Planned Divestiture of the Latin American and ILE Businesses

12 Months Ended

Dec. 31, 2021

Discontinued Operations and Disposal Groups [Abstract]

Planned Divestiture of the Latin American and ILE Businesses

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 Technologies, Inc., entered into a definitive agreement to divest Lumen’s Latin American business to an affiliate of a fund advised by Stonepeak Partners LP in exchange for $2.7 billion cash, subject to certain working capital, other purchase price adjustments and related transaction expenses (estimated to be approximately $50 million). Level 3 Parent, LLC anticipates closing the transaction mid-year 2022, upon receipt of all requisite regulatory approvals in the U.S. and certain countries where the Latin American business operates, as well as the satisfaction of other customary conditions.

On August 3, 2021, we and certain of our affiliates entered into a definitive agreement to divest our incumbent local exchange ("ILEC") business conducted within 20 Midwestern and Southern states to an affiliate of funds advised by Apollo Global Management, Inc. In exchange, we would receive $7.5 billion, subject to offsets for (i) assumed indebtedness (expected to be approximately $1.4 billion) and (ii) certain purchaser’s transaction expenses along with working capital, tax, other customary purchase price adjustments and related transaction expenses (estimated to be approximately $1.7 billion). We anticipate closing the transaction mid-year 2022 upon receipt of all regulatory approvals and the satisfaction of other customary closing conditions.

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 if any of our other assumptions prove to be incorrect.

We do not believe these divestiture transactions represent a strategic shift for Lumen. Therefore, neither divested business meets the criteria to be classified as a discontinued operation. As a result, we will continue to report our operating results for the Latin American and ILEC businesses (the "disposal groups") in our consolidated operating results until the transactions are closed. The pre-tax net income of the disposal groups is estimated to be and reported as follows in the tables below:

	Years Ended December 31,
	2021		2020	2019
	(Dollars in millions)
Latin American business pre-tax net income	$	214	160	30
ILEC business pre-tax net income	851		649	655
Total disposal groups pre-tax net income	$	1,065	809	685

As of December 31, 2021 in the accompanying consolidated balance sheet, the assets and liabilities of our Latin American and ILEC businesses are classified as held for sale and are measured at the lower of (i) the carrying value when we classified the disposal groups as held for sale and (ii) the fair value of the disposal groups, less costs to sell. Effective with the designation of both disposal groups as held for sale on July 25, 2021 and August 3, 2021, respectively, we suspended recording depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets while these assets are classified as held for sale. We estimate that we would have recorded an additional $272 million of depreciation, intangible amortization, and amortization of right-of-use assets for the year ended December 31, 2021 if the Latin American and ILEC businesses did not meet the held for sale criteria.

As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we did not record any estimated loss on disposal during the year ended December 31, 2021. The recoverability of each disposal group will be re-evaluated each reporting period until the closing of each transaction.

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

	December 31, 2021
	Latin American Business		ILEC Business	Total
	(Dollars in millions)
Assets held for sale
Cash and cash equivalents	$	39	1	40
Accounts receivable, less allowance of $3, $21 and $24	83		227	310
Other current assets	81		45	126
Property, plant and equipment, net accumulated depreciation of $434, $8,303 and $8,737	1,591		3,491	5,082
Goodwill (1)	239		2,615	2,854
Other intangible assets, net	126		158	284
Other non-current assets	75		38	113
Total assets held for sale	$	2,234	6,575	8,809
Liabilities held for sale
Accounts payable	$	101	64	165
Salaries and benefits	23		25	48
Income and other taxes	27		24	51
Interest	—		10	10
Current portion of deferred revenue	26		90	116
Other current liabilities	7		35	42
Long-term debt, net of discounts (2)	—		1,377	1,377
Deferred income taxes, net	129		—	129
Pension and other post-retirement benefits (3)	2		56	58
Other non-current liabilities	120		141	261
Total liabilities held for sale	$	435	1,822	2,257

______________________________________________________________________ 

(1)The assignment of goodwill was based on the relative fair values of the applicable reporting units prior to being reclassified as held for sale.

(2)Long-term debt, net of discounts, includes $1.4 billion of Embarq Senior notes, $117 million of related unamortized discounts and $57 million of long-term finance lease obligations.

(3)Excludes pension obligation of approximately $2.5 billion for the ILEC business as of December 31, 2021, which will be transferred to the purchaser of the ILEC business upon closing. As of December 31, 2021, approximately $2.2 billion, or 88%, of this pension obligation is expected to be funded through the transfer of Lumen pension plan assets to the purchaser. The remaining portion of the obligation is expected to be separately funded with cash paid by Lumen at the time of closing. See Note 11—Employee Benefits for additional information.