LEVEL 3 COMMUNICATIONS INC, 10-Q filed on 11/7/2016
Quarterly Report
Document and Entity Information Document
9 Months Ended
Sep. 30, 2016
Nov. 3, 2016
Entity Information [Line Items]
 
 
Entity Registrant Name
LEVEL 3 COMMUNICATIONS INC 
 
Entity Central Index Key
0000794323 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2016 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
359,925,515 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q3 
 
Consolidated Statements of Income (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Revenue
$ 2,033 
$ 2,062 
$ 6,140 
$ 6,176 
Costs and Expenses:
 
 
 
 
Network access costs
675 
706 
2,045 
2,125 
Network related expenses
337 
369 
1,014 
1,088 
Depreciation and amortization
319 
296 
930 
872 
Selling, general and administrative Expenses
348 
364 
1,061 
1,098 
Total Costs and Expenses
1,679 
1,735 
5,050 
5,183 
Operating Income
354 
327 
1,090 
993 
Other Income (Expense):
 
 
 
 
Interest income
1 
0 
3 
1 
Interest expense
(139)
(145)
(414)
(490)
Loss on modification and extinguishment of Debt
0 
0 
(40)
(163)
Venezuela deconsolidation charge
0 
(171)
0 
(171)
Other, net
1 
6 
(14)
(21)
Total Other Expense
(137)
(310)
(465)
(844)
Income Before Income Taxes
217 
17 
625 
149 
Income Tax Expense
(74)
(16)
(198)
(39)
Net Income
$ 143 
$ 1 
$ 427 
$ 110 
Basic Earnings per Common Share
 
 
 
 
Net Income Per Share
$ 0.40 
$ 0.00 
$ 1.19 
$ 0.31 
Weighted-Average Shares Outstanding (in thousands)
359,561 
355,791 
358,097 
352,411 
Diluted Earnings per Common Share
 
 
 
 
Net Income Per Share
$ 0.39 
$ 0.00 
$ 1.18 
$ 0.31 
Weighted-Average Shares Outstanding (in thousands)
361,907 
358,714 
361,072 
355,453 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Net Income
$ 143 
$ 1 
$ 427 
$ 110 
Other Comprehensive Income (Loss) net of Tax:
 
 
 
 
Foreign currency translation adjustments, net of tax effect of $6, $0, $30 and $0
(15)
(73)
9 
(130)
Defined benefit pension plan adjustments, net of tax effect of ($1), $0, ($2) and $0
0 
1 
(1)
2 
Other Comprehensive Income (Loss), Net of Tax
(15)
(72)
8 
(128)
Comprehensive Income (Loss)
$ 128 
$ (71)
$ 435 
$ (18)
Comprehensive Income Parenthetical (Parentheticals) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Comprehensive Income Parenthetical [Abstract]
 
 
 
 
Foreign currency translation adjustments, tax effect
$ 6 
$ 0 
$ 30 
$ 0 
Defined benefit pension plan adjustments, tax effect
$ (1)
$ 0 
$ (2)
$ 0 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Assets:
 
 
Cash and cash equivalents
$ 1,569 
$ 854 
Restricted cash and securities
8 
8 
Receivables, less allowances for doubtful accounts of $34 and $32, respectively
749 
757 
Other
131 
111 
Total Current Assets
2,457 
1,730 
Property, Plant and Equipment, net of accumulated depreciation of $11,070 and $10,365, respectively
10,167 
9,878 
Restricted Cash and Securities
31 
42 
Goodwill
7,736 
7,749 
Other Intangibles, net
967 
1,127 
Deferred Tax Assets
3,339 
3,441 
Other Assets, net
49 
50 
Total Assets
24,746 
24,017 
Liabilities and Stockholders' Equity:
 
 
Accounts payable
728 
629 
Current portion of long-term debt
7 
15 
Accrued payroll and employee benefits
194 
218 
Accrued interest
135 
108 
Current portion of deferred revenue
263 
267 
Other
180 
179 
Total Current Liabilities
1,507 
1,416 
Long-Term Debt, less current portion
10,875 
10,866 
Deferred Revenue, less current portion
1,010 
977 
Other Liabilities
630 
632 
Total Liabilities
14,022 
13,891 
Commitments and Contingencies
   
   
Stockholders’ Equity:
 
 
Preferred stock, $.01 par value, authorized 10,000,000 shares: no shares issued or outstanding
0 
0 
Common stock, $.01 par value, authorized 433,333,333 shares in both periods; 359,687,815 issued and outstanding at September 30, 2016 and 356,374,473 issued and outstanding at December 31, 2015
4 
4 
Additional paid-in capital
19,763 
19,642 
Accumulated other comprehensive loss
(293)
(301)
Accumulated deficit
(8,750)
(9,219)
Total Stockholders’ Equity
10,724 
10,126 
Total Liabilities and Stockholders’ Equity
$ 24,746 
$ 24,017 
Consolidated Balance Sheets Parentheticals (Parentheticals) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Allowance for doubtful accounts
$ 34 
$ 32 
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment
$ 11,070 
$ 10,365 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
0 
0 
Preferred stock, shares outstanding
0 
0 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
433,333,333 
433,333,333 
Common stock, shares issued
359,687,815 
356,374,473 
Common stock, shares outstanding
359,687,815 
356,374,473 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Cash Flows from Operating Activities:
 
 
Net Income
$ 427 
$ 110 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
930 
872 
Non-cash compensation expense attributable to stock awards
121 
92 
Loss on modification and extinguishment of debt
40 
163 
Venezuela deconsolidation charge
0 
171 
Accretion of debt discount and amortization of debt issuance costs
15 
18 
Accrued interest on long-term debt, net
27 
(28)
Deferred income taxes
163 
5 
(Gain) Loss on sale of property, plant and equipment and other assets
(1)
1 
Other, net
(7)
32 
Changes in working capital items:
 
 
Receivables
16 
(130)
Other current assets
(40)
(21)
Accounts payable
99 
(1)
Deferred revenue
21 
59 
Other current liabilities
(25)
(44)
Net Cash Provided by Operating Activities
1,786 
1,299 
Cash Flows from Investing Activities:
 
 
Capital expenditures
(1,028)
(899)
Cash related to deconsolidated Venezuela operations
0 
(83)
Change in restricted cash and securities, net
11 
(24)
Proceeds from sale of property, plant and equipment and other assets
1 
3 
Other
0 
(14)
Net Cash Used in Investing Activities
(1,016)
(1,017)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
764 
3,947 
Payments on and repurchases of long-term debt and capital leases
(818)
(4,102)
Net Cash Used in Financing Activities
(54)
(155)
Effect of Exchange Rates on Cash and Cash Equivalents
(1)
(16)
Net Change in Cash and Cash Equivalents
715 
111 
Cash and Cash Equivalents at Beginning of Period
854 
580 
Cash and Cash Equivalents at End of Period
1,569 
691 
Supplemental Disclosure of Cash Flow Information:
 
 
Cash interest paid
372 
495 
Income taxes paid, net of refunds
26 
40 
Non-cash Financing Activities:
 
 
Capital lease obligations incurred
1 
6 
Long-term debt conversion into equity
0 
333 
Accrued interest conversion into equity
$ 0 
$ 10 
Organization and Summary of Significant Accounting Policies (Notes)
Organization and Summary of Significant Accounting Policies
Organization and Summary of Significant Accounting Policies

Description of Business

Level 3 Communications, Inc. and subsidiaries (the "Company" or "Level 3") is an international facilities-based provider (that is, a provider that owns or leases a substantial portion of the plant, property and equipment necessary to provide its services) of a broad range of integrated communications services. The Company created its communications network by constructing its own assets and through a combination of purchasing other companies and purchasing or leasing facilities from others. The Company designed its network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.

Principles of Consolidation and Basis of Presentation

The Consolidated Financial Statements include the accounts of Level 3 Communications, Inc. and subsidiaries in which it has a controlling interest. All significant intercompany accounts and transactions have been eliminated. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").

As part of its consolidation policy, the Company considers its controlled subsidiaries, investments in businesses in which the Company is not the primary beneficiary or does not have effective control but has the ability to significantly influence operating and financial policies, and variable interests resulting from economic arrangements that give the Company rights to economic risks or rewards of a legal entity. The Company does not have variable interests in a variable interest entity where it is required to consolidate the entity as the primary beneficiary.
    
Prior to October 1, 2015, the Company included the results of its wholly owned Venezuelan subsidiary in its Consolidated Financial Statements using the consolidation method of accounting. The Company’s Venezuelan subsidiary was in the Latin America segment and had total revenue of $25 million and $72 million, with Adjusted EBITDA of $16 million and $46 million, for the three and nine months ended September 30, 2015, respectively. For more information on the Company's segments and non-GAAP measures see Note 9 - Segment Information.
Venezuelan exchange control regulations have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar, and have restricted the Company's Venezuelan operations’ ability to pay dividends and settle intercompany obligations in U.S. dollars. The severe currency controls imposed by the Venezuelan government have significantly limited the ability to realize the benefits from earnings of the Company’s Venezuelan operations and access the resulting liquidity provided by those earnings in U.S. dollars. The Company expects that this condition will continue for the foreseeable future. Additionally, government regulations affecting the Company's ability to manage its Venezuelan subsidiary’s capital structure, purchasing, product pricing, customer invoicing and collections, and labor relations; and the current political and economic situation within Venezuela have resulted in an acute degradation in the Company's ability to make key operational decisions for its Venezuelan operations. This lack of exchangeability into U.S. dollars and the degradation in the Company's ability to control key operational decisions has resulted in a lack of control over the Company's Venezuelan subsidiary for U.S. accounting purposes. Therefore, while continuing to wholly own its Venezuelan subsidiary, the Company concluded it no longer met the accounting criteria for consolidation and deconsolidated its Venezuelan subsidiary on September 30, 2015, and began accounting for its variable interest investment in its Venezuelan operations using the cost method of accounting. The factors that led to the Company's conclusions at the end of the third quarter of 2015 continued to exist through the end of the third quarter of 2016. Any dividends from the Company's Venezuelan subsidiary are recorded as other income upon receipt of the cash in U.S. dollars. Prior period results have not been adjusted to reflect the deconsolidation of the Company's Venezuelan subsidiary.
The accompanying Consolidated Balance Sheet as of December 31, 2015, which was derived from audited Consolidated Financial Statements, and the unaudited interim Consolidated Financial Statements as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015. In the opinion of the Company’s management, these financial statements contain all adjustments necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the interim periods presented herein. The results of operations for an interim period are not necessarily indicative of the results of operations expected for a full fiscal year.
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates under different assumptions or conditions and such differences could be material.

Reclassifications

Certain amounts in the prior year Consolidated Financial Statements and accompanying footnotes have been reclassified to conform to the current year's presentation primarily pursuant to the adoption of Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs. As of December 31, 2015, approximately $19 million of current debt issuance costs have been reclassified from other current assets to long-term debt, less current portion and approximately $109 million of non-current debt issuance costs have been reclassified from other non-current assets to long-term debt, less current portion.

Recently Issued Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting, as part of its simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted, but all of the amendments must be adopted in the same period.
The Company elected to early adopt ASU 2016-09 in the third quarter of 2016, which requires adjustments to be reflected as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the modified retrospective transition method, which resulted in a cumulative-effect adjustment of $42 million recorded to accumulated deficit as of January 1, 2016. 
This ASU amended the definition of assumed proceeds when applying the treasury stock method of computing earnings per share to exclude the amount of excess tax benefits that would be recognized in additional paid-in capital. This amendment increased the amount of Diluted Weighted-Average Shares Outstanding, as noted in the table below.
The new presentation requirements for excess tax benefits to be shown on the statement of cash flows as an operating activity and presenting employee taxes paid where the employer withholds shares for tax-withholding purposes as a financing activity had no effect to any of the periods presented in the Company’s consolidated cash flows statements as there had been no such activities in the statements of cash flow. The Company has elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.
Adoption of the new standard also resulted in the recognition of excess tax benefits as a reduction to income tax expense of $10 million and $21 million for the three and nine months ended September 30, 2016, respectively, and adjusted the Company's previously reported quarterly results for 2016 as follows:

 
Three Months Ended March 31, 2016
 
Three Months Ended June 30, 2016
(dollars in millions, except per share data)
As
Reported
 
As Adjusted
 
As
Reported
 
As Adjusted
Net Income
$
124

 
$
128

 
$
149

 
$
156

Basic Earnings Per Common Share
$
0.35

 
$
0.36

 
$
0.42

 
$
0.44

Diluted Earnings Per Common Share
$
0.34

 
$
0.36

 
$
0.41

 
$
0.43

Diluted Weighted-Average Shares Outstanding (in thousands)
360,339

 
360,745

 
360,867

 
361,250

 
 
 
 
 
 
 
 
 
 
March 31, 2016
 
June 30, 2016
(dollars in millions)
As
Reported
 
As Adjusted
 
As
Reported
 
As Adjusted
Accumulated deficit
$
(9,095
)
 
$
(9,049
)
 
$
(8,946
)
 
$
(8,893
)

In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842), which requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This ASU will replace most existing leasing guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early application is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU 2016-02 will have on its Consolidated Financial Statements and related disclosures, and expects the new guidance to significantly increase the reported assets and liabilities on its Consolidated Balance Sheets.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ASC Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its Consolidated Financial Statements and related disclosures and has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
Subsequent Events (Notes)
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
CenturyLink Merger

On October 31, 2016, the Company entered into an agreement and plan of merger (the "Merger Agreement") with CenturyLink, Inc. ("CenturyLink"), Wildcat Merger Sub 1 LLC, a Delaware limited liability company and an indirect wholly-owned subsidiary of CenturyLink ("Merger Sub 1"), and WWG Merger Sub LLC, a Delaware limited liability company and an indirect wholly-owned subsidiary of CenturyLink ("Merger Sub 2"), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, the Company will be acquired by CenturyLink in a cash and stock transaction, including the assumption of the Company's debt (the "CenturyLink Merger").

