NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
References in the Notes to "Lumen Technologies, Inc.", "Lumen Technologies" or "Lumen," "we," "us", the "Company", and "our" refer to Lumen Technologies and its consolidated subsidiaries, unless the content otherwise requires. References in the Notes to "Level 3" refer to Level 3 Parent, LLC and its predecessor, Level 3 Communications, Inc., which we acquired on November 1, 2017.
(1) Background and Summary of Significant Accounting Policies
General
We are an international facilities-based technology and communications company engaged primarily in providing a broad array of integrated services to our business and residential customers.
Basis of Presentation
The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which we have a controlling interest. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. In connection with our acquisition of Level 3 in 2017, we acquired its deconsolidated Venezuela subsidiary and due to exchange restrictions and other conditions have assigned no value to this subsidiary's assets. Additionally, we have excluded this subsidiary from our consolidated financial statements.
To simplify the overall presentation of our consolidated financial statements, we report immaterial amounts attributable to noncontrolling interests in certain of our subsidiaries as follows: (i) income attributable to noncontrolling interests in other income, net, (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable to noncontrolling interests in other, net financing activities.
We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and our segment reporting for 2020, 2019 and 2018. See Note 16—Segment Information for additional information. These changes had no impact on total operating revenue, total operating expenses or net loss for any period.
Operating Expenses
Our current definitions of operating expenses are as follows:
•Cost of services and products (exclusive of depreciation and amortization) are expenses incurred in providing products and services to our customers. These expenses include: employee-related expenses directly attributable to operating and maintaining our network (such as salaries, wages, benefits and professional fees); facilities expenses (which include third-party telecommunications expenses we incur for using other carriers' networks to provide services to our customers); rents and utilities expenses; equipment sales expenses (such as data integration and modem expenses); and other expenses directly related to our operations; and
•Selling, general and administrative expenses are corporate overhead and other operating expenses. These expenses include: employee-related expenses (such as salaries, wages, internal commissions, benefits and professional fees) directly attributable to selling products or services and employee-related expenses for administrative functions; marketing and advertising; property and other operating taxes and fees; external commissions; litigation expenses associated with general matters; bad debt expense; and other selling, general and administrative expenses.
These expense classifications may not be comparable to those of other companies.
Summary of Significant Accounting Policies
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions we make when accounting for specific items and matters are reasonable, based on information available at the time they are made. These estimates, judgments and assumptions can materially affect the reported amounts of assets, liabilities and components of stockholders' equity as of the dates of the consolidated balance sheets, as well as the reported amounts of revenue, expenses and components of cash flows during the periods presented in our other consolidated financial statements. We also make estimates in our assessments of potential losses in relation to threatened or pending tax and legal matters. See Note 15—Income Taxes and Note 17—Commitments, Contingencies and Other Items for additional information.
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. If we have the potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is also deemed probable.
For matters related to income taxes, if we determine 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 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 the position has less than a 50% likelihood of being sustained. Interest is recognized on the amount of unrecognized benefit from uncertain tax positions.
For all of these and other matters, actual results could differ materially from our estimates.
Revenue Recognition
We earn most of our consolidated revenue from contracts with customers, primarily through the provision of communications and other services. Revenue from contracts with customers is accounted for under Accounting Standards Codification ("ASC") 606. We also earn revenue from leasing arrangements (primarily fiber capacity agreements) and governmental subsidy payments, neither of which are accounted for under ASC 606.
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. Revenue is recognized based on the following five-step model:
•Identification of the contract with a customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when, or as, we satisfy a performance obligation.
We provide an array of communications services to business and residential customers, including local voice, VPN, Ethernet, data, broadband, private line (including special access), network access, transport, voice, information technology, video and other ancillary services. We provide these services to a wide range of businesses, including global, enterprise, wholesale, government, small and medium business customers. Certain contracts also include the sale of equipment, which is not significant to our business.
We recognize revenue for services when we provide the applicable service or when control of a product is transferred. Recognition of certain payments received in advance of services being provided is deferred. These advance payments include certain activation and certain installation charges. If the activation and installation charges are not separate performance obligations, we recognize them as revenue over the actual or expected contract term using historical experience, which ranges from one year to five years depending on the service. In most cases, termination fees or other fees on existing contracts that are negotiated in conjunction with new contracts are deferred and recognized over the new contract term.
For access services, we generally bill fixed monthly charges one month in advance to customers and recognize revenue as service is provided over the contract term in alignment with the customer's receipt of service. For usage and other ancillary services, we generally bill in arrears and recognize revenue as usage or delivery occurs. In most cases, the amount invoiced for our service offerings constitutes the price that would be billed on a standalone basis.
In certain cases, customers may be permitted to modify their contracts. We evaluate the change in scope or price to identify whether the modification should be treated as a separate contract, whether the modification is a termination of the existing contract and creation of a new contract, or if it is a change to the existing contract.
Customer contracts are evaluated to determine whether the performance obligations are separable. If the performance obligations are deemed separable and separate earnings processes exist, the total transaction price that we expect to receive with the customer is allocated to each performance obligation based on its relative standalone selling price. The revenue associated with each performance obligation is then recognized as earned.
We periodically sell optical capacity on our network. These transactions are structured as indefeasible rights of use, commonly referred to as IRUs, which are the exclusive right to use a specified amount of capacity or fiber for a specified term, typically 10 to 20 years. In most cases, we account for the cash consideration received on transfers of optical capacity as ASC 606 revenue which is adjusted for the time value of money and is recognized ratably over the term of the agreement. Cash consideration received on transfers of dark fiber is accounted for as non-ASC 606 lease revenue, which we also recognize ratably over the term of the agreement. We do not recognize revenue on any contemporaneous exchanges of our optical capacity assets for other non-owned optical capacity assets.
In connection with offering products and services provided to the end user by third-party vendors, we review the relationship between us, the vendor and the end user to assess whether revenue should be reported on a gross or net basis. In assessing whether revenue should be reported on a gross or net basis, we consider whether we act as a principal in the transaction and control the goods and services used to fulfill the performance obligations associated with the transaction.
We have service level commitments pursuant to contracts with certain of our customers. To the extent that such service levels are not achieved or are otherwise disputed due to performance or service issues or other service interruptions or conditions, we will estimate the amount of credits to be issued and record a corresponding reduction to revenue in the period that the service level commitment was not met.
Customer payments are made based on billing schedules included in our customer contracts, which is typically on a monthly basis.
We defer (or capitalize) incremental contract acquisition and fulfillment costs and recognize (or amortize) such costs over the average contract life. Our deferred contract costs for our customers have average amortization periods of approximately 30 months for consumer and business customers. These deferred costs are monitored every period to reflect any significant change in assumptions.
See Note 3—Revenue Recognition for additional information.
Advertising Costs
Costs related to advertising are expensed as incurred and included in selling, general and administrative expenses in our consolidated statements of operations. Our advertising expense was $56 million, $62 million and $98 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Legal Costs
In the normal course of our business, we incur costs to hire and retain external legal counsel to advise us on regulatory, litigation and other matters. We expense these costs as the related services are received.
Income Taxes
We file a consolidated federal income tax return with our eligible subsidiaries. The provision for income taxes consists of an amount for taxes currently payable, an amount for tax consequences deferred to future periods and adjustments to our liabilities for uncertain tax positions. We record deferred income tax assets and liabilities reflecting future tax consequences attributable to tax net operating loss carryforwards ("NOLs"), tax credit carryforwards and differences between the financial statement carrying value of assets and liabilities and the tax basis of those assets and liabilities. 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 on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date.
We establish valuation allowances when necessary to reduce deferred income tax assets to the amounts that we believe are more likely than not to be recovered. Each quarter we evaluate the need to retain all or a portion of the valuation allowance on our deferred tax assets. See Note 15—Income Taxes for additional information.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments that are readily convertible into cash and are not subject to significant risk from fluctuations in interest rates. As a result, the value at which cash and cash equivalents are reported in our consolidated financial statements approximates their fair value. In evaluating investments for classification as cash equivalents, we require that individual securities have original maturities of ninety days or less and that individual investment funds have dollar-weighted average maturities of ninety days or less. To preserve capital and maintain liquidity, we invest with financial institutions we deem to be of sound financial condition and in high quality and relatively risk-free investment products. Our cash investment policy limits the concentration of investments with specific financial institutions or among certain products and includes criteria related to credit worthiness of any particular financial institution.
Book overdrafts occur when we have issued checks but they have not yet been presented to our controlled disbursement bank accounts for payment. Disbursement bank accounts allow us to delay funding of issued checks until the checks are presented for payment. Until the issued checks are presented for payment, the book overdrafts are included in accounts payable on our consolidated balance sheet. This activity is included in the operating activities section in our consolidated statements of cash flows. There were no book overdrafts included in accounts payable at December 31, 2020. Included in accounts payable at December 31, 2019 was $106 million representing book overdrafts.
Restricted Cash
Restricted cash consists primarily of cash and investments that serve to collateralize our outstanding letters of credit and certain performance and operating obligations. Restricted cash and securities are recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists. Restricted securities are stated at cost which approximates fair value as of December 31, 2020 and 2019.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recognized based upon the amount due from customers for the services provided or at cost for purchased and other receivables, less an allowance for credit losses. Prior to the adoption of ASU 2016-13, the allowance for credit losses receivable reflected our best estimate of probable losses inherent in our receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence. We implemented the new standard effective January 1, 2020, as discussed in the Recently Adopted Accounting Pronouncements - "Measurement of Credit Losses on Financial Instruments", below. For more information, see Note 5—Credit Losses on Financial Instruments.
The carrying value of accounts receivable net of the allowance for credit losses approximates fair value. Accounts receivable balances acquired in a business combination are recorded at fair value for all balances receivable at the acquisition date and at the invoiced amount for those amounts invoiced after the acquisition date.
Property, Plant and Equipment
We record property, plant and equipment acquired in connection with our acquisitions based on its estimated fair value as of its acquisition date plus the estimated value of any associated legally or contractually required retirement obligations. We record purchased and constructed property, plant and equipment at cost, plus the estimated value of any associated legally or contractually required retirement obligations. We depreciate the majority of our property, plant and equipment using the straight-line group method, but depreciate certain of our assets using the straight-line method over their estimated useful lives of the specific asset. Under the straight-line group method, assets dedicated to providing telecommunications services (which comprise the majority of our property, plant and equipment) that have similar physical characteristics, use and expected useful lives are pooled for purposes of depreciation and tracking. The equal life group procedure is used to establish each pool's average remaining useful life. Generally, under the straight-line group method, when an asset is sold or retired in the course of normal business activities, the cost is deducted from property, plant and equipment and charged to accumulated depreciation without recognition of a gain or loss. A gain or loss is recognized in our consolidated statements of operations only if a disposal is unusual. Leasehold improvements are amortized over the shorter of the useful lives of the assets or the expected lease term. Expenditures for maintenance and repairs are expensed as incurred. Interest is capitalized during the construction phase of network and other internal-use capital projects. Employee-related costs for construction of network and other internal use assets are also capitalized during the construction phase. Property, plant and equipment supplies used internally are carried at average cost, except for significant individual items which are carried at actual cost.
We perform annual internal reviews to evaluate the reasonableness of the depreciable lives for our property, plant and equipment. Our reviews utilize models that take into account actual usage, physical wear and tear, replacement history, assumptions about technology evolution and, in certain instances, actuarially determined probabilities to estimate the remaining useful life of our asset base. Our remaining useful life assessments evaluate the possible loss in service value of assets that may precede the physical retirement. Assets shared among many customers may lose service value as those customers reduce their use of the asset. However, the asset is not retired until all customers no longer utilize the asset and we determine there is no alternative use for the asset.
We have asset retirement obligations associated with the legally or contractually required removal of a limited group of property, plant and equipment assets from leased properties and the disposal of certain hazardous materials present in our owned properties. When an asset retirement obligation is identified, usually in association with the acquisition of the asset, we record the fair value of the obligation as a liability. The fair value of the obligation is also capitalized as property, plant and equipment and then amortized over the estimated remaining useful life of the associated asset. Where the removal obligation is not legally binding, the net cost to remove assets is expensed in the period in which the costs are actually incurred.
We review long-lived tangible assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. For assessment purposes, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, absent a material change in operations. An impairment loss is recognized only if the carrying amount of the asset group is not recoverable and exceeds its estimated fair value. Recoverability of the asset group to be held and used is assessed by comparing the carrying amount of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset group. If the asset group's carrying value is not recoverable, we recognize an impairment charge for the amount by which the carrying amount of the asset group exceeds its estimated fair value.
Goodwill, Customer Relationships and Other Intangible Assets
Intangible assets arising from business combinations, such as goodwill, customer relationships, capitalized software, trademarks and trade names, are initially recorded at estimated fair value. We amortize customer relationships primarily over an estimated life of 7 to 15 years, using either the sum-of-years-digits or the straight-line methods, depending on the type of customer. 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.
Internally used software, whether purchased or developed by us, is capitalized and amortized using the straight-line method over its estimated useful life. We have capitalized certain costs associated with software such as costs of employees devoted to software development and external direct costs for materials and services. Costs associated with software to be used for internal purposes are expensed until the point at which the project has reached the development stage. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance, data conversion and training costs are expensed in the period in which they are incurred. We review the remaining economic lives of our capitalized software annually. Capitalized software is included in other intangible assets, net, in our consolidated balance sheets.
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.
We are required to assess goodwill for impairment at least annually, or more frequently, if an event occurs or circumstances change that indicates it is more likely than not that the fair values of our reporting units were less than their carrying values. We are required to write-down the value of goodwill in periods in which the recorded carrying value of equity exceeds the fair value of equity. Our reporting units are not discrete legal entities with discrete full financial statements. Therefore, the equity carrying value and future cash flows are assessed each time a goodwill impairment assessment is performed on a reporting unit. To do so, we assign our assets, liabilities and cash flows to reporting units using reasonable and consistent allocation methodologies, which entail various estimates, judgments and assumptions.
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 proxy for the fair value of the operations being reorganized.
For more information, see Note 2—Goodwill, Customer Relationships and Other Intangible Assets.
Derivatives and Hedging
From time to time we have used derivative instruments to hedge exposure to interest rate risks arising from fluctuation in interest rates. We account for derivative instruments in accordance with ASC 815, Derivatives and Hedging, which establishes accounting and reporting standards for derivative instruments. We do not use derivative financial instruments for speculative purposes.
Derivatives are recognized in the consolidated balance sheets at their fair values. When we become a party to a derivative instrument and intend to apply hedge accounting, we formally document the hedge relationship and the risk management objective for undertaking the hedge which includes designating the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge.
We entered into eleven variable-to-fixed interest rate swap agreements during 2019, which we designated as cash-flow hedges. We evaluate the effectiveness of these hedges qualitatively on a quarterly basis. The change in the fair value of the interest rate swaps is reflected in Accumulated Other Comprehensive Loss (“AOCI”) and is subsequently reclassified into earnings in the period the hedged transaction affects earnings, by virtue of qualifying as effective cash flow hedges. For more information see Note 14—Derivative Financial Instruments.
Pension and Post-Retirement Benefits
We recognize the funded status of our defined benefit and post-retirement plans as an asset or a liability on our consolidated balance sheet. Each year's actuarial gains or losses are a component of our other comprehensive loss, which is then included in our accumulated other comprehensive loss. Pension and post-retirement benefit expenses are recognized over the period in which the employee renders service and becomes eligible to receive benefits. We make significant assumptions (including the discount rate, expected rate of return on plan assets, mortality and health care trend rates) in computing the pension and post-retirement benefits expense and obligations. See Note 10—Employee Benefits for additional information.
Foreign Currency
Local currencies of foreign subsidiaries are the functional currencies for financial reporting purposes except for certain foreign subsidiaries, primarily in Latin America. For operations outside the United States that have functional currencies other than the U.S. dollar, assets and liabilities are translated to U.S. dollars at period-end exchange rates, and revenue, expenses and cash flows are translated using average monthly exchange rates. A significant portion of our non-United States subsidiaries use either the British pound, the Euro or the Brazilian Real as their functional currency, each of which experienced significant fluctuations against the U.S. dollar during the years ended December 31, 2020, 2019 and 2018. We recognize foreign currency translation gains and losses as a component of accumulated other comprehensive loss in stockholders' equity and in our consolidated statements of comprehensive loss in accordance with accounting guidance for foreign currency translation. We consider the majority of our investments in our foreign subsidiaries to be long-term in nature. Our foreign currency transaction gains (losses), including where transactions with our non-United States subsidiaries are not considered to be long-term in nature, are included within other income, net on our consolidated statements of operations.
Common Stock
At December 31, 2020, we had 49 million shares authorized for future issuance under our equity incentive plans.
Preferred Stock
Holders of outstanding Lumen Technologies preferred stock are entitled to receive cumulative dividends, receive preferential distributions equal to $25 per share plus unpaid dividends upon Lumen's liquidation and vote as a single class with the holders of common stock.
Section 382 Rights Plan
We maintain a Section 382 Rights Plan to protect our U.S. federal net operating loss carryforwards from certain Internal Revenue Code Section 382 limitations. Under the plan, one preferred stock purchase right was distributed for each share of our outstanding common stock as of the close of business on February 25, 2019, and those rights currently trade in tandem with the common stock until they expire or detach under the plan. This plan was designed to deter trading that would result in a change of control (as defined in Code Section 382), and therefore protect our ability to use our historical federal net operating losses in the future.
Dividends
The declaration and payment of dividends is at the discretion of our Board of Directors.
Change in Accounting Policy
During the first quarter of 2020, we elected to change the presentation for taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, including federal and certain state Universal Service Fund (USF) regulatory fees, to present all such taxes on a net basis in our consolidated statements of operations. Prior to the first quarter of 2020, we assessed whether we were the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business. The previous policy resulted in presenting such USF fees on a gross basis within operating revenue and cost of services and products, and all other significant taxes on a net basis. We applied this change in accounting policy retrospectively during the first quarter of 2020. As a result, we have decreased both operating revenue and cost of services and products by $911 million, $943 million and $863 million for the years ended December 31, 2020, 2019 and 2018, respectively. The change has no impact on operating income (loss), net loss, or loss per share in our consolidated statements of operations. Refer to our Form 8-K filing dated April 30, 2020 for further information.
We changed our policy to present such taxes on the net basis and believe the new policy is preferable because of the historical and potential future regulatory rate changes outside of our control resulting in significant variability in tax and fee revenue that are not indicative of our operating performance. We believe the net presentation provides the most useful and transparent financial information and improves comparability and consistency of financial results.
Recently Adopted Accounting Pronouncements
During 2020, we adopted Accounting Standards Update ("ASU") 2016-13, "Measurement of Credit Losses on Financial Instruments." During 2019, we adopted ASU 2016-02, "Leases (ASC 842)". During 2018, we adopted ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans", ASU 2014-09, “Revenue from Contracts with Customers” and ASU 2018-02, “Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”.
Each of these is described further below.
Measurement of Credit Losses on Financial Instruments
We adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") on January 1, 2020, and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $9 million, net of tax effect of $2 million. Please refer to Note 5—Credit Losses on Financial Instruments for more information.
Leases
We adopted ASU 2016-02, "Leases (ASC 842)", as of January 1, 2019, using the non-comparative transition option pursuant to ASU 2018-11. Therefore, we have not restated comparative period financial information for the effects of ASC 842, and we have not made the new required lease disclosures for comparative periods beginning before January 1, 2019. Instead, we recognized ASC 842's cumulative effect transition adjustment (discussed below) as of January 1, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things (i) allowed us to carry forward the historical lease classification; (ii) did not require us to reassess whether any expired or existing contracts are or contain leases under the new definition of a lease; and (iii) did not require us to reassess whether previously capitalized initial direct costs for any existing leases would qualify for capitalization under ASC 842. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. We did not elect the hindsight practical expedient regarding the likelihood of exercising a lessee purchase option or assessing any impairment of right-of-use assets for existing leases.
