2020                         2019                % Change
                                           (Dollars in millions)                                                 (Dollars in millions)
Business Segment Product
Categories:
Compute and Application Services    $     1,741                1,755                      (1) %              1,755                        1,735                       1  %
IP and Data Services                      6,212                6,413                      (3) %              6,413                        6,566                      (2) %
Fiber Infrastructure Services             2,248                2,248                       -  %              2,248                        2,157                       4  %
Voice and Other                           3,918                4,401                     (11) %              4,401                        4,781                      (8) %
Total Business Segment Revenue           14,119               14,817                      (5) %             14,817                       15,239                      (3) %
Expenses:
Total expense                             4,673                4,918                      (5) %              4,918                        4,962                      (1) %
Total adjusted EBITDA               $     9,446                9,899                      (5) %              9,899                       10,277                      (4) %



                                       45

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Year ended December 31, 2021 compared to the same periods ended December 31, 2020 and December 31, 2019



Business segment revenue decreased $698 million for the year ended December 31,
2021 compared to December 31, 2020 and decreased $422 million for the year ended
December 31, 2020 compared to December 31, 2019. These changes are primarily due
to the following factors:

•Compute and Application Services decreased for the year ended December 31, 2021
compared to December 31, 2020 due to a large customer disconnect for IT
Solutions and lower rates for content delivery network services within our IGAM
sales channel. Additionally, for the year ended December 31, 2021 compared to
December 31, 2020, decreases were driven by declines in Cloud Services within
our Large Enterprise and IGAM sales channels. These decreases were partially
offset by growth in Managed Security and IT Solutions services to Federal Public
Sector customers and an increase in colocation and data center services in our
IGAM sales channel.

•Compute and Application Services increased for the year ended December 31, 2020
compared to December 31, 2019 due to growth in Managed Security and IT Solutions
services within our Large Enterprise sales channel and growth in UC&C in our
IGAM sales channel. These increases were partially offset by declines in IT
Solutions services within our IGAM sales channel and declines in Cloud Services
within our Large Enterprise sales channel.

•IP and Data Services decreased during both periods due to declines in
traditional VPN networks and continued declines in Ethernet sales across all our
sales channels, partially offset by an increase in IP services across all our
sales channels.

•Fiber Infrastructure Services remained flat for the year ended December 31,
2021 compared to December 31, 2020 and increased for the year ended December 31,
2020 compared to December 31, 2019. Both periods experienced growth in dark
fiber and wavelengths sales driven by demand primarily from our IGAM sales
channel, which was offset by lower equipment sales in our Large Enterprise sales
channel.

•Voice and Other decreased during both periods due to continued decline of
legacy voice, private line and other services to customers across all of our
sales channels. Additionally, voice services revenue decreased for the year
ended December 31, 2021 compared to December 31, 2020, which had benefited from
higher COVID-related demand.

The decrease in Business segment revenue for the year ended December 31, 2021
was slightly offset by $16 million of favorable foreign currency as compared to
December 31, 2020. The decrease in Business segment revenue for the year ended
December 31, 2020 was also driven by $42 million of unfavorable foreign currency
for the year ended December 31, 2020 as compared to December 31, 2019.

Business segment expense decreased by $245 million for the year ended December
31, 2021 compared to December 31, 2020 primarily due to lower cost of sales and
lower employee-related costs from lower headcount. Business segment expenses
decreased by $44 million for the year ended December 31, 2020 compared to
December 31, 2019, primarily due to lower employee-related costs from lower
headcount.

Business segment adjusted EBITDA as a percentage of revenue was 67% for the years ended December 31, 2021, 2020 and 2019.


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Mass Markets Segment

                                      Years Ended December 31,                                             Years Ended December 31,
                                      2021                2020                % Change                  2020                       2019                % Change
                                       (Dollars in millions)                                                (Dollars in millions)
Mass Markets Product Categories:
Consumer Broadband               $     2,875               2,909                      (1) %             2,909                       2,876                       1  %
SBG Broadband                            156                 153                       2  %               153                         163                      (6) %
Voice and Other                        2,047               2,341                     (13) %             2,341                       2,688                     (13) %
CAF II                                   490                 492                       -  %               492                         492                       -  %
Total Mass Markets Segment
Revenue                                5,568               5,895                      (6) %             5,895                       6,219                      (5) %
Expenses:
Total expense                            682                 777                     (12) %               777                         844                      (8) %
Total adjusted EBITDA            $     4,886               5,118                      (5) %             5,118                       5,375                      (5) %


Year ended December 31, 2021 compared to the same periods ended December 31, 2020 and December 31, 2019

Mass Markets segment revenue decreased by $327 million for the year ended December 31, 2021 compared to December 31, 2020 and decreased $324 million for the year ended December 31, 2020 compared to December 31, 2019, due to the following factors:



•Consumer Broadband revenue decreased for the year ended December 31, 2021
compared to December 31, 2020 and increased for the year ended December 31, 2020
compared to year ended December 31, 2019 driven by continued pressure on legacy
products, which was partially or wholly offset by gains in our fiber-based
broadband business.

•Voice and Other declined during both periods primarily due to continued legacy voice customer losses and our exit of the Prism video product.



Mass Markets segment expenses decreased by $95 million for the year ended
December 31, 2021 compared to December 31, 2020 and decreased $67 million for
the year ended December 31, 2020 compared to December 31, 2019, primarily due to
lower employee-related costs from lower headcount, lower costs of sales driven
by the decrease in Prism content costs and higher bad debt expense for the year
ended December 31, 2020 due to the COVID-19 induced economic slowdown. These
decreases were partially offset by higher network expenses for the year ended
December 31, 2021.

Mass Markets segment adjusted EBITDA as a percentage of revenue was 88%, 87% and 86% for the year ended December 31, 2021, 2020 and 2019, respectively.