Under the Merger Agreement, at the effective time of the merger of Merger Sub 1 with and into the Company (the "Initial Merger"), (i) each issued and outstanding share of common stock of the Company, will be converted into 1.4286 shares (the "Stock Consideration") of CenturyLink's common stock par value $1.00 per share and (ii) the right to receive $26.50 in cash (the "Cash Consideration" and, together with the Stock Consideration, the "Merger Consideration"). In addition, the Merger Agreement provides that at the effective time of the CenturyLink Merger, each issued and outstanding restricted stock unit award granted prior to April 1, 2014 and each restricted stock unit award granted to a non-employee member of the Company’s Board of Directors will be exchanged for the Merger Consideration. Further, at the effective time of the CenturyLink Merger, each issued and outstanding restricted stock unit award granted on or after April 1, 2014, other than those granted to non-employee members of the Company’s Board of Directors, will be assumed and converted automatically into a restricted stock unit award of CenturyLink common stock that will be subject to the same service-based vesting conditions as applicable to such awards prior to the transaction (but not any performance-based vesting conditions, which will be deemed satisfied based on forecasted and adjusted results through the closing of the transaction (as determined by Compensation Committee of the Company’s Board of Directors)). The CenturyLink Merger is subject to the receipt of certain regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, review by the U.S. Federal Communications Commission, certain state regulatory approvals and other customary closing conditions. The transaction is also subject to the approval of CenturyLink shareholders and Level 3 stockholders. CenturyLink has entered into a voting agreement with STT Crossing Ltd. (a wholly owned subsidiary of ST Telemedia), holder of approximately 18 percent of Level 3's outstanding common stock, pursuant to which it will vote its Level 3 shares in favor of the transaction. All existing indebtedness of Level 3 is expected to remain in place at Level 3 and Level 3 will not incur any incremental indebtedness or guarantee any indebtedness of CenturyLink to finance the transaction.
Earnings Per Share (Notes)
Earnings Per Share
Earnings Per Share

The Company computes basic earnings per share by dividing net income for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the net income for the period by the weighted average number of shares of common stock outstanding during the period and including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding convertible notes and stock-based compensation awards.

The effects of approximately 2 million and 3 million total outperform stock appreciation rights ("OSOs"), restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs") outstanding at September 30, 2016 have been included in the computation of diluted earnings per share for the three and nine months ended September 30, 2016, respectively. Approximately 1 million of PRSUs granted in 2015 and 2016 were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2016, as they were contingently issuable and no shares would have been issued if these periods were the end of the contingency period. The effect of approximately 4 million total OSOs and RSUs outstanding at September 30, 2015 has been included in the computation of diluted earnings per share for the three months and nine months ended September 30, 2015. PRSUs were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2015, as they were contingently issuable and no shares would have been issued if these periods were the end of the contingency period.
Other Intangible Assets (Notes)
Acquired Intangible Assets
Other Intangible Assets

Other intangible assets as of September 30, 2016 and December 31, 2015 were as follows (dollars in millions):

 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
September 30, 2016
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Customer Contracts and Relationships
$
1,974

 
$
(1,069
)
 
$
905

Trademarks
55

 
(55
)
 
—

Patents and Developed Technology
230

 
(183
)
 
47

 
2,259

 
(1,307
)
 
952

Indefinite-Lived Intangible Assets:
 
 
 
 
 
Trade Name
15

 
—

 
15

 
$
2,274

 
$
(1,307
)
 
$
967

December 31, 2015
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Customer Contracts and Relationships
$
1,975

 
$
(932
)
 
$
1,043

Trademarks
55

 
(55
)
 
—

Patents and Developed Technology
230

 
(161
)
 
69

 
2,260

 
(1,148
)
 
1,112

Indefinite-Lived Intangible Assets:
 
 
 
 
 
Trade Name
15

 
—

 
15

 
$
2,275

 
$
(1,148
)
 
$
1,127



Finite-lived intangible asset amortization expense was $53 million and $159 million for the three and nine months ended September 30, 2016 and $58 million and $172 million for the three and nine months ended September 30, 2015.

At September 30, 2016, the weighted average remaining useful lives of the Company's finite-lived intangible assets was 5.0 years in total; 5.2 years for customer contracts and relationships, and 2.9 years for patents and developed technology.

As of September 30, 2016, estimated amortization expense for the Company’s finite-lived intangible assets over the next five years is as follows (dollars in millions):

2016 (remaining three months)
$
52

2017
196

2018
193

2019
181

2020
166

2021
143

Thereafter
21

 
$
952

Fair Value of Financial Instruments (Notes)
Fair Value of Financial Instruments
Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, restricted cash and securities, receivables, accounts payable, capital leases, other liabilities and long-term debt (including the current portion). The carrying values of cash and cash equivalents, restricted cash and securities, receivables, accounts payable, capital leases and other liabilities approximated their fair values at September 30, 2016 and December 31, 2015.

GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements and disclosures for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as interest and foreign exchange rates, transfer restrictions, and risk of non-performance.

Fair Value Hierarchy

GAAP establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value measurement of each class of assets and liabilities is dependent upon its categorization within the fair value hierarchy, based upon the lowest level of input that is significant to the fair value measurement of each class of asset and liability. GAAP establishes three levels of inputs that may be used to measure fair value:

Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2— Unadjusted quoted prices for similar assets or liabilities in active markets, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3— Unobservable inputs for the asset or liability.

The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period. There were no transfers within the fair value hierarchy during each of the nine months ended September 30, 2016 and September 30, 2015.

The table below presents the fair values for the Company’s long-term debt as well as the input levels used to determine these fair values as of September 30, 2016 and December 31, 2015:

 
 
 
 
 
 
Fair Value Measurement Using
 
 
Total Carrying Value in Consolidated Balance Sheets
 
Unadjusted Quoted Prices in Active
Markets for Identical Assets or Liabilities (Level 1)
 
Significant Other Observable Inputs (Level 2)
(dollars in millions)
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
Liabilities Not Recorded at Fair Value in the Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt, including the current portion:
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans
 
$
4,564

 
$
4,556

 
$
4,636

 
$
4,570

 
$
—

 
$
—

Senior Notes
 
6,131

 
6,126

 
6,439

 
6,298

 
—

 
—

Capital Leases and Other
 
187

 
199

 
—

 
—

 
187

 
199

Total Long-term Debt, including the current portion
 
$
10,882

 
$
10,881

 
$
11,075

 
$
10,868

 
$
187

 
$
199



The Company does not have any assets or liabilities where the fair value is measured using significant unobservable inputs (Level 3).

Term Loans

The fair value of the Term Loans referenced above was approximately $4.6 billion at both September 30, 2016 and December 31, 2015. The fair value of each loan is based on quoted prices for identical terms and maturities. Each loan tranche is actively traded.

Senior Notes

The fair value of the Senior Notes referenced above was approximately $6.4 billion at September 30, 2016 and $6.3 billion at December 31, 2015, respectively, based on quoted prices for identical terms and maturities. Each series of notes is actively traded.

Capital Leases

The fair value of the Company's capital leases was determined by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates.
Long-Term Debt (Notes)
Long-term Debt
Long-Term Debt

    The following table summarizes the Company’s long-term debt (amounts in millions):
 
Date of
 
September 30, 2016
December 31, 2015
 
Issuance/Amendment
Maturity
Interest Payments
Interest Rate
Amount
Amount
Senior Secured Term Loans:
 
 
 
 
 
 
Borrowed by Level 3 Financing, Inc.
Tranche B-III 2019 Term Loan (1)(4)
Aug 2013
Aug 2019
Quarterly
LIBOR +3.00%
$
815

$
815

Tranche B 2020 Term Loan (1)(4)
Oct 2013
Jan 2020
Quarterly
LIBOR +3.00%
1,796

1,796

Tranche B-II 2022 Term Loan (1)(4)
May 2015
May 2022
Quarterly
LIBOR +2.75%
2,000

2,000

Senior Notes:
 
 
 
 
 
 
Issued by Level 3 Financing, Inc.
Floating Rate Senior Notes due 2018 (2)(4)
Nov 2013
Jan 2018
May/Nov
6-Month LIBOR +3.50%
300

300

7% Senior Notes due 2020 (2)
Aug 2012
Jun 2020
Jun/Dec
7.000%
—

775

6.125% Senior Notes due 2021 (2)
Nov 2013
Jan 2021
Apr/Oct
6.125%
640

640

5.375% Senior Notes due 2022 (2)
Aug 2014
Aug 2022
May/Nov
5.375%
1,000

1,000

5.625% Senior Notes due 2023 (2)
Jan 2015
Feb 2023
Jun/Dec
5.625%
500

500

5.125% Senior Notes due 2023 (2)
Apr 2015
May 2023
Mar/Sept
5.125%
700

700

5.375% Senior Notes due 2025 (2)
Apr 2015
May 2025
Mar/Sept
5.375%
800

800

5.375% Senior Notes due 2024 (2)
Nov 2015
Jan 2024
Jan/Jul
5.375%
900

900

5.25% Senior Notes due 2026 (2)
Mar 2016
Mar 2026
Apr/Oct
5.250%
775

—

Issued by Level 3 Communications, Inc.
5.75% Senior Notes due 2022 (3)
Dec 2014
Dec 2022
Mar/Sept
5.750%
600

600

Capital Leases
 
 
 
 
187

199

Total Debt Obligations
 
 
 
 
11,013

11,025

Unamortized discounts
 
 
 
 
(14
)
(16
)
Unamortized debt issuance costs
 
 
 
 
(117
)
(128
)
Current portion of long-term debt
 
 
 
 
(7
)
(15
)
Total Long-Term Debt
 
 
 
 
$
10,875

$
10,866


(1) The term loans are secured obligations and guaranteed by Level 3 Communications, Inc. and Level 3 Communications, LLC and certain other subsidiaries.
(2) The notes are fully and unconditionally guaranteed on an unsubordinated unsecured basis by Level 3 Communications, Inc. and Level 3 Communications, LLC.
(3) The notes were not guaranteed by any of Level 3 Communications, Inc.'s subsidiaries.
(4) The Tranche B-III 2019 Term Loan and the Tranche B 2020 Term Loan each had an interest rate of 4.000% as of September 30, 2016 and December 31, 2015. The Tranche B-II 2022 Term Loan had an interest rate of 3.500% as of September 30, 2016 and December 31, 2015. The Floating Rate Senior Notes due 2018 had an interest rate of 4.407% as of September 30, 2016 and 4.101% as of December 31, 2015. The interest rate on the Tranche B-III 2019 Term Loan, and the Tranche B 2020 Term Loan are set with a minimum LIBOR of 1.00%, and the Tranche B-II 2022 Term Loan is set with a minimum LIBOR of 0.75%.


Senior Secured Term Loans

As of September 30, 2016, Level 3 Financing, Inc., Level 3 Communications, Inc.'s direct wholly owned subsidiary ("Level 3 Financing") had a senior secured credit facility consisting of $815 million Tranche B-III Term Loan due 2019, $1.796 billion Tranche B Term Loan due 2020 and $2 billion Tranche B-II Term Loan due 2022.


Senior Notes

All of the notes pay interest semiannually, and allow for the redemption of the notes at the option of the issuer upon not less than 30 or more than 60 days’ prior notice by paying the greater of 101% of the principal amount or a “make-whole” amount, plus accrued interest. In addition, the notes also have a provision that allows for an additional right of optional redemption using cash proceeds received from the sale of equity securities. For specific details of these features and requirements, including the applicable premiums and timing, refer to the indentures for the respective senior notes in connection with the original issuances.

7% Senior Notes due 2020 and 5.25% Senior Notes due 2026

On March 22, 2016, Level 3 Financing issued $775 million in aggregate principal amount of its 5.25% Senior Notes due 2026 (the “5.25% Senior Notes due 2026”). The 5.25% Senior Notes due 2026 are fully and unconditionally guaranteed on an unsubordinated unsecured basis by Level 3 Communications, Inc. and now Level 3 Communications, LLC as of September 30, 2016.

The 5.25% Senior Notes due 2026 were not originally registered under the Securities Act of 1933, as amended. A registration rights agreement with respect to these notes became effective as of March 22, 2016.

On April 21, 2016, all of the outstanding principal amount of the 7% Senior Notes Due 2020 was redeemed at a redemption price equal to 104.138% of the principal amount, along with accrued and unpaid interest to but excluding the redemption date. To fund the redemption of these notes, Level 3 Financing used the net proceeds, along with cash on hand, from the March 22, 2016 issuance of its 5.25% Senior Notes due 2026. The Company recognized a loss on modification and extinguishment of debt of approximately $40 million in Other Expense in the second quarter of 2016 as a result of the redemption of the 7% Senior Notes due 2020.

Capital Leases

As of September 30, 2016, the Company had $187 million of capital leases. The Company leases property, equipment, certain dark fiber facilities and metro fiber under non-cancelable IRU agreements that are accounted for as capital leases. The average interest rate on these capital leases approximated 5.8% as of September 30, 2016.