On March 5, 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-01, "Leases (ASC 842): Codification Improvements", ("ASU 2019-01") effective for public companies for fiscal years beginning after December 15, 2019. The new ASU aligns the guidance in ASC 842 for determining fair value of the underlying asset by lessors that are not manufacturers or dealers, with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in ASC 820, "Fair Value Measurement") should be applied. More importantly, the ASU also exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. Early adoption permits public companies to adopt concurrent with the transition to ASC 842 on leases. We adopted ASU 2019-01 as of January 1, 2019.
Adoption of the new standards resulted in the recording of operating lease assets and operating lease liabilities of approximately $2.1 billion and $2.2 billion, respectively, as of January 1, 2019. The difference is driven principally by the netting of our existing real estate restructure reserve against the corresponding operating lease right of use asset. In addition, we recorded a $96 million cumulative adjustment (net of tax of $37 million) to accumulated deficit as of January 1, 2019, for the impact of the new accounting standards. Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new guidance, as discussed above, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.
Retirement Benefits
In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans" (“ASU 2018-14“). ASU 2018-14 eliminates requirements for certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures under defined benefit pension plans and other postretirement plans. We adopted this guidance during the fourth quarter 2018. The adoption of ASU 2018-14 did not have a material impact to our consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09") which replaces virtually all existing generally accepted accounting principles on revenue recognition with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs.
We adopted the new revenue recognition standard under the modified retrospective transition method. During the year ended December 31, 2018, we recorded a cumulative catch-up adjustment that increased our retained earnings by $338 million, net of $119 million of income taxes.
See Note 3—Revenue Recognition for additional information.
Comprehensive Loss
In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02") which provides an option to reclassify stranded tax effects within accumulated other comprehensive loss to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (the "Act") (or portion thereof) is recorded. If an entity elects to reclassify the income tax effects of the Act, the amount of that reclassification shall include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of enactment of the Act related to items remaining in accumulated other comprehensive loss. The effect of the change in the U.S. federal corporate income tax rate on gross valuation allowances that were originally charged to income from continuing operations shall not be included. ASU 2018-02 is effective January 1, 2019, but early adoption is permitted and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. We early adopted and applied ASU 2018-02 in the first quarter of 2018. The adoption of ASU 2018-02 resulted in a $407
million increase to retained earnings and in accumulated other comprehensive loss. See Note 20—Accumulated Other Comprehensive Loss for additional information.
Recently Issued Accounting Pronouncements
In October 2020, the FASB issued ASU 2020-09, "Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762” (“ASU 2020-09”). This ASU amends and supersedes various SEC paragraphs to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The cumulative effect of initially applying ASU 2020-09 on January 4, 2021 will not have material impact to our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period. Subject to certain criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications and hedging accounting relationships made until December 31, 2022. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”). This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative that are affected by the discounting transition. The ASU also amends the expedients and expectations in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivatives instruments affected by the discounting transition. As of December 31, 2020, we are evaluating the impact on our consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815)" (“ASU 2020-01”). This ASU among other things clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. As of December 31, 2020, we determined there was no application or discontinuation of the equity method during the reporting periods. The cumulative effect of initially applying ASU 2020-01 on January 1, 2021 will not have a material impact to our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)" ("ASU 2019-12"). ASU 2019-12 removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 will become effective for us in the first quarter of fiscal 2021 and early adoption is permitted. The cumulative effect of initially applying ASU 2019-12 on January 1, 2021 will not have a material impact to our consolidated financial statements.
(2) Goodwill, Customer Relationships and Other Intangible Assets
Goodwill, customer relationships and other intangible assets consisted of the following:
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As of December 31,
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2020
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2019
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|
|
(Dollars in millions)
|
|
Goodwill
|
$
|
18,870
|
|
|
21,534
|
|
|
Indefinite-life intangible assets
|
$
|
278
|
|
|
269
|
|
|
Other intangible assets subject to amortization:
|
|
|
|
|
Customer relationships, less accumulated amortization of $11,060 and $9,809
|
6,344
|
|
|
7,596
|
|
|
Capitalized software, less accumulated amortization of $3,279 and $2,957
|
1,520
|
|
|
1,599
|
|
|
Trade names, less accumulated amortization of $120 and $91
|
77
|
|
|
103
|
|
|
Total other intangible assets, net
|
$
|
8,219
|
|
|
9,567
|
|
Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired.
We assess our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our assessment determines the carrying value of equity of any of our reporting units exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess our reporting units. At October 31, 2020 and 2019, our international and global accounts segment was comprised of our North America global accounts ("NA GAM"), Europe, Middle East and Africa region ("EMEA"), Latin America region ("LATAM") and Asia Pacific region ("APAC") reporting units. At October 31, 2020 and 2019 our reporting units were consumer, small and medium business, enterprise, wholesale, NA GAM, EMEA, LATAM and APAC. Our annual impairment assessment date for indefinite-lived intangible assets other than goodwill is December 31.
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. 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 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 an impairment equal to the excess amount. 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 represents the value of expected normalized cash flows of the reporting units following the discrete projection period, and (ii) a market approach, which includes the use of market multiples of publicly-traded companies whose services are comparable to ours.
At October 31, 2020, 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 discounted the projected cash flows for our consumer, enterprise, wholesale, small and medium business and NA GAM segments using a rate that represents our weighted average cost of capital, which we determined to be approximately 7.6% as of the assessment date (which comprised an after-tax cost of debt of 2.5% and a cost of equity of 10.7%). We discounted the projected cash flows of our EMEA, LATAM and APAC reporting units using a rate that represents their estimated weighted average cost of capital, which we determined to be approximately 8.0%, 14.3% and 10.1%, respectively, as of the measurement date (which was comprised of an after-tax cost of debt of 2.9%, 6.9% and 3.9% and a cost of equity of 11.2%, 18.8% and 14.0%, respectively). 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 earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples between 2.0x and 5.5x and 4.8x and 12.5x, respectively. We selected a revenue and EBITDA multiple for each of our reporting units resulting in an overall company revenue and EBITDA multiple of 2.3x and 5.7x, respectively. We also reconciled the estimated fair values of the reporting units to our market capitalization as of October 31, 2020 and concluded that the indicated implied control premium of approximately 33.0% 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 the estimated fair value of certain of our reporting units was less than our carrying value of equity for our consumer, wholesale, small and medium business and EMEA reporting units. As a result, these reporting units were impaired resulting in a non-cash, non-tax-deductible goodwill impairment charge of $2.6 billion. See the table below for the impairment charges by segment. 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 that the goodwill assigned to our enterprise, NA GAM, LATAM and APAC reporting units was not impaired at October 31, 2020.
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 discounted the projected cash flows for our consumer, enterprise, wholesale, small and medium business and NA GAM reporting units using a rate that represents our weighted average cost of capital, which we determined to be approximately 6.3% as of the assessment date (which was comprised of an after-tax cost of debt of 4.4% and a cost of equity of 7.6%). We discounted the projected cash flows of our EMEA, LATAM and APAC reporting units using a rate that represents their estimated weighted average cost of capital, which we determined to be approximately 6.8%, 10.0% and 9.0%, respectively, as of the measurement date (which was comprised of an after-tax cost of debt of 4.8%, 6.1% and 7.1% and a cost of equity of 8.1%, 12.5% and 10.2%, respectively). We utilized company comparisons within the telecommunications industry and analyst reports which have historically supported a range of fair values derived from annualized revenue and EBITDA multiples between 2.3x and 5.4x and 5.6x and 12.2x, respectively. We selected a revenue and EBITDA multiple for each of our reporting units resulting in an overall company revenue and EBITDA multiple of 2.3x and 5.7x, respectively. 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 44.7% was reasonable based on recent market transactions. As of October 31, 2019, based on our assessment performed with respect to our eight reporting units, the estimated fair value of 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 that the goodwill for our eight reporting units was not impaired as of October 31, 2019.
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. Because our low stock price was a key trigger for impairment testing during the first quarter of 2019, we estimated the fair value of our operations in such quarter 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 (earnings before interest, taxes, depreciation and amortization) 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 of 2019 and concluded that the indicated control premium of approximately 4.5% and 4.1% was 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. See the table below for the impairment charges by segment.
At October 31, 2018, we estimated the fair value of our then five reporting units which were consumer, medium and small business, enterprise, international and global accounts, and wholesale and indirect 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, 2018 and concluded that the indicated control premium of approximately 0.1% was reasonable based on recent market transactions. As of October 31, 2018, based on our assessment performed with respect to these reporting units as described above, we concluded that the estimated fair value of our consumer reporting unit was less than our carrying value of equity by approximately $2.7 billion. As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge of $2.7 billion for goodwill assigned to our consumer reporting unit during the fourth quarter of 2018. In addition, based on our assessments performed, we concluded that the goodwill for our four remaining reporting units was not impaired as of October 31, 2018.
We completed our qualitative assessment of our indefinite-lived intangible assets other than goodwill as of December 31, 2020 and 2019 and concluded it is more likely than not that our indefinite-lived intangible assets are not impaired; thus, no impairment charge for these assets was recorded in 2020 or 2019.
The following tables show the rollforward of goodwill assigned to our reportable segments from December 31, 2018 through December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Consumer
|
|
Total
|
|
|
(Dollars in millions)
|
|
As of December 31, 2018(1)
|
$
|
20,447
|
|
|
7,584
|
|
|
28,031
|
|
______________________________________________________________________
|
|
|
|
|
|
|
|
(1)
|
|
Goodwill is net of accumulated impairment losses of $3.8 billion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International and Global Accounts
|
|
Enterprise
|
|
Small and Medium Business
|
|
Wholesale
|
|
Consumer
|
|
Total
|
|
|
(Dollars in millions)
|
|
As of January 1, 2019
|
$
|
3,595
|
|
|
5,222
|
|
|
5,193
|
|
|
6,437
|
|
|
7,584
|
|
|
28,031
|
|
|
January 2019 reorganization
|
—
|
|
|
987
|
|
|
(1,038)
|
|
|
395
|
|
|
(344)
|
|
|
—
|
|
|
Effect of foreign currency exchange rate change and other
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
Impairment
|
(934)
|
|
|
(1,471)
|
|
|
(896)
|
|
|
(3,019)
|
|
|
(186)
|
|
|
(6,506)
|
|
|
As of December 31, 2019(1)
|
2,670
|
|
|
4,738
|
|
|
3,259
|
|
|
3,813
|
|
|
7,054
|
|
|
21,534
|
|
|
Effect of foreign currency exchange rate change and other
|
(15)
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
—
|
|
|
(22)
|
|
|
Impairment
|
(100)
|
|
|
—
|
|
|
(444)
|
|
|
(699)
|
|
|
(1,399)
|
|
|
(2,642)
|
|
|
As of December 31, 2020(1)
|
$
|
2,555
|
|
|
4,738
|
|
|
2,808
|
|
|
3,114
|
|
|
5,655
|
|
|
18,870
|
|
______________________________________________________________________
|
|
|
|
|
|
|
|
(1)
|
|
Goodwill at December 31, 2020 and December 31, 2019 is net of accumulated impairment losses of $12.9 billion and $10.3 billion, respectively.
|
For additional information on our segments, see Note 16—Segment Information.
As of December 31, 2020, the weighted average remaining useful lives of our intangible assets were approximately 8 years in total, approximately 9 years for customer relationships, 3 years for capitalized software and 2 years for trade names.
Total amortization expense for intangible assets for the years ended December 31, 2020, 2019 and 2018 was $1.7 billion, $1.7 billion and $1.8 billion, respectively. As of December 31, 2020, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $41.5 billion.
We estimate that total amortization expense for intangible assets for the years ending December 31, 2021 through 2025 will be as follows:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2021
|
$
|
1,282
|
|
|
2022
|
1,065
|
|
|
2023
|
920
|
|
|
2024
|
853
|
|
|
2025
|
761
|
|
(3) Revenue Recognition
Reconciliation of Total Revenue to Revenue from Contracts with Customers
The following tables provide disaggregation of revenue from contracts with customers based on reporting segments and service offerings for the years ended December 31, 2020, 2019 and 2018. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
Total Revenue
|
|
Adjustments for Non-ASC 606 Revenue(9)
|
|
Total Revenue from Contracts with Customers
|
|
|
(Dollars in millions)
|
|
International and Global Accounts
|
|
|
|
|
|
|
IP and Data Services (1)
|
$
|
1,556
|
|
|
—
|
|
|
1,556
|
|
|
Transport and Infrastructure (2)
|
1,265
|
|
|
(373)
|
|
|
892
|
|
|
Voice and Collaboration (3)
|
368
|
|
|
—
|
|
|
368
|
|
|
IT and Managed Services (4)
|
216
|
|
|
—
|
|
|
216
|
|
|
Total International and Global Accounts Segment Revenue
|
3,405
|
|
|
(373)
|
|
|
3,032
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
|
IP and Data Services (1)
|
2,474
|
|
|
(2)
|
|
|
2,472
|
|
|
Transport and Infrastructure (2)
|
1,608
|
|
|
(135)
|
|
|
1,473
|
|
|
Voice and Collaboration (3)
|
1,424
|
|
|
(1)
|
|
|
1,423
|
|
|
IT and Managed Services (4)
|
216
|
|
|
—
|
|
|
216
|
|
|
Total Enterprise Segment Revenue
|
5,722
|
|
|
(138)
|
|
|
5,584
|
|
|
|
|
|
|
|
|
|
Small and Medium Business
|
|
|
|
|
|
|
IP and Data Services (1)
|
1,062
|
|
|
(3)
|
|
|
1,059
|
|
|
Transport and Infrastructure (2)
|
352
|
|
|
(34)
|
|
|
318
|
|
|
Voice and Collaboration (3)
|
1,098
|
|
|
(3)
|
|
|
1,095
|
|
|
IT and Managed Services (4)
|
45
|
|
|
—
|
|
|
45
|
|
|
Total Small and Medium Business Segment Revenue
|
2,557
|
|
|
(40)
|
|
|
2,517
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
IP and Data Services (1)
|
1,280
|
|
|
—
|
|
|
1,280
|
|
|
Transport and Infrastructure (2)
|
1,764
|
|
|
(517)
|
|
|
1,247
|
|
|
Voice and Collaboration (3)
|
731
|
|
|
—
|
|
|
731
|
|
|
IT and Managed Services (4)
|
2
|
|
|
—
|
|
|
2
|
|
|
Total Wholesale Business Segment Revenue
|
3,777
|
|
|
(517)
|
|
|
3,260
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Broadband (5)
|
2,909
|
|
|
(217)
|
|
|
2,692
|
|
|
Voice (6)
|
1,622
|
|
|
—
|
|
|
1,622
|
|
|
Regulatory (7)
|
615
|
|
|
(615)
|
|
|
—
|
|
|
Other (8)
|
105
|
|
|
(15)
|
|
|
90
|
|
|
Total Consumer Segment Revenue
|
5,251
|
|
|
(847)
|
|
|
4,404
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
20,712
|
|
|
(1,915)
|
|
|
18,797
|
|
|
|
|
|
|
|
|
|
Timing of revenue
|
|
|
|
|
|
|
Goods and services transferred at a point in time
|
|
|
|
|
$
|
250
|
|
|
Services performed over time
|
|
|
|
|
18,547
|
|
|
Total revenue from contracts with customers
|
|
|
|
|
$
|
18,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
Total Revenue
|
|
Adjustments for Non-ASC 606 Revenue(9)
|
|
Total Revenue from Contracts with Customers
|
|
|
(Dollars in millions)
|
|
International and Global Accounts
|
|
|
|
|
|
|
IP and Data Services (1)
|
$
|
1,627
|
|
|
—
|
|
|
1,627
|
|
|
Transport and Infrastructure (2)
|
1,268
|
|
|
(365)
|
|
|
903
|
|
|
Voice and Collaboration (3)
|
354
|
|
|
—
|
|
|
354
|
|
|
IT and Managed Services (4)
|
227
|
|
|
—
|
|
|
227
|
|
|
Total International and Global Accounts Segment Revenue
|
3,476
|
|
|
(365)
|
|
|
3,111
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
|
IP and Data Services (1)
|
2,538
|
|
|
—
|
|
|
2,538
|
|
|
Transport and Infrastructure (2)
|
1,479
|
|
|
(134)
|
|
|
1,345
|
|
|
Voice and Collaboration (3)
|
1,423
|
|
|
—
|
|
|
1,423
|
|
|
IT and Managed Services (4)
|
256
|
|
|
—
|
|
|
256
|
|
|
Total Enterprise Segment Revenue
|
5,696
|
|
|
(134)
|
|
|
5,562
|
|
|
|
|
|
|
|
|
|
Small and Medium Business
|
|
|
|
|
|
|
IP and Data Services (1)
|
1,091
|
|
|
—
|
|
|
1,091
|
|
|
Transport and Infrastructure (2)
|
365
|
|
|
(36)
|
|
|
329
|
|
|
Voice and Collaboration (3)
|
1,226
|
|
|
—
|
|
|
1,226
|
|
|
IT and Managed Services (4)
|
45
|
|
|
—
|
|
|
45
|
|
|
Total Small and Medium Business Segment Revenue
|
2,727
|
|
|
(36)
|
|
|
2,691
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
IP and Data Services (1)
|
1,365
|
|
|
—
|
|
|
1,365
|
|
|
Transport and Infrastructure (2)
|
1,907
|
|
|
(545)
|
|
|
1,362
|
|
|
Voice and Collaboration (3)
|
763
|
|
|
—
|
|
|
763
|
|
|
IT and Managed Services (4)
|
7
|
|
|
—
|
|
|
7
|
|
|
Total Wholesale Business Segment Revenue
|
4,042
|
|
|
(545)
|
|
|
3,497
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Broadband (5)
|
2,876
|
|
|
(215)
|
|
|
2,661
|
|
|
Voice (6)
|
1,837
|
|
|
—
|
|
|
1,837
|
|
|
Regulatory (7)
|
632
|
|
|
(632)
|
|
|
—
|
|
|
Other (8)
|
172
|
|
|
(26)
|
|
|
146
|
|
|
Total Consumer Segment Revenue
|
5,517
|
|
|
(873)
|
|
|
4,644
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
21,458
|
|
|
(1,953)
|
|
|
19,505
|
|
|
|
|
|
|
|
|
|
Timing of revenue
|
|
|
|
|
|
|
Goods and services transferred at a point in time
|
|
|
|
|
$
|
221
|
|
|
Services performed over time
|
|
|
|
|
19,284
|
|
|
Total revenue from contracts with customers
|
|
|
|
|
$
|
19,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
Total Revenue
|
|
Adjustments for Non-ASC 606 Revenue(9)
|
|
Total Revenue from Contracts with Customers
|
|
|
(Dollars in millions)
|
|
International and Global Accounts
|
|
|
|
|
|
|
IP and Data Services (1)
|
$
|
1,682
|
|
|
—
|
|
|
1,682
|
|
|
Transport and Infrastructure (2)
|
1,230
|
|
|
(83)
|
|
|
1,147
|
|
|
Voice and Collaboration (3)
|
365
|
|
|
—
|
|
|
365
|
|
|
IT and Managed Services (4)
|
266
|
|
|
—
|
|
|
266
|
|
|
Total International and Global Accounts Segment Revenue
|
3,543
|
|
|
(83)
|
|
|
3,460
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
|
IP and Data Services (1)
|
2,485
|
|
|
—
|
|
|
2,485
|
|
|
Transport and Infrastructure (2)
|
1,484
|
|
|
(43)
|
|
|
1,441
|
|
|
Voice and Collaboration (3)
|
1,495
|
|
|
—
|
|
|
1,495
|
|
|
IT and Managed Services (4)
|
301
|
|
|
—
|
|
|
301
|
|
|
Total Enterprise Segment Revenue
|
5,765
|
|
|
(43)
|
|
|
5,722
|
|
|
|
|
|
|
|
|
|
Small and Medium Business
|
|
|
|
|
|
|
IP and Data Services (1)
|
1,078
|
|
|
—
|
|
|
1,078
|
|
|
Transport and Infrastructure (2)
|
424
|
|
|
(40)
|
|
|
384
|
|
|
Voice and Collaboration (3)
|
1,366
|
|
|
—
|
|
|
1,366
|
|
|
IT and Managed Services (4)
|
50
|
|
|
—
|
|
|
50
|
|
|
Total Small and Medium Business Segment Revenue
|
2,918
|
|
|
(40)
|
|
|
2,878
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
IP and Data Services (1)
|
1,369
|
|
|
—
|
|
|
1,369
|
|
|
Transport and Infrastructure (2)
|
2,118
|
|
|
(397)
|
|
|
1,721
|
|
|
Voice and Collaboration (3)
|
865
|
|
|
—
|
|
|
865
|
|
|
IT and Managed Services (4)
|
8
|
|
|
—
|
|
|
8
|
|
|
Total Wholesale Business Segment Revenue
|
4,360
|
|
|
(397)
|
|
|
3,963
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Broadband (5)
|
2,824
|
|
|
(213)
|
|
|
2,611
|
|
|
Voice (6)
|
2,127
|
|
|
—
|
|
|
2,127
|
|
|
Regulatory (7)
|
727
|
|
|
(727)
|
|
|
—
|
|
|
Other (8)
|
316
|
|
|
(35)
|
|
|
281
|
|
|
Total Consumer Segment Revenue
|
5,994
|
|
|
(975)
|
|
|
5,019
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
22,580
|
|
|
(1,538)
|
|
|
21,042
|
|
|
|
|
|
|
|
|
|
Timing of revenue
|
|
|
|
|
|
|
Goods and services transferred at a point in time
|
|
|
|
|
$
|
230
|
|
|
Services performed over time
|
|
|
|
|
20,812
|
|
|
Total revenue from contracts with customers
|
|
|
|
|
$
|
21,042
|
|
______________________________________________________________________
|
|
|
|
|
|
|
|
(1)
|
|
Includes primarily VPN data network, Ethernet, IP, content delivery and other ancillary services.