Critical Accounting Policies and Estimates



Our consolidated financial statements are prepared in accordance with accounting
principles that are generally accepted in the United States. The preparation of
these consolidated financial statements requires management to make estimates
and assumptions that affect the reported amounts of our assets, liabilities,
revenue and expenses. We have identified certain policies and estimates as
critical to our business operations and the understanding of our past or present
results of operations related to (i) goodwill, customer relationships and other
intangible assets; (ii) pension and post-retirement benefits; (iii) loss
contingencies and litigation reserves and (iv) income taxes. These policies and
estimates are considered critical because they had a material impact, or they
have the potential to have a material impact, on our consolidated financial
statements and because they require us to make significant judgments,
assumptions or estimates. We believe that the estimates, judgments and
assumptions made when accounting for the items described below were reasonable,
based on information available at the time they were made. However, actual
results may differ from those estimates, and these differences may be material.

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Goodwill, Customer Relationships and Other Intangible Assets



We have a significant amount of goodwill and indefinite-lived intangible assets
that are assessed at least annually for impairment. At December 31, 2021,
goodwill and intangible assets totaled $23.0 billion (excluding goodwill and
other intangible assets reclassified as assets held for sale), or 40%, of our
total assets. The impairment analyses of these assets are considered critical
because of their significance to us and our segments.

We have assigned our goodwill balance to our segments at December 31, 2021 as
follows:

                            Business      Mass Markets        Total
                                      (Dollars in millions)
As of December 31, 2021    $ 11,235         4,751            15,986



Intangible assets arising from business combinations, such as goodwill, customer
relationships, capitalized software, trademarks and tradenames, are initially
recorded at estimated fair value. We amortize customer relationships primarily
over an estimated life of 7 to 14 years, using the straight-line method,
depending on the customer. Certain customer relationship intangible assets
became fully amortized at the end of the first quarter 2021 using the
sum-of-years-digits method, which is no longer used for any of our remaining
intangible assets. We amortize capitalized software using the straight-line
method primarily over estimated lives ranging up to 7 years. We amortize our
other intangible assets using the sum-of-years-digits or straight-line method
over an estimated life of 4 to 20 years. Other intangible assets not arising
from business combinations are initially recorded at cost. Where there are no
legal, regulatory, contractual or other factors that would reasonably limit the
useful life of an intangible asset, we classify the intangible asset as
indefinite-lived and such intangible assets are not amortized.

Our long-lived intangible assets, other than goodwill, with indefinite lives are
assessed for impairment annually, or, under certain circumstances, more
frequently, such as when events or changes in circumstances indicate there may
be an impairment. These assets are carried at the estimated fair value at the
time of acquisition and assets not acquired in acquisitions are recorded at
historical cost. However, if their estimated fair value is less than the
carrying amount, we recognize an impairment charge for the amount by which the
carrying amount of these assets exceeds their estimated fair value.

Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired.



We are required to reassign goodwill to reporting units whenever reorganizations
of our internal reporting structure changes the composition of our reporting
units. Goodwill is reassigned to the reporting units using a relative fair value
approach. When the fair value of a reporting unit is available, we allocate
goodwill based on the relative fair value of the reporting units. When fair
value is not available, we utilize an alternative allocation methodology that
represents a reasonable approximation of the fair value of the operations being
reorganized. For additional information on our segments, see Note 17-Segment
Information to our consolidated financial statements in Item 8 of Part II of
this report.

We are required to assess goodwill at least annually, or more frequently, if an
event occurs or circumstances change that indicates it is more likely than not
the fair values of any of our reporting units were less than their carrying
values. In assessing goodwill for impairment, we may first assess qualitative
factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carry value.

Our annual impairment assessment date for goodwill is October 31, at which date
we assess our reporting units. In January 2021, we began reporting under two
segments: Business and Mass Markets. See Note 17-Segment Information to our
consolidated financial statements in Item 8 of Part II of this report for more
information on these segments and the underlying sales channels. Since effecting
this reorganization, we have used five reporting units for goodwill impairment
testing, which are (i) Mass Markets (ii) North America ("NA") Business, (iii)
Europe, Middle East and Africa region ("EMEA"), (iv) Asia Pacific region
("APAC") and (v) Latin America region ("LATAM"). Prior to this reorganization,
we used the following eight reporting units for goodwill impairment testing:
consumer, small and medium business, enterprise, wholesale, North America global
accounts ("NA GAM"), EMEA, LATAM and APAC.
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Our reporting units are not discrete legal entities with discrete full financial
statements. Our assets and liabilities are employed in and relate to the
operations of multiple reporting units and are allocated to individual reporting
units based on their relative revenue or earnings before interest, taxes
depreciation and amortization ("EBITDA"). For each reporting unit, we compare
its estimated fair value of equity to its carrying value of equity that we
assign to the reporting unit. If the estimated fair value of the reporting unit
is equal or greater than the carrying value, we conclude that no impairment
exists. If the estimated fair value of the reporting unit is less than the
carrying value, we record a non-cash impairment equal to the difference.
Depending on the facts and circumstances, we typically estimate the fair value
of our reporting units by considering either or both of (i) a discounted cash
flow method, which is based on the present value of projected cash flows over a
discrete projection period and a terminal value, which is based on the expected
normalized cash flows of the reporting units following the discrete projection
period, and (ii) a market approach, which includes the use of multiples of
publicly-traded companies whose services are comparable to ours. With respect to
our analysis used in the discounted cash flow method, the timing and amount of
projected cash flows under these forecasts require estimates developed from our
long-range plan, which is informed by wireline industry trends, the competitive
landscape, product lifecycles, operational initiatives, capital allocation plans
and other company-specific and external factors that influence our business.
These cash flows consider recent historical results and are consistent with the
Company's short-term financial forecasts and long-term business strategies. The
development of these cash flows, and the discount rate applied to the cash
flows, is subject to inherent uncertainties, and actual results could vary
significantly from such estimates. Our determination of the discount rate is
based on a weighted average cost of capital approach, which uses a market
participant's cost of equity and after-tax cost of debt and reflects certain
risks inherent in the future cash flows. With respect to a market approach, the
fair value of a reporting unit is estimated based upon a market multiple applied
to the reporting unit's revenue and EBITDA, adjusted for an appropriate control
premium based on recent market transactions. The fair value of reporting units
estimated using revenue and EBITDA market multiples are equally weighted to
determine the estimated fair value under the market approach. We also reconcile
the estimated fair values of the reporting units to our market capitalization to
conclude whether the indicated control premium is reasonable in comparison to
recent transactions in the marketplace. A decline in our stock price could
potentially cause an impairment of goodwill. Changes in the underlying
assumptions that we use in allocating the assets and liabilities to reporting
units under either the discounted cash flow or market approach method can result
in materially different determinations of fair value. We believe the estimates,
judgments, assumptions and allocation methods used by us are reasonable, but
changes in any of them can significantly affect whether we must incur impairment
charges, as well as the size of such charges.