Covenant Compliance

At September 30, 2016 and December 31, 2015, the Company was in compliance with the financial covenants on all outstanding debt issuances.

Long-Term Debt Maturities

Aggregate future contractual maturities of long-term debt and capital leases (excluding discounts and debt issuance costs) were as follows as of September 30, 2016 (dollars in millions):

2016 (remaining three months)
$
2

2017
7

2018
307

2019
822

2020
1,804

2021
650

Thereafter
7,421

 
$
11,013

Accumulated Other Comprehensive Loss (Notes)
Comprehensive Income (Loss) Note [Text Block]
Accumulated Other Comprehensive Loss

The accumulated balances for each classification of other comprehensive income (loss) were as follows:

(dollars in millions)
 
Net Foreign Currency Translation Adjustment
 
Defined Benefit Pension Plans
 
Total
Balance at December 31, 2014
 
$
(111
)
 
$
(36
)
 
$
(147
)
Other comprehensive loss before reclassifications
 
(130
)
 
—

 
(130
)
Amounts reclassified from accumulated other comprehensive loss
 
—

 
2

 
2

Balance at September 30, 2015
 
$
(241
)
 
$
(34
)
 
$
(275
)

Balance at December 31, 2015
 
$
(273
)
 
$
(28
)
 
$
(301
)
Other comprehensive income (loss) before reclassifications
 
9

 
(2
)
 
7

Amounts reclassified from accumulated other comprehensive loss
 
—

 
1

 
1

Balance at September 30, 2016
 
$
(264
)

$
(29
)

$
(293
)
Stock-Based Compensation (Notes)
Stock-Based Compensation
Stock-Based Compensation
The following table summarizes non-cash compensation expense attributable to stock-based awards for the three and nine months ended September 30, 2016 and 2015 (dollars in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Outperform Stock Appreciation Rights
$
—

 
$
1

 
$
2

 
$
4

Restricted Stock Units
26

 
15

 
60

 
37

Performance Restricted Stock Units
9

 
10

 
33

 
23

401(k) Match Expense
8

 
8

 
27

 
29

 
43

 
34

 
122

 
93

Capitalized Non-Cash Compensation
—

 
—

 
(1
)
 
(1
)
 
$
43

 
$
34

 
$
121

 
$
92



The Company capitalizes non-cash compensation for those employees directly involved in the construction of the network, installation of services for customers or the development of business support systems.

As of September 30, 2016, there were less than 1 million OSOs outstanding, and approximately 5 million total restricted stock and performance restricted stock units outstanding.
Segment Information (Notes)
Segment Reporting Disclosure [Text Block]
Segment Information

Operating segments are defined under GAAP as components of an enterprise for which separate financial information is available and evaluated regularly by the Company's chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. The Company's reportable segments consist of 1) North America, 2) Europe, the Middle East and Africa (EMEA) and 3) Latin America. Other separate business interests that are not segments include interest, certain corporate assets and overhead costs, and certain other general and administrative costs that are not allocated to any of the operating segments.

The CODM measures and evaluates segment performance primarily based upon revenue, revenue growth and Adjusted EBITDA. Adjusted EBITDA, as defined by the Company, is equal to net income from the Consolidated Statements of Income before (1) income tax expense, (2) total other expense, (3) non-cash impairment charges included within selling, general and administrative expenses and network related expenses, (4) depreciation and amortization expense, and (5) non-cash stock-based compensation expense included within selling, general and administrative expenses and network related expenses.

Adjusted EBITDA is not a measurement under GAAP and may not be used in the same way by other companies. Management believes that Adjusted EBITDA is an important part of the Company's internal reporting and is a key measure used by management to evaluate profitability and operating performance of the Company and to make resource allocation decisions. Management believes such measurement is especially important in a capital-intensive industry such as telecommunications. Management also uses Adjusted EBITDA to compare the Company's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure from period to period its ability to fund capital expenditures, fund growth, service debt and determine bonuses.

Adjusted EBITDA excludes non-cash impairment charges and non-cash stock-based compensation expense because of the non-cash nature of these items. Adjusted EBITDA also excludes interest income, interest expense and income tax expense because these items are associated with the Company's capitalization and tax structures. Adjusted EBITDA also excludes depreciation and amortization expense because these non-cash expenses reflect the effect of capital investments which management believes are better evaluated through cash flow measures. Adjusted EBITDA excludes net other expense because these items are not related to the primary operations of the Company.

There are limitations to using non-GAAP financial measures such as Adjusted EBITDA, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from the Company's calculations. Additionally, this financial measure does not include certain significant items such as interest income, interest expense, income tax expense, depreciation and amortization expense, non-cash impairment charges, non-cash stock-based compensation expense, and net other expense. Adjusted EBITDA should not be considered a substitute for other measures of financial performance reported in accordance with GAAP.

The following table presents revenue by segment:
 
 
Three Months Ended
 
Nine Months Ended
(dollars in millions)
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Core Network Services Revenue:
 
 
 
 
 
 
 
 
North America
 
$
1,572

 
$
1,551

 
$
4,778

 
$
4,636

EMEA
 
182

 
211

 
564

 
623

Latin America
 
176

 
183

 
491

 
555

Total Core Network Services Revenue
 
1,930

 
1,945

 
5,833

 
5,814

 
 
 
 
 
 
 
 
 
Wholesale Voice Services Revenue:
 
 
 
 
 
 
 
 
North America
 
99

 
110

 
293

 
342

EMEA
 
2

 
3

 
8

 
10

Latin America
 
2

 
4

 
6

 
10

Total Wholesale Voice Services Revenue
 
103

 
117

 
307

 
362

 
 
 
 
 
 
 
 
 
Total Revenue
 
$
2,033

 
$
2,062

 
$
6,140

 
$
6,176




The following table presents Adjusted EBITDA by segment and reconciles Adjusted EBITDA to net income:
 
 
Three Months Ended
 
Nine Months Ended
(dollars in millions)
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Adjusted EBITDA:
 
 
 
 
 
 
 
 
North America
 
$
784

 
$
760

 
$
2,415

 
$
2,267

EMEA
 
56

 
63

 
162

 
176

Latin America
 
80

 
78

 
218

 
237

Unallocated Corporate Expenses
 
(204
)
 
(244
)
 
(654
)
 
(723
)
Adjusted EBITDA
 
716

 
657

 
2,141

 
1,957

Income Tax Expense
 
(74
)
 
(16
)
 
(198
)
 
(39
)
Total Other Expense
 
(137
)
 
(310
)
 
(465
)
 
(844
)
Depreciation and Amortization
 
(319
)
 
(296
)
 
(930
)
 
(872
)
Non-Cash Stock Compensation Attributable to Stock Awards
 
(43
)
 
(34
)
 
(121
)
 
(92
)
Net Income
 
$
143

 
$
1

 
$
427

 
$
110



The following table presents capital expenditures by segment and reconciles capital expenditures by segment to total capital expenditures:
 
 
Three Months Ended
 
Nine Months Ended
(dollars in millions)
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Capital Expenditures:
 
 
 
 
 
 
 
 
North America
 
$
245

 
$
202

 
$
677

 
$
560

EMEA
 
38

 
41

 
117

 
114

Latin America
 
44

 
48

 
118

 
122

Unallocated Corporate Capital Expenditures
 
37

 
37

 
116

 
103

Total Capital Expenditures
 
$
364

 
$
328

 
$
1,028

 
$
899



The following table presents total assets by segment:
(dollars in millions)
 
September 30, 2016
 
December 31, 2015
Assets:
 
 
 
 
North America
 
$
20,618

 
$
19,961

EMEA
 
1,760

 
1,796

Latin America
 
2,238

 
2,131

Other
 
130

 
129

Total Assets
 
$
24,746

 
$
24,017




The changes in the carrying amount of goodwill by segment during the nine months ended September 30, 2016 were as follows (in millions):
 
 
North America
 
EMEA
 
Latin America
 
Total
Balance at December 31, 2015
$
7,024


$
129

 
$
596

 
$
7,749

  Effect of foreign currency rate change
—

 
(13
)
 
—

 
(13
)
Balance at September 30, 2016
$
7,024


$
116

 
$
596

 
$
7,736

 
There were no events or changes in circumstances during the first nine months of 2016 that indicated the carrying value of goodwill may not be recoverable.
Commitments, Contingencies and Other Items (Notes)
Commitments, Contingencies and Other Items
Commitments, Contingencies and Other Items

The Company is subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect its financial condition, future results of operations or cash flows. Amounts accrued for such contingencies aggregate to $113 million and are included in “Other” current liabilities and “Other Liabilities” in the Company's Consolidated Balance Sheet at September 30, 2016. 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 would have no effect on the Company's results of operations but could materially adversely affect its cash flows for the affected period.

The Company reviews its accruals at least quarterly and adjusts them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Below is a description of material legal proceedings and other contingencies pending at September 30, 2016. Although the Company believes it has accrued for these matters in accordance with the accounting guidance for contingencies, contingencies are inherently unpredictable and it is possible that results of operations or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of, one or more of these matters. For those contingencies in respect of which the Company believes that it is reasonably possible that a loss may result that is materially in excess of the accrual (if any) established for the matter, the Company has either provided an estimate of such possible loss or range of loss or included a statement that such an estimate cannot be made. In addition to the contingencies described below, the Company is party to many other legal proceedings and contingencies, the resolution of which is not expected to materially affect its financial condition or future results of operations beyond the amounts accrued.

Rights-of-Way Litigation

The Company is party to a number of purported class action lawsuits involving its right to install fiber optic cable network in railroad right-of-ways adjacent to plaintiffs' land. In general, the Company obtained the rights to construct its networks from railroads, utilities, and others, and has installed its networks along the rights-of-way so granted. Plaintiffs in the purported class actions assert that they are the owners of lands over which the fiber optic cable networks pass, and that the railroads, utilities and others who granted the Company the right to construct and maintain its network did not have the legal authority to do so. The complaints seek damages on theories of trespass, unjust enrichment and slander of title and property, as well as punitive damages. The Company has also received, and may in the future receive, claims and demands related to rights-of-way issues similar to the issues in these cases that may be based on similar or different legal theories. The Company has defeated motions for class certification in a number of these actions but expects that, absent settlement of these actions, plaintiffs in the pending lawsuits will continue to seek certification of statewide or multi-state classes. The only lawsuit in which a class was certified against the Company, absent an agreed upon settlement, occurred in Koyle, et. al. v. Level 3 Communications, Inc., et. al., a purported two state class action filed in the United States District Court for the District of Idaho. The Koyle lawsuit has been dismissed pursuant to a settlement reached in November 2010 as described further below.

The Company negotiated a series of class settlements affecting all persons who own or owned land next to or near railroad rights of way in which it has installed its fiber optic cable networks. The United States District Court for the District of Massachusetts in Kingsborough v. Sprint Communications Co. L.P. granted preliminary approval of the proposed settlement; however, on September 10, 2009, the court denied a motion for final approval of the settlement on the basis that the court lacked subject matter jurisdiction and dismissed the case.

In November 2010, the Company negotiated revised settlement terms for a series of state class settlements affecting all persons who own or owned land next to or near railroad rights of way in which the Company has installed its fiber optic cable networks. The Company is currently pursuing presentment of the settlement in applicable jurisdictions. The settlements, affecting current and former landowners, have received final federal court approval in all but one of the applicable states and the parties are actively engaged in, or have completed, the claims process for the vast majority of the applicable states, including payment of claims. The Company continues to seek approval in the remaining two states.

Management believes that the Company has substantial defenses to the claims asserted in all of these actions and intends to defend them vigorously if a satisfactory settlement is not ultimately approved for all affected landowners.

Peruvian Tax Litigation

Beginning in 2005, one of the Company's Peruvian subsidiaries received a number of assessments for tax, penalties and interest for calendar years 2001 and 2002. Peruvian tax authorities ("SUNAT") took the position that the Peruvian subsidiary incorrectly documented its importations resulting in additional income tax withholding and value-added taxes ("VAT"). The total amount of the asserted claims, including potential interest and penalties, was $26 million, consisting of $3 million for income tax withholding in connection with the import of services for calendar years 2001 and 2002, $7 million for VAT in connection with the import of services for calendar years 2001 and 2002, and $16 million in connection with the disallowance of VAT credits for periods beginning in 2005. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, the total amount of exposure is $29 million at September 30, 2016.

The Company challenged the tax assessments during 2005 by filing administrative claims before SUNAT. During August 2006 and June 2007, SUNAT rejected the Company's administrative claims, thereby confirming the assessments. Appeals were filed in September 2006 and July 2007 with the Tribunal Fiscal, the highest level of administrative review, which is not part of the Peru judiciary (the "Tribunal"). The 2001 and 2002 assessed withholding tax assessments were resolved in favor of the Company in separate administrative resolutions; however, the penalties with respect to withholding tax remain at issue in the administrative appeals.

In October 2011, the Tribunal issued its administrative resolution with respect to the calendar year 2002 tax period regarding VAT, associated penalties and penalties associated with withholding taxes, deciding the central issue underlying the assessments in the government's favor, while confirming the assessment in part and denying a portion of the assessment on procedural grounds. The Company appealed the Tribunal's October 2011 administrative resolutions to the judicial court in Peru. In September 2014, the first judicial court rendered a decision largely in the Company’s favor on the central issue underlying the assessments. SUNAT appealed the court’s decision to the next judicial level. The court of appeal remanded the case to the first judicial court for further development of the facts and legal analysis supporting its decision. In April 2016, the first judicial level rendered a decision in the Company’s favor on the central issue underlying the assessments. SUNAT has appealed the substantive issue to the next judicial level. The Company also appealed certain procedural points.    