|
|
(2)
|
|
Includes wavelengths, private line, dark fiber services, colocation and data center services, including cloud, hosting and application management solutions, professional services and other ancillary services.
|
|
(3)
|
|
Includes local, long-distance voice, including wholesale voice, and other ancillary services, as well as VoIP services.
|
|
(4)
|
|
Includes information technology services and managed services, which may be purchased in conjunction with our other network services.
|
|
(5)
|
|
Includes high speed, fiber-based and lower speed DSL broadband services.
|
|
(6)
|
|
Includes local and long-distance services.
|
|
(7)
|
|
Includes (i) CAF and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space.
|
|
(8)
|
|
Includes retail video services (including our linear TV services), professional services and other ancillary services.
|
|
(9)
|
|
Includes regulatory revenue, revenue from leasing arrangements and failed-sale-leaseback income in 2018, which are not within the scope of ASC 606.
|
Customer Receivables and Contract Balances
The following table provides balances of customer receivables, contract assets and contract liabilities as of December 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
(Dollars in millions)
|
|
Customer receivables(1)
|
$
|
1,889
|
|
|
2,194
|
|
|
Contract assets
|
108
|
|
|
130
|
|
|
Contract liabilities
|
950
|
|
|
1,028
|
|
______________________________________________________________________
(1)Reflects gross customer receivables of $2.1 billion and $2.3 billion, net of allowance for credit losses of $174 million and $94 million, at December 31, 2020 and December 31, 2019, respectively.
Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheet. During the years ended December 31, 2020 and December 31, 2019, we recognized $672 million and $630 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020 and January 1, 2019, respectively.
Performance Obligations
As of December 31, 2020, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $5.5 billion. We expect to recognize approximately 91% of this revenue through 2023, with the balance recognized thereafter.
These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), and (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606.
Contract Costs
The following table provides changes in our contract acquisition costs and fulfillment costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Acquisition Costs
|
|
Fulfillment Costs
|
|
|
(Dollars in millions)
|
|
Beginning of period balance
|
$
|
326
|
|
|
221
|
|
|
Costs incurred
|
181
|
|
|
141
|
|
|
Amortization
|
(218)
|
|
|
(146)
|
|
|
End of period balance
|
$
|
289
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Acquisition Costs
|
|
Fulfillment Costs
|
|
|
(Dollars in millions)
|
|
Beginning of period balance
|
$
|
322
|
|
|
187
|
|
|
Costs incurred
|
208
|
|
|
158
|
|
|
Amortization
|
(204)
|
|
|
(124)
|
|
|
End of period balance
|
$
|
326
|
|
|
221
|
|
Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities.
Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of approximately 30 months for consumer and business customers. Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are anticipated to be amortized in the next 12 months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond the next twelve months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.
(4) Leases
Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new accounting guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance, as discussed in Note 1— Background and Summary of Significant Accounting Policies.
We primarily lease to or from third parties various office facilities and colocation facilities, equipment and dark fiber. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance or operating lease. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the
lease resides. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.
Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs). We generally account for each component separately based on the estimated standalone price of each component. For colocation leases, we account for the lease and non-lease components as a single lease component.
Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Operating and short-term lease cost
|
$
|
729
|
|
|
677
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
36
|
|
|
44
|
|
|
Interest on lease liability
|
12
|
|
|
12
|
|
|
Total finance lease cost
|
48
|
|
|
56
|
|
|
Total lease cost
|
$
|
777
|
|
|
733
|
|
Lumen Technologies leases various equipment, office facilities, retail outlets and other network sites. These leases, with few exceptions, provide for renewal options and escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that are reasonably assured. For the years ended December 31, 2020, 2019 and 2018, our gross rental expense was $777 million, $733 million and $875 million, respectively. We also received sublease rental income for the years ended December 31, 2020, 2019 and 2018 of $25 million, $24 million and $21 million, respectively.
Supplemental consolidated balance sheet information and other information related to leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Leases (Dollars in millions)
|
Classification on the Balance Sheet
|
2020
|
|
2019
|
|
Assets
|
|
|
|
|
|
Operating lease assets
|
Other, net
|
$
|
1,699
|
|
|
1,686
|
|
|
Finance lease assets
|
Property, plant and equipment, net of accumulated depreciation
|
329
|
|
|
252
|
|
|
Total leased assets
|
$
|
2,028
|
|
|
1,938
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating
|
Current operating lease liabilities
|
$
|
379
|
|
|
416
|
|
|
Finance
|
Current maturities of long-term debt
|
26
|
|
|
35
|
|
|
Noncurrent
|
|
|
|
|
|
Operating
|
Other
|
1,405
|
|
|
1,342
|
|
|
Finance
|
Long-term debt
|
267
|
|
|
185
|
|
|
Total lease liabilities
|
$
|
2,077
|
|
|
1,978
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
|
|
|
Operating leases
|
6.7
|
|
7.2
|
|
Finance leases
|
12.1
|
|
11.3
|
|
Weighted-average discount rate
|
|
|
|
|
|
Operating leases
|
6.01
|
%
|
|
6.46
|
%
|
|
Finance leases
|
4.94
|
%
|
|
5.47
|
%
|
Supplemental consolidated cash flow statement information related to leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows for operating leases
|
$
|
566
|
|
|
665
|
|
|
Operating cash flows for finance leases
|
14
|
|
|
14
|
|
|
Financing cash flows for finance leases
|
40
|
|
|
32
|
|
|
Supplemental lease cash flow disclosures
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
|
$
|
375
|
|
|
358
|
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
124
|
|
|
14
|
|
As of December 31, 2020, maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
|
(Dollars in millions)
|
|
2021
|
$
|
469
|
|
|
40
|
|
|
2022
|
411
|
|
|
32
|
|
|
2023
|
331
|
|
|
29
|
|
|
2024
|
232
|
|
|
28
|
|
|
2025
|
177
|
|
|
29
|
|
|
Thereafter
|
592
|
|
|
240
|
|
|
Total lease payments
|
2,212
|
|
|
398
|
|
|
Less: interest
|
(428)
|
|
|
(105)
|
|
|
Total
|
1,784
|
|
|
293
|
|
|
Less: current portion
|
(379)
|
|
|
(26)
|
|
|
Long-term portion
|
$
|
1,405
|
|
|
267
|
|
As of December 31, 2020, we had no material operating or finance leases that had not yet commenced.
Operating Lease Income
Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations.
For the years ended December 31, 2020, 2019 and 2018, our gross rental income was $1.3 billion, $1.4 billion and $882 million, respectively, which represents 6%, 7% and 4% respectively, of our operating revenue for the years ended December 31, 2020, 2019 and 2018.
(5) Credit Losses on Financial Instruments
In accordance with ASC 326, "Financial Instruments - Credit Losses", we aggregate financial assets with similar risk characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets. We monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change each reporting period. Financial assets that do not share risk characteristics with other financial assets are evaluated separately. Our financial assets measured at amortized cost primarily consist of accounts receivable.
In developing our accounts receivable portfolio, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns. We grouped assets from our International and Global Accounts, Enterprise, Small and Medium Business and Wholesale segments into the Business portfolio in the below table.
Prior to the adoption of the new credit loss standard, the allowance for doubtful accounts receivable reflected our best estimate of probable losses inherent in our receivable portfolio determined based on historical experience, specific allowances for known troubled accounts, and other currently available evidence.
We implemented the new standard effective January 1, 2020, using a loss rate method to estimate our allowance for credit losses. Our determination of the current expected credit loss rate begins with our use of historical loss experience as a percentage of accounts receivable. We measure our historical loss period based on the average days to recognize accounts receivable as credit losses. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to adjust our historical loss rate. We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period. We measure our forecast period based on the average days
to collect payment on billed accounts receivable. To determine our current allowance for credit losses, we combine the historical and expected credit loss rates and apply them to our period end accounts receivable.
If there is a deterioration of a customer's financial condition or if future default rates in general differ from currently anticipated default rates (including changes caused by COVID-19), we may need to adjust the allowance for credit losses, which would affect earnings in the period that adjustments are made.
The assessment of the correlation between historical observed default rates, current conditions and forecasted economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the allowance for credit losses. The amount of credit loss is sensitive to changes in circumstances and forecasted economic conditions. Our historical credit loss experience, current conditions and forecast of economic conditions may also not be representative of the customers' actual default experience in the future.
The following table presents the activity of our allowance for credit losses by accounts receivable portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Consumer
|
|
Total
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Beginning balance at January 1, 2020 (1)
|
$
|
58
|
|
|
37
|
|
|
95
|
|
|
|
|
|
|
Provision for expected losses
|
115
|
|
|
74
|
|
|
189
|
|
|
|
|
|
|
Write-offs charged against the allowance
|
(74)
|
|
|
(59)
|
|
|
(133)
|
|
|
|
|
|
|
Recoveries collected
|
24
|
|
|
18
|
|
|
42
|
|
|
|
|
|
|
Foreign currency exchange rate changes adjustment
|
(2)
|
|
|
—
|
|
|
(2)
|
|
|
|
|
|
|
Ending balance at December 31, 2020
|
$
|
121
|
|
|
70
|
|
|
191
|
|
|
|
|
|
______________________________________________________________________
(1)The beginning balance includes the cumulative effect of the adoption of the new credit loss standard.
For the year ended December 31, 2020, we increased our allowance for credit losses for our business and consumer accounts receivable portfolios due to an increase in historical and expected loss experience in certain classes of aged balances, which we believe were predominantly attributable to the COVID-19 induced economic slowdown. We believe that decreased write-offs (net of recoveries) driven by COVID-19 regulations and programs have further contributed to an increase in our allowance for credit losses.
(6) Long-Term Debt and Credit Facilities
The following chart reflects the consolidated long-term debt of Lumen Technologies and its subsidiaries as of the dates indicated below, including unamortized discounts and premiums and unamortized debt issuance costs, but excluding intercompany debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
Interest Rates(1)
|
|
Maturities(1)
|
|
2020
|
|
2019
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Senior Secured Debt: (2)
|
|
|
|
|
|
|
|
|
Lumen Technologies
|
|
|
|
|
|
|
|
|
Revolving Credit Facility (3)
|
LIBOR + 2.00%
|
|
2025
|
|
$
|
150
|
|
|
250
|
|
|
Term Loan A (3)(4)
|
LIBOR + 2.00%
|
|
2025
|
|
1,108
|
|
|
1,536
|
|
|
Term Loan A-1 (3)(4)
|
LIBOR + 2.00%
|
|
2025
|
|
316
|
|
|
333
|
|
|
Term Loan B (3)(5)
|
LIBOR + 2.25%
|
|
2027
|
|
4,950
|
|
|
5,880
|
|
|
Senior notes
|
4.000%
|
|
2027
|
|
1,250
|
|
|
—
|
|
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
Level 3 Financing, Inc.
|
|
|
|
|
|
|
|
|
Tranche B 2027 Term Loan (6)
|
LIBOR + 1.75%
|
|
2027
|
|
3,111
|
|
|
3,111
|
|
|
Senior notes
|
3.400% - 3.875%
|
|
2027 - 2029
|
|
1,500
|
|
|
1,500
|
|
|
Embarq Corporation subsidiaries
|
|
|
|
|
|
|
|
|
First mortgage bonds
|
7.125% - 8.375%
|
|
2023 - 2025
|
|
138
|
|
|
138
|
|
|
Senior Notes and Other Debt:
|
|
|
|
|
|
|
|
|
Lumen Technologies
|
|
|
|
|
|
|
|
|
Senior notes
|
4.500% - 7.650%
|
|
2021 - 2042
|
|
8,645
|
|
|
8,696
|
|
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
Level 3 Financing, Inc.
|
|
|
|
|
|
|
|
|
Senior notes
|
3.625% - 5.375%
|
|
2024 - 2029
|
|
5,515
|
|
|
5,515
|
|
|
Qwest Corporation
|
|
|
|
|
|
|
|
|
Senior notes
|
6.500% - 7.750%
|
|
2021 - 2057
|
|
3,170
|
|
|
5,956
|
|
|
Term loan (7)
|
LIBOR + 2.00%
|
|
2027
|
|
215
|
|
|
100
|
|
|
Qwest Capital Funding, Inc.
|
|
|
|
|
|
|
|
|
Senior notes
|
6.875% - 7.750%
|
|
2021 - 2031
|
|
352
|
|
|
352
|
|
|
Embarq Corporation and subsidiary
|
|
|
|
|
|
|
|
|
Senior note
|
7.995%
|
|
2036
|
|
1,437
|
|
|
1,450
|
|
|
Finance lease and other obligations
|
Various
|
|
Various
|
|
295
|
|
|
222
|
|
|
Unamortized discounts, net
|
|
|
|
|
(78)
|
|
|
(52)
|
|
|
Unamortized debt issuance costs
|
|
|
|
|
(237)
|
|
|
(293)
|
|
|
Total long-term debt
|
|
|
|
|
31,837
|
|
|
34,694
|
|
|
Less current maturities
|
|
|
|
|
(2,427)
|
|
|
(2,300)
|
|
|
Long-term debt, excluding current maturities
|
|
|
|
|
$
|
29,410
|
|
|
32,394
|
|
_______________________________________________________________________________
(1)As of December 31, 2020.
(2)See the remainder of this Note for a description of certain parent or subsidiary guarantees and liens securing this debt.
(3)Lumen's credit agreement was amended as noted below, extending the maturity date of its (a) Term Loan A, Term Loan A-1 and Revolving Credit Facilities from 2022 to 2025 and (b) Term Loan B from 2025 to 2027.
(4)Term Loans A and A-1 had interest rates of 2.147% and 4.459% as of December 31, 2020 and December 31, 2019, respectively.
(5)Term Loan B had interest rates of 2.397% and 4.549% as of December 31, 2020 and December 31, 2019, respectively.
(6)The Level 3 Tranche B 2027 Term Loan had interest rates of 1.897% and 3.549% as of December 31, 2020 and December 31, 2019, respectively.
(7)Qwest Corporation's Term Loan had interest rates of 2.150% and 3.800% as of December 31, 2020 and December 31, 2019, respectively.
Long-Term Debt Maturities
Set forth below is the aggregate principal amount of our long-term debt as of December 31, 2020 (excluding unamortized discounts, net and unamortized debt issuance costs) maturing during the following years:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2021
|
$
|
2,427
|
|
|
2022
|
1,544
|
|
|
2023
|
966
|
|
|
2024
|
2,043
|
|
|
2025
|
3,057
|
|
|
2026 and thereafter
|
22,115
|
|
|
Total long-term debt
|
$
|
32,152
|
|
Debt of Lumen Technologies and its Subsidiaries
At December 31, 2020, most of our outstanding consolidated debt had been incurred by Lumen Technologies or one of the following four other primary borrowers or “borrowing groups,” each of which has borrowed funds either on a standalone basis or as part of a separate restricted group with certain of its subsidiaries:
•Qwest Corporation;
•Qwest Capital Funding, Inc., including its parent guarantor, Qwest Communications International Inc.;
•Embarq Corporation; and
•Level 3 Financing, Inc., including its parent guarantor Level 3 Parent, LLC, and one or more subsidiary guarantors.
Each of these borrowers or borrowing groups has entered into one or more credit agreements with certain financial institutions or other institutional lenders, or issued senior notes. Certain of these debt instruments are described further below.
Amended and Restated Credit Agreement
On January 31, 2020, we amended and restated our credit agreement dated June 19, 2017 (as so amended and restated, the "Amended Credit Agreement"). At December 31, 2020, the Amended Credit Agreement consisted of the following facilities:
•a $2.2 billion senior secured revolving credit facility (“the Revolving Credit Facility”);
•a $1.108 billion senior secured Term Loan A credit facility;
•a $316 million senior secured Term Loan A-1 credit facility with CoBank, ACB; and
•a $4.95 billion senior secured Term Loan “B” credit facility (the term loan facilities and the Revolving Credit Facility being referred to collectively as the "Amended Secured Credit Facilities").
Loans under the Term Loan A and A-1 facilities and the Revolving Credit Facility bear interest at a rate equal to, at our option, the Eurodollar rate or the alternative base rate (each as defined in the Amended Credit Agreement) plus an applicable margin between 1.50% to 2.25% per annum for Eurodollar loans and 0.50% to 1.25% per annum for alternative base rate loans, depending on our then current total leverage ratio. Loans under the Term Loan B facility bear interest at the Eurodollar rate plus 2.25% per annum or the alternative base rate plus 1.25% per annum. Loans under each of the term loan facilities require certain specified quarterly amortization payments and certain specified mandatory prepayments in connection with certain asset sales and debt issuances and out of excess cash flow, among other things, subject in each case to certain significant exceptions.
Borrowings under the Revolving Credit Facility and the Term Loan A and A-1 facilities mature on January 31, 2025. Borrowings under the Term Loan B facility mature on March 15, 2027.
All of Lumen's obligations under the Amended Secured Credit Facilities are guaranteed by certain of its subsidiaries. The guarantees by certain of those guarantors are secured by a first priority security interest in substantially all assets (including certain subsidiaries stock) directly owned by them, subject to certain exceptions and limitations.
A portion of the Revolving Credit Facility in an amount not to exceed $250 million is available for swingline loans, and a portion in an amount not to exceed $800 million is available for the issuance of letters of credit.
Lumen Technologies is permitted under the Amended Credit Agreement to request certain incremental borrowings subject to the satisfaction of various conditions and to certain other limitations. Any incremental borrowings would be subject to the same terms and conditions under the Amended Credit Agreement.
The above described January 2020 amendments and related refinancing transactions resulted in an aggregate net loss of $67 million from modification and extinguishment of the debt.
Term Loans and Certain Other Debt of Subsidiaries
Qwest Corporation
On October 23, 2020, Qwest Corporation borrowed $215 million under a variable-rate term loan with CoBank ACB and used the resulting net proceeds to pay off its previous $100 million term loan with CoBank ACB. Additionally, on October 26, 2020, Qwest Corporation used the remaining net proceeds to partially facilitate the redemption of the remaining $160 million aggregate principal amount of its outstanding 6.625% Notes due 2055. The outstanding unpaid principal amount of this new term loan plus any accrued and unpaid interest is due on October 23, 2027. Interest is paid at least quarterly based upon either the London Interbank Offered Rate ("LIBOR") or the base rate (as defined in the credit agreement) plus an applicable margin between 1.50% to 2.25% per annum for LIBOR loans and 0.50% to 1.25% per annum for base rate loans depending on Qwest Corporation's then current senior unsecured long-term debt rating. At December 31, 2020 and 2019, the outstanding principal balance owed under the new term loan and its predecessor was $215 million and $100 million, respectively.