At October 31, 2021, we estimated the fair value of our five above-mentioned
reporting units by considering both a market approach and a discounted cash flow
method. We reconciled the estimated fair values of the reporting units to our
market capitalization as of October 31, 2021 and concluded that the indicated
control premium of approximately 42% was reasonable based on recent market
transactions. As of October 31, 2021, based on our assessment performed with
respect to our five reporting units, the estimated fair value of our equity
exceeded the carrying value of equity for our Mass Markets, NA Business, EMEA,
LATAM and APAC reporting units by 277%, 8%, 57%, 100% and 125%, respectively.
Based on our assessments performed, we concluded it was more likely than not
that the fair value of each of our reporting units exceeded the carrying value
of equity of those reporting units at October 31, 2021. Therefore, we concluded
no impairment existed as of our assessment date.

Our reclassification of held for sale assets, as described in Note 2-Planned
Divestiture of the Latin American and ILEC Businesses to our consolidated
financial statements in Item 8 of Part II of this report, was considered an
event or change in circumstance which required an assessment of our goodwill for
impairment as of July 31, 2021. At July 31, 2021, we estimated the fair value of
our five above-mentioned reporting units by considering both a market approach
and a discounted cash flow method. We reconciled the estimated fair values of
the reporting units to our market capitalization as of July 31, 2021 and
concluded that the indicated control premium of approximately 32% was reasonable
based on recent market transactions. As of July 31, 2021, based on our
assessment performed with respect to our five reporting units, the estimated
fair value of our equity exceeded the carrying value of equity for our Mass
Markets, NA Business, EMEA, LATAM and APAC reporting units by 150%, 24%, 58%,
100% and 134%, respectively. Based on our assessments performed, we concluded it
was more likely than not that the fair value of each of our reporting units
exceeded the carrying value of equity of those reporting units at July 31, 2021.
Therefore, we concluded no impairment existed as of our assessment date.

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At October 31, 2020, we estimated the fair value of our eight above-mentioned
reporting units (prior to the January 2021 reorganization) by considering both a
market approach and a discounted cash flow method. We reconciled the estimated
fair values of the reporting units to our market capitalization as of October
31, 2020 and concluded that the indicated control premium of approximately 33%
was reasonable based on recent market transactions. Due to the decline in our
stock price at October 31, 2020 and our assessment performed with respect to the
reporting units described above, we concluded that our consumer, wholesale,
small and medium business and EMEA reporting units were impaired, resulting in a
non-cash, non-tax-deductible goodwill impairment charge of $2.6 billion. As of
October 31, 2020, the estimated fair value of equity exceeded the carrying value
of equity for our enterprise, NA GAM, LATAM, and APAC reporting units by 2%,46%,
74% and 23%, respectively. Based on our assessments performed, we concluded it
was more likely than not that the fair value of our enterprise, NA GAM, LATAM,
and APAC reporting units exceeded the carrying value of equity of those
reporting units at October 31, 2020. Therefore, we concluded no impairment
existed with respect to those four reporting units as of our assessment date.

At October 31, 2019, we estimated the fair value of our eight above-mentioned
reporting units by considering both a market approach and a discounted cash flow
method. We reconciled the estimated fair values of the reporting units to our
market capitalization as of October 31, 2019 and concluded that the indicated
control premium of approximately 45% was reasonable based on recent market
transactions. As of October 31, 2019, the estimated fair value of our equity
exceeded the carrying value of equity for our consumer, small and medium
business, enterprise, wholesale, NA GAM, EMEA, LATAM, and APAC reporting units
by 44%, 41%, 53%, 46%, 55%, 5%, 63% and 38%, respectively. Based on our
assessments performed, we concluded it was more likely than not that the fair
value of each of our reporting units exceeded the carrying value of equity of
those reporting units at October 31, 2019. Therefore, we concluded no impairment
existed as of our assessment date.

Both our January 2019 internal reorganization and the decline in our stock price
indicated the carrying values of our reporting units were more likely than not
in excess of their fair values, requiring an impairment test in the first
quarter of 2019. Consequently, we evaluated our goodwill in January 2019 and
again as of March 31, 2019. Because our low stock price was a key trigger for
impairment testing in early 2019, we estimated the fair value of our operations
using only the market approach. Applying this approach, we utilized company
comparisons and analyst reports within the telecommunications industry which
have historically supported a range of fair values derived from annualized
revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x,
respectively. We selected a revenue and EBITDA multiple for each of our
reporting units within this range. We reconciled the estimated fair values of
the reporting units to our market capitalization as of the date of each of our
impairment tests during the first quarter and concluded that the indicated
control premiums of approximately 4.5% and 4.1% were reasonable based on recent
market transactions. In the quarter ended March 31, 2019, based on our
assessments performed with respect to the reporting units as described above, we
concluded that the estimated fair value of certain of our reporting units was
less than our carrying value of equity as of the date of both of our impairment
tests during the first quarter. As a result, we recorded non-cash,
non-tax-deductible goodwill impairment charges aggregating to $6.5 billion in
the quarter ended March 31, 2019.