In October 2013, the Tribunal notified the Company of its July 2013 administrative resolution with respect to the calendar year 2001 tax period regarding VAT, associated penalties and penalties associated with withholding taxes, determining the central issue underlying the assessments in the government's favor, while confirming the assessment in part and denying a portion of the assessment on procedural grounds. The Company appealed the Tribunal's July 2013 administrative resolutions to the judicial court in Peru. In April 2015, the first judicial court rendered a decision largely in SUNAT’s favor on the central issue underlying the assessments. The Company appealed the court’s decision to the next judicial level. In April 2016, the court of appeal rendered a decision that declared null the April 2015 decision and remanded the case to the first judicial court for further development of the facts and legal analysis supporting its decision. 

In December 2013, SUNAT initiated an audit of calendar year 2001. In June 2014, the Company was served with SUNAT’s assessments of the 2001 VAT credits declared null by the Tribunal and the corresponding fine. In July 2014, the Company challenged these assessments by filing administrative claims before SUNAT. In January 2015, SUNAT rejected the administrative claims, thereby confirming the assessments. The Company filed an appeal with the Tribunal in February 2015. In May 2015, the Tribunal notified the Company of its administrative resolution declaring the assessments and corresponding fines null. The time for SUNAT to appeal this resolution has closed. Under local practice, notification of an appeal can take several months. Counsel confirmed in the first quarter of 2016 that SUNAT has not filed an appeal to the resolution. Nevertheless, SUNAT retains the right to reissue the assessments declared null or start a new audit. However, the Company is under no obligation to provide additional information and any fine issued by SUNAT based on the same information that it has already used in the past would be declared null. Accordingly, in March 2016, the Company released an accrual of approximately $15 million for an assessment and associated interest.

Employee Severance and Contractor Termination Disputes

A number of former employees and third-party contractors have asserted a variety of claims in litigation against certain Latin American subsidiaries of the Company for separation pay, severance, commissions, pension benefits, unpaid vacation pay, breach of employment contracts, unpaid performance bonuses, property damages, moral damages and related statutory penalties, fines, costs and expenses (including accrued interest, attorneys fees and statutorily mandated inflation adjustments) as a result of their separation from the Company or termination of service relationships. The Company is vigorously defending itself against the asserted claims, which aggregate to approximately $29 million at September 30, 2016.

Brazilian Tax Claims

In December 2004, March 2009, April 2009 and July 2014, the São Paulo state tax authorities issued tax assessments against one of the Company's Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”) with respect to revenue from leasing movable properties (in the case of the December 2004, March 2009 and July 2014 assessments) and revenue from the provision of Internet access services (in the case of the April 2009 and July 2014 assessments), by treating such activities as the provision of communications services, to which the ICMS tax applies. During the third quarter of 2014, the Company released an accrual of $6 million for tax, penalty and associated interest corresponding to the ICMS applicable on the provision of Internet access services due to the expiration of the statute of limitations for the January 2008 to June 2009 tax periods. In September 2002, July 2009 and May 2012, the Rio de Janeiro state tax authorities issued tax assessments to the same Brazilian subsidiary on similar issues. The Company has filed objections to these assessments, arguing that the lease of assets and the provision of Internet access are not communication services subject to ICMS. The objections to the September 2002, December 2004 and March 2009 assessments were rejected by the respective state administrative courts, and the Company has appealed those decisions to the judicial courts. In October 2012 and June 2014, the Company received favorable rulings from the lower court on the December 2004 and March 2009 assessments regarding equipment leasing, but those rulings are subject to appeal by the state. No ruling has been obtained with respect to the September 2002 assessment. The objections to the April and July 2009 and May 2012 assessments are still pending final administrative decisions. The July 2014 assessment was confirmed during the fourth quarter of 2014 at the first administrative level and the Company appealed this decision to the second administrative level. During the fourth quarter of 2014, the Company entered into an amnesty with the Rio de Janeiro state tax authorities with respect to potential ICMS liability for the 2008 tax period. As a result, the Company paid $5 million and released an accrual of $3 million of tax corresponding to the ICMS applicable on the provision of Internet access services in the fourth quarter of 2014.

The Company is vigorously contesting all such assessments in both states, and in particular, views the assessment of ICMS on revenue from leasing movable properties to be without merit. Nevertheless, the Company believes that it is reasonably possible that these assessments could result in a loss of up to $48 million at September 30, 2016 in excess of the accruals established for these matters.

Letters of Credit

It is customary for Level 3 to use various financial instruments in the normal course of business. These instruments include letters of credit. Letters of credit are conditional commitments issued on behalf of Level 3 in accordance with specified terms and conditions. As of September 30, 2016 and December 31, 2015, Level 3 had outstanding letters of credit or other similar obligations of approximately $39 million and $46 million, respectively, of which $33 million and $43 million are collateralized by cash that is reflected on the Consolidated Balance Sheets as restricted cash and securities. The Company does not believe exposure to loss related to its letters of credit is material.
Condensed Consolidating Financial Information (Notes)
Condensed Consolidating Financial Information
Condensed Consolidating Financial Information

Level 3 Financing, Inc., a wholly owned subsidiary of the Company, has issued senior notes that are unsecured obligations of Level 3 Financing, Inc.; however, they are also fully and unconditionally and jointly and severally guaranteed on an unsecured senior basis by Level 3 Communications, Inc. and Level 3 Communications, LLC.

In conjunction with the registration of the senior notes, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.”

The operating activities of the separate legal entities included in the Company’s Consolidated Financial Statements are interdependent. The accompanying condensed consolidating financial information presents the results of operations, financial position and cash flows of each legal entity and, on an aggregate basis, the other non-guarantor subsidiaries based on amounts incurred by such entities, and is not intended to present the operating results of those legal entities on a stand-alone basis. Level 3 Communications, LLC leases equipment and certain facilities from other wholly owned subsidiaries of Level 3 Communications, Inc. These transactions are eliminated in the consolidated results of the Company.
Condensed Consolidating Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
907

 
$
1,160

 
$
(34
)
 
$
2,033

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network Access Costs
—

 
—

 
330

 
379

 
(34
)
 
675

Network Related Expenses
—

 
—

 
242

 
95

 
—

 
337

Depreciation and Amortization
—

 
—

 
100

 
219

 
—

 
319

Selling, General and Administrative Expenses
1

 
1

 
262

 
84

 
—

 
348

Total Costs and Expenses
1

 
1

 
934

 
777

 
(34
)
 
1,679

Operating Income (Loss)
(1
)
 
(1
)
 
(27
)
 
383

 
—

 
354

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
1

 
—

 
—

 
1

Interest expense
(9
)
 
(124
)
 
(1
)
 
(5
)
 
—

 
(139
)
Interest income (expense) affiliates, net
342

 
526

 
(804
)
 
(64
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(193
)
 
(539
)
 
169

 
—

 
563

 
—

Other, net
—

 
—

 
(1
)
 
2

 
—

 
1

Total Other Income (Expense)
140

 
(137
)
 
(636
)
 
(67
)
 
563

 
(137
)
Income (Loss) before Income Taxes
139

 
(138
)
 
(663
)
 
316

 
563

 
217

Income Tax Benefit (Expense)
4

 
(55
)
 
—

 
(23
)
 
—

 
(74
)
Net Income (Loss)
143

 
(193
)
 
(663
)
 
293

 
563

 
143

Other Comprehensive Income (Loss), Net of Income Taxes
(15
)
 
—

 
—

 
(15
)
 
15

 
(15
)
Comprehensive Income (Loss)
$
128

 
$
(193
)
 
$
(663
)
 
$
278

 
$
578

 
$
128

Condensed Consolidating Statements of Comprehensive Income (Loss)
Nine Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
2,652

 
$
3,590

 
$
(102
)
 
$
6,140

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network Access Costs
—

 
—

 
965

 
1,182

 
(102
)
 
2,045

Network Related Expenses
—

 
—

 
716

 
298

 
—

 
1,014

Depreciation and Amortization
—

 
—

 
280

 
650

 
—

 
930

Selling, General and Administrative Expenses
3

 
4

 
775

 
279

 
—

 
1,061

Total Costs and Expenses
3

 
4

 
2,736

 
2,409

 
(102
)
 
5,050

Operating Income (Loss)
(3
)
 
(4
)
 
(84
)
 
1,181

 
—

 
1,090

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
2

 
1

 
—

 
3

Interest expense
(27
)
 
(380
)
 
(2
)
 
(5
)
 
—

 
(414
)
Interest income (expense) affiliates, net
1,027

 
1,585

 
(2,407
)
 
(205
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(581
)
 
(1,568
)
 
569

 
—

 
1,580

 
—

Other, net
—

 
(39
)
 
2

 
(17
)
 
—

 
(54
)
Total Other Income (Expense)
419

 
(402
)
 
(1,836
)
 
(226
)
 
1,580

 
(465
)
Income (Loss) before Income Taxes
416

 
(406
)
 
(1,920
)
 
955

 
1,580

 
625

Income Tax Benefit (Expense)
11

 
(175
)
 
(2
)
 
(32
)
 
—

 
(198
)
Net Income (Loss)
427

 
(581
)
 
(1,922
)
 
923

 
1,580

 
427

Other Comprehensive Income (Loss), Net of Income Taxes
8

 
—

 
—

 
8

 
(8
)
 
8

Comprehensive Income (Loss)
$
435

 
$
(581
)
 
$
(1,922
)
 
$
931

 
$
1,572

 
$
435

Condensed Consolidating Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
830

 
$
1,271

 
$
(39
)
 
$
2,062

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network access costs
—

 
—

 
300

 
445

 
(39
)
 
706

Network related expenses
—

 
—

 
252

 
117

 
—

 
369

Depreciation and amortization
—

 
—

 
78

 
218

 
—

 
296

Selling, general and administrative expenses
1

 
—

 
274

 
89

 
—

 
364

Total Costs and Expenses
1

 
—

 
904

 
869

 
(39
)
 
1,735

Operating (Loss) Income
(1
)
 
—

 
(74
)
 
402

 
—

 
327

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(9
)
 
(135
)
 
—

 
(1
)
 
—

 
(145
)
Interest income (expense) affiliates, net
320

 
498

 
(762
)
 
(56
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(309
)
 
(671
)
 
(186
)
 
—

 
1,166

 
—

Other, net
—

 
—

 
3

 
(168
)
 
—

 
(165
)
Total Other Income (Expense)
2

 
(308
)
 
(945
)
 
(225
)
 
1,166

 
(310
)
Income (Loss) before Income Taxes
1

 
(308
)
 
(1,019
)
 
177

 
1,166

 
17

Income Tax Expense
—

 
(1
)
 
—

 
(15
)
 
—

 
(16
)
Net Income (Loss)
1

 
(309
)
 
(1,019
)
 
162

 
1,166

 
1

Other Comprehensive Income (Loss), Net of Income Taxes
(72
)
 
—

 
—

 
(72
)
 
72

 
(72
)
Comprehensive Income (Loss)
$
(71
)
 
$
(309
)
 
$
(1,019
)
 
$
90

 
$
1,238

 
$
(71
)
Condensed Consolidating Statements of Comprehensive Income (Loss)
Nine Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
2,480

 
$
3,832

 
$
(136
)
 
$
6,176

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network access costs
—

 
—

 
919

 
1,342

 
(136
)
 
2,125

Network related expenses
—

 
—

 
713

 
375

 
—

 
1,088

Depreciation and amortization
—

 
—

 
227

 
645

 
—

 
872

Selling, general and administrative expenses
3

 
—

 
789

 
306

 
—

 
1,098

Total Costs and Expenses
3

 
—

 
2,648

 
2,668

 
(136
)
 
5,183

Operating (Loss) Income
(3
)
 
—

 
(168
)
 
1,164

 
—

 
993

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
1

 
—

 
1

Interest expense
(42
)
 
(436
)
 
(2
)
 
(10
)
 
—

 
(490
)
Interest income (expense) affiliates, net
984

 
1,495

 
(2,297
)
 
(182
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(811
)
 
(1,723
)
 
174

 
—

 
2,360

 
—

Other, net
(18
)
 
(145
)
 
2

 
(194
)
 
—

 
(355
)
Total Other Income (Expense)
113

 
(809
)
 
(2,123
)
 
(385
)
 
2,360

 
(844
)
Income (Loss) before Income Taxes
110

 
(809
)
 
(2,291
)
 
779

 
2,360

 
149

Income Tax Expense
—

 
(2
)
 
—

 
(37
)
 
—

 
(39
)
Net Income (Loss)
110

 
(811
)
 
(2,291
)
 
742

 
2,360

 
110

Other Comprehensive Income (Loss), Net of Income Taxes
(128
)
 
—

 
—

 
(128
)
 
128

 
(128
)
Comprehensive Income (Loss)
$
(18
)
 
$
(811
)
 
$
(2,291
)
 
$
614

 
$
2,488

 
$
(18
)
Condensed Consolidating Balance Sheets
September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
16

 
$
—

 
$
1,482

 
$
71

 
$
—

 
$
1,569

Restricted cash and securities
—

 
—

 
1

 
7

 
—

 
8

Receivables, less allowances for doubtful accounts
—

 
—

 
41

 
708

 
—

 
749

Due from affiliates
16,717

 
20,980

 
—

 
2,854

 
(40,551
)
 
