Recently Completed Divestiture of the Latin American Business

9 Months Ended

Sep. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

Recently Completed Divestiture of the Latin American Business

Recently Completed Divestiture of the Latin American Business

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

During both the three and nine months ended September 30, 2022, we recorded a $119 million pre-tax gain on disposal associated with the sale of our Latin American business. This gain is reflected as operating income within the consolidated statements of operations.

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

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

	Three Months Ended September 30,			Nine Months Ended September 30,
	2022		2021	2022	2021
	(Dollars in millions)
Pre-tax net income (1)	$	19	62	197	137

_______________________________________________________________________________

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

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

	August 1, 2022
	(Dollars in millions)
Assets
Cash and cash equivalents	$	40
Accounts receivable, less allowance of $3	105
Other current assets	86
Property, plant and equipment, net accumulated depreciation of $447	1,703
Goodwill(1)	719
Customer relationships and other intangibles, net	140
Other non-current assets	70
Total assets	$	2,863
Liabilities
Accounts payable	$	105
Income and other taxes	42
Other current liabilities	59
Deferred income taxes, net	154
Other non-current liabilities	122
Total liabilities	$	482

______________________________________________________________________

(1)    The assignment of goodwill was based on the relative fair value of the disposal group and the portion of the remaining reporting unit prior to the disposal group being classified as held for sale.