For additional information on our goodwill balances by segment, see Note 3-Goodwill, Customer Relationships and Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report.

Pension and Post-retirement Benefits



We sponsor a noncontributory qualified defined benefit pension plan (referred to
as our qualified pension plan) for a substantial portion of our current and
former employees in the United States. In addition to this tax-qualified pension
plan, we also maintain several non-qualified pension plans for certain eligible
highly compensated employees. We also maintain post-retirement benefit plans
that provide health care and life insurance benefits for certain eligible
retirees. Due to the insignificant impact of these non-qualified plans on our
consolidated financial statements, we have excluded them from the following
pension and post-retirement benefits disclosures for 2021, 2020 and 2019.

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As of January 1, 2021, our qualified pension plan had a net actuarial loss
balance of approximately $3.0 billion. A portion of this balance was subject to
amortization as a component of net periodic expense over the average remaining
service period for participating employees expected to receive benefits under
the plan. During 2021, our lump sum pension settlement payments exceeded the
settlement threshold and as a result we recognized a non-cash settlement charge
of $383 million, accelerating previously unrecognized actuarial losses from our
net actuarial loss balance. For our post-retirement benefit plans, the majority
of the beginning net actuarial loss balance of $346 million continued to be
deferred during 2021.

In 2020, approximately 59% of the qualified pension plan's January 1, 2020 net
actuarial loss balance of $3.0 billion was subject to amortization as a
component of net periodic expense over the average remaining service period of 9
years for participating employees expected to receive benefits under the plan.
The other 41% of the qualified pension plan's beginning net actuarial loss
balance was treated as indefinitely deferred during 2020. The entire beginning
net actuarial loss of $175 million for the post-retirement benefit plans was
treated as indefinitely deferred during 2020.

In 2019, approximately 60% of the qualified pension plan's January 1, 2019 net
actuarial loss balance of $3.0 billion was subject to amortization as a
component of net periodic expense over the average remaining service period of 9
years for participating employees expected to receive benefits under the plan.
The other 40% of the qualified pension plan's beginning net actuarial loss
balance was treated as indefinitely deferred during 2019. The entire beginning
net actuarial gain of $7 million for the post-retirement benefit plans was
treated as indefinitely deferred during 2019.

In computing our pension and post-retirement health care and life insurance
benefit obligations, our most significant assumptions are the discount rate and
mortality rates. In computing our periodic pension expense, our most significant
assumptions are the discount rate and the expected rate of return on plan
assets. In computing our post-retirement benefit expense, our most significant
assumption is the discount rate. Plan assets, and thus the expected rate of
return on plan assets, for our post-retirement benefit plans are not
significant.

The discount rate for each plan is the rate at which we believe we could
effectively settle the plan's benefit obligations as of the end of the year. We
selected each plan's discount rate based on a cash flow matching analysis using
hypothetical yield curves from U.S. corporate bonds rated high quality and
projections of the future benefit payments that constitute the projected benefit
obligation for the plans. This process establishes the uniform discount rate
that produces the same present value of the estimated future benefit payments as
is generated by discounting each year's benefit payments by a spot rate
applicable to that year. The spot rates used in this process are derived from a
yield curve created from yields on the 60th to 90th percentile of U.S. high
quality bonds.

Published mortality rates help predict the expected life of plan participants
and are based on historical demographic studies by the Society of Actuaries
("SOA"). The SOA publishes new mortality rates (mortality tables and projection
scales) on a regular basis which reflect updates to projected life expectancies
in North America. Historically, we have adopted the new projection tables
immediately after publication. In 2021, we adopted the revised mortality tables
and projection scale released by the SOA, which increased the projected benefit
obligation of our benefit plans by approximately $37 million for the year ended
December 31, 2021. The change in the projected benefit obligation of our benefit
plans was recognized as part of the net actuarial loss and is included in
accumulated other comprehensive loss, a portion of which is subject to
amortization over the remaining average estimated life of plan participants,
which was approximately 8 years as of December 31, 2021.

The expected rate of return on plan assets is the long-term rate of return we
expect to earn on the plans' assets in the future, net of administrative
expenses paid from plan assets. The rate of return is determined by the
strategic allocation of plan assets and the long-term risk and return forecast
for each asset class. The forecasts for each asset class are generated primarily
from an analysis of the long-term expectations of various third-party investment
management organizations, to which we then add a factor of 50 basis points to
reflect the benefit we expect to result from our active management of the
assets. The expected rate of return on plan assets is reviewed annually and
revised, as necessary, to reflect changes in the financial markets and our
investment strategy.

Changes in any of the above factors could significantly impact operating
expenses in our consolidated statements of operations and other comprehensive
loss in our consolidated statements of comprehensive income (loss) as well as
the value of the liability and accumulated other comprehensive loss of
stockholders' equity on our consolidated balance sheets.

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Loss Contingencies and Litigation Reserves



We are involved in several potentially material legal proceedings, as described
in more detail in Note 18-Commitments, Contingencies and Other Items. On a
quarterly basis, we assess potential losses in relation to these and other
pending or threatened tax and legal matters. For matters not related to income
taxes, if a loss is considered probable and the amount can be reasonably
estimated, we recognize an expense for the estimated loss. To the extent these
estimates are more or less than the actual liability resulting from the
resolution of these matters, our earnings will be increased or decreased
accordingly. If the differences are material, our consolidated financial
statements could be materially impacted.

For matters related to income taxes, if we determine in our judgment that the
impact of an uncertain tax position is more likely than not to be sustained upon
audit by the relevant taxing authority, then we recognize in our financial
statements a benefit for the largest amount that is more likely than not to be
sustained. No portion of an uncertain tax position will be recognized if we
determine in our judgment that the position has less than a 50% likelihood of
being sustained. Though the validity of any tax position is a matter of tax law,
the body of statutory, regulatory and interpretive guidance on the application
of the law is complex and often ambiguous, particularly in certain of the
non-U.S. jurisdictions in which we operate. Because of this, whether a tax
position will ultimately be sustained may be uncertain.