—

Other
—

 
—

 
89

 
42

 
—

 
131

Total Current Assets
16,733

 
20,980

 
1,613

 
3,682

 
(40,551
)
 
2,457

Property, Plant, and Equipment, net
—

 
—

 
3,780

 
6,387

 
—

 
10,167

Restricted Cash and Securities
22

 
—

 
9

 
—

 
—

 
31

Goodwill and Other Intangibles, net
—

 
—

 
355

 
8,348

 
—

 
8,703

Investment in Subsidiaries
16,846

 
17,692

 
3,691

 
—

 
(38,229
)
 
—

Deferred Tax Assets
48

 
2,713

 
—

 
578

 
—

 
3,339

Other Assets, net
—

 
—

 
12

 
37

 
—

 
49

Total Assets
$
33,649

 
$
41,385

 
$
9,460

 
$
19,032

 
$
(78,780
)
 
$
24,746

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
—

 
$
367

 
$
361

 
$
—

 
$
728

Current portion of long-term debt
—

 
—

 
2

 
5

 
—

 
7

Accrued payroll and employee benefits
—

 
—

 
160

 
34

 
—

 
194

Accrued interest
3

 
124

 
—

 
8

 
—

 
135

Current portion of deferred revenue
—

 
—

 
113

 
150

 
—

 
263

Due to affiliates
—

 
—

 
40,551

 
—

 
(40,551
)
 
—

Other
—

 
—

 
138

 
42

 
—

 
180

Total Current Liabilities
3

 
124

 
41,331

 
600

 
(40,551
)
 
1,507

Long-Term Debt, less current portion
592

 
10,103

 
13

 
167

 
—

 
10,875

Deferred Revenue, less current portion
—

 
—

 
724

 
286

 
—

 
1,010

Other Liabilities
15

 
—

 
148

 
467

 
—

 
630

Commitments and Contingencies

 

 

 

 

 

Stockholders' Equity (Deficit)
33,039

 
31,158

 
(32,756
)
 
17,512

 
(38,229
)
 
10,724

Total Liabilities and Stockholders' Equity (Deficit)
$
33,649

 
$
41,385

 
$
9,460

 
$
19,032

 
$
(78,780
)
 
$
24,746

Condensed Consolidating Balance Sheets
December 31, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
12

 
$
6

 
$
727

 
$
109

 
$
—

 
$
854

Restricted cash and securities
—

 
—

 
1

 
7

 
—

 
8

Receivables, less allowances for doubtful accounts
—

 
—

 
47

 
710

 
—

 
757

Due from affiliates
12,415

 
22,759

 
—

 
2,816

 
(37,990
)
 
—

Other
—

 
—

 
56

 
55

 
—

 
111

Total Current Assets
12,427

 
22,765

 
831

 
3,697

 
(37,990
)
 
1,730

Property, Plant, and Equipment, net
—

 
—

 
3,423

 
6,455

 
—

 
9,878

Restricted Cash and Securities
27

 
—

 
14

 
1

 
—

 
42

Goodwill and Other Intangibles, net
—

 
—

 
363

 
8,513

 
—

 
8,876

Investment in Subsidiaries
16,772

 
17,714

 
3,734

 
—

 
(38,220
)
 
—

Deferred Tax Assets
38

 
2,847

 
—

 
556

 
—

 
3,441

Other Assets, net
—

 
—

 
12

 
38

 
—

 
50

Total Assets
$
29,264

 
$
43,326

 
$
8,377

 
$
19,260

 
$
(76,210
)
 
$
24,017

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
1

 
$
195

 
$
433

 
$
—

 
$
629

Current portion of long-term debt
—

 
—

 
2

 
13

 
—

 
15

Accrued payroll and employee benefits
—

 
—

 
186

 
32

 
—

 
218

Accrued interest
11

 
90

 
—

 
7

 
—

 
108

Current portion of deferred revenue
—

 
—

 
119

 
148

 
—

 
267

Due to affiliates
—

 
—

 
37,990

 
—

 
(37,990
)
 
—

Other
—

 
—

 
115

 
64

 
—

 
179

Total Current Liabilities
11

 
91

 
38,607

 
697

 
(37,990
)
 
1,416

Long-Term Debt, less current portion
591

 
10,092

 
15

 
168

 
—

 
10,866

Deferred Revenue, less current portion
—

 
—

 
680

 
297

 
—

 
977

Other Liabilities
15

 
—

 
133

 
484

 
—

 
632

Commitments and Contingencies

 

 

 

 

 

Stockholders' Equity (Deficit)
28,647

 
33,143

 
(31,058
)
 
17,614

 
(38,220
)
 
10,126

Total Liabilities and Stockholders' Equity (Deficit)
$
29,264

 
$
43,326

 
$
8,377

 
$
19,260

 
$
(76,210
)
 
$
24,017

Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities
$
(35
)
 
$
(332
)
 
$
489

 
$
1,664

 
$
—

 
$
1,786

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(537
)
 
(491
)
 
—

 
(1,028
)
Decrease in restricted cash and securities, net
5

 
—

 
6

 
—

 
—

 
11

Proceeds from the sale of property, plant and equipment and other assets
—

 
—

 
—

 
1

 
—

 
1

Net Cash Provided by (Used in) Investing Activities
5

 
—

 
(531
)
 
(490
)
 
—

 
(1,016
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
—

 
764

 
—

 
—

 
—

 
764

Payments on and repurchases of long-term debt and capital leases
—

 
(806
)
 
(1
)
 
(11
)
 
—

 
(818
)
Increase (decrease) due from/to affiliates, net
34

 
368

 
798

 
(1,200
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities
34

 
326

 
797

 
(1,211
)
 
—

 
(54
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Net Change in Cash and Cash Equivalents
4

 
(6
)
 
755

 
(38
)
 
—

 
715

Cash and Cash Equivalents at Beginning of Period
12

 
6

 
727

 
109

 
—

 
854

Cash and Cash Equivalents at End of Period
$
16

 
$
—

 
$
1,482

 
$
71

 
$
—

 
$
1,569

Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities
$
(39
)
 
$
(447
)
 
$
57

 
$
1,728

 
$
—

 
$
1,299

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(307
)
 
(592
)
 
—

 
(899
)
Cash related to deconsolidated Venezuela operations
—

 
—

 
—

 
(83
)
 
 
 
(83
)
(Increase) decrease in restricted cash and securities, net
(25
)
 
—

 
1

 
—

 
—

 
(24
)
Proceeds from sale of property, plant and equipment and other assets
—

 
—

 
—

 
3

 
—

 
3

Other
—

 
—

 
(14
)
 
—

 
—

 
(14
)
Net Cash Used in Investing Activities
(25
)
 
—

 
(320
)
 
(672
)
 
—

 
(1,017
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
—

 
3,947

 
—

 
—

 
—

 
3,947

Payments on and repurchases of long-term debt and capital leases
(313
)
 
(3,780
)
 
(1
)
 
(8
)
 
—

 
(4,102
)
Increase (decrease) due from/to affiliates, net
383

 
281

 
516

 
(1,180
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities
70

 
448

 
515

 
(1,188
)
 
—

 
(155
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
(16
)
 
—

 
(16
)
Net Change in Cash and Cash Equivalents
6

 
1

 
252

 
(148
)
 
—

 
111

Cash and Cash Equivalents at Beginning of Period
7

 
5

 
307

 
261

 
—

 
580

Cash and Cash Equivalents at End of Period
$
13

 
$
6

 
$
559

 
$
113

 
$
—

 
$
691

Organization and Summary of Significant Accounting Policies (Policies)
Description of Business 
Description of Business

Level 3 Communications, Inc. and subsidiaries (the "Company" or "Level 3") is an international facilities-based provider (that is, a provider that owns or leases a substantial portion of the plant, property and equipment necessary to provide its services) of a broad range of integrated communications services. The Company created its communications network by constructing its own assets and through a combination of purchasing other companies and purchasing or leasing facilities from others. The Company designed its network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.
Principles of Consolidation and Basis of Presentation 
Principles of Consolidation and Basis of Presentation

The Consolidated Financial Statements include the accounts of Level 3 Communications, Inc. and subsidiaries in which it has a controlling interest. All significant intercompany accounts and transactions have been eliminated. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").

As part of its consolidation policy, the Company considers its controlled subsidiaries, investments in businesses in which the Company is not the primary beneficiary or does not have effective control but has the ability to significantly influence operating and financial policies, and variable interests resulting from economic arrangements that give the Company rights to economic risks or rewards of a legal entity. The Company does not have variable interests in a variable interest entity where it is required to consolidate the entity as the primary beneficiary.
    
Prior to October 1, 2015, the Company included the results of its wholly owned Venezuelan subsidiary in its Consolidated Financial Statements using the consolidation method of accounting. The Company’s Venezuelan subsidiary was in the Latin America segment and had total revenue of $25 million and $72 million, with Adjusted EBITDA of $16 million and $46 million, for the three and nine months ended September 30, 2015, respectively. For more information on the Company's segments and non-GAAP measures see Note 9 - Segment Information.
Venezuelan exchange control regulations have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar, and have restricted the Company's Venezuelan operations’ ability to pay dividends and settle intercompany obligations in U.S. dollars. The severe currency controls imposed by the Venezuelan government have significantly limited the ability to realize the benefits from earnings of the Company’s Venezuelan operations and access the resulting liquidity provided by those earnings in U.S. dollars. The Company expects that this condition will continue for the foreseeable future. Additionally, government regulations affecting the Company's ability to manage its Venezuelan subsidiary’s capital structure, purchasing, product pricing, customer invoicing and collections, and labor relations; and the current political and economic situation within Venezuela have resulted in an acute degradation in the Company's ability to make key operational decisions for its Venezuelan operations. This lack of exchangeability into U.S. dollars and the degradation in the Company's ability to control key operational decisions has resulted in a lack of control over the Company's Venezuelan subsidiary for U.S. accounting purposes. Therefore, while continuing to wholly own its Venezuelan subsidiary, the Company concluded it no longer met the accounting criteria for consolidation and deconsolidated its Venezuelan subsidiary on September 30, 2015, and began accounting for its variable interest investment in its Venezuelan operations using the cost method of accounting. The factors that led to the Company's conclusions at the end of the third quarter of 2015 continued to exist through the end of the third quarter of 2016. Any dividends from the Company's Venezuelan subsidiary are recorded as other income upon receipt of the cash in U.S. dollars. Prior period results have not been adjusted to reflect the deconsolidation of the Company's Venezuelan subsidiary.
The accompanying Consolidated Balance Sheet as of December 31, 2015, which was derived from audited Consolidated Financial Statements, and the unaudited interim Consolidated Financial Statements as of September 30, 2016 and for the nine months ended September 30, 2016 and 2015 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015. In the opinion of the Company’s management, these financial statements contain all adjustments necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the interim periods presented herein. The results of operations for an interim period are not necessarily indicative of the results of operations expected for a full fiscal year.
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates under different assumptions or conditions and such differences could be material.
Reclassifications 
Reclassifications

Certain amounts in the prior year Consolidated Financial Statements and accompanying footnotes have been reclassified to conform to the current year's presentation primarily pursuant to the adoption of Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs. As of December 31, 2015, approximately $19 million of current debt issuance costs have been reclassified from other current assets to long-term debt, less current portion and approximately $109 million of non-current debt issuance costs have been reclassified from other non-current assets to long-term debt, less current portion.
Recently Issued Accounting Pronouncements 
Recently Issued Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting, as part of its simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted, but all of the amendments must be adopted in the same period.
The Company elected to early adopt ASU 2016-09 in the third quarter of 2016, which requires adjustments to be reflected as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the modified retrospective transition method, which resulted in a cumulative-effect adjustment of $42 million recorded to accumulated deficit as of January 1, 2016. 
This ASU amended the definition of assumed proceeds when applying the treasury stock method of computing earnings per share to exclude the amount of excess tax benefits that would be recognized in additional paid-in capital. This amendment increased the amount of Diluted Weighted-Average Shares Outstanding, as noted in the table below.
The new presentation requirements for excess tax benefits to be shown on the statement of cash flows as an operating activity and presenting employee taxes paid where the employer withholds shares for tax-withholding purposes as a financing activity had no effect to any of the periods presented in the Company’s consolidated cash flows statements as there had been no such activities in the statements of cash flow. The Company has elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.
Adoption of the new standard also resulted in the recognition of excess tax benefits as a reduction to income tax expense of $10 million and $21 million for the three and nine months ended September 30, 2016, respectively, and adjusted the Company's previously reported quarterly results for 2016 as follows:

 
Three Months Ended March 31, 2016
 
Three Months Ended June 30, 2016
(dollars in millions, except per share data)
As
Reported
 
As Adjusted
 
As
Reported
 
As Adjusted
Net Income
$
124

 
$
128

 
$
149

 
$
156

Basic Earnings Per Common Share
$
0.35

 
$
0.36

 
$
0.42

 
$
0.44

Diluted Earnings Per Common Share
$
0.34

 
$
0.36

 
$
0.41

 
$
0.43

Diluted Weighted-Average Shares Outstanding (in thousands)
360,339

 
360,745

 
360,867

 
361,250

 
 
 
 
 
 
 
 
 
 
March 31, 2016
 
June 30, 2016
(dollars in millions)
As
Reported
 
As Adjusted
 
As
Reported
 
As Adjusted
Accumulated deficit
$
(9,095
)
 