Level 3 Financing, Inc.
At December 31, 2020, Level 3 Financing, Inc. owed $3.111 billion, under a senior secured Tranche B 2027 Term Loan, which matures on March 1, 2027. The Tranche B 2027 Term Loan carries an interest rate, in the case of base rate borrowings, equal to (i) the greater of the Prime Rate, the Federal Funds Effective Rate plus 50 basis points, or LIBOR plus 100 basis points (with all such terms and calculations as defined or further specified in the credit agreement) plus (ii) 0.75% per annum. Any Eurodollar borrowings under the Tranche B 2027 Term Loan bear interest at LIBOR plus 1.75% per annum.
The Tranche B 2027 Term Loan requires certain specified mandatory prepayments in connection with certain asset sales and other transactions, subject to certain significant exceptions. The obligations of Level 3 Financing, Inc. under the Tranche B 2027 Term Loan are, subject to certain exceptions, secured by certain assets of Level 3 Parent, LLC and certain of its material domestic telecommunication subsidiaries. Also, Level 3 Parent, LLC and certain of its subsidiaries have guaranteed the obligations of Level 3 Financing, Inc. under the Tranche B 2027 Term Loan.
The net proceeds from the Tranche B 2027 Term Loan, together with the net proceeds from a concurrent offering of senior secured notes of Level 3 Financing, Inc., were used to pre-pay in full Level 3 Financing's predecessor Tranche B 2024 Term Loan.
Embarq Subsidiaries
At December 31, 2020 and 2019, one of our Embarq subsidiaries had outstanding first mortgage bonds. These first mortgage bonds are secured by substantially all of the property, plant and equipment of the issuing subsidiary.
Revolving Letters of Credit
We use various financial instruments in the normal course of business. These instruments include letters of credit, which are conditional commitments issued on our behalf in accordance with specified terms and conditions. Lumen Technologies maintains an uncommitted $225 million revolving letter of credit facility separate from the letter of credit facility included in the Amended Credit Facility noted above. Letters of credit issued under this facility are backed by credit enhancements in the form of secured guarantees issued by certain of our subsidiaries. As of December 31, 2020 and 2019, our outstanding letters of credit under this credit facility totaled $97 million and $82 million, respectively.
As of December 31, 2020, Level 3 Parent, LLC had outstanding letters of credit or other similar obligations of approximately $18 million, of which $11 million was collateralized by cash that is reflected on the consolidated balance sheets as restricted cash. As of December 31, 2019, Level 3 Parent, LLC had outstanding letters of credit or other similar obligations of approximately $23 million of which $18 million was collateralized by cash that is reflected on the consolidated balance sheets as restricted cash.
Senior Notes
Lumen's consolidated indebtedness at December 31, 2020 included (i) senior secured notes issued by Lumen Technologies and Level 3 Financing, Inc. and (ii) senior unsecured notes issued by Lumen Technologies, Level 3 Financing, Inc., Qwest Corporation, Qwest Capital Funding, Inc. and Embarq Corporation. All of these notes carry fixed interest rates and all principal is due on the notes’ respective maturity dates, which rates and maturity dates are summarized in the table above. The Lumen Technologies secured senior notes are guaranteed by the same domestic subsidiaries that guarantee the Amended Credit Agreement. The senior notes issued by Level 3 Financing, Inc. are guaranteed by its parent, Level 3 Parent, LLC and one or more of its affiliates. The senior notes issued by Qwest Capital Funding, Inc. are guaranteed by its parent, Qwest Communications International Inc. Except for a limited number of senior notes issued by Qwest Corporation, the issuer generally can redeem the notes, at its option, in whole or in part, (i) pursuant to a fixed schedule of pre-established redemption prices, (ii) pursuant to a “make whole” redemption price or (iii) under certain other specified limited conditions. Under certain circumstances in connection with a “change of control” of Lumen Technologies, it will be required to make an offer to repurchase each series of these senior notes (other than two of its older series of notes) at a price of 101% of the principal amount redeemed, plus accrued and unpaid interest. Also, under certain circumstances in connection with a "change of control" of Level 3 Parent, LLC or Level 3 Financing, Inc., Level 3 Financing will be required to make an offer to repurchase each series of its outstanding senior notes at a price of 101% of the principal amount redeemed, plus accrued and unpaid interest.
New Issuances
On November 27, 2020, Lumen Technologies issued $1.0 billion of 4.500% Senior Notes due 2029. The proceeds from this offering were used to redeem outstanding senior notes of Qwest Corporation and reduce borrowings under the Revolving Credit Facility.
On August 12, 2020, Level 3 Financing, Inc., issued $840 million aggregate principal amount of its 3.625% Senior Notes due 2029 (the "2029 Notes"). Level 3 Financing, Inc. used the net proceeds from this offering to redeem certain of its outstanding senior note indebtedness. The 2029 Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.
On June 15, 2020, Level 3 Financing, Inc., issued $1.2 billion aggregate principal amount of its 4.250% Senior Notes due 2028 (the "2028 Notes"). Level 3 Financing, Inc. used the net proceeds from this offering to redeem certain of its outstanding senior note indebtedness. The 2028 Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.
On January 24, 2020, Lumen Technologies issued $1.25 billion aggregate principal amount of its 4.000% Senior Secured Notes due 2027 (the “2027 Notes”). Lumen Technologies used the net proceeds from this offering to repay a portion of the outstanding indebtedness under its Term Loan B facility. The 2027 Notes are guaranteed by each of Lumen’s domestic subsidiaries that guarantees Lumen's Amended Credit Agreement, subject to various exceptions and limitations. While the 2027 Notes are not secured by any of the assets of Lumen Technologies, certain of the note guarantees are secured by a first priority security interest in substantially all of the assets of such guarantors (including the stock of certain of their respective subsidiaries), which assets also secure obligations under the Amended Credit Agreement on a pari passu basis.
On December 16, 2019, Lumen Technologies issued $1.25 billion of 5.125% Senior Notes due 2026. The proceeds from the offering were primarily used to fully redeem on January 15, 2020 the $1.1 billion of senior notes of Qwest Corporation.
On November 29, 2019, Level 3 Financing, Inc. issued $750 million of 3.400% Senior Secured Notes due 2027 and $750 million of 3.875% Senior Secured Notes due 2029. The proceeds from the offering together with cash on hand were primarily used to redeem a portion of the $4.611 billion Tranche B 2024 Term Loan that was repaid on November 29, 2019. On November 29, 2019, Level 3 Financing, Inc. entered into an amendment to its credit agreement to incur $3.111 billion in aggregate borrowings under the agreement through the Tranche B 2027 Term Loan discussed above.
On September 25, 2019, Level 3 Financing, Inc. issued $1.0 billion of 4.625% Senior Notes due 2027. The proceeds from the offering together with cash on hand were used to redeem $600 million outstanding principal amount of Level 3 Parent, LLC's senior notes and $400 million Level 3 Financing, Inc.'s senior notes.
Repayments
2020
During 2020, Lumen Technologies and its affiliates repurchased approximately $6.2 billion of their respective debt securities, which primarily included $1.3 billion of Lumen Technologies credit agreement debt, $2.8 billion of Qwest Corporation senior notes, $78 million of Lumen Technologies senior notes and $2.0 billion of Level 3 Financing, Inc. senior notes, which resulted in a loss of $109 million, including the $67 million loss resulting from the modification of the Amended Credit Agreement discussed above.
Additionally, during 2020, Lumen Technologies (i) paid at maturity $973 million aggregate principal amount of its outstanding senior notes and (ii) made $125 million of scheduled amortization payments under its term loans.
2019
During 2019, Lumen Technologies and its affiliates repurchased approximately $3.6 billion of their respective debt securities, which primarily included approximately $2.3 billion of Level 3 Financing, Inc. senior notes and term loan, $600 million of Level 3 Parent, LLC senior notes, $345 million of Qwest Capital Funding senior notes and $340 million of Lumen Technologies senior notes, which resulted in an aggregate net gain of $72 million. Additionally during 2019, Lumen paid $398 million of its maturing senior notes and $164 million of amortization payments under its term loans.
Interest Expense
Interest expense includes interest on total long-term debt. The following table presents the amount of gross interest expense, net of capitalized interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Interest expense:
|
|
|
|
|
|
|
Gross interest expense
|
$
|
1,743
|
|
|
2,093
|
|
|
2,230
|
|
|
Capitalized interest
|
(75)
|
|
|
(72)
|
|
|
(53)
|
|
|
Total interest expense
|
$
|
1,668
|
|
|
2,021
|
|
|
2,177
|
|
Covenants
Lumen Technologies
With respect to the Term Loan A and A-1 facilities and the Revolving Credit Facility, the Amended Credit Agreement requires us to maintain (i) a maximum total leverage ratio of not more than 4.75 to 1.00 and (ii) a minimum consolidated interest coverage ratio of at least 2.00 to 1.00, with such ratios being determined and calculated in the manner described in the Amended Credit Agreement.
The Amended Secured Credit Facilities contain various representations and warranties and extensive affirmative and negative covenants. Such covenants include, among other things and subject to certain significant exceptions, restrictions on our ability to declare or pay dividends, repurchase stock, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with its affiliates, dispose of assets and merge or consolidate with any other person.
The senior notes of Lumen Technologies were issued under four separate indentures. These indentures restrict our ability to (i) incur, issue or create liens upon the property of Lumen Technologies and (ii) consolidate with or merge into, or transfer or lease all or substantially all of our assets to any other party. The indentures do not contain any provisions that restrict the issuance of new securities in the event of a material adverse change to us. However, as indicated above under "Senior Notes", Lumen Technologies will be required to offer to purchase certain of its long-term debt securities issued under its indentures under certain circumstances in connection with a "change of control" of Lumen Technologies.
Level 3 Companies
The term loan, senior secured notes and senior unsecured notes of Level 3 Financing, Inc. contain various representations and extensive affirmative and negative covenants. Such covenants include, among other things and subject to certain significant exceptions, restrictions on their ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with their affiliates, dispose of assets and merge or consolidate with any other person. Also, as indicated above under "Senior Notes", Level 3 Financing, Inc. will be required to offer to repurchase or repay certain of its long-term debt under certain circumstances in connection with a "change of control" of Level 3 Financing or Level 3 Parent, LLC.
Qwest Companies
Under its term loan, Qwest Corporation must maintain a debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of not more than 2.85 to 1.00, as determined and calculated in the manner described in the applicable term loan documentation. The term loan also contains a negative pledge covenant, which generally requires Qwest Corporation to secure equally and ratably any advances under the term loan if it pledges assets or permit liens on its property for the benefit of other debtholders.
The senior notes of Qwest Corporation were issued under indentures dated April 15, 1990 and October 15, 1999. These indentures contain restrictions on the incurrence of liens and the consummation of certain transactions substantially similar to the above-described covenants in Lumen's indentures (but contain no mandatory repurchase provisions). The senior notes of Qwest Capital Funding, Inc. were issued under an indenture dated June 29, 1998 containing terms substantially similar to those set forth in Qwest Corporation's indentures.
Embarq
Embarq's senior note was issued pursuant to an indenture dated as of May 17, 2006. While Embarq is generally prohibited from creating liens on its property unless its senior notes are secured equally and ratably, Embarq can create liens on its property without equally and ratably securing its senior notes so long as the sum of all indebtedness so secured does not exceed 15% of Embarq's consolidated net tangible assets. The indenture also contains restrictions on the consummation of certain transactions substantially similar to Lumen’s above-described covenants (but without mandatory repurchase provision), as well as certain customary covenants to maintain properties and pay all taxes and lawful claims.
Impact of Covenants
The debt covenants applicable to Lumen Technologies and its subsidiaries could materially adversely affect their ability to operate or expand their respective businesses, to pursue strategic transactions, or to otherwise pursue their plans and strategies. The covenants of the Level 3 companies may significantly restrict the ability of Lumen Technologies to receive cash from the Level 3 companies, to distribute cash from the Level 3 companies to other of Lumen’s affiliated entities, or to enter into other transactions among Lumen’s wholly-owned entities.
Certain of the debt instruments of Lumen Technologies and its subsidiaries contain cross payment default or cross acceleration provisions. When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument.
The ability of Lumen Technologies and its subsidiaries to comply with the financial covenants in their respective debt instruments could be adversely impacted by a wide variety of events, including unforeseen contingencies, many of which are beyond their control.
Compliance
At December 31, 2020, Lumen Technologies believes it and its subsidiaries were in compliance with the provisions and financial covenants contained in their respective material debt agreements in all material respects.
Guarantees
Lumen Technologies does not guarantee the debt of any unaffiliated parties, but, as noted above, as of December 31, 2020 certain of its largest subsidiaries guaranteed (i) its debt and letters of credit outstanding under its Amended Credit Agreement, its senior secured notes and its $225 million letter of credit facility and (ii) the outstanding term loans or senior notes issued by certain other subsidiaries. As further noted above, several of the subsidiaries guaranteeing these obligations have pledged substantially all of their assets to secure their respective guarantees.
Subsequent Events
On January 13, 2021, Level 3 Financing, Inc. issued $900 million aggregate principal amount of 3.750% Sustainability-Linked Senior Notes due 2029 (the "Sustainability-Linked Notes"). The net proceeds were used, together with cash on hand, to redeem all $900 million aggregate principal amount of Level 3 Financing, Inc.'s outstanding 5.375% Senior Notes due 2024 (the "5.375% Notes") on February 12, 2021. Following this redemption there were no bonds outstanding for the 5.375% Notes. The Sustainability-Linked Notes are (i) guaranteed by Level 3 Parent, LLC and (ii) expected to be guaranteed by Level 3 Communications, LLC, upon the receipt of all requisite material governmental authorizations.
On February 16, 2021, Qwest Corporation fully redeemed all $235 million aggregate principal amount of its outstanding 7.000% Senior Notes due 2056.
(7) Accounts Receivable
The following table presents details of our accounts receivable balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Trade and purchased receivables
|
$
|
1,717
|
|
|
1,971
|
|
|
Earned and unbilled receivables
|
345
|
|
|
374
|
|
|
Other
|
91
|
|
|
20
|
|
|
Total accounts receivable
|
2,153
|
|
|
2,365
|
|
|
Less: allowance for credit losses
|
(191)
|
|
|
(106)
|
|
|
Accounts receivable, less allowance
|
$
|
1,962
|
|
|
2,259
|
|
We are exposed to concentrations of credit risk from our customers. We generally do not require collateral to secure our receivable balances. We have agreements with other communications service providers whereby we agree to bill and collect on their behalf for services rendered by those providers to our customers within our local service area. We purchase accounts receivable from other communications service providers primarily on a recourse basis and include these amounts in our accounts receivable balance. We have not experienced any significant loss associated with these purchased receivables.
The following table presents details of our allowance for credit losses accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
Additions
|
|
Deductions
|
|
Ending
Balance
|
|
|
(Dollars in millions)
|
|
2020(1)
|
$
|
106
|
|
|
189
|
|
|
(104)
|
|
|
191
|
|
|
2019
|
142
|
|
|
145
|
|
|
(181)
|
|
|
106
|
|
|
2018
|
164
|
|
|
153
|
|
|
(175)
|
|
|
142
|
|
_______________________________________________________________________________
(1)On January 1, 2020, we adopted ASU 2016-13 "Measurement of Credit Losses on Financial Instruments" and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $9 million, net of $2 million tax effect. This adjustment is included within "Deductions". Please refer to Note 5 - Credit Losses on Financial instruments for more information.
(8) Property, Plant and Equipment
Net property, plant and equipment is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable
Lives
|
|
As of December 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
(Dollars in millions)
|
|
Land
|
N/A
|
|
$
|
848
|
|
|
867
|
|
|
Fiber, conduit and other outside plant(1)
|
15-45 years
|
|
26,522
|
|
|
24,666
|
|
|
Central office and other network electronics(2)
|
3-10 years
|
|
20,692
|
|
|
19,608
|
|
|
Support assets(3)
|
3-30 years
|
|
8,261
|
|
|
7,984
|
|
|
Construction in progress(4)
|
N/A
|
|
1,611
|
|
|
2,300
|
|
|
Gross property, plant and equipment
|
|
|
57,934
|
|
|
55,425
|
|
|
Accumulated depreciation
|
|
|
(31,596)
|
|
|
(29,346)
|
|
|
Net property, plant and equipment
|
|
|
$
|
26,338
|
|
|
26,079
|
|
_______________________________________________________________________________
(1)Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures.
(2)Central office and other network electronics consists of circuit and packet switches, routers, transmission electronics and electronics providing service to customers.
(3)Support assets consist of buildings, cable landing stations, data centers, computers and other administrative and support equipment.
(4)Construction in progress includes inventory held for construction and property of the aforementioned categories that has not been placed in service as it is still under construction.
We recorded depreciation expense of $3.0 billion, $3.1 billion and $3.3 billion for the years ended December 31, 2020, 2019 and 2018, respectively.
Asset Retirement Obligations
At December 31, 2020, our asset retirement obligations balance was primarily related to estimated future costs of removing equipment from leased properties and estimated future costs of properly disposing of asbestos and other hazardous materials upon remodeling or demolishing buildings. Asset retirement obligations are included in other long-term liabilities on our consolidated balance sheets.
Our fair value estimates were determined using the discounted cash flow method.
The following table provides asset retirement obligation activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Balance at beginning of year
|
$
|
197
|
|
|
190
|
|
|
115
|
|
|
Accretion expense
|
10
|
|
|
11
|
|
|
10
|
|
|
Liabilities assumed in acquisition of Level 3(1)
|
—
|
|
|
—
|
|
|
58
|
|
|
Liabilities settled
|
(8)
|
|
|
(14)
|
|
|
(14)
|
|
|
Change in estimate
|
—
|
|
|
10
|
|
|
21
|
|
|
Balance at end of year
|
$
|
199
|
|
|
197
|
|
|
190
|
|
_______________________________________________________________________________
(1)The liabilities assumed during 2018 relate to purchase price adjustments during the year.
The 2019 and 2018 change in estimates are offset against gross property, plant and equipment.
(9) Severance
Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions result primarily from the progression or completion of our post-acquisition integration plans, increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to reduced demand for certain services.
We report severance liabilities within accrued expenses and other liabilities - salaries and benefits in our consolidated balance sheets and report severance expenses in selling, general and administrative expenses in our consolidated statements of operations. As described in Note 16—Segment Information, we do not allocate these severance expenses to our segments.
Under prior GAAP, we had previously recognized liabilities to reflect our estimates of the fair values of the existing lease obligations for real estate which we have ceased using, net of estimated sublease rentals. In accordance with transitional guidance under the new lease standard (ASC 842), the existing lease obligation of $110 million as of January 1, 2019 was netted against the operating lease right of use assets at adoption. For additional information, see Note 4—Leases to our consolidated financial statements in Item 8 of Part II of this report.
Changes in our accrued liabilities for severance expenses were as follows:
|
|
|
|
|
|
|
|
|
Severance
|
|
|
(Dollars in millions)
|
|
Balance at December 31, 2018
|
$
|
87
|
|
|
Accrued to expense
|
89
|
|
|
Payments, net
|
(87)
|
|
|
Balance at December 31, 2019
|
89
|
|
|
Accrued to expense
|
151
|
|
|
Payments, net
|
(137)
|
|
|
Balance at December 31, 2020
|
$
|
103
|
|
(10) Employee Benefits
Pension, Post-Retirement and Other Post-Employment Benefits
We sponsor various defined benefit pension plans (qualified and non-qualified) which, in the aggregate, cover a substantial portion of our employees including legacy CenturyLink, legacy Level 3, legacy Qwest Communications International Inc. ("Qwest") and legacy Embarq employees. Pension benefits for participants of the Lumen Combined Pension Plan ("Combined Pension Plan") who are represented by a collective bargaining agreement are based on negotiated schedules. All other participants' pension benefits are based on each individual participant's years of service and compensation. We also maintain non-qualified pension plans for certain current and former highly compensated employees. We maintain post-retirement benefit plans that provide health care and life insurance benefits for certain eligible retirees. We also provide other post-employment benefits for certain eligible former employees. We use a December 31 measurement date for all our plans.