Income Taxes



Our provision for income taxes includes amounts for tax consequences deferred to
future periods. We record deferred income tax assets and liabilities reflecting
future tax consequences attributable to (i) tax credit carryforwards, (ii)
differences between the financial statement carrying value of assets and
liabilities and the tax basis of those assets and liabilities and (iii) tax net
operating loss carryforwards, or NOLs. Deferred taxes are computed using enacted
tax rates expected to apply in the year in which the differences are expected to
affect taxable income. The effect of a change in tax rate on deferred income tax
assets and liabilities is recognized in earnings in the period that includes the
enactment date.

The measurement of deferred taxes often involves the exercise of considerable
judgment related to the realization of tax basis. Our deferred tax assets and
liabilities reflect our assessment that tax positions taken in filed tax returns
and the resulting tax basis are more likely than not to be sustained if they are
audited by taxing authorities. Assessing tax rates that we expect to apply and
determining the years when the temporary differences are expected to affect
taxable income requires judgment about the future apportionment of our income
among the states in which we operate. Any changes in our practices or judgments
involved in the measurement of deferred tax assets and liabilities could
materially impact our financial condition or results of operations.

In connection with recording deferred income tax assets and liabilities, we
establish valuation allowances when necessary to reduce deferred income tax
assets to amounts that we believe are more likely than not to be realized. We
evaluate our deferred tax assets quarterly to determine whether adjustments to
our valuation allowance are appropriate in light of changes in facts or
circumstances, such as changes in tax law, interactions with taxing authorities
and developments in case law. In making this evaluation, we rely on our recent
history of pre-tax earnings. We also rely on our forecasts of future earnings
and the nature and timing of future deductions and benefits represented by the
deferred tax assets, all of which involve the exercise of significant judgment.
At December 31, 2021, we established a valuation allowance of $1.6 billion
primarily related to foreign and state NOLs, based on our determination that it
was more likely than not that this amount of these NOLs would expire unused. If
forecasts of future earnings and the nature and estimated timing of future
deductions and benefits change in the future, we may determine that existing
valuation allowances must be revised or eliminated or new valuation allowances
created, any of which could materially impact our financial condition or results
of operations. See Note 16-Income Taxes to our consolidated financial statements
in Item 8 of Part II of this report.

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Liquidity and Capital Resources

Overview of Sources and Uses of Cash



We are a holding company that is dependent on the capital resources of our
subsidiaries to satisfy our parent company liquidity requirements. Several of
our significant operating subsidiaries have borrowed funds either on a
standalone basis or as part of a separate restricted group with certain of its
subsidiaries or affiliates. The terms of the instruments governing the
indebtedness of these borrowers or borrowing groups may restrict our ability to
access their accumulated cash. In addition, our ability to access the liquidity
of these and other subsidiaries may be limited by tax, legal and other
considerations.

At December 31, 2021, we held cash and cash equivalents of $394 million, which
includes cash and cash equivalents classified as held for sale, and we also had
$2.0 billion of borrowing capacity available under our revolving credit
facility. We typically use our revolving credit facility as a source of
liquidity for operating activities and our other cash requirements. We had
approximately $89 million of cash and cash equivalents outside the United States
at December 31, 2021. We currently believe that there are no material
restrictions on our ability to repatriate cash and cash equivalents into the
United States, and that we may do so without paying or accruing U.S. taxes.
Other than transactions related to our Latin American divestiture, we do not
currently intend to repatriate to the United States any of our foreign cash and
cash equivalents from operating entities.

In response to COVID-19, the U.S. Congress passed the CARES Act on March 27,
2020. Under the CARES Act, we deferred $134 million of our 2020 payroll taxes,
$67 million of which were repaid in 2021, with the remainder to be repaid in
installments over 2022.

Our executive officers and our Board of Directors periodically review our sources and potential uses of cash in connection with our annual budgeting process. Generally speaking, our principal funding source is cash from operating activities, and our principal cash requirements include operating expenses, capital expenditures, income taxes, debt repayments, dividends, periodic securities repurchases, periodic pension contributions and other benefits payments. The impact of the pending sale of our Latin American and ILEC businesses is further described below.



Based on our current capital allocation objectives, during 2022 we project
expending approximately $3.2 billion to $3.4 billion of capital expenditures and
approximately $1.00 per share for cash dividends on our common stock (based on
the assumptions described below under "Dividends").

For the 12 month period ending December 31, 2022, we project that our fixed
commitments will include (i) $125 million of scheduled term loan amortization
payments, (ii) $31 million of finance lease and other fixed payments (which
includes $2 million of finance lease obligations that have been reclassified as
held for sale) and (iii) $1.4 billion of debt maturities.

We will continue to monitor our future sources and uses of cash, and anticipate
that we will make adjustments to our capital allocation strategies when, as and
if determined by our Board of Directors. We may also draw on our revolving
credit facility as a source of liquidity for operating activities and to give us
additional flexibility to finance our capital investments, repayments of debt,
pension contributions and other cash requirements.

For additional information, see "Risk Factors-Financial Risks" in Item 1A of Part I of this report.

Impact of the Planned Divestiture of the Latin American and ILEC Businesses



As discussed in Note 2-Planned Divestiture of the Latin American and ILEC
Businesses to our consolidated financial statements in Item 8 of Part II of this
report, we entered into definitive agreements to divest our Latin American and
ILEC businesses on July 25, 2021 and August 3, 2021, respectively. As further
described elsewhere herein, these transactions are expected to provide us with a
substantial amount of cash proceeds upon closing, but ultimately will reduce our
base of income-generating assets that generate our recurring cash from operating
activities that we use to fund our cash requirements.
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Capital Expenditures



We incur capital expenditures on an ongoing basis to expand and improve our
service offerings, enhance and modernize our networks and compete effectively in
our markets. We evaluate capital expenditure projects based on a variety of
factors, including expected strategic impacts (such as forecasted impact on
revenue growth, productivity, expenses, service levels and customer retention)
and our expected return on investment. The amount of capital investment is
influenced by, among other things, current and projected demand for our services
and products, cash flow generated by operating activities, cash required for
other purposes and regulatory considerations (such as governmentally-mandated
infrastructure buildout requirements).