$
(9,049
)
 
$
(8,946
)
 
$
(8,893
)

In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842), which requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This ASU will replace most existing leasing guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early application is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU 2016-02 will have on its Consolidated Financial Statements and related disclosures, and expects the new guidance to significantly increase the reported assets and liabilities on its Consolidated Balance Sheets.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ASC Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its Consolidated Financial Statements and related disclosures and has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
Other Intangible Assets (Tables)
Schedule of acquisition-related intangible assets 

Other intangible assets as of September 30, 2016 and December 31, 2015 were as follows (dollars in millions):

 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
September 30, 2016
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Customer Contracts and Relationships
$
1,974

 
$
(1,069
)
 
$
905

Trademarks
55

 
(55
)
 
—

Patents and Developed Technology
230

 
(183
)
 
47

 
2,259

 
(1,307
)
 
952

Indefinite-Lived Intangible Assets:
 
 
 
 
 
Trade Name
15

 
—

 
15

 
$
2,274

 
$
(1,307
)
 
$
967

December 31, 2015
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Customer Contracts and Relationships
$
1,975

 
$
(932
)
 
$
1,043

Trademarks
55

 
(55
)
 
—

Patents and Developed Technology
230

 
(161
)
 
69

 
2,260

 
(1,148
)
 
1,112

Indefinite-Lived Intangible Assets:
 
 
 
 
 
Trade Name
15

 
—

 
15

 
$
2,275

 
$
(1,148
)
 
$
1,127

Schedule of estimated amortization expense of finite-lived acquisition-related intangible assets 
As of September 30, 2016, estimated amortization expense for the Company’s finite-lived intangible assets over the next five years is as follows (dollars in millions):

2016 (remaining three months)
$
52

2017
196

2018
193

2019
181

2020
166

2021
143

Thereafter
21

 
$
952

Fair Value of Financial Instruments (Tables)
Schedule of fair value of liabilities measured on a recurring basis
The table below presents the fair values for the Company’s long-term debt as well as the input levels used to determine these fair values as of September 30, 2016 and December 31, 2015:

 
 
 
 
 
 
Fair Value Measurement Using
 
 
Total Carrying Value in Consolidated Balance Sheets
 
Unadjusted Quoted Prices in Active
Markets for Identical Assets or Liabilities (Level 1)
 
Significant Other Observable Inputs (Level 2)
(dollars in millions)
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
Liabilities Not Recorded at Fair Value in the Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt, including the current portion:
 
 
 
 
 
 
 
 
 
 
 
 
Term Loans
 
$
4,564

 
$
4,556

 
$
4,636

 
$
4,570

 
$
—

 
$
—

Senior Notes
 
6,131

 
6,126

 
6,439

 
6,298

 
—

 
—

Capital Leases and Other
 
187

 
199

 
—

 
—

 
187

 
199

Total Long-term Debt, including the current portion
 
$
10,882

 
$
10,881

 
$
11,075

 
$
10,868

 
$
187

 
$
199



The Company does not have any assets or liabilities where the fair value is measured using significant unobservable inputs (Level 3).
Long-Term Debt (Tables)
Schedule of long-term debt 
    The following table summarizes the Company’s long-term debt (amounts in millions):
 
Date of
 
September 30, 2016
December 31, 2015
 
Issuance/Amendment
Maturity
Interest Payments
Interest Rate
Amount
Amount
Senior Secured Term Loans:
 
 
 
 
 
 
Borrowed by Level 3 Financing, Inc.
Tranche B-III 2019 Term Loan (1)(4)
Aug 2013
Aug 2019
Quarterly
LIBOR +3.00%
$
815

$
815

Tranche B 2020 Term Loan (1)(4)
Oct 2013
Jan 2020
Quarterly
LIBOR +3.00%
1,796

1,796

Tranche B-II 2022 Term Loan (1)(4)
May 2015
May 2022
Quarterly
LIBOR +2.75%
2,000

2,000

Senior Notes:
 
 
 
 
 
 
Issued by Level 3 Financing, Inc.
Floating Rate Senior Notes due 2018 (2)(4)
Nov 2013
Jan 2018
May/Nov
6-Month LIBOR +3.50%
300

300

7% Senior Notes due 2020 (2)
Aug 2012
Jun 2020
Jun/Dec
7.000%
—

775

6.125% Senior Notes due 2021 (2)
Nov 2013
Jan 2021
Apr/Oct
6.125%
640

640

5.375% Senior Notes due 2022 (2)
Aug 2014
Aug 2022
May/Nov
5.375%
1,000

1,000

5.625% Senior Notes due 2023 (2)
Jan 2015
Feb 2023
Jun/Dec
5.625%
500

500

5.125% Senior Notes due 2023 (2)
Apr 2015
May 2023
Mar/Sept
5.125%
700

700

5.375% Senior Notes due 2025 (2)
Apr 2015
May 2025
Mar/Sept
5.375%
800

800

5.375% Senior Notes due 2024 (2)
Nov 2015
Jan 2024
Jan/Jul
5.375%
900

900

5.25% Senior Notes due 2026 (2)
Mar 2016
Mar 2026
Apr/Oct
5.250%
775

—

Issued by Level 3 Communications, Inc.
5.75% Senior Notes due 2022 (3)
Dec 2014
Dec 2022
Mar/Sept
5.750%
600

600

Capital Leases
 
 
 
 
187

199

Total Debt Obligations
 
 
 
 
11,013

11,025

Unamortized discounts
 
 
 
 
(14
)
(16
)
Unamortized debt issuance costs
 
 
 
 
(117
)
(128
)
Current portion of long-term debt
 
 
 
 
(7
)
(15
)
Total Long-Term Debt
 
 
 
 
$
10,875

$
10,866


(1) The term loans are secured obligations and guaranteed by Level 3 Communications, Inc. and Level 3 Communications, LLC and certain other subsidiaries.
(2) The notes are fully and unconditionally guaranteed on an unsubordinated unsecured basis by Level 3 Communications, Inc. and Level 3 Communications, LLC.
(3) The notes were not guaranteed by any of Level 3 Communications, Inc.'s subsidiaries.
(4) The Tranche B-III 2019 Term Loan and the Tranche B 2020 Term Loan each had an interest rate of 4.000% as of September 30, 2016 and December 31, 2015. The Tranche B-II 2022 Term Loan had an interest rate of 3.500% as of September 30, 2016 and December 31, 2015. The Floating Rate Senior Notes due 2018 had an interest rate of 4.407% as of September 30, 2016 and 4.101% as of December 31, 2015. The interest rate on the Tranche B-III 2019 Term Loan, and the Tranche B 2020 Term Loan are set with a minimum LIBOR of 1.00%, and the Tranche B-II 2022 Term Loan is set with a minimum LIBOR of 0.75%.


Schedule of aggregate future contractual maturities of long-term debt and capital leases (excluding discounts) 
Long-Term Debt Maturities

Aggregate future contractual maturities of long-term debt and capital leases (excluding discounts and debt issuance costs) were as follows as of September 30, 2016 (dollars in millions):

2016 (remaining three months)
$
2

2017
7

2018
307

2019
822

2020
1,804

2021
650

Thereafter
7,421

 
$
11,013

Accumulated Other Comprehensive Loss (Tables)
Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]
The accumulated balances for each classification of other comprehensive income (loss) were as follows:

(dollars in millions)
 
Net Foreign Currency Translation Adjustment
 
Defined Benefit Pension Plans
 
Total
Balance at December 31, 2014
 
$
(111
)
 
$
(36
)
 
$
(147
)
Other comprehensive loss before reclassifications
 
(130
)
 
—

 
(130
)
Amounts reclassified from accumulated other comprehensive loss
 
—

 
2

 
2

Balance at September 30, 2015
 
$
(241
)
 
$
(34
)
 
$
(275
)

Balance at December 31, 2015
 
$
(273
)
 
$
(28
)
 
$
(301
)
Other comprehensive income (loss) before reclassifications
 
9

 
(2
)
 
7

Amounts reclassified from accumulated other comprehensive loss
 
—

 
1

 
1

Balance at September 30, 2016
 
$
(264
)

$
(29
)

$
(293
)
Stock-Based Compensation (Tables)
Schedule of non-cash compensation expense and capitalized non-cash compensation
The following table summarizes non-cash compensation expense attributable to stock-based awards for the three and nine months ended September 30, 2016 and 2015 (dollars in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Outperform Stock Appreciation Rights
$
—

 
$
1

 
$
2

 
$
4

Restricted Stock Units
26

 
15

 
60

 
37

Performance Restricted Stock Units
9

 
10

 
33

 
23

401(k) Match Expense
8

 
8

 
27

 
29

 
43

 
34

 
122

 
93

Capitalized Non-Cash Compensation
—

 
—

 
(1
)
 
(1
)
 
$
43

 
$
34

 
$
121

 
$
92

Segment Information (Tables)
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block] 
The following table presents Adjusted EBITDA by segment and reconciles Adjusted EBITDA to net income:
 
 
Three Months Ended
 
Nine Months Ended
(dollars in millions)
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Adjusted EBITDA:
 
 
 
 
 
 
 
 
North America
 
$
784

 
$
760

 
$
2,415

 
$
2,267

EMEA
 
56

 
63

 
162

 
176

Latin America
 
80

 
78

 
218

 
237

Unallocated Corporate Expenses
 
(204
)
 
(244
)
 
(654
)
 
(723
)
Adjusted EBITDA
 
716

 
657

 
2,141

 
1,957

Income Tax Expense
 
(74
)
 
(16
)
 
(198
)
 
(39
)
Total Other Expense
 
(137
)
 
(310
)
 
(465
)
 
(844
)
Depreciation and Amortization
 
(319
)
 
(296
)
 
(930
)
 
(872
)
Non-Cash Stock Compensation Attributable to Stock Awards
 
(43
)
 
(34
)
 
(121
)
 
(92
)
Net Income
 
$
143

 
$
1

 
$
427

 
$
110

Schedule of Segment Reporting Information, by Segment [Table Text Block] 
The following table presents capital expenditures by segment and reconciles capital expenditures by segment to total capital expenditures:
 
 
Three Months Ended
 
Nine Months Ended
(dollars in millions)
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Capital Expenditures:
 
 
 
 
 
 
 
 
North America
 
$
245

 
$
202

 
$
677

 
$
560

EMEA
 
38

 
41

 
117

 
114

Latin America
 
44

 
48

 
118

 
122

Unallocated Corporate Capital Expenditures
 
37

 
37

 
116

 
103

Total Capital Expenditures
 
$
364

 
$
328

 
$
1,028

 
$
899

Reconciliation of Revenue from Segments to Consolidated [Table Text Block] 
The following table presents revenue by segment:
 
 
Three Months Ended
 
Nine Months Ended
(dollars in millions)
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Core Network Services Revenue:
 
 
 
 
 
 
 
 
North America
 
$
1,572

 
$
1,551

 
$
4,778

 
$
4,636

EMEA
 
182

 
211

 
564

 
623

Latin America
 
176

 
183

 
491

 
555

Total Core Network Services Revenue
 
1,930

 
1,945

 
5,833

 
5,814

 
 
 
 
 
 
 
 
 
Wholesale Voice Services Revenue:
 
 
 
 
 
 
 
 
North America
 
99

 
110

 
293

 
342

EMEA
 
2

 
3

 
8

 
10

Latin America
 
2

 
4

 
6

 
10

Total Wholesale Voice Services Revenue
 
103

 
117

 
307

 
362

 
 
 
 
 
 
 
 
 
Total Revenue
 
$
2,033

 
$
2,062

 
$
6,140

 
$
6,176

Reconciliation of Assets from Segment to Consolidated [Table Text Block] 
The following table presents total assets by segment:
(dollars in millions)
 
September 30, 2016
 
December 31, 2015
Assets:
 
 
 
 
North America
 
$
20,618

 
$
19,961

EMEA
 
1,760

 
1,796

Latin America
 
2,238

 
2,131

Other
 
130

 
129

Total Assets
 
$
24,746

 
$
24,017

Reconciliation of Goodwill from Segment to Consolidated [Table Text Block] 
The changes in the carrying amount of goodwill by segment during the nine months ended September 30, 2016 were as follows (in millions):
 
 
North America
 
EMEA
 
Latin America
 
Total
Balance at December 31, 2015
$
7,024


$
129

 
$
596

 
$
7,749

  Effect of foreign currency rate change
—

 
(13
)
 
—

 
(13
)
Balance at September 30, 2016
$
7,024


$
116

 
$
596

 
$
7,736

 
There were no events or changes in circumstances during the first nine months of 2016 that indicated the carrying value of goodwill may not be recoverable.
Condensed Consolidating Financial Information (Tables)
Condensed Consolidating Financial Information 
Condensed Consolidating Financial Information

Level 3 Financing, Inc., a wholly owned subsidiary of the Company, has issued senior notes that are unsecured obligations of Level 3 Financing, Inc.; however, they are also fully and unconditionally and jointly and severally guaranteed on an unsecured senior basis by Level 3 Communications, Inc. and Level 3 Communications, LLC.

In conjunction with the registration of the senior notes, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.”