Pension Benefits
United States funding laws require a company with a pension shortfall to fund the annual cost of benefits earned in addition to a seven-year amortization of the shortfall. Our funding policy for our Combined Pension Plan is to make contributions with the objective of accumulating ample assets to pay all qualified pension benefits when due under the terms of the plan. The accounting unfunded status of the Combined Pension Plan was $1.7 billion as of December 31, 2020 and 2019.
We made no voluntary cash contributions to the Combined Pension Plan in 2020 and 2019 and paid $5 million of benefits directly to participants of our non-qualified pension plans in both 2020 and 2019. Based on current laws and circumstances, we do not believe we are required to make any contributions to the Combined Pension Plan in 2021, but the Company could make voluntary contributions to the trust for the Combined Pension Plan in 2021. We estimate that in 2021 we will pay $5 million of benefits directly to participants of our non-qualified pension plans.
We recognize in our balance sheet the funded status of the legacy Level 3 defined benefit post-retirement plans. The net unfunded status of these plans was $33 million and $18 million, as of December 31, 2020 and 2019, respectively. Additionally, as previously mentioned, we sponsor unfunded non-qualified pension plans for certain current and former highly-compensated employees. The net unfunded status of our non-qualified pension plans was $51 million for both the years ended December 31, 2020 and 2019. Due to the insignificant impact of these pension plans on our consolidated financial statements, we have predominantly excluded them from the remaining employee benefit disclosures in this Note, unless specifically stated.
Post-Retirement Benefits
Our post-retirement benefit plans provide post-retirement benefits to qualified retirees and allow (i) eligible employees retiring before certain dates to receive benefits at no or reduced cost and (ii) eligible employees retiring after certain dates to receive benefits on a shared cost basis. The post-retirement benefits not paid by the trusts are funded by us and we expect to continue funding these post-retirement obligations as benefits are paid. The accounting unfunded status of our qualified post-retirement benefit plan was $3.0 billion as of December 31, 2020 and 2019.
Assets in the post-retirement trusts were substantially depleted as of December 31, 2016; as of December 31, 2019 the Company ceased to pay certain post-retirement benefits through the trusts. No contributions were made to the post-retirement trusts in 2020 nor 2019. Starting in 2020, benefits were paid directly by us with available cash. In 2020, we paid $211 million of post-retirement benefits, net of participant contributions and direct subsidies. In 2021, we currently expect to pay directly $233 million of post-retirement benefits, net of participant contributions and direct subsidies.
We expect our expected health care cost trend to range from 5.0% to 6.25% in 2021 and grading to 4.50% by 2025. Our post-retirement benefit cost, for certain eligible legacy Qwest retirees and certain eligible legacy CenturyLink retirees, is capped at a set dollar amount. Therefore, those health care benefit obligations are not subject to increasing health care trends after the effective date of the caps.
Expected Cash Flows
The Combined Pension Plan payments, post-retirement health care benefit payments and premiums, and life insurance premium payments are either distributed from plan assets or paid by us. The estimated benefit payments provided below are based on actuarial assumptions using the demographics of the employee and retiree populations and have been reduced by estimated participant contributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan
|
|
Post-Retirement
Benefit Plans
|
|
Medicare Part D
Subsidy Receipts
|
|
|
(Dollars in millions)
|
|
Estimated future benefit payments:
|
|
|
|
|
|
|
2021
|
$
|
961
|
|
|
238
|
|
|
(5)
|
|
|
2022
|
868
|
|
|
232
|
|
|
(5)
|
|
|
2023
|
844
|
|
|
225
|
|
|
(5)
|
|
|
2024
|
819
|
|
|
217
|
|
|
(4)
|
|
|
2025
|
794
|
|
|
210
|
|
|
(4)
|
|
|
2026 - 2030
|
3,578
|
|
|
932
|
|
|
(16)
|
|
Net Periodic Benefit Expense
We utilize a full yield curve approach in connection with estimating the service and interest components of net periodic benefit expense by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flow.
The actuarial assumptions used to compute the net periodic benefit expense for our Combined Pension Plan and post-retirement benefit plans are based upon information available as of the beginning of the year, as presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan
|
|
Post-Retirement Benefit Plans
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Actuarial assumptions at beginning of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.79% - 3.55%
|
|
3.94% - 4.44%
|
|
3.14% - 3.69%
|
|
1.69% - 3.35%
|
|
3.84% - 4.38%
|
|
4.26
|
%
|
|
Rate of compensation increase
|
3.25
|
%
|
|
3.25
|
%
|
|
3.25
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
|
Expected long-term rate of return on plan assets (1)
|
6.00
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
Initial health care cost trend rate
|
N/A
|
|
N/A
|
|
N/A
|
|
6.50% / 5.00%
|
|
6.50% / 5.00%
|
|
7.00% / 5.00%
|
|
Ultimate health care cost trend rate
|
N/A
|
|
N/A
|
|
N/A
|
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
|
Year ultimate trend rate is reached
|
N/A
|
|
N/A
|
|
N/A
|
|
2025
|
|
2025
|
|
2025
|
_______________________________________________________________________________
N/A - Not applicable
(1) Rates are presented net of projected fees and administrative costs.
Net periodic benefit (income) expense for our Combined Pension Plan includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Service cost
|
$
|
59
|
|
|
56
|
|
|
66
|
|
|
Interest cost
|
324
|
|
|
436
|
|
|
392
|
|
|
Expected return on plan assets
|
(593)
|
|
|
(618)
|
|
|
(685)
|
|
|
Special termination benefits charge
|
13
|
|
|
6
|
|
|
15
|
|
|
Recognition of prior service credit
|
(9)
|
|
|
(8)
|
|
|
(8)
|
|
|
Recognition of actuarial loss
|
202
|
|
|
223
|
|
|
178
|
|
|
Net periodic pension benefit (income) expense
|
$
|
(4)
|
|
|
95
|
|
|
(42)
|
|
Net periodic benefit expense for our post-retirement benefit plans includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement Plans
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Service cost
|
$
|
14
|
|
|
15
|
|
|
18
|
|
|
Interest cost
|
69
|
|
|
110
|
|
|
97
|
|
|
Expected return on plan assets
|
(1)
|
|
|
(1)
|
|
|
(1)
|
|
|
Recognition of prior service cost
|
16
|
|
|
16
|
|
|
20
|
|
|
Curtailment loss
|
8
|
|
|
—
|
|
|
—
|
|
|
Net periodic post-retirement benefit expense
|
$
|
106
|
|
|
140
|
|
|
134
|
|
We report service costs for our Combined Pension Plan and post-retirement benefit plans in cost of services and products and selling, general and administrative expenses in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018. Additionally, a portion of the service cost is also allocated to certain assets under construction, which are capitalized and reflected as part of property, plant and equipment in our consolidated balance sheets. The remaining components of net periodic benefit expense are reported in other income, net in our consolidated statements of operations. As a result of ongoing efforts to reduce our workforce, we recognized a one-time charge in 2020 of $21 million, in 2019 of $6 million and in 2018 of $15 million for special termination benefit enhancements paid to certain eligible employees upon voluntary retirement.
Benefit Obligations
The actuarial assumptions used to compute the funded status for the plans are based upon information available as of December 31, 2020 and 2019 and are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan
|
|
Post-Retirement Benefit Plans
|
|
|
December 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Actuarial assumptions at end of year:
|
|
|
|
|
|
|
|
|
Discount rate
|
2.43
|
%
|
|
3.25
|
%
|
|
2.40
|
%
|
|
3.22
|
%
|
|
Rate of compensation increase
|
3.25
|
%
|
|
3.25
|
%
|
|
N/A
|
|
N/A
|
|
Initial health care cost trend rate
|
N/A
|
|
N/A
|
|
6.25% / 5.00%
|
|
6.50% / 5.00%
|
|
Ultimate health care cost trend rate
|
N/A
|
|
N/A
|
|
4.50
|
%
|
|
4.50
|
%
|
|
Year ultimate trend rate is reached
|
N/A
|
|
N/A
|
|
2025
|
|
2025
|
_______________________________________________________________________________
N/A - Not applicable
In 2020, 2019 and 2018, we adopted the revised mortality tables and projection scales released by the Society of Actuaries, which decreased the projected benefit obligation of our benefit plans by $3 million, $4 million and $38 million, respectively. 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 estimated life of plan participants, which was approximately 9 years as of December 31, 2020.
The following tables summarize the change in the benefit obligations for the Combined Pension Plan and post-retirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Change in benefit obligation
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
12,217
|
|
|
11,594
|
|
|
13,064
|
|
|
Service cost
|
59
|
|
|
56
|
|
|
66
|
|
|
Interest cost
|
324
|
|
|
436
|
|
|
392
|
|
|
Plan amendments
|
(3)
|
|
|
(9)
|
|
|
—
|
|
|
Special termination benefits charge
|
13
|
|
|
6
|
|
|
15
|
|
|
Actuarial loss (gain)
|
749
|
|
|
1,249
|
|
|
(765)
|
|
|
Benefits paid from plan assets
|
(1,157)
|
|
|
(1,115)
|
|
|
(1,178)
|
|
|
Benefit obligation at end of year
|
$
|
12,202
|
|
|
12,217
|
|
|
11,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement Benefit Plans
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Change in benefit obligation
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
3,037
|
|
|
2,977
|
|
|
3,375
|
|
|
Service cost
|
14
|
|
|
15
|
|
|
18
|
|
|
Interest cost
|
69
|
|
|
110
|
|
|
97
|
|
|
Participant contributions
|
46
|
|
|
52
|
|
|
54
|
|
|
Direct subsidy receipts
|
6
|
|
|
7
|
|
|
8
|
|
|
Plan Amendment
|
—
|
|
|
—
|
|
|
(36)
|
|
|
Actuarial loss (gain)
|
134
|
|
|
180
|
|
|
(224)
|
|
|
Curtailment loss
|
4
|
|
|
—
|
|
|
—
|
|
|
Benefits paid by company
|
(255)
|
|
|
(300)
|
|
|
(311)
|
|
|
Benefits paid from plan assets
|
(7)
|
|
|
(4)
|
|
|
(4)
|
|
|
Benefit obligation at end of year
|
$
|
3,048
|
|
|
3,037
|
|
|
2,977
|
|
Plan Assets
We maintain plan assets for our Combined Pension Plan and certain post-retirement benefit plans. As previously noted, assets in the post-retirement benefit plan trusts were substantially depleted as of December 31, 2016. Fair value of post-retirement benefit plan assets of December 31, 2020, 2019 and 2018 was $5 million, $13 million and $18 million, respectively. Due to the insignificance of these assets on our consolidated financial statements, we have predominantly excluded them from the disclosures of plan assets in this Note, unless otherwise indicated.
The following tables summarize the change in the fair value of plan assets for the Combined Pension Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Change in plan assets
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
10,493
|
|
|
10,033
|
|
|
11,060
|
|
|
Return on plan assets
|
1,210
|
|
|
1,575
|
|
|
(349)
|
|
|
Employer contributions
|
—
|
|
|
—
|
|
|
500
|
|
|
Benefits paid from plan assets
|
(1,157)
|
|
|
(1,115)
|
|
|
(1,178)
|
|
|
Fair value of plan assets at end of year
|
$
|
10,546
|
|
|
10,493
|
|
|
10,033
|
|
The expected rate of return on plan assets is the long-term rate of return we expect to earn on the plan's assets, net of administrative expenses paid from plan assets. It is determined annually based on the strategic asset allocation and the long-term risk and return forecast for each asset class.
Our investment objective for the Combined Pension Plan assets is to achieve an attractive risk-adjusted return over time that will provide for the payment of benefits and minimize the risk of large losses. We employ a liability-aware investment strategy designed to reduce the volatility of pension assets relative to pension liabilities. This strategy is evaluated frequently and is expected to evolve over time with changes in the funded status and other factors. Approximately 55% of plan assets is targeted to long-duration investment grade bonds and interest rate sensitive derivatives and 45% is targeted to diversified equity, fixed income and private market investments that are expected to outperform the liability with moderate funded status risk. At the beginning of 2021, our expected annual long-term rate of return on pension assets before consideration of administrative expenses is assumed to be 6.0%. Administrative expenses, including projected PBGC (Pension Benefit Guaranty Corporation) premiums reduce the annual long-term expected return net of administrative expenses to 5.5%.
The short-term and long-term interest crediting rates during 2020 for cash balance components of the Combined Pension Plan were 2.25% and 4.0%, respectively.
Permitted investments: Plan assets are managed consistent with the restrictions set forth by the Employee Retirement Income Security Act of 1974, as amended.
Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB. For additional information on the fair value hierarchy, see Note 13—Fair Value of Financial Instruments.
At December 31, 2020, we used the following valuation techniques to measure fair value for assets. There were no changes to these methodologies during 2020:
•Level 1—Assets were valued using the closing price reported in the active market in which the individual security was traded.
•Level 2—Assets were valued using quoted prices in markets that are not active, broker dealer quotations, and other methods by which all significant inputs were observable at the measurement date.
•Level 3—Assets were valued using unobservable inputs in which little or no market data exists as reported by the respective institutions at the measurement date.
The plan's assets are invested in various asset categories utilizing multiple strategies and investment managers. Interests in commingled funds are fair valued using a practical expedient to the net asset value ("NAV") per unit (or its equivalent) of each fund. The NAV reported by the fund manager is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. Commingled funds can be redeemed at NAV, with a frequency that includes, daily, monthly, quarterly, semi-annually and annually. These commingled funds include redemption notice periods between same day and 270 days. Investments in private funds, primarily limited partnerships, represent long-term commitments with a fixed maturity date and are also valued at NAV. The plan has unfunded commitments related to certain private fund investments, which in aggregate are not material to the plan. Valuation inputs for these private fund interests are generally based on assumptions and other information not observable in the market. Underlying investments held in funds are aggregated and are classified based on the fund mandate. Investments held in separate accounts are individually classified.
The table below present the fair value of plan assets by category and the input levels used to determine those fair values at December 31, 2020. It is important to note that the asset allocations do not include market exposures that are gained with derivatives. Investments include dividend and interest receivables, pending trades and accrued expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Combined Pension Plan Assets at December 31, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(Dollars in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment grade bonds (a)
|
$
|
726
|
|
|
4,066
|
|
|
—
|
|
|
4,792
|
|
|
High yield bonds (b)
|
—
|
|
|
262
|
|
|
6
|
|
|
268
|
|
|
Emerging market bonds (c)
|
218
|
|
|
172
|
|
|
—
|
|
|
390
|
|
|
U.S. stocks (d)
|
653
|
|
|
—
|
|
|
2
|
|
|
655
|
|
|
Non-U.S. stocks (e)
|
593
|
|
|
1
|
|
|
—
|
|
|
594
|
|
|
Private debt (h)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Multi-asset strategies (l)
|
199
|
|
|
—
|
|
|
—
|
|
|
199
|
|
|
Repurchase agreements (n)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash equivalents and short-term investments (o)
|
—
|
|
|
281
|
|
|
—
|
|
|
281
|
|
|
Total investments, excluding investments valued at NAV
|
$
|
2,389
|
|
|
4,782
|
|
|
8
|
|
|
7,179
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives (m)
|
$
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
Investments valued at NAV
|
|
|
|
|
|
|
3,368
|
|
|
Total pension plan assets
|
|
|
|
|
|
|
$
|
10,546
|
|
The table below present the fair value of plan assets by category and the input levels used to determine those fair values at December 31, 2019. It is important to note that the asset allocations do not include market exposures that are gained with derivatives. Investments include dividend and interest receivable, pending trades and accrued expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Combined Pension Plan Assets at December 31, 2019
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(Dollars in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment grade bonds (a)
|
$
|
828
|
|
|
3,197
|
|
|
—
|
|
|
4,025
|
|
|
High yield bonds (b)
|
—
|
|
|
232
|
|
|
5
|
|
|
237
|
|
|
Emerging market bonds (c)
|
203
|
|
|
84
|
|
|
—
|
|
|
287
|
|
|
U.S. stocks (d)
|
756
|
|
|
3
|
|
|
1
|
|
|
760
|
|
|
Non-U.S. stocks (e)
|
592
|
|
|
—
|
|
|
—
|
|
|
592
|
|
|
Private debt (h)
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
|
Multi-asset strategies (l)
|
257
|
|
|
—
|
|
|
—
|
|
|
257
|
|
|
Repurchase agreements (n)
|
—
|
|
|
39
|
|
|
—
|
|
|
39
|
|
|
Cash equivalents and short-term investments (o)
|
—
|
|
|
433
|
|
|
—
|
|
|
433
|
|
|
Total investments, excluding investments valued at NAV
|
$
|
2,636
|
|
|
3,988
|
|
|
22
|
|
|
6,646
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives (m)
|
$
|
1
|
|
|
(18)
|
|
|
—
|
|
|
(17)
|
|
|
Investments valued at NAV
|
|
|
|
|
|
|
3,864
|
|
|
Total pension plan assets
|
|
|
|
|
|
|
$
|
10,493
|
|
The table below presents the fair value of plan assets valued at NAV by category for our Combined Pension Plan at December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets Valued at NAV
|
|
|
Combined Pension Plan at
December 31,
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Investment grade bonds (a)
|
$
|
352
|
|
|
211
|
|
|
High yield bonds (b)
|
25
|
|
|
39
|
|
|
U.S. stocks (d)
|
192
|
|
|
169
|
|
|
Non-U.S. stocks (e)
|
308
|
|
|
467
|
|
|
Emerging market stocks (f)
|
81
|
|
|
92
|
|
|
Private equity (g)
|
283
|
|
|
322
|
|
|
Private debt (h)
|
505
|
|
|
483
|
|
|
Market neutral hedge funds (i)
|
222
|
|
|
433
|
|
|
Directional hedge funds (j)
|
254
|
|
|
443
|
|
|
Real estate (k)
|
543
|
|
|
635
|
|
|
Multi-asset strategies (l)
|
375
|
|
|
449
|
|
|
Cash equivalents and short-term investments (o)
|
228
|
|
|
121
|
|
|
Total investments valued at NAV
|
$
|
3,368
|
|
|
3,864
|
|
Below is an overview of the asset categories, the underlying strategies and valuation inputs used to value the assets in the preceding tables:
(a) Investment grade bonds represent investments in fixed income securities as well as commingled bond funds comprised of U.S. Treasury securities, agencies, corporate bonds, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. Treasury securities are valued at the bid price reported in the active market in which the security is traded and are classified as Level 1. The valuation inputs of other investment grade bonds primarily utilize observable market information and are based on a spread to U.S. Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings. The primary observable inputs include references to the new issue market for similar securities, the secondary trading markets and dealer quotes. Option adjusted spread models are utilized to evaluate securities such as asset backed securities that have early redemption features. These securities are classified as Level 2. NAV funds' underlying investments in this category are valued using the same inputs.
(b) High yield bonds represent investments in below investment grade fixed income securities as well as commingled high yield bond funds. The valuation inputs for the securities primarily utilize observable market information and are based on a spread to U.S. Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings. These securities are primarily classified as Level 2. Securities whose valuation inputs are not based on observable market information are classified as Level 3. NAV funds' underlying investments in this category are valued using the same inputs.
(c) Emerging market bonds represent investments in securities issued by governments and other entities located in emerging countries as well as registered mutual funds and commingled emerging market bond funds. The valuation inputs for the securities utilize observable market information and are primarily based on dealer quotes or a spread relative to the local government bonds. The registered mutual fund is classified as Level 1 while individual securities are primarily classified as Level 2.
(d) U.S. stocks represent investments in stocks of U.S. based companies as well as commingled U.S. stock funds. The valuation inputs for U.S. stocks are based on the last published price reported on the major stock market on which the securities are traded and are primarily classified as Level 1. Securities that are not actively traded but can be directly or indirectly observable are classified as Level 2. Securities whose valuation inputs are not based on observable market information are classified as Level 3. NAV funds' underlying investments in this category are valued using the same inputs.