Our capital expenditures continue to be focused on enhancing network operating
efficiencies and supporting new service developments. For more information on
our capital spending, see (i) "-Overview of Sources and Uses of Cash" above,
(ii) "Cash Flow Activities-Investing Activities" below and (iii) Item 1 of Part
1 of this report.

Debt and Other Financing Arrangements



Subject to market conditions, we expect to continue to issue debt securities
from time to time in the future to refinance a substantial portion of our
maturing debt, including issuing debt securities of certain of our subsidiaries
to refinance their maturing debt to the extent feasible and consistent with our
capital allocation strategies. The availability, interest rate and other terms
of any new borrowings will depend on the ratings assigned by credit rating
agencies, among other factors.

As of the date of this report, the credit ratings for the senior secured and
unsecured debt of Lumen Technologies, Inc., Level 3 Financing, Inc. and Qwest
Corporation were as follows:

                                                               Moody's Investors
                       Borrower                                  Service, Inc.            Standard & Poor's             Fitch Ratings
Lumen Technologies, Inc.:
Unsecured                                                             B2                         BB-                          BB
Secured                                                               Ba3                        BBB-                        BB+

Level 3 Financing, Inc.:
Unsecured                                                             Ba3                         BB                          BB
Secured                                                               Ba1                        BBB-                        BBB-

Qwest Corporation:
Unsecured                                                             Ba2                        BBB-                         BB


Our credit ratings are reviewed and adjusted from time to time by the rating
agencies. Any future changes in the senior unsecured or secured debt ratings of
us or our subsidiaries could impact our access to capital or borrowing costs.
See "Risk Factors-Financial Risks" in Item 1A of Part I of this report.
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Net Operating Loss Carryforwards



As of December 31, 2021, Lumen Technologies had approximately $2.9 billion of
federal net operating loss carryforwards ("NOLs"), which for U.S. federal income
tax purposes can be used to offset future taxable income. These NOLs are
primarily related to federal NOLs we acquired through the Level 3 acquisition on
November 1, 2017 and are subject to limitations under Section 382 of the
Internal Revenue Code and related U.S. Treasury Department regulations. We
maintain a Section 382 rights agreement designed to safeguard through late 2023
our ability to use those NOLs. Assuming we can continue using these NOLs in the
amounts projected, we expect to utilize a substantial portion of our NOLs to
offset taxable gains generated by the completion of our pending divestitures.
The amounts of our near-term future tax payments will depend upon many factors,
including our future earnings and tax circumstances and the impact of any
corporate tax reform or taxable transactions. Based on current laws and our
current assumptions and projections, we estimate our cash income tax liability
related to 2022 will be approximately $100 million. If, as expected, we use a
substantial portion of our NOLs in 2022 to offset divestiture-related gains, we
anticipate that our cash income tax liabilities will increase substantially in
future periods.

We cannot assure you we will be able to use our NOL carryforwards fully. See
"Risk Factors-Financial Risks-We may not be able to fully utilize our NOLs" in
Item 1A of Part I of this report.

Dividends



We currently expect to continue our current practice of paying quarterly cash
dividends in respect of our common stock subject to our Board of Directors'
discretion to modify or terminate this practice at any time and for any reason
without prior notice. Our current quarterly common stock dividend rate is $0.25
per share, as approved by our Board of Directors, which we believe is a payout
rate which enables us to balance our multiple objectives of managing and
investing in our business deleveraging our balance sheet and returning a
substantial portion of our cash to our shareholders. Assuming continued
authorization by our Board during 2022 at this rate of $0.25 per share, our
average total dividend paid each quarter would be approximately $257 million
based on the number of our currently outstanding shares (which figure (i)
assumes no increases or decreases in the number of shares and (ii) includes
dividend payments in connection with the anticipated vesting of currently
outstanding equity awards). Dividend payments upon the vesting of equity
incentive awards was $29 million during the year ended December 31, 2021. See
"Risk Factors-Business Risks" in Item 1A of Part I of this report.

Stock Repurchases



Effective August 3, 2021, our Board of Directors authorized a 24-month program
to repurchase up to an aggregate of $1.0 billion of our outstanding common stock
(the "August 2021 stock repurchase program"). During the year ended December 31,
2021, we repurchased 80.9 million shares of our outstanding common stock in the
open market for an aggregate market price of $1.0 billion, or an average
purchase price of $12.36 per share, thereby fully exhausting the program
authorized on August 3, 2021. All repurchased common stock has been retired.

Revolving Facilities and Other Debt Instruments



At December 31, 2021, we had $12.4 billion of outstanding consolidated secured
indebtedness, $17.8 billion of outstanding consolidated unsecured indebtedness
(including long-term debt reclassified as liabilities held for sale, but
excluding finance lease obligations, unamortized premiums, net and unamortized
debt issuance costs) and $2.0 billion of unused borrowing capacity under our
revolving credit facility, as discussed further below.

Under our amended and restated credit agreement dated as of January 31, 2020
(the "Amended Credit Agreement"), we maintained at December 31, 2021 (i) a $2.2
billion senior secured revolving credit facility, under which we owed $200
million as of such date, and (ii) $6.3 billion of senior secured term loan
facilities. For additional information, see (i) "-Overview of Sources and Uses
of Cash," and (ii) Note 7-Long-Term Debt and Credit Facilities to our
consolidated financial statements in Item 8 of Part II of this report.

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At December 31, 2021, we had $21 million of letters of credit outstanding under
our $225 million uncommitted letter of credit facility. Additionally, under
separate facilities maintained by one of our affiliates, we had outstanding
letters of credit, or other similar obligations, of approximately $67 million as
of December 31, 2021, of which $5 million was collateralized by cash that is
reflected on our consolidated balance sheets as restricted cash.