The operating activities of the separate legal entities included in the Company’s Consolidated Financial Statements are interdependent. The accompanying condensed consolidating financial information presents the results of operations, financial position and cash flows of each legal entity and, on an aggregate basis, the other non-guarantor subsidiaries based on amounts incurred by such entities, and is not intended to present the operating results of those legal entities on a stand-alone basis. Level 3 Communications, LLC leases equipment and certain facilities from other wholly owned subsidiaries of Level 3 Communications, Inc. These transactions are eliminated in the consolidated results of the Company.
Condensed Consolidating Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
907

 
$
1,160

 
$
(34
)
 
$
2,033

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network Access Costs
—

 
—

 
330

 
379

 
(34
)
 
675

Network Related Expenses
—

 
—

 
242

 
95

 
—

 
337

Depreciation and Amortization
—

 
—

 
100

 
219

 
—

 
319

Selling, General and Administrative Expenses
1

 
1

 
262

 
84

 
—

 
348

Total Costs and Expenses
1

 
1

 
934

 
777

 
(34
)
 
1,679

Operating Income (Loss)
(1
)
 
(1
)
 
(27
)
 
383

 
—

 
354

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
1

 
—

 
—

 
1

Interest expense
(9
)
 
(124
)
 
(1
)
 
(5
)
 
—

 
(139
)
Interest income (expense) affiliates, net
342

 
526

 
(804
)
 
(64
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(193
)
 
(539
)
 
169

 
—

 
563

 
—

Other, net
—

 
—

 
(1
)
 
2

 
—

 
1

Total Other Income (Expense)
140

 
(137
)
 
(636
)
 
(67
)
 
563

 
(137
)
Income (Loss) before Income Taxes
139

 
(138
)
 
(663
)
 
316

 
563

 
217

Income Tax Benefit (Expense)
4

 
(55
)
 
—

 
(23
)
 
—

 
(74
)
Net Income (Loss)
143

 
(193
)
 
(663
)
 
293

 
563

 
143

Other Comprehensive Income (Loss), Net of Income Taxes
(15
)
 
—

 
—

 
(15
)
 
15

 
(15
)
Comprehensive Income (Loss)
$
128

 
$
(193
)
 
$
(663
)
 
$
278

 
$
578

 
$
128

Condensed Consolidating Statements of Comprehensive Income (Loss)
Nine Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
2,652

 
$
3,590

 
$
(102
)
 
$
6,140

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network Access Costs
—

 
—

 
965

 
1,182

 
(102
)
 
2,045

Network Related Expenses
—

 
—

 
716

 
298

 
—

 
1,014

Depreciation and Amortization
—

 
—

 
280

 
650

 
—

 
930

Selling, General and Administrative Expenses
3

 
4

 
775

 
279

 
—

 
1,061

Total Costs and Expenses
3

 
4

 
2,736

 
2,409

 
(102
)
 
5,050

Operating Income (Loss)
(3
)
 
(4
)
 
(84
)
 
1,181

 
—

 
1,090

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
2

 
1

 
—

 
3

Interest expense
(27
)
 
(380
)
 
(2
)
 
(5
)
 
—

 
(414
)
Interest income (expense) affiliates, net
1,027

 
1,585

 
(2,407
)
 
(205
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(581
)
 
(1,568
)
 
569

 
—

 
1,580

 
—

Other, net
—

 
(39
)
 
2

 
(17
)
 
—

 
(54
)
Total Other Income (Expense)
419

 
(402
)
 
(1,836
)
 
(226
)
 
1,580

 
(465
)
Income (Loss) before Income Taxes
416

 
(406
)
 
(1,920
)
 
955

 
1,580

 
625

Income Tax Benefit (Expense)
11

 
(175
)
 
(2
)
 
(32
)
 
—

 
(198
)
Net Income (Loss)
427

 
(581
)
 
(1,922
)
 
923

 
1,580

 
427

Other Comprehensive Income (Loss), Net of Income Taxes
8

 
—

 
—

 
8

 
(8
)
 
8

Comprehensive Income (Loss)
$
435

 
$
(581
)
 
$
(1,922
)
 
$
931

 
$
1,572

 
$
435

Condensed Consolidating Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
830

 
$
1,271

 
$
(39
)
 
$
2,062

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network access costs
—

 
—

 
300

 
445

 
(39
)
 
706

Network related expenses
—

 
—

 
252

 
117

 
—

 
369

Depreciation and amortization
—

 
—

 
78

 
218

 
—

 
296

Selling, general and administrative expenses
1

 
—

 
274

 
89

 
—

 
364

Total Costs and Expenses
1

 
—

 
904

 
869

 
(39
)
 
1,735

Operating (Loss) Income
(1
)
 
—

 
(74
)
 
402

 
—

 
327

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(9
)
 
(135
)
 
—

 
(1
)
 
—

 
(145
)
Interest income (expense) affiliates, net
320

 
498

 
(762
)
 
(56
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(309
)
 
(671
)
 
(186
)
 
—

 
1,166

 
—

Other, net
—

 
—

 
3

 
(168
)
 
—

 
(165
)
Total Other Income (Expense)
2

 
(308
)
 
(945
)
 
(225
)
 
1,166

 
(310
)
Income (Loss) before Income Taxes
1

 
(308
)
 
(1,019
)
 
177

 
1,166

 
17

Income Tax Expense
—

 
(1
)
 
—

 
(15
)
 
—

 
(16
)
Net Income (Loss)
1

 
(309
)
 
(1,019
)
 
162

 
1,166

 
1

Other Comprehensive Income (Loss), Net of Income Taxes
(72
)
 
—

 
—

 
(72
)
 
72

 
(72
)
Comprehensive Income (Loss)
$
(71
)
 
$
(309
)
 
$
(1,019
)
 
$
90

 
$
1,238

 
$
(71
)
Condensed Consolidating Statements of Comprehensive Income (Loss)
Nine Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
2,480

 
$
3,832

 
$
(136
)
 
$
6,176

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network access costs
—

 
—

 
919

 
1,342

 
(136
)
 
2,125

Network related expenses
—

 
—

 
713

 
375

 
—

 
1,088

Depreciation and amortization
—

 
—

 
227

 
645

 
—

 
872

Selling, general and administrative expenses
3

 
—

 
789

 
306

 
—

 
1,098

Total Costs and Expenses
3

 
—

 
2,648

 
2,668

 
(136
)
 
5,183

Operating (Loss) Income
(3
)
 
—

 
(168
)
 
1,164

 
—

 
993

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
1

 
—

 
1

Interest expense
(42
)
 
(436
)
 
(2
)
 
(10
)
 
—

 
(490
)
Interest income (expense) affiliates, net
984

 
1,495

 
(2,297
)
 
(182
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(811
)
 
(1,723
)
 
174

 
—

 
2,360

 
—

Other, net
(18
)
 
(145
)
 
2

 
(194
)
 
—

 
(355
)
Total Other Income (Expense)
113

 
(809
)
 
(2,123
)
 
(385
)
 
2,360

 
(844
)
Income (Loss) before Income Taxes
110

 
(809
)
 
(2,291
)
 
779

 
2,360

 
149

Income Tax Expense
—

 
(2
)
 
—

 
(37
)
 
—

 
(39
)
Net Income (Loss)
110

 
(811
)
 
(2,291
)
 
742

 
2,360

 
110

Other Comprehensive Income (Loss), Net of Income Taxes
(128
)
 
—

 
—

 
(128
)
 
128

 
(128
)
Comprehensive Income (Loss)
$
(18
)
 
$
(811
)
 
$
(2,291
)
 
$
614

 
$
2,488

 
$
(18
)
Condensed Consolidating Balance Sheets
September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
16

 
$
—

 
$
1,482

 
$
71

 
$
—

 
$
1,569

Restricted cash and securities
—

 
—

 
1

 
7

 
—

 
8

Receivables, less allowances for doubtful accounts
—

 
—

 
41

 
708

 
—

 
749

Due from affiliates
16,717

 
20,980

 
—

 
2,854

 
(40,551
)
 
—

Other
—

 
—

 
89

 
42

 
—

 
131

Total Current Assets
16,733

 
20,980

 
1,613

 
3,682

 
(40,551
)
 
2,457

Property, Plant, and Equipment, net
—

 
—

 
3,780

 
6,387

 
—

 
10,167

Restricted Cash and Securities
22

 
—

 
9

 
—

 
—

 
31

Goodwill and Other Intangibles, net
—

 
—

 
355

 
8,348

 
—

 
8,703

Investment in Subsidiaries
16,846

 
17,692

 
3,691

 
—

 
(38,229
)
 
—

Deferred Tax Assets
48

 
2,713

 
—

 
578

 
—

 
3,339

Other Assets, net
—

 
—

 
12

 
37

 
—

 
49

Total Assets
$
33,649

 
$
41,385

 
$
9,460

 
$
19,032

 
$
(78,780
)
 
$
24,746

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
—

 
$
367

 
$
361

 
$
—

 
$
728

Current portion of long-term debt
—

 
—

 
2

 
5

 
—

 
7

Accrued payroll and employee benefits
—

 
—

 
160

 
34

 
—

 
194

Accrued interest
3

 
124

 
—

 
8

 
—

 
135

Current portion of deferred revenue
—

 
—

 
113

 
150

 
—

 
263

Due to affiliates
—

 
—

 
40,551

 
—

 
(40,551
)
 
—

Other
—

 
—

 
138

 
42

 
—

 
180

Total Current Liabilities
3

 
124

 
41,331

 
600

 
(40,551
)
 
1,507

Long-Term Debt, less current portion
592

 
10,103

 
13

 
167

 
—

 
10,875

Deferred Revenue, less current portion
—

 
—

 
724

 
286

 
—

 
1,010

Other Liabilities
15

 
—

 
148

 
467

 
—

 
630

Commitments and Contingencies

 

 

 

 

 

Stockholders' Equity (Deficit)
33,039

 
31,158

 
(32,756
)
 
17,512

 
(38,229
)
 
10,724

Total Liabilities and Stockholders' Equity (Deficit)
$
33,649

 
$
41,385

 
$
9,460

 
$
19,032

 
$
(78,780
)
 
$
24,746

Condensed Consolidating Balance Sheets
December 31, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
12

 
$
6

 
$
727

 
$
109

 
$
—

 
$
854

Restricted cash and securities
—

 
—

 
1

 
7

 
—

 
8

Receivables, less allowances for doubtful accounts
—

 
—

 
47

 
710

 
—

 
757

Due from affiliates
12,415

 
22,759

 
—

 
2,816

 
(37,990
)
 
—

Other
—

 
—

 
56

 
55

 
—

 
111

Total Current Assets
12,427

 
22,765

 
831

 
3,697

 
(37,990
)
 
1,730

Property, Plant, and Equipment, net
—

 
—

 
3,423

 
6,455

 
—

 
9,878

Restricted Cash and Securities
27

 
—

 
14

 
1

 
—

 
42

Goodwill and Other Intangibles, net
—

 
—

 
363

 
8,513

 
—

 
8,876

Investment in Subsidiaries
16,772

 
17,714

 
3,734

 
—

 
(38,220
)
 
—

Deferred Tax Assets
38

 
2,847

 
—

 
556

 
—

 
3,441

Other Assets, net
—

 
—

 
12

 
38

 
—

 
50

Total Assets
$
29,264

 
$
43,326

 
$
8,377

 
$
19,260

 
$
(76,210
)
 
$
24,017

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
1

 
$
195

 
$
433

 
$
—

 
$
629

Current portion of long-term debt
—

 
—

 
2

 
13

 
—

 
15

Accrued payroll and employee benefits
—

 
—

 
186

 
32

 
—

 
218

Accrued interest
11

 
90

 
—

 
7

 
—

 
108

Current portion of deferred revenue
—

 
—

 
119

 
148

 
—

 
267

Due to affiliates
—

 
—

 
37,990

 
—

 
(37,990
)
 
—

Other
—

 
—

 
115

 
64

 
—

 
179

Total Current Liabilities
11

 
91

 
38,607

 
697

 
(37,990
)
 
1,416

Long-Term Debt, less current portion
591

 
10,092

 
15

 
168

 
—

 
10,866

Deferred Revenue, less current portion
—

 
—

 
680

 
297

 
—

 
977

Other Liabilities
15

 
—

 
133

 
484

 
—

 
632

Commitments and Contingencies

 

 

 

 

 

Stockholders' Equity (Deficit)
28,647

 
33,143

 
(31,058
)
 
17,614

 
(38,220
)
 
10,126

Total Liabilities and Stockholders' Equity (Deficit)
$
29,264

 
$
43,326

 
$
8,377

 
$
19,260

 
$
(76,210
)
 
$
24,017

Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities
$
(35
)
 
$
(332
)
 
$
489

 
$
1,664

 
$
—

 
$
1,786

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(537
)
 
(491
)
 
—

 
(1,028
)
Decrease in restricted cash and securities, net
5

 
—

 
6

 
—

 
—

 
11

Proceeds from the sale of property, plant and equipment and other assets
—

 
—

 
—

 
1

 
—

 
1

Net Cash Provided by (Used in) Investing Activities
5

 
—

 
(531
)
 
(490
)
 
—

 
(1,016
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
—

 
764

 
—

 
—

 
—

 
764

Payments on and repurchases of long-term debt and capital leases
—

 
(806
)
 
(1
)
 
(11
)
 
—

 
(818
)
Increase (decrease) due from/to affiliates, net
34

 
368

 
798

 
(1,200
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities
34

 
326

 
797

 
(1,211
)
 
—

 
(54
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Net Change in Cash and Cash Equivalents
4

 
(6
)
 
755

 
(38
)
 
—

 
715

Cash and Cash Equivalents at Beginning of Period
12

 
6

 
727

 
109

 
—

 
854

Cash and Cash Equivalents at End of Period
$
16

 
$
—

 
$
1,482

 
$
71

 
$
—

 
$
1,569

Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities
$
(39
)
 