(e) Non-U.S. stocks represent investments in stocks of companies based in developed countries outside the U.S. as well as commingled funds. The valuation inputs for these non-U.S. stocks are based on the last published price reported on the major stock market on which the securities are traded and are primarily classified as Level 1. NAV funds' underlying investments in this category are valued using the same inputs.
(f) Emerging market stocks represent investments in commingled funds comprised of stocks of companies located in emerging markets. NAV funds' underlying investments in this category are valued using the same inputs.
(g) Private equity represents non-public investments in domestic and foreign buy out and venture capital funds. Private equity funds are primarily structured as limited partnerships and are valued according to the valuation policy of each partnership, subject to prevailing accounting and other regulatory guidelines. The partnerships are valued at NAV using valuation methodologies that consider a range of factors, including but not limited to the price at which investments were acquired, the nature of the investments, market conditions, trading values on comparable public securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investments. These valuation methodologies involve a significant degree of judgment.
(h) Private debt represents non-public investments in distressed or mezzanine debt funds and pension group insurance contracts. Pension group insurance contracts are valued based on actuarial assumptions and are classified as Level 3. Mezzanine debt instruments are debt instruments that are subordinated to other debt issues and may include embedded equity instruments such as warrants. Private debt funds are primarily structured as limited partnerships and are valued at NAV according to the valuation policy of each partnership, subject to prevailing accounting and other regulatory guidelines. The valuation of underlying fund investments is based on factors including the issuer's current and projected credit worthiness, the securities' terms, reference to the securities of comparable companies, and other market factors. These valuation methodologies involve a significant degree of judgment.
(i) Market neutral hedge funds hold investments in a diversified mix of instruments that are intended in combination to exhibit low correlations to market fluctuations. These investments are typically combined with futures to achieve uncorrelated excess returns over various markets. Hedge funds are valued at NAV based on the market value of the underlying investments which include publicly traded equity and fixed income securities and privately negotiated debt securities.
(j) Directional hedge funds—This asset category represents investments that may exhibit somewhat higher correlations to market fluctuations than the market neutral hedge funds. Investments in hedge funds include both direct investments and investments in diversified funds of funds. Hedge funds are valued at NAV based on the market value of the underlying investments which include publicly traded equity and fixed income securities and privately negotiated debt securities.
(k) Real estate represents investments in commingled funds and limited partnerships that invest in a diversified portfolio of real estate properties. These investments are valued at NAV according to the valuation policy of each fund or partnership, subject to prevailing accounting and other regulatory guidelines. The valuation inputs of the underlying properties are generally based on third-party appraisals that use comparable sales or a projection of future cash flows to determine fair value. These valuation methodologies involve a significant degree of judgment.
(l) Multi-asset strategies represent broadly diversified strategies that have the flexibility to tactically adjust exposures to different asset classes through time. This asset category includes investments in registered mutual funds which are classified as Level 1 and may include commingled funds which are valued at NAV based on the market value of the underlying investments.
(m) Derivatives include exchange traded futures contracts which are classified as Level 1, as well as privately negotiated over the counter contracts that are classified as Level 2. The market values represent gains or losses that occur due to differences between stated contract terms and fluctuations in underlying market instruments.
(n) Repurchase Agreements includes contracts where the security owner sells a security with the agreement to buy it back at a future date and price. Agreements are valued based on expected settlement terms and are classified as Level 2.
(o) Cash equivalents and short-term investments represent investments that are used in conjunction with derivatives positions or are used to provide liquidity for the payment of benefits or other purposes. The valuation inputs of securities are based on a spread to U.S. Treasury Bills, the Federal Funds Rate, or London Interbank Offered Rate and consider yields available on comparable securities of issuers with similar credit ratings and are primarily classified as Level 2. The commingled funds are valued at NAV based on the market value of the underlying investments using the same valuation inputs described above.
Derivative instruments: Derivative instruments are used to reduce risk as well as provide return. The gross notional exposure of the derivative instruments directly held by the Combined Pension Plan is shown below. The notional amount of the derivatives corresponds to market exposure but does not represent an actual cash investment. Our post-retirement plans were not invested in derivative instruments for the years ended December 31, 2020 or 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Notional Exposure
|
|
|
Combined Pension Plan
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Derivative instruments:
|
|
|
|
|
Exchange-traded U.S. equity futures
|
$
|
84
|
|
|
184
|
|
|
Exchange-traded Treasury and other interest rate futures
|
1,033
|
|
|
1,253
|
|
|
Exchange-traded Foreign currency futures
|
12
|
|
|
—
|
|
|
Exchange-traded EURO futures
|
6
|
|
|
10
|
|
|
Interest rate swaps
|
124
|
|
|
44
|
|
|
Credit default swaps
|
43
|
|
|
205
|
|
|
Index swaps
|
1,297
|
|
|
2,058
|
|
|
Foreign exchange forwards
|
769
|
|
|
508
|
|
|
Options
|
222
|
|
|
146
|
|
Concentrations of Risk: Investments, in general, are exposed to various risks, such as significant world events, interest rate, credit, foreign currency and overall market volatility risk. These risks are managed by broadly diversifying assets across numerous asset classes and strategies with differing expected returns, volatilities and correlations. Risk is also broadly diversified across numerous market sectors and individual companies. Financial instruments that potentially subject the plans to concentrations of counterparty risk consist principally of investment contracts with high quality financial institutions. These investment contracts are typically collateralized obligations and/or are actively managed, limiting the amount of counterparty exposure to any one financial institution. Although the investments are well diversified, the value of plan assets could change materially depending upon the overall market volatility, which could affect the funded status of the plan.
The table below presents a rollforward of the Combined Pension Plan assets valued using Level 3 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan Assets Valued Using Level 3 Inputs
|
|
|
High
Yield
Bonds
|
|
U.S. Stocks
|
|
Private Debt
|
|
Total
|
|
|
(Dollars in millions)
|
|
Balance at December 31, 2018
|
$
|
7
|
|
|
2
|
|
|
15
|
|
|
24
|
|
|
Acquisitions (dispositions)
|
(2)
|
|
|
—
|
|
|
1
|
|
|
(1)
|
|
|
Actual return on plan assets
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
Balance at December 31, 2019
|
5
|
|
|
1
|
|
|
16
|
|
|
22
|
|
|
Acquisitions (dispositions)
|
1
|
|
|
—
|
|
|
(17)
|
|
|
(16)
|
|
|
Actual return on plan assets
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
Balance at December 31, 2020
|
$
|
6
|
|
|
2
|
|
|
—
|
|
|
8
|
|
Certain gains and losses are allocated between assets sold during the year and assets still held at year-end based on transactions and changes in valuations that occurred during the year. These allocations also impact our calculation of net acquisitions and dispositions.
For the year ended December 31, 2020, the investment program produced actual gains on Combined Pension Plan assets of $1.2 billion as compared to expected returns of $593 million for a difference of $618 million. For the year ended December 31, 2019, the investment program produced actual gains on Combined Pension Plan assets of $1.6 billion as compared to the expected returns of $618 million for a difference of $1.0 billion. The short-term annual returns on plan assets will almost always be different from the expected long-term returns and the plans could experience net gains or losses, due primarily to the volatility occurring in the financial markets during any given year.
Unfunded Status
The following table presents the unfunded status of the Combined Pension Plan and post-retirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Pension Plan
|
|
Post-Retirement
Benefit Plans
|
|
|
Years Ended December 31,
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Benefit obligation
|
$
|
(12,202)
|
|
|
(12,217)
|
|
|
(3,048)
|
|
|
(3,037)
|
|
|
Fair value of plan assets
|
10,546
|
|
|
10,493
|
|
|
5
|
|
|
13
|
|
|
Unfunded status
|
(1,656)
|
|
|
(1,724)
|
|
|
(3,043)
|
|
|
(3,024)
|
|
|
Current portion of unfunded status
|
—
|
|
|
—
|
|
|
(228)
|
|
|
(224)
|
|
|
Non-current portion of unfunded status
|
$
|
(1,656)
|
|
|
(1,724)
|
|
|
(2,815)
|
|
|
(2,800)
|
|
The current portion of our post-retirement benefit obligations is recorded on our consolidated balance sheets in accrued expenses and other current liabilities-salaries and benefits.
Accumulated Other Comprehensive Loss-Recognition and Deferrals
The following table presents cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2019, items recognized as a component of net periodic benefits expense in 2020, additional items deferred during 2020 and cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2020. The items not recognized as a component of net periodic benefits expense have been recorded on our consolidated balance sheets in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended December 31,
|
|
|
2019
|
|
Recognition
of Net
Periodic
Benefits
Expense
|
|
Deferrals
|
|
Net
Change in
AOCL
|
|
2020
|
|
|
(Dollars in millions)
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
Pension plans:
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain
|
$
|
(3,046)
|
|
|
203
|
|
|
(150)
|
|
|
53
|
|
|
(2,993)
|
|
|
Prior service benefit (cost)
|
47
|
|
|
(9)
|
|
|
3
|
|
|
(6)
|
|
|
41
|
|
|
Deferred income tax benefit (expense)
|
770
|
|
|
(47)
|
|
|
32
|
|
|
(15)
|
|
|
755
|
|
|
Total pension plans
|
(2,229)
|
|
|
147
|
|
|
(115)
|
|
|
32
|
|
|
(2,197)
|
|
|
Post-retirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain
|
(175)
|
|
|
—
|
|
|
(171)
|
|
|
(171)
|
|
|
(346)
|
|
|
Prior service (cost) benefit
|
(71)
|
|
|
16
|
|
|
35
|
|
|
51
|
|
|
(20)
|
|
|
Curtailment loss
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
Deferred income tax benefit (expense)
|
62
|
|
|
(5)
|
|
|
33
|
|
|
28
|
|
|
90
|
|
|
Total post-retirement benefit plans
|
(184)
|
|
|
15
|
|
|
(103)
|
|
|
(88)
|
|
|
(272)
|
|
|
Total accumulated other comprehensive loss
|
$
|
(2,413)
|
|
|
162
|
|
|
(218)
|
|
|
(56)
|
|
|
(2,469)
|
|
The following table presents cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2018, items recognized as a component of net periodic benefits expense in 2019, additional items deferred during 2019 and cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2018. The items not recognized as a component of net periodic benefits expense have been recorded on our consolidated balance sheets in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended December 31,
|
|
|
2018
|
|
Recognition
of Net
Periodic
Benefits
Expense
|
|
Deferrals
|
|
Net
Change in
AOCL
|
|
2019
|
|
|
(Dollars in millions)
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
Pension plans:
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain
|
$
|
(2,973)
|
|
|
224
|
|
|
(297)
|
|
|
(73)
|
|
|
(3,046)
|
|
|
Prior service benefit (cost)
|
46
|
|
|
(8)
|
|
|
9
|
|
|
1
|
|
|
47
|
|
|
Deferred income tax benefit (expense)
|
754
|
|
|
(53)
|
|
|
69
|
|
|
16
|
|
|
770
|
|
|
Total pension plans
|
(2,173)
|
|
|
163
|
|
|
(219)
|
|
|
(56)
|
|
|
(2,229)
|
|
|
Post-retirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss)
|
7
|
|
|
—
|
|
|
(182)
|
|
|
(182)
|
|
|
(175)
|
|
|
Prior service (cost) benefit
|
(87)
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|
(71)
|
|
|
Deferred income tax benefit (expense)
|
22
|
|
|
(4)
|
|
|
44
|
|
|
40
|
|
|
62
|
|
|
Total post-retirement benefit plans
|
(58)
|
|
|
12
|
|
|
(138)
|
|
|
(126)
|
|
|
(184)
|
|
|
Total accumulated other comprehensive (loss) income
|
$
|
(2,231)
|
|
|
175
|
|
|
(357)
|
|
|
(182)
|
|
|
(2,413)
|
|
Medicare Prescription Drug, Improvement and Modernization Act of 2003
We sponsor post-retirement health care plans with several benefit options that provide prescription drug benefits that we deem actuarially equivalent to or exceeding Medicare Part D. We recognize the impact of the federal subsidy received under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 in the calculation of our post-retirement benefit obligation and net periodic post-retirement benefit expense.
Other Benefit Plans
Health Care and Life Insurance
We provide health care and life insurance benefits to essentially all of our active employees. We are largely self-funded for the cost of the health care plan. Our health care benefit expense for current employees was $307 million, $381 million and $434 million for the years ended December 31, 2020, 2019 and 2018, respectively. Union-represented employee benefits are based on negotiated collective bargaining agreements. Employees contributed $133 million, $148 million, $142 million for the years ended December 31, 2020, 2019 and 2018, respectively. Our group basic life insurance plans are fully insured and the premiums are paid by us.
401(k) Plans
We sponsor a qualified defined contribution plan covering substantially all of our U.S. employees. Under this plan, employees may contribute a percentage of their annual compensation up to certain maximums, as defined by the plan and by the Internal Revenue Service ("IRS"). Currently, we match a percentage of employee contributions in cash. At December 31, 2020 and 2019, the assets of the plan included approximately 11 million shares of our common stock all of which were the result of the combination of previous employer match and participant directed contributions. We recognized expenses related to this plan of $101 million, $113 million and $93 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Deferred Compensation Plans
We sponsored non-qualified deferred compensation plans for various groups that included certain of our current and former highly compensated employees. The value of liabilities related to these plans was not significant.
(11) Share-based Compensation
We maintain an equity incentive program that allows our Board of Directors (through its Compensation Committee or a senior officer acting under delegated authority) to grant incentives to certain employees and outside directors in one or more forms, including: incentive and non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and market and performance shares. Stock options generally expire ten years from the date of grant.
Stock Options
We had 469,000 options outstanding as of December 31, 2019. The total intrinsic value of options exercised for the years ended December 31, 2019 and 2018, was less than $1 million each year. During 2020, virtually all remaining stock options expired or were forfeited.
Restricted Stock Awards and Restricted Stock Unit Awards
For equity based restricted stock and restricted stock unit awards that contain only service conditions for vesting (time-based awards), we calculate the award fair value based on the closing price of Lumen Technologies common stock on the accounting grant date. We also grant equity-based awards that contain service conditions as well as additional market or performance conditions. For awards having both service and market conditions, the award fair value is calculated using Monte-Carlo simulations. Awards with service as well as market or performance conditions specify a target number of shares for the award, although each recipient ultimately has the opportunity to receive between 0% and 200% of the target number of shares. For awards with service and market conditions, the percentage received is based on our total shareholder return over the three-year service period versus that of selected peer companies. For awards with service and performance conditions, the percentage received depends upon the attainment of one or more financial performance targets during the two- or three-year service period.
The following table summarizes activity involving restricted stock and restricted stock unit awards for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
(in thousands)
|
|
|
|
Non-vested at December 31, 2019
|
16,044
|
|
|
$
|
15.42
|
|
|
Granted
|
17,812
|
|
|
12.08
|
|
|
Vested
|
(10,512)
|
|
|
16.38
|
|
|
Forfeited
|
(1,836)
|
|
|
13.25
|
|
|
Non-vested at December 31, 2020
|
21,508
|
|
|
12.37
|
|
During 2020, we granted 17.8 million shares of restricted stock and restricted stock unit awards at a weighted-average price of $12.08. During 2019, we granted 9.8 million shares of restricted stock and restricted stock unit awards at a weighted-average price of $12.41. During 2018, we granted 9.7 million shares of restricted stock and restricted stock unit awards at a weighted-average price of $17.02. The total fair value of restricted stock that vested during 2020, 2019 and 2018, was $126 million, $118 million and $169 million, respectively. We do not estimate forfeitures, but recognize them as they occur.
Compensation Expense and Tax Benefit
We recognize compensation expense related to our market and performance share-based awards with graded vesting that only have a service condition on a straight-line basis over the requisite service period for the entire award. Total compensation expense for all share-based payment arrangements for the years ended December 31, 2020, 2019 and 2018, was $175 million, $162 million and $186 million, respectively. Our tax benefit recognized in the consolidated statements of operations for our share-based payment arrangements for the years ended December 31, 2020, 2019 and 2018, was $43 million, $39 million and $46 million, respectively. At December 31, 2020, there was $117 million of total unrecognized compensation expense related to our share-based payment arrangements, which we expect to recognize over a weighted-average period of 1.5 years.
(12) Loss Per Common Share
Basic and diluted loss per common share for the years ended December 31, 2020, 2019 and 2018 were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions, except per share amounts, shares in thousands)
|
|
Loss (Numerator):
|
|
|
|
|
|
|
Net loss
|
$
|
(1,232)
|
|
|
(5,269)
|
|
|
(1,733)
|
|
|
Net loss applicable to common stock for computing basic earnings per common share
|
(1,232)
|
|
|
(5,269)
|
|
|
(1,733)
|
|
|
Net loss as adjusted for purposes of computing diluted earnings per common share
|
$
|
(1,232)
|
|
|
(5,269)
|
|
|
(1,733)
|
|
|
Shares (Denominator):
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
Outstanding during period
|
1,096,284
|
|
|
1,088,730
|
|
|
1,078,409
|
|
|
Non-vested restricted stock
|
(17,154)
|
|
|
(17,289)
|
|
|
(12,543)
|
|
|
Weighted average shares outstanding for computing basic earnings per common share
|
1,079,130
|
|
|
1,071,441
|
|
|
1,065,866
|
|
|
Incremental common shares attributable to dilutive securities:
|
|
|
|
|
|
|
Shares issuable under convertible securities
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares issuable under incentive compensation plans
|
—
|
|
|
—
|
|
|
—
|
|
|
Number of shares as adjusted for purposes of computing diluted loss per common share
|
1,079,130
|
|
|
1,071,441
|
|
|
1,065,866
|
|
|
Basic loss per common share
|
$
|
(1.14)
|
|
|
(4.92)
|
|
|
(1.63)
|
|
|
Diluted loss per common share (1)
|
$
|
(1.14)
|
|
|
(4.92)
|
|
|
(1.63)
|
|
______________________________________________________________________________
(1)For the years ended December 31, 2020, December 31, 2019 and December 31, 2018, we excluded from the calculation of diluted loss per share 5.3 million shares, 3.0 million shares and 4.6 million shares, respectively, potentially issuable under incentive compensation plans or convertible securities, as their effect, if included, would have been anti-dilutive.
Our calculation of diluted loss per common share excludes shares of common stock that are issuable upon exercise of stock options when the exercise price is greater than the average market price of our common stock. We also exclude unvested restricted stock awards that are antidilutive as a result of unrecognized compensation cost. Such shares were 3.2 million, 6.8 million and 2.7 million for 2020, 2019 and 2018, respectively.
(13) Fair Value of Financial Instruments
Our financial instruments consist of cash, cash equivalents and restricted cash, accounts receivable, accounts payable and long-term debt, excluding finance lease and other obligations, and interest rate swap contracts. Due to their short-term nature, the carrying amounts of our cash, cash equivalents and restricted cash, accounts receivable and accounts payable approximate their fair values.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB.
We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on discounted future cash flows using current market interest rates.
The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:
|
|
|
|
|
|
|
|
|
|
|
Input Level
|
|
Description of Input
|
|
Level 1
|
|
Observable inputs such as quoted market prices in active markets.
|
|
Level 2
|
|
Inputs other than quoted prices in active markets that are either directly or indirectly observable.
|
|
Level 3
|
|
Unobservable inputs in which little or no market data exists.
|
The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding finance lease and other obligations, as well as the input level used to determine the fair values indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
As of December 31, 2019
|
|
|
|
Input
Level
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
|
(Dollars in millions)
|
|
Liabilities-Long-term debt, excluding finance lease and other obligations
|
|
2
|
|
$
|
31,542
|
|
|
33,217
|
|
|
34,472
|
|
|
35,737
|
|
|
Interest rate swap contracts (see Note 14)
|
|
2
|
|
107
|
|
|
107
|
|
|
51
|
|
|
51
|
|
(14) Derivative Financial Instruments
From time to time, we use derivative financial instruments, primarily interest rate swaps, to manage our exposure to fluctuations in interest rates. Our primary objective in managing interest rate risk is to decrease the volatility of our earnings and cash flows affected by changes in the underlying rates. We have floating rate long-term debt (see Note 6—Long-Term Debt and Credit Facilities of this report). These obligations expose us to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. We have designated our currently outstanding interest rate swap agreements as cash flow hedges. As described further below, under these hedges, we receive variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the lives of the agreements without exchange of the underlying notional amount. The change in the fair value of the interest rate swap agreements is reflected in AOCI and, as described below, is subsequently reclassified into earnings in the period that the hedged transaction affects earnings by virtue of qualifying as effective cash flow hedges. We do not use derivative financial instruments for speculative purposes.