In addition to its indebtedness under our Amended Credit Agreement, Lumen
Technologies is indebted under its outstanding senior notes, and several of its
subsidiaries are indebted under separate credit facilities or senior notes. For
information on the terms and conditions of other debt instruments of ours and
our subsidiaries, including financial and operating covenants, see (i) Note
7-Long-Term Debt and Credit Facilities to our consolidated financial statements
in Item 8 of Part II of this report and (ii) "-Other Matters" below.

Pension and Post-retirement Benefit Obligations



We are subject to material obligations under our existing defined benefit
pension plans and post-retirement benefit plans. At December 31, 2021, the
accounting unfunded status of our qualified and non-qualified defined benefit
pension plans and our qualified post-retirement benefit plans was $1.2 billion
and $2.8 billion, respectively. For additional information about our pension and
post-retirement benefit arrangements, see "Critical Accounting Policies and
Estimates-Pension and Post-retirement Benefits" in Item 7 of Part II of this
report and Note 11-Employee Benefits to our consolidated financial statements in
Item 8 of Part II of this report.

Benefits paid by our qualified pension plan are paid through a trust that holds
all of the plan's assets. Based on current laws and circumstances, we do not
expect any contributions to be required for our qualified pension plan during
2022. The amount of required contributions to our qualified pension plan in 2023
and beyond will depend on a variety of factors, most of which are beyond our
control, including earnings on plan investments, prevailing interest rates,
demographic experience, changes in plan benefits and changes in funding laws and
regulations. We occasionally make voluntary contributions to our plans in
addition to required contributions and reserve the right to do so in the future.
We last made a voluntary contribution to the trust for our qualified pension
plan during 2018. We currently do not expect to make a voluntary contribution to
the trust for our qualified pension plan in 2022.

Substantially all of our post-retirement health care and life insurance benefits
plans are unfunded and are paid by us with available cash. As described further
in Note 11-Employee Benefits, aggregate benefits paid by us under these plans
(net of participant contributions and direct subsidy receipts) were $203
million, $211 million and $241 million for the years ended December 31, 2021,
2020 and 2019, respectively. For additional information on our expected future
benefits payments for our post-retirement benefit plans, see Note 11-Employee
Benefits to our consolidated financial statements in Item 8 of Part II of this
report.

For 2021, our expected annual long-term rates of return on the pension plan
assets and post-retirement health care and life insurance benefit plan assets,
net of administrative expenses, were 5.5% and 4.0%, respectively. For 2022, our
expected annual long-term rates of return on these assets are 5.5% and 4.0%,
respectively. However, actual returns could be substantially different.

Our pension plan contains provisions that allow us, from time to time, to offer
lump sum payment options to certain former employees in settlement of their
future retirement benefits. We record an accounting settlement charge,
consisting of the recognition of certain deferred costs of the pension plan,
associated with these lump sum payments only if, in the aggregate, they exceed
the sum of the annual service and interest costs for the plan's net periodic
pension benefit cost, which represents the settlement accounting threshold. As
of December 31, 2021, lump sum pension settlement payments exceeded the
settlement threshold. As a result, for the year ended December 31, 2021 we
recognized a non-cash settlement charge of $383 million to accelerate the
recognition of a portion of the previously unrecognized actuarial losses in the
qualified pension plan, which has been allocated and reflected in other expense,
net in our consolidated statement of operations for the year ended December 31,
2021. The amount of any future non-cash settlement charges after 2021 will be
dependent on several factors, including the total amount of our future lump sum
benefit payments.

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On October 19, 2021, we, as sponsor of the Combined Pension Plan, along with the
Plan's independent fiduciary, entered into an agreement committing the Plan to
use a portion of its plan assets to purchase an annuity from an insurance
company (the "Insurer") to transfer $1.4 billion of the Plan's pension
liabilities. This agreement irrevocably transferred to the Insurer future Plan
benefit obligations for approximately 22,600 U.S. Lumen participants
("Transferred Participants") effective on December 31, 2021. This annuity
transaction was funded entirely by existing Plan assets and is intended to
provide equivalent benefits to the Transferred Participants. The Insurer is
committed to assume responsibility for administrative and customer service
support, including distribution of payments to the Transferred Participants.

As of January 1, 2022, a new pension plan (the "Lumen Pension Plan") was spun
off from the Combined Pension Plan in anticipation of the pending sale of the
ILEC business, as described further in Note 2-Planned Divestiture of the Latin
American and ILEC Businesses to our consolidated financial statements in Item 8
of Part II of this report. See additional information on this subsequent event
in Note 11-Employee Benefits to our consolidated financial statements in Item 8
of Part II of this report for more information.

Future Contractual Obligations



Our estimated future obligations as of December 31, 2021 include both current
and long term obligations. These amounts include liabilities that have been
reclassified as liabilities held for sale on our consolidated balance sheet. We
have a current obligation of $1.6 billion and a long-term obligation of $29.0
billion of long-term debt (excluding unamortized premiums, net and unamortized
debt issuance costs). Under our operating leases, we have a current obligation
of $464 million and a long-term obligation of $1.5 billion. We have current
obligations related to right-of-way agreements and purchase commitments of $660
million and a long-term obligation of $2.0 billion. Additionally, we have a
current obligation for asset retirement obligation of $22 million and a
long-term obligation of $172 million. Finally, our pension and post-retirement
benefit plans have an unfunded benefit obligation, of which $216 million is
classified as current and $3.8 billion is classified as long-term.

Federal Broadband Support Programs



Since 2015, we have been receiving approximately $500 million annually through
Phase II of the CAF, a program that ended on December 31, 2021. In connection
with the CAF funding, we were required to meet certain specified infrastructure
buildout requirements in 33 states by the end of 2021, which required
substantial capital expenditures.

In early 2020, the FCC created the RDOF, which is a new federal support program
designed to replace the CAF Phase II program. On December 7, 2020, the FCC
allocated in its RDOF Phase I auction $9.2 billion in support payments over 10
years to deploy high speed broadband to over 5.2 million unserved locations. We
won bids for RDOF Phase I support payments of $26 million, annually. We expect
our support payments under the RDOF Phase I program will begin soon after our
anticipated receipt of the FCC's approval of our pending application. Assuming
we timely complete our pending divestiture of the ILEC business assets on the
terms described herein, we expect a portion of these payments will accrue to the
purchaser of that business. See Note 2-Planned Divestiture of the Latin American
and ILEC Businesses to our consolidated financial statements in Item 8 of Part
II of this report.

For additional information on these programs, see (i) "Business-Regulation of Our Business" in Item 1 of Part I of this report and (ii) "Risk Factors-Financial Risks" in Item 1A of Part I of this report.



Federal officials have proposed changes to current programs and laws that could
impact us, including proposals designed to increase broadband access, increase
competition among broadband providers, lower broadband costs and re-adopt "net
neutrality" rules similar to those adopted under the Obama Administration. In
November 2021, the U.S. Congress enacted legislation that appropriated $65
billion to improve broadband affordability and access, primarily through
federally funded state grants. As of the date of this report, the U.S.
Department of Commerce is still developing guidance regarding these grants, so
it is premature to speculate on the potential impact of this legislation on us.

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Cash Flow Activities



The following tables summarize our consolidated cash flow activities for the
year ended December 31, 2021 and 2020. For information regarding cash flow
activities for the year ended December 31, 2019, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 7 of Part
II of our Annual Report Form 10-K for the year ended December 31, 2020.

                                                               Years Ended December 31,                  Increase /
                                                              2021                  2020                 (Decrease)
                                                                             (Dollars in millions)
Net cash provided by operating activities                $      6,501                 6,524                   (23)
Net cash used in investing activities                          (2,712)               (3,564)                 (852)
Net cash used in financing activities                          (3,807)               (4,250)                 (443)



Operating Activities

Net cash provided by operating activities decreased by $23 million for the year
ended December 31, 2021 as compared to the year ended December 31, 2020
primarily due to decreased collections on accounts receivable, partially offset
by decreased payments on accounts payable. Cash provided by operating activities
is subject to variability period over period as a result of timing differences,
including with respect to the collection of receivables and payments of interest
expense, accounts payable and bonuses.

For additional information about our operating results, see "Results of Operations" above.

Investing Activities

Net cash used in investing activities decreased by $852 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily due to a decrease in capital expenditures.

Financing Activities



Net cash used in financing activities decreased by $443 million for the year
ended December 31, 2021 as compared to the year ended December 31, 2020
primarily due to lower payments of long-term debt and proceeds from our
revolving line of credit, partially offset by lower net proceeds from issuance
of long-term debt and repurchases of common stock.

See Note 7-Long-Term Debt and Credit Facilities to our consolidated financial
statements in Item 8 of Part II of this report for additional information on our
outstanding debt securities.

Other Matters

We have cash management and loan arrangements with a majority of our
income-generating subsidiaries, in which a substantial portion of the aggregate
cash of those subsidiaries' is periodically advanced or loaned to us or our
service company affiliate. Although we periodically repay these advances to fund
the subsidiaries' cash requirements throughout the year, at any given point in
time we may owe a substantial sum to our subsidiaries under these arrangements.
In accordance with generally accepted accounting principles, these arrangements
are reflected in the balance sheets of our subsidiaries, but are eliminated in
consolidation and therefore not recognized on our consolidated balance sheets.

We also are involved in various legal proceedings that could substantially impact our financial position. See Note 18-Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report for additional information.


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Market Risk

As of December 31, 2021, we are exposed to market risk from changes in interest rates on our variable rate long-term debt obligations and fluctuations in certain foreign currencies.



Management periodically reviews our exposure to interest rate fluctuations and
periodically implements strategies to manage the exposure. From time to time, we
have used derivative instruments to (i) swap our exposure to variable interest
rates for fixed interest rates or (ii) to swap obligations to pay fixed interest
rates for variable interest rates. We have established policies and procedures
for risk assessment and the approval, reporting and monitoring of derivative
instrument activities. As of December 31, 2021, we did not hold or issue
derivative financial instruments for trading or speculative purposes.

In 2019, we executed swap transactions that reduced our exposure to floating
rates with respect to $4.0 billion principal amount of floating rate debt,
maturing on March 31, 2022 and June 30, 2022. See Note 15-Derivative Financial
Instruments to our consolidated financial statements in Item 1 of Part I of this
report for additional disclosure regarding our hedging arrangements.

As of December 31, 2021, we had approximately $9.8 billion floating rate debt
potentially subject to LIBOR, $4.0 billion of which was subject to the
above-described hedging arrangements. A hypothetical increase of 100 basis
points in LIBOR relating to our $5.8 billion of unhedged floating rate debt
would, among other things, decrease our annual pre-tax earnings by approximately
$58 million. Additionally, our credit agreements contain language about a
possible change from LIBOR to an alternative index.

We conduct a portion of our business in currencies other than the U.S. dollar,
the currency in which our consolidated financial statements are reported. Our
European subsidiaries and certain Latin American subsidiaries use the local
currency as their functional currency, as the majority of their revenue and
purchases are transacted in their local currencies. Certain Latin American
countries previously designated as highly inflationary economies use the U.S.
dollar as their functional currency. Although we continue to evaluate strategies
to mitigate risks related to the effect of fluctuations in currency exchange
rates, we will likely recognize gains or losses from international transactions.
Accordingly, changes in foreign currency rates relative to the U.S. dollar could
adversely impact our operating results.

Certain shortcomings are inherent in the method of analysis presented in the
computation of exposures to market risks. Actual values may differ materially
from those disclosed by us from time to time if market conditions vary from the
assumptions used in the analyses performed. These analyses only incorporate the
risk exposures that existed at December 31, 2021.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The information in "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Market Risk" in Item 7 of Part II of this report is
incorporated herein by reference.

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