In February 2019, we entered into five variable-to-fixed interest rate swap agreements to hedge the interest payments on $2.5 billion notional amount of floating rate debt. The five interest rate swap agreements are with different counterparties; one for $700 million and the other four for $450 million each. The transactions were effective beginning March 31, 2019 and mature March 31, 2022. Under the terms of these interest rate swap transactions, we receive interest payments based on one month floating LIBOR terms and pay interest at the fixed rate of 2.48%.
In June 2019, we entered into six variable-to-fixed interest rate swap agreements to hedge the interest payments on $1.5 billion notional amount of floating rate debt. The six interest rate swap agreements are with different counterparties for $250 million each. The transactions were effective beginning June 30, 2019 and mature June 30, 2022. Under the terms of these interest rate swap transactions, we receive interest payments based on one month floating LIBOR terms and pay interest at the fixed rate of 1.58%.
As of December 31, 2020 and 2019, we evaluated the effectiveness of our hedges quantitatively and any hedges we had entered into at the time qualified as effective hedge relationships.
We may be exposed to credit related losses in the event of non-performance by counterparties. The counterparties to any of the financial derivatives we enter into are major institutions with investment grade credit ratings. We evaluate counterparty credit risk before entering into any hedge transaction and continue to closely monitor the financial market and the risk that our counterparties will default on their obligations as part of our quarterly qualitative effectiveness evaluation.
Amounts accumulated in AOCI related to derivatives are indirectly recognized in earnings as periodic settlement payments are made throughout the term of the swaps.
The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheet at December 31, 2020 as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Derivatives designated as
|
Balance Sheet Location
|
|
Fair Value
|
|
Cash flow hedging contracts
|
Other current and noncurrent liabilities
|
|
$
|
107
|
|
|
51
|
|
The amount of unrealized (gains) losses recognized in AOCI consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
2020
|
|
2019
|
|
Cash flow hedging contracts
|
|
|
|
|
|
Years Ended December 31,
|
|
$
|
115
|
|
|
53
|
|
The amount of realized losses reclassified in AOCI to the statement of operations consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
2020
|
|
2019
|
|
Cash flow hedging contracts
|
|
|
|
|
|
Years Ended December 31,
|
|
$
|
62
|
|
|
2
|
|
Amounts currently included in AOCI will be reclassified into earnings prior to the ongoing settlements of these cash flow hedging contracts until 2022. We estimate that $82 million of net losses on the interest rate swaps (based on the estimated LIBOR curve as of December 31, 2020) will be reflected in our statements of operations within the next 12 months.
(15) Income Taxes
The components of the income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Income tax expense:
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
Current
|
$
|
5
|
|
|
7
|
|
|
(576)
|
|
|
Deferred
|
338
|
|
|
376
|
|
|
734
|
|
|
State
|
|
|
|
|
|
|
Current
|
50
|
|
|
15
|
|
|
(22)
|
|
|
Deferred
|
55
|
|
|
81
|
|
|
52
|
|
|
Foreign
|
|
|
|
|
|
|
Current
|
29
|
|
|
35
|
|
|
36
|
|
|
Deferred
|
(27)
|
|
|
(11)
|
|
|
(54)
|
|
|
Total income tax expense
|
$
|
450
|
|
|
503
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Income tax expense was allocated as follows:
|
|
|
|
|
|
|
Income tax expense in the consolidated statements of operations:
|
|
|
|
|
|
|
Attributable to income
|
$
|
450
|
|
|
503
|
|
|
170
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Tax effect of the change in accumulated other comprehensive loss
|
$
|
17
|
|
|
(62)
|
|
|
(2)
|
|
The following is a reconciliation from the statutory federal income tax rate to our effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Percentage of pre-tax income)
|
|
Statutory federal income tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
State income taxes, net of federal income tax benefit
|
(10.8)
|
%
|
|
(1.6)
|
%
|
|
(1.5)
|
%
|
|
Goodwill impairment
|
(71.0)
|
%
|
|
(28.6)
|
%
|
|
(36.6)
|
%
|
|
Change in liability for unrecognized tax position
|
(0.6)
|
%
|
|
(0.2)
|
%
|
|
1.3
|
%
|
|
Legislative changes to GILTI
|
1.8
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Nondeductible executive stock compensation
|
(1.6)
|
%
|
|
(0.1)
|
%
|
|
—
|
%
|
|
Change in valuation allowance
|
2.6
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Tax reform
|
—
|
%
|
|
—
|
%
|
|
(5.9)
|
%
|
|
Net foreign income taxes
|
(0.6)
|
%
|
|
(0.5)
|
%
|
|
1.8
|
%
|
|
Research and development credits
|
1.6
|
%
|
|
0.1
|
%
|
|
0.9
|
%
|
|
Tax benefit of net operating loss carryback
|
—
|
%
|
|
—
|
%
|
|
9.1
|
%
|
|
Other, net
|
0.1
|
%
|
|
(0.7)
|
%
|
|
(1.0)
|
%
|
|
Effective income tax rate
|
(57.5)
|
%
|
|
(10.6)
|
%
|
|
(10.9)
|
%
|
The effective tax rate for the year ended December 31, 2020 reflects a $555 million unfavorable impact of non-deductible goodwill impairment, a $14 million favorable impact in tax regulations passed in 2020 allowing a high tax exception related to our tax exposure of Global Intangible Low-Taxed Income ("GILTI"), as well as a $20 million benefit related to the release of previously established valuation allowances against capital losses. The effective tax rates for the years ended December 31, 2019 and December 31, 2018 include a $1.4 billion and a $572 million unfavorable impact of non-deductible goodwill impairments, respectively. Additionally, the effective tax rate for the year ended December 31, 2018 reflects a $92 million unfavorable impact due to finalizing the impacts of tax reform. Partially offsetting these amounts is a $142 million benefit generated by a loss carryback to 2016.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Deferred tax assets
|
|
|
|
|
Post-retirement and pension benefit costs
|
$
|
1,164
|
|
|
1,169
|
|
|
Net operating loss carryforwards
|
3,138
|
|
|
3,167
|
|
|
Other employee benefits
|
119
|
|
|
134
|
|
|
Other
|
604
|
|
|
577
|
|
|
Gross deferred tax assets
|
5,025
|
|
|
5,047
|
|
|
Less valuation allowance
|
(1,538)
|
|
|
(1,319)
|
|
|
Net deferred tax assets
|
3,487
|
|
|
3,728
|
|
|
Deferred tax liabilities
|
|
|
|
|
Property, plant and equipment, primarily due to depreciation differences
|
(3,882)
|
|
|
(3,489)
|
|
|
Goodwill and other intangible assets
|
(2,755)
|
|
|
(3,019)
|
|
|
Gross deferred tax liabilities
|
(6,637)
|
|
|
(6,508)
|
|
|
Net deferred tax liability
|
$
|
(3,150)
|
|
|
(2,780)
|
|
Of the $3.2 billion and $2.8 billion net deferred tax liability at December 31, 2020 and 2019, respectively, $3.3 billion and $2.9 billion is reflected as a long-term liability and $191 million and $118 million is reflected as a net noncurrent deferred tax asset, in other, net on our consolidated balance sheets at December 31, 2020 and 2019, respectively.
At December 31, 2020, we had federal NOLs of $5.1 billion, net of limitations of Section 382 of the Internal Revenue Code ("Section 382") and uncertain tax positions, for U.S. federal income tax purposes. If unused, the NOLs will expire between 2023 and 2037. The U.S. federal net operating loss carryforwards expire as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring
|
Amount
|
|
|
|
|
December 31,
|
(Dollars in millions)
|
|
|
|
|
2024
|
$
|
745
|
|
|
|
|
|
2025
|
1,042
|
|
|
|
|
|
2026
|
1,525
|
|
|
|
|
|
2027
|
375
|
|
|
|
|
|
2028
|
637
|
|
|
|
|
|
2029
|
645
|
|
|
|
|
|
2030
|
668
|
|
|
|
|
|
2031
|
733
|
|
|
|
|
|
2032
|
348
|
|
|
|
|
|
2033
|
238
|
|
|
|
|
|
2037
|
2,976
|
|
|
|
|
|
NOLs per return
|
9,932
|
|
|
|
|
|
Uncertain tax positions
|
(4,855)
|
|
|
|
|
|
Financial NOLs
|
$
|
5,077
|
|
We expect to use substantially all of these tax attributes to reduce our future federal tax liabilities, although the timing of that use will depend upon our future earnings and future tax circumstances.
At December 31, 2020 we had state net operating loss carryforwards of $17 billion (net of uncertain tax positions). We also had foreign NOL carryforwards of $7 billion. Our acquisitions of Level 3, Qwest and SAVVIS, Inc. caused "ownership changes" within the meaning of Section 382 for the acquired companies. As a result, our ability to use these NOLs and tax credits are subject to annual limits imposed by Section 382.
We establish valuation allowances when necessary to reduce the deferred tax assets to amounts we expect to realize. As of December 31, 2020, a valuation allowance of $1.5 billion was established as it is more likely than not that this amount of net operating loss, capital loss and tax credit carryforwards will not be utilized prior to expiration. Our valuation allowance at December 31, 2020 and 2019 is primarily related to foreign and state NOL carryforwards. This valuation allowance increased by $219 million during 2020, primarily due to the impact of foreign exchange rate adjustments and state law changes.
A reconciliation of the change in our gross unrecognized tax benefits (excluding both interest and any related federal benefit) from January 1 to December 31 for 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Unrecognized tax benefits at beginning of year
|
$
|
1,538
|
|
|
1,587
|
|
|
Increase in tax positions of the current year netted against deferred tax assets
|
18
|
|
|
11
|
|
|
Increase in tax positions of prior periods netted against deferred tax assets
|
5
|
|
|
6
|
|
|
Decrease in tax positions of the current year netted against deferred tax assets
|
(86)
|
|
|
(49)
|
|
|
Decrease in tax positions of prior periods netted against deferred tax assets
|
(5)
|
|
|
(19)
|
|
|
Increase in tax positions taken in the current year
|
4
|
|
|
5
|
|
|
Increase in tax positions taken in the prior year
|
1
|
|
|
10
|
|
|
Decrease due to payments/settlements
|
(1)
|
|
|
(8)
|
|
|
Decrease due to the reversal of tax positions taken in a prior year
|
—
|
|
|
(5)
|
|
|
Unrecognized tax benefits at end of year
|
$
|
1,474
|
|
|
1,538
|
|
The total amount (including both interest and any related federal benefit) of unrecognized tax benefits that, if recognized, would impact the effective income tax rate was $267 million and $259 million at December 31, 2020 and 2019, respectively.
Our policy is to reflect interest expense associated with unrecognized tax benefits in income tax expense. We had accrued interest (presented before related tax benefits) of approximately $23 million and $15 million at December 31, 2020 and 2019, respectively.
We, or at least one of our subsidiaries, file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2002. The Internal Revenue Service and state and local taxing authorities reserve the right to audit any period where net operating loss carryforwards are available.
Based on our current assessment of various factors, including (i) the potential outcomes of these ongoing examinations, (ii) the expiration of statute of limitations for specific jurisdictions, (iii) the negotiated settlement of certain disputed issues, and (iv) the administrative practices of applicable taxing jurisdictions, it is reasonably possible that the related unrecognized tax benefits for uncertain tax positions previously taken may decrease by up to $3 million within the next 12 months. The actual amount of such decrease, if any, will depend on several future developments and events, many of which are outside our control.
(16) Segment Information
As described in more detail below, our segments are managed based on the direct costs of providing services to their customers and the associated selling, general and administrative costs (primarily salaries and commissions). Shared costs are managed separately and included in "Operations and Other" in the tables below. We reclassified certain prior period amounts to conform to the current period presentation. See Note 1— Background and Summary of Significant Accounting Policies for further detail on these changes.
At December 31, 2020, we had the following five reportable segments:
•International and Global Accounts Management ("IGAM") Segment. Under our IGAM segment, we provide our products and services to approximately 200 global enterprise customers and to enterprises and carriers in three operating regions: Europe Middle East and Africa, Latin America and Asia Pacific;
•Enterprise Segment. Under our enterprise segment, we provide our products and services to large and regional domestic and global enterprises, as well as public sector, which includes the U.S. federal government, state and local governments and research and education institutions;
•Small and Medium Business ("SMB") Segment. Under our SMB segment, we provide our products and services to small and medium businesses directly and indirectly through our channel partners;
•Wholesale Segment. Under our wholesale segment, we provide our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors. Our wholesale customers range from large global telecom providers to small regional providers; and
•Consumer Segment. Under our consumer segment, we provide our products and services to residential customers. Additionally, Connect America Fund ("CAF") federal support revenue, and other revenue from leasing and subleasing are reported in our consumer segment as regulatory revenue.
Product and Service Categories
At December 31, 2020, we categorized our products and services revenue among the following four categories for the IGAM, Enterprise, SMB and Wholesale segments:
•IP and Data Services, which includes primarily VPN data networks, Ethernet, IP, content delivery and other ancillary services;
•Transport and Infrastructure, which includes wavelengths, dark fiber, private line, colocation and data center services, including cloud, hosting and application management solutions, professional services and other ancillary services;
•Voice and Collaboration, which includes primarily local and long-distance voice, including wholesale voice, and other ancillary services, as well as VoIP services; and
•IT and Managed Services, which includes information technology services and managed services, which may be purchased in conjunction with our other network services.
At December 31, 2020, we categorized our products and services revenue among the following four categories for the Consumer segment:
•Broadband, which includes high-speed, fiber based and lower speed DSL broadband services;
•Voice, which includes local and long-distance services;
•Regulatory Revenue, which consists of (i) CAF and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space; and
•Other, which includes retail video services (including our linear and TV services), professional services and other ancillary services.
The following tables summarize our segment results for 2020, 2019 and 2018 based on the segment categorization we were operating under at December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
International and Global Accounts
|
|
Enterprise
|
|
Small and Medium Business
|
|
Wholesale
|
|
Consumer
|
|
Total Segments
|
|
Operations and Other
|
|
Total
|
|
|
(Dollars in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IP and Data Services
|
$
|
1,556
|
|
|
2,474
|
|
|
1,062
|
|
|
1,280
|
|
|
—
|
|
|
6,372
|
|
|
—
|
|
|
6,372
|
|
|
Transport and Infrastructure
|
1,265
|
|
|
1,608
|
|
|
352
|
|
|
1,764
|
|
|
—
|
|
|
4,989
|
|
|
—
|
|
|
4,989
|
|
|
Voice and Collaboration
|
368
|
|
|
1,424
|
|
|
1,098
|
|
|
731
|
|
|
—
|
|
|
3,621
|
|
|
—
|
|
|
3,621
|
|
|
IT and Managed Services
|
216
|
|
|
216
|
|
|
45
|
|
|
2
|
|
|
—
|
|
|
479
|
|
|
—
|
|
|
479
|
|
|
Broadband
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,909
|
|
|
2,909
|
|
|
—
|
|
|
2,909
|
|
|
Voice
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,622
|
|
|
1,622
|
|
|
—
|
|
|
1,622
|
|
|
Regulatory
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
615
|
|
|
615
|
|
|
—
|
|
|
615
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
105
|
|
|
105
|
|
|
—
|
|
|
105
|
|
|
Total revenue
|
3,405
|
|
|
5,722
|
|
|
2,557
|
|
|
3,777
|
|
|
5,251
|
|
|
20,712
|
|
|
—
|
|
|
20,712
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and products
|
935
|
|
|
1,878
|
|
|
382
|
|
|
489
|
|
|
173
|
|
|
3,857
|
|
|
5,077
|
|
|
8,934
|
|
|
Selling, general and administrative
|
242
|
|
|
510
|
|
|
406
|
|
|
67
|
|
|
466
|
|
|
1,691
|
|
|
1,773
|
|
|
3,464
|
|
|
Less: share-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(175)
|
|
|
(175)
|
|
|
Total expense
|
1,177
|
|
|
2,388
|
|
|
788
|
|
|
556
|
|
|
639
|
|
|
5,548
|
|
|
6,675
|
|
|
12,223
|
|
|
Total adjusted EBITDA
|
$
|
2,228
|
|
|
3,334
|
|
|
1,769
|
|
|
3,221
|
|
|
4,612
|
|
|
15,164
|
|
|
(6,675)
|
|
|
8,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
International and Global Accounts
|
|
Enterprise
|
|
Small and Medium Business
|
|
Wholesale
|
|
Consumer
|
|
Total Segments
|
|
Operations and Other
|
|
Total
|
|
|
(Dollars in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IP and Data Services
|
$
|
1,627
|
|
|
2,538
|
|
|
1,091
|
|
|
1,365
|
|
|
—
|
|
|
6,621
|
|
|
—
|
|
|
6,621
|
|
|
Transport and Infrastructure
|
1,268
|
|
|
1,479
|
|
|
365
|
|
|
1,907
|
|
|
—
|
|
|
5,019
|
|
|
—
|
|
|
5,019
|
|
|
Voice and Collaboration
|
354
|
|
|
1,423
|
|
|
1,226
|
|
|
763
|
|
|
—
|
|
|
3,766
|
|
|
—
|
|
|
3,766
|
|
|
IT and Managed Services
|
227
|
|
|
256
|
|
|
45
|
|
|
7
|
|
|
—
|
|
|
535
|
|
|
—
|
|
|
535
|
|
|
Broadband
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,876
|
|
|
2,876
|
|
|
—
|
|
|
2,876
|
|
|
Voice
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,837
|
|
|
1,837
|
|
|
—
|
|
|
1,837
|
|
|
Regulatory
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
632
|
|
|
632
|
|
|
—
|
|
|
632
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
172
|
|
|
172
|
|
|
—
|
|
|
172
|
|
|
Total revenue
|
3,476
|
|
|
5,696
|
|
|
2,727
|
|
|
4,042
|
|
|
5,517
|
|
|
21,458
|
|
|
—
|
|
|
21,458
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and products
|
920
|
|
|
1,768
|
|
|
399
|
|
|
535
|
|
|
197
|
|
|
3,819
|
|
|
5,315
|
|
|
9,134
|
|
|
Selling, general and administrative
|
261
|
|
|
545
|
|
|
459
|
|
|
58
|
|
|
521
|
|
|
1,844
|
|
|
1,871
|
|
|
3,715
|
|
|
Less: share-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(162)
|
|
|
(162)
|
|
|
Total expense
|
1,181
|
|
|
2,313
|
|
|
858
|
|
|
593
|
|
|
718
|
|
|
5,663
|
|
|
7,024
|
|
|
12,687
|
|
|
Total adjusted EBITDA
|
$
|
2,295
|
|
|
3,383
|
|
|
1,869
|
|
|
3,449
|
|
|
4,799
|
|
|
15,795
|
|
|
(7,024)
|
|
|
8,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
International and Global Accounts
|
|
Enterprise
|
|
Small and Medium Business
|
|
Wholesale
|
|
Consumer
|
|
Total Segments
|
|
Operations and Other
|
|
Total
|
|
|
(Dollars in millions)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IP and Data Services
|
$
|
1,682
|
|
|
2,485
|
|
|
1,078
|
|
|
1,369
|
|
|
—
|
|
|
6,614
|
|
|
—
|
|
|
6,614
|
|
|
Transport and Infrastructure
|
1,230
|
|
|
1,484
|
|
|
424
|
|
|
2,118
|
|
|
—
|
|
|
5,256
|
|
|
—
|
|
|
5,256
|
|
|
Voice and Collaboration
|
365
|
|
|
1,495
|
|
|
1,366
|
|
|
865
|
|
|
—
|
|
|
4,091
|
|
|
—
|
|
|
4,091
|
|
|
IT and Managed Services
|
266
|
|
|
301
|
|
|
50
|
|
|
8
|
|
|
—
|
|
|
625
|
|
|
—
|
|
|
625
|
|
|
Broadband
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,824
|
|
|
2,824
|
|
|
—
|
|
|
2,824
|
|
|
Voice
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,127
|
|
|
2,127
|
|
|
—
|
|
|
2,127
|
|
|
Regulatory
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
727
|
|
|
727
|
|
|
—
|
|
|
727
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
316
|
|
|
316
|
|
|
—
|
|
|
316
|
|
|
Total revenue
|
3,543
|
|
|
5,765
|
|
|
2,918
|
|
|
4,360
|
|
|
5,994
|
|
|
22,580
|
|
|
—
|
|
|
22,580
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and products
|
940
|
|
|
1,844
|
|
|
416
|
|
|
567
|
|
|
356
|
|
|
4,123
|
|
|
5,876
|
|
|
9,999
|
|
|
Selling, general and administrative
|
249
|
|
|
567
|
|
|
490
|
|
|
62
|
|
|
617
|
|
|
1,985
|
|
|
2,180
|
|
|
4,165
|
|
|
Less: share-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(186)
|
|
|
(186)
|
|
|
Total expense
|
1,189
|
|
|
2,411
|
|
|
906
|
|
|
629
|
|
|
973
|
|
|
6,108
|
|
|
7,870
|
|
|
13,978
|
|
|
Total adjusted EBITDA
|
$
|
2,354
|
|
|
3,354
|
|
|
2,012
|
|
|
3,731
|
|
|
5,021
|
|
|
16,472
|
|
|
(7,870)
|
|
|
8,602
|
|
Revenue and Expenses
Our segment revenue includes all revenue from our five segments as described in more detail above. Our segment revenue is based upon each customer's classification. We report our segment revenue based upon all services provided to that segment's customers. Our segment expenses include specific cost of service expenses incurred as a direct result of providing services and products to segment customers, along with selling, general and administrative expenses that are directly associated with specific segment customers or activities.
The following items are excluded from our segment results, because they are centrally managed and not monitored by or reported to our chief operating decision maker by segment:
•network expenses not incurred as a direct result of providing services and products to segment customers;
•centrally managed expenses such as Operations, Finance, Human Resources, Legal, Marketing, Product Management and IT, which are reported as "Other operating expenses" in the table below;
•depreciation and amortization expense or impairments;
•interest expense, because we manage our financing on a consolidated basis and have not allocated assets or debt to specific segments;
•stock-based compensation; and
•other income and expense items are not monitored as a part of our segment operations.
The following table reconciles total segment adjusted EBITDA to net loss for the years ended December 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Dollars in millions)
|
|
Total segment adjusted EBITDA
|
$
|
15,164
|
|
|
15,795
|
|
|
16,472
|
|
|
Depreciation and amortization
|
(4,710)
|
|
|
(4,829)
|
|
|
(5,120)
|
|
|
Goodwill impairment
|
(2,642)
|
|
|
(6,506)
|
|
|
(2,726)
|
|
|
Other operating expenses
|
(6,675)
|
|
|
(7,024)
|
|
|
(7,870)
|
|
|
Share-based compensation
|
(175)
|
|
|
(162)
|
|
|
(186)
|
|
|
Operating income (loss)
|
962
|
|
|
(2,726)
|
|
|
570
|
|
|
Total other expense, net
|
(1,744)
|
|
|
(2,040)
|
|
|
(2,133)
|
|
|
Loss before income taxes
|
(782)
|
|
|
(4,766)
|
|
|
(1,563)
|
|
|
Income tax expense
|
450
|
|
|
503
|
|
|
170
|
|
|
Net loss
|
$
|
(1,232)
|
|
|
(5,269)
|
|
|
(1,733)
|
|
We do not have any single customer that provides more than 10% of our consolidated total operating revenue.
The assets we hold outside of the U.S. represent less than 10% of our total assets. Revenue from sources outside of the U.S. is responsible for less than 10% of our total operating revenue.
(17) Commitments, Contingencies and Other Items
We are subject to various claims, legal proceedings and other contingent liabilities, including the matters described below, which individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. As a matter of course, we are prepared to both litigate these matters to judgment as needed, as well as to evaluate and consider reasonable settlement opportunities.
Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for our litigation and non-income tax contingencies at December 31, 2020 and December 31, 2019 aggregated to approximately $141 million and $180 million, respectively, and are included in other current liabilities and other liabilities in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows.
In this Note, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in that matter.
Principal Proceedings
Shareholder Class Action Suit
Lumen and certain Lumen Board of Directors members and officers were named as defendants in a putative shareholder class action lawsuit filed on June 12, 2018 in the Boulder County District Court of the state of Colorado, captioned Houser et al. v. CenturyLink, et al. The complaint asserts claims on behalf of a putative class of former Level 3 shareholders who became CenturyLink, Inc. shareholders as a result of our acquisition of Level 3. It alleges that the proxy statement provided to the Level 3 shareholders failed to disclose various material information of several kinds, including information about strategic revenue, customer loss rates, and customer account issues, among other items. The complaint seeks damages, costs and fees, rescission, rescissory damages, and other equitable relief. In May 2020, the court dismissed the complaint. Plaintiffs appealed that decision, and the appeal is pending.
State Tax Suits
Since 2012, a number of Missouri municipalities have asserted claims in the Circuit Court of St. Louis County, Missouri, alleging that we and several of our subsidiaries have underpaid taxes. These municipalities are seeking, among other things, declaratory relief regarding the application of business license and gross receipts taxes and back taxes from 2007 to the present, plus penalties and interest. In a February 2017 ruling in connection with one of these pending cases, the court entered an order awarding plaintiffs $4 million and broadening the tax base on a going-forward basis. We appealed that decision to the Missouri Supreme Court. In December 2019, it affirmed the circuit court's order in some respects and reversed it in others, remanding the case to the circuit court for further proceedings. The Missouri Supreme Court's decision reduced our exposure in the case. In a June 2017 ruling in connection with another one of these pending cases, the circuit court made findings in a non-final ruling which, if not overturned or modified in light of the Missouri Supreme Court's decision, will result in a tax liability to us well in excess of the contingent liability we have established. The circuit court has indicated it does not intend to alter its 2017 ruling when it issues its final decision. Once a final decision is issued, we will have the right to pursue an appeal. We continue to vigorously defend against these claims.
Billing Practices Suits
In June 2017, a former employee filed an employment lawsuit against us claiming that she was wrongfully terminated for alleging that we charged some of our retail customers for products and services they did not authorize. Thereafter, based in part on the allegations made by the former employee, several legal proceedings were filed.
In June 2017, McLeod v. CenturyLink, a consumer class action, was filed against us in the U.S. District Court for the Central District of California alleging that we charged some of our retail customers for products and services they did not authorize. Other complaints asserting similar claims were filed in other federal and state courts. The lawsuits assert claims including fraud, unfair competition, and unjust enrichment. Also in June 2017, Craig. v. CenturyLink, Inc., et al., a securities investor class action, was filed in U.S. District Court for the Southern District of New York, alleging that we failed to disclose material information regarding improper sales practices, and asserting federal securities law claims. A number of other cases asserting similar claims have also been filed.
Beginning June 2017, we also received several shareholder derivative demands addressing related topics. In August 2017, the Board of Directors formed a special litigation committee of outside directors to address the allegations of impropriety contained in the shareholder derivative demands. In April 2018, the special litigation committee concluded its review of the derivative demands and declined to take further action. Since then, derivative cases were filed in Louisiana state court in the Fourth Judicial District Court for the Parish of Ouachita and in federal court in Louisiana and Minnesota. These cases were brought on behalf of CenturyLink, Inc. against certain current and former officers and directors of the Company and seek damages for alleged breaches of fiduciary duties.
The consumer class actions, the securities investor class actions, and the federal derivative actions were transferred to the U.S. District Court for the District of Minnesota for coordinated and consolidated pretrial proceedings as In Re: CenturyLink Sales Practices and Securities Litigation.
We received final court approval of our settlement of the consumer class actions for payments totaling $15.5 million, plus certain notice and administration costs. Approximately 12,000 potential class members elected to opt out of the class settlement and may elect to pursue their individual claims against us on these issues through various dispute resolution processes, including individual arbitration. Subject to certain conditions, we have agreed to settle claims of approximately 11,000 such class members asserted by one law firm. Additionally, we have reached an agreement settling the securities investor class actions for payment of $55 million, which we expect to be paid by our insurers. The settlement of the securities investor class claims is subject to court approval.
We have engaged in discussions regarding related claims with a number of state attorneys general, and have entered into agreements settling certain of the consumer practices claims asserted by state attorneys general. While we do not agree with allegations raised in these matters, we have been willing to consider reasonable settlements where appropriate.
Peruvian Tax Litigation
In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of our Peruvian subsidiaries asserting $26 million, of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, we believe the total amount of our exposure is $2 million at December 31, 2020.
We challenged the assessments via administrative and then judicial review processes. In October 2011, the highest administrative review tribunal (the Tribunal) decided the central issue underlying the 2002 assessments in SUNAT's favor. We appealed the Tribunal's decision to the first judicial level, which decided the central issue in favor of Level 3. SUNAT and we filed cross-appeals with the court of appeal. In May 2017, the court of appeal issued a decision reversing the first judicial level. In June 2017, we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level. Oral argument was held before the Supreme Court of Justice in October 2018. A decision on this case is pending.
In October 2013, the Tribunal decided the central issue underlying the 2001 assessments in SUNAT’s favor. We appealed that decision to the first judicial level in Peru, which decided the central issue in favor of SUNAT. In June 2017, we filed an appeal with the court of appeal. In November 2017, the court of appeals issued a decision affirming the first judicial level and we filed an appeal of the decision to the Supreme Court of Justice. Oral argument was held before the Supreme Court of Justice in June 2019. A decision on this case is pending.
Brazilian Tax Claims
The São Paulo and Rio de Janeiro state tax authorities have issued tax assessments against our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”), mainly with respect to revenue from leasing certain assets and revenue from the provision of Internet access services by treating such activities as the provision of communications services, to which the ICMS tax applies. We filed objections to these assessments in both states, arguing among other things that neither the lease of assets nor the provision of Internet access qualifies as "communication services" subject to ICMS.
We have appealed to the respective state judicial courts the decisions by the respective state administrative courts that rejected our objections to these assessments. In cases in which state lower courts ruled partially in our favor finding that the lease assets are not subject to ICMS, the State appealed those rulings. In other cases, the assessment was affirmed at the first administrative level and we have appealed to the second administrative level. Other assessments are still pending state judicial decisions.
We are vigorously contesting all such assessments in both states and view the assessment of ICMS on revenue from equipment leasing and Internet access to be without merit. We estimate that these assessments, if upheld, could result in a loss of $17 million to as high as $49 million as of December 31, 2020, in excess of the reserved accruals established for these matters.
Qui Tam Action
Level 3 was notified in late 2017 of a qui tam action pending against Level 3 Communications, Inc. and others in the U.S. District Court for the Eastern District of Virginia, captioned United States of America ex rel., Stephen Bishop v. Level 3 Communications, Inc. et al. The original qui tam complaint and an amended complaint were filed under seal on November 26, 2013 and June 16, 2014, respectively. The court unsealed the complaints on October 26, 2017.
The amended complaint alleges that Level 3, principally through two former employees, submitted false claims and made false statements to the government in connection with two government contracts. The relator seeks damages in this lawsuit of approximately $50 million, subject to trebling, plus statutory penalties, pre-and-post judgment interest, and attorney’s fees. The case is currently stayed.
Level 3 is evaluating its defenses to the claims. At this time, Level 3 does not believe it is probable Level 3 will incur a material loss. If, contrary to its expectations, the plaintiff prevails in this matter and proves damages at or near $50 million, and is successful in having those damages trebled, the outcome could have a material adverse effect on our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.
Several people, including two former Level 3 employees were indicted in the U.S. District Court for the Eastern District of Virginia on October 3, 2017, and charged with, among other things, accepting kickbacks from a subcontractor, who was also indicted, for work to be performed under a prime government contract. Of the two former employees, one entered into a plea agreement, and the other is deceased. Level 3 is fully cooperating in the government’s investigations in this matter.
Other Proceedings, Disputes and Contingencies
From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, regulatory hearings relating primarily to our rates or services, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third party tort actions.
We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of which are seeking substantial recoveries. These cases have progressed to various stages and one or more may go to trial during 2021 if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.
We are subject to various foreign, federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $300,000 in fines and penalties.
The outcome of these other proceedings described under this heading is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.
The matters listed above in this Note do not reflect all of our contingencies. The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us.
Right-of-Way
At December 31, 2020, our future rental commitments for Right-of-Way agreements were as follows:
|
|
|
|
|
|
|
|
|
Right-of-Way Agreements
|
|
|
(Dollars in millions)
|
|
2021
|
$
|
221
|
|
|
2022
|
135
|
|
|
2023
|
91
|
|
|
2024
|
78
|
|
|
2025
|
67
|
|
|
2026 and thereafter
|
673
|
|
|
Total future minimum payments
|
$
|
1,265
|
|
Purchase Commitments
We have several commitments primarily for marketing activities and support services from a variety of vendors to be used in the ordinary course of business totaling $1.0 billion at December 31, 2020. Of this amount, we expect to purchase $403 million in 2021, $328 million in 2022 through 2023, and $98 million in 2024 and 2025 and $171 million in 2026 and thereafter. These amounts do not represent our entire anticipated purchases in the future, but represent only those items for which we were contractually committed as of December 31, 2020.
(18) Other Financial Information
Other Current Assets
The following table presents details of other current assets in our consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions)
|
|
Prepaid expenses
|
$
|
290
|
|
|
274
|
|
|
Income tax receivable
|
7
|
|
|
35
|
|
|
Materials, supplies and inventory
|
105
|
|
|
105
|
|
|
Contract assets
|
66
|
|
|
42
|
|
|
Contract acquisition costs
|
173
|
|
|
178
|
|
|
Contract fulfillment costs
|
114
|
|
|
115
|
|
|
Other
|
53
|
|
|
70
|
|
|
Total other current assets
|
$
|
808
|
|
|
819
|
|
Included in accounts payable at December 31, 2020 and 2019 were $329 million and $469 million, respectively, associated with capital expenditures. Also included in accounts payable at December 31, 2019 was $106 million representing book overdrafts. There were no book overdrafts at December 31, 2020.
(19) Labor Union Contracts
As of December 31, 2020, approximately 23% of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). We believe that relations with our employees continue to be generally good. Approximately 1% of our union-represented employees were subject to collective bargaining agreements that expired as of December 31, 2020 and are currently being renegotiated. Approximately 14% of our represented employees are subject to collective bargaining agreements that are scheduled to expire over the 12 month period ending December 31, 2021.
(20) Accumulated Other Comprehensive Loss
Information Relating to 2020
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheet by component for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Post-Retirement
Benefit Plans
|
|
Foreign Currency
Translation
Adjustment
and Other
|
|
Interest Rate Swap
|
|
Total
|
|
|
(Dollars in millions)
|
|
Balance at December 31, 2019
|
$
|
(2,229)
|
|
|
(184)
|
|
|
(228)
|
|
|
(39)
|
|
|
(2,680)
|
|
|
Other comprehensive loss before reclassifications
|
(115)
|
|
|
(103)
|
|
|
(37)
|
|
|
(86)
|
|
|
(341)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
147
|
|
|
15
|
|
|
—
|
|
|
46
|
|
|
208
|
|
|
Net current-period other comprehensive income (loss)
|
32
|
|
|
(88)
|
|
|
(37)
|
|
|
(40)
|
|
|
(133)
|
|
|
Balance at December 31, 2020
|
$
|
(2,197)
|
|
|
(272)
|
|
|
(265)
|
|
|
(79)
|
|
|
(2,813)
|
|
The table below presents further information about our reclassifications out of accumulated other comprehensive loss by component for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
(Decrease) Increase
in Net Loss
|
|
Affected Line Item in Consolidated Statement of
Operations
|
|
|
|
(Dollars in millions)
|
|
|
|
Interest rate swaps
|
|
$
|
62
|
|
|
Interest expense
|
|
Income tax expense
|
|
(16)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension & post-retirement plans (1)
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
203
|
|
Other (expense) income, net
|
|
Prior service cost
|
|
7
|
|
Other (expense) income, net
|
|
Curtailment loss
|
|
4
|
|
Other (expense) income, net
|
|
Total before tax
|
|
214
|
|
|
|
|
Income tax benefit
|
|
(52)
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
162
|
|
|
|
________________________________________________________________________
(1)See Note 10—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
Information Relating to 2019
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheet by component for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Post-Retirement
Benefit Plans
|
|
Foreign Currency
Translation
Adjustment
and Other
|
|
Interest Rate Swap
|
|
Total
|
|
|
(Dollars in millions)
|
|
Balance at December 31, 2018
|
$
|
(2,173)
|
|
|
(58)
|
|
|
(230)
|
|
|
—
|
|
|
(2,461)
|
|
|
Other comprehensive (loss) income before reclassifications
|
(219)
|
|
|
(138)
|
|
|
2
|
|
|
(41)
|
|
|
(396)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
163
|
|
|
12
|
|
|
—
|
|
|
2
|
|
|
177
|
|
|
Net current-period other comprehensive (loss) income
|
(56)
|
|
|
(126)
|
|
|
2
|
|
|
(39)
|
|
|
(219)
|
|
|
Balance at December 31, 2019
|
$
|
(2,229)
|
|
|
(184)
|
|
|
(228)
|
|
|
(39)
|
|
|
(2,680)
|
|
The table below presents further information about our reclassifications out of accumulated other comprehensive loss by component for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
(Decrease) Increase
in Net Loss
|
|
Affected Line Item in Consolidated Statement of
Operations
|
|
|
|
(Dollars in millions)
|
|
|
|
Amortization of pension & post-retirement plans(1)
|
|
|
|
|
|
Interest rate swap
|
|
$
|
2
|
|
|
Interest expense
|
|
Net actuarial loss
|
|
224
|
|
|
Other (expense) income, net
|
|
Prior service cost
|
|
8
|
|
|
Other (expense) income, net
|
|
Total before tax
|
|
234
|
|
|
|
|
Income tax benefit
|
|
(57)
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
177
|
|
|
|
________________________________________________________________________
(1)See Note 10—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
(21) Dividends
Our Board of Directors declared the following dividends payable in 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Declared
|
|
Record Date
|
|
Dividend
Per Share
|
|
Total Amount
|
|
Payment Date
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
November 19, 2020
|
|
11/30/2020
|
|
$
|
0.250
|
|
|
$
|
274
|
|
|
12/11/2020
|
|
August 20, 2020
|
|
8/31/2020
|
|
0.250
|
|
|
274
|
|
|
9/11/2020
|
|
May 20, 2020
|
|
6/1/2020
|
|
0.250
|
|
|
274
|
|
|
6/12/2020
|
|
February 27, 2020
|
|
3/9/2020
|
|
0.250
|
|
|
274
|
|
|
3/20/2020
|
|
November 21, 2019
|
|
12/2/2019
|
|
0.250
|
|
|
273
|
|
|
12/13/2019
|
|
August 22, 2019
|
|
9/2/2019
|
|
0.250
|
|
|
273
|
|
|
9/13/2019
|
|
May 23, 2019
|
|
6/3/2019
|
|
0.250
|
|
|
274
|
|
|
6/14/2019
|
|
March 1, 2019
|
|
3/12/2019
|
|
0.250
|
|
|
273
|
|
|
3/22/2019
|
The declaration of dividends is solely at the discretion of our Board of Directors, which may change or terminate our dividend practice at any time for any reason without prior notice. On February 25, 2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share.