$
(447
)
 
$
57

 
$
1,728

 
$
—

 
$
1,299

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(307
)
 
(592
)
 
—

 
(899
)
Cash related to deconsolidated Venezuela operations
—

 
—

 
—

 
(83
)
 
 
 
(83
)
(Increase) decrease in restricted cash and securities, net
(25
)
 
—

 
1

 
—

 
—

 
(24
)
Proceeds from sale of property, plant and equipment and other assets
—

 
—

 
—

 
3

 
—

 
3

Other
—

 
—

 
(14
)
 
—

 
—

 
(14
)
Net Cash Used in Investing Activities
(25
)
 
—

 
(320
)
 
(672
)
 
—

 
(1,017
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
—

 
3,947

 
—

 
—

 
—

 
3,947

Payments on and repurchases of long-term debt and capital leases
(313
)
 
(3,780
)
 
(1
)
 
(8
)
 
—

 
(4,102
)
Increase (decrease) due from/to affiliates, net
383

 
281

 
516

 
(1,180
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities
70

 
448

 
515

 
(1,188
)
 
—

 
(155
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
(16
)
 
—

 
(16
)
Net Change in Cash and Cash Equivalents
6

 
1

 
252

 
(148
)
 
—

 
111

Cash and Cash Equivalents at Beginning of Period
7

 
5

 
307

 
261

 
—

 
580

Cash and Cash Equivalents at End of Period
$
13

 
$
6

 
$
559

 
$
113

 
$
—

 
$
691

Schedule of Condensed Consolidating Statements of Comprehensive Income (Loss) 
Condensed Consolidating Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
907

 
$
1,160

 
$
(34
)
 
$
2,033

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network Access Costs
—

 
—

 
330

 
379

 
(34
)
 
675

Network Related Expenses
—

 
—

 
242

 
95

 
—

 
337

Depreciation and Amortization
—

 
—

 
100

 
219

 
—

 
319

Selling, General and Administrative Expenses
1

 
1

 
262

 
84

 
—

 
348

Total Costs and Expenses
1

 
1

 
934

 
777

 
(34
)
 
1,679

Operating Income (Loss)
(1
)
 
(1
)
 
(27
)
 
383

 
—

 
354

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
1

 
—

 
—

 
1

Interest expense
(9
)
 
(124
)
 
(1
)
 
(5
)
 
—

 
(139
)
Interest income (expense) affiliates, net
342

 
526

 
(804
)
 
(64
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(193
)
 
(539
)
 
169

 
—

 
563

 
—

Other, net
—

 
—

 
(1
)
 
2

 
—

 
1

Total Other Income (Expense)
140

 
(137
)
 
(636
)
 
(67
)
 
563

 
(137
)
Income (Loss) before Income Taxes
139

 
(138
)
 
(663
)
 
316

 
563

 
217

Income Tax Benefit (Expense)
4

 
(55
)
 
—

 
(23
)
 
—

 
(74
)
Net Income (Loss)
143

 
(193
)
 
(663
)
 
293

 
563

 
143

Other Comprehensive Income (Loss), Net of Income Taxes
(15
)
 
—

 
—

 
(15
)
 
15

 
(15
)
Comprehensive Income (Loss)
$
128

 
$
(193
)
 
$
(663
)
 
$
278

 
$
578

 
$
128

Condensed Consolidating Statements of Comprehensive Income (Loss)
Nine Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
2,652

 
$
3,590

 
$
(102
)
 
$
6,140

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network Access Costs
—

 
—

 
965

 
1,182

 
(102
)
 
2,045

Network Related Expenses
—

 
—

 
716

 
298

 
—

 
1,014

Depreciation and Amortization
—

 
—

 
280

 
650

 
—

 
930

Selling, General and Administrative Expenses
3

 
4

 
775

 
279

 
—

 
1,061

Total Costs and Expenses
3

 
4

 
2,736

 
2,409

 
(102
)
 
5,050

Operating Income (Loss)
(3
)
 
(4
)
 
(84
)
 
1,181

 
—

 
1,090

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
2

 
1

 
—

 
3

Interest expense
(27
)
 
(380
)
 
(2
)
 
(5
)
 
—

 
(414
)
Interest income (expense) affiliates, net
1,027

 
1,585

 
(2,407
)
 
(205
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(581
)
 
(1,568
)
 
569

 
—

 
1,580

 
—

Other, net
—

 
(39
)
 
2

 
(17
)
 
—

 
(54
)
Total Other Income (Expense)
419

 
(402
)
 
(1,836
)
 
(226
)
 
1,580

 
(465
)
Income (Loss) before Income Taxes
416

 
(406
)
 
(1,920
)
 
955

 
1,580

 
625

Income Tax Benefit (Expense)
11

 
(175
)
 
(2
)
 
(32
)
 
—

 
(198
)
Net Income (Loss)
427

 
(581
)
 
(1,922
)
 
923

 
1,580

 
427

Other Comprehensive Income (Loss), Net of Income Taxes
8

 
—

 
—

 
8

 
(8
)
 
8

Comprehensive Income (Loss)
$
435

 
$
(581
)
 
$
(1,922
)
 
$
931

 
$
1,572

 
$
435

Condensed Consolidating Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
830

 
$
1,271

 
$
(39
)
 
$
2,062

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network access costs
—

 
—

 
300

 
445

 
(39
)
 
706

Network related expenses
—

 
—

 
252

 
117

 
—

 
369

Depreciation and amortization
—

 
—

 
78

 
218

 
—

 
296

Selling, general and administrative expenses
1

 
—

 
274

 
89

 
—

 
364

Total Costs and Expenses
1

 
—

 
904

 
869

 
(39
)
 
1,735

Operating (Loss) Income
(1
)
 
—

 
(74
)
 
402

 
—

 
327

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(9
)
 
(135
)
 
—

 
(1
)
 
—

 
(145
)
Interest income (expense) affiliates, net
320

 
498

 
(762
)
 
(56
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(309
)
 
(671
)
 
(186
)
 
—

 
1,166

 
—

Other, net
—

 
—

 
3

 
(168
)
 
—

 
(165
)
Total Other Income (Expense)
2

 
(308
)
 
(945
)
 
(225
)
 
1,166

 
(310
)
Income (Loss) before Income Taxes
1

 
(308
)
 
(1,019
)
 
177

 
1,166

 
17

Income Tax Expense
—

 
(1
)
 
—

 
(15
)
 
—

 
(16
)
Net Income (Loss)
1

 
(309
)
 
(1,019
)
 
162

 
1,166

 
1

Other Comprehensive Income (Loss), Net of Income Taxes
(72
)
 
—

 
—

 
(72
)
 
72

 
(72
)
Comprehensive Income (Loss)
$
(71
)
 
$
(309
)
 
$
(1,019
)
 
$
90

 
$
1,238

 
$
(71
)
Condensed Consolidating Statements of Comprehensive Income (Loss)
Nine Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
2,480

 
$
3,832

 
$
(136
)
 
$
6,176

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Network access costs
—

 
—

 
919

 
1,342

 
(136
)
 
2,125

Network related expenses
—

 
—

 
713

 
375

 
—

 
1,088

Depreciation and amortization
—

 
—

 
227

 
645

 
—

 
872

Selling, general and administrative expenses
3

 
—

 
789

 
306

 
—

 
1,098

Total Costs and Expenses
3

 
—

 
2,648

 
2,668

 
(136
)
 
5,183

Operating (Loss) Income
(3
)
 
—

 
(168
)
 
1,164

 
—

 
993

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
1

 
—

 
1

Interest expense
(42
)
 
(436
)
 
(2
)
 
(10
)
 
—

 
(490
)
Interest income (expense) affiliates, net
984

 
1,495

 
(2,297
)
 
(182
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(811
)
 
(1,723
)
 
174

 
—

 
2,360

 
—

Other, net
(18
)
 
(145
)
 
2

 
(194
)
 
—

 
(355
)
Total Other Income (Expense)
113

 
(809
)
 
(2,123
)
 
(385
)
 
2,360

 
(844
)
Income (Loss) before Income Taxes
110

 
(809
)
 
(2,291
)
 
779

 
2,360

 
149

Income Tax Expense
—

 
(2
)
 
—

 
(37
)
 
—

 
(39
)
Net Income (Loss)
110

 
(811
)
 
(2,291
)
 
742

 
2,360

 
110

Other Comprehensive Income (Loss), Net of Income Taxes
(128
)
 
—

 
—

 
(128
)
 
128

 
(128
)
Comprehensive Income (Loss)
$
(18
)
 
$
(811
)
 
$
(2,291
)
 
$
614

 
$
2,488

 
$
(18
)
Schedule of Condensed Consolidating Balance Sheets 
Condensed Consolidating Balance Sheets
September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
16

 
$
—

 
$
1,482

 
$
71

 
$
—

 
$
1,569

Restricted cash and securities
—

 
—

 
1

 
7

 
—

 
8

Receivables, less allowances for doubtful accounts
—

 
—

 
41

 
708

 
—

 
749

Due from affiliates
16,717

 
20,980

 
—

 
2,854

 
(40,551
)
 
—

Other
—

 
—

 
89

 
42

 
—

 
131

Total Current Assets
16,733

 
20,980

 
1,613

 
3,682

 
(40,551
)
 
2,457

Property, Plant, and Equipment, net
—

 
—

 
3,780

 
6,387

 
—

 
10,167

Restricted Cash and Securities
22

 
—

 
9

 
—

 
—

 
31

Goodwill and Other Intangibles, net
—

 
—

 
355

 
8,348

 
—

 
8,703

Investment in Subsidiaries
16,846

 
17,692

 
3,691

 
—

 
(38,229
)
 
—

Deferred Tax Assets
48

 
2,713

 
—

 
578

 
—

 
3,339

Other Assets, net
—

 
—

 
12

 
37

 
—

 
49

Total Assets
$
33,649

 
$
41,385

 
$
9,460

 
$
19,032

 
$
(78,780
)
 
$
24,746

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
—

 
$
367

 
$
361

 
$
—

 
$
728

Current portion of long-term debt
—

 
—

 
2

 
5

 
—

 
7

Accrued payroll and employee benefits
—

 
—

 
160

 
34

 
—

 
194

Accrued interest
3

 
124

 
—

 
8

 
—

 
135

Current portion of deferred revenue
—

 
—

 
113

 
150

 
—

 
263

Due to affiliates
—

 
—

 
40,551

 
—

 
(40,551
)
 
—

Other
—

 
—

 
138

 
42

 
—

 
180

Total Current Liabilities
3

 
124

 
41,331

 
600

 
(40,551
)
 
1,507

Long-Term Debt, less current portion
592

 
10,103

 
13

 
167

 
—

 
10,875

Deferred Revenue, less current portion
—

 
—

 
724

 
286

 
—

 
1,010

Other Liabilities
15

 
—

 
148

 
467

 
—

 
630

Commitments and Contingencies

 

 

 

 

 

Stockholders' Equity (Deficit)
33,039

 
31,158

 
(32,756
)
 
17,512

 
(38,229
)
 
10,724

Total Liabilities and Stockholders' Equity (Deficit)
$
33,649

 
$
41,385

 
$
9,460

 
$
19,032

 
$
(78,780
)
 
$
24,746

Condensed Consolidating Balance Sheets
December 31, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
12

 
$
6

 
$
727

 
$
109

 
$
—

 
$
854

Restricted cash and securities
—

 
—

 
1

 
7

 
—

 
8

Receivables, less allowances for doubtful accounts
—

 
—

 
47

 
710

 
—

 
757

Due from affiliates
12,415

 
22,759

 
—

 
2,816

 
(37,990
)
 
—

Other
—

 
—

 
56

 
55

 
—

 
111

Total Current Assets
12,427

 
22,765

 
831

 
3,697

 
(37,990
)
 
1,730

Property, Plant, and Equipment, net
—

 
—

 
3,423

 
6,455

 
—

 
9,878

Restricted Cash and Securities
27

 
—

 
14

 
1

 
—

 
42

Goodwill and Other Intangibles, net
—

 
—

 
363

 
8,513

 
—

 
8,876

Investment in Subsidiaries
16,772

 
17,714

 
3,734

 
—

 
(38,220
)
 
—

Deferred Tax Assets
38

 
2,847

 
—

 
556

 
—

 
3,441

Other Assets, net
—

 
—

 
12

 
38

 
—

 
50

Total Assets
$
29,264

 
$
43,326

 
$
8,377

 
$
19,260

 
$
(76,210
)
 
$
24,017

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
1

 
$
195

 
$
433

 
$
—

 
$
629

Current portion of long-term debt
—

 
—

 
2

 
13

 
—

 
15

Accrued payroll and employee benefits
—

 
—

 
186

 
32

 
—

 
218

Accrued interest
11

 
90

 
—

 
7

 
—

 
108

Current portion of deferred revenue
—

 
—

 
119

 
148

 
—

 
267

Due to affiliates
—

 
—

 
37,990

 
—

 
(37,990
)
 
—

Other
—

 
—

 
115

 
64

 
—

 
179

Total Current Liabilities
11

 
91

 
38,607

 
697

 
(37,990
)
 
1,416

Long-Term Debt, less current portion
591

 
10,092

 
15

 
168

 
—

 
10,866

Deferred Revenue, less current portion
—

 
—

 
680

 
297

 
—

 
977

Other Liabilities
15

 
—

 
133

 
484

 
—

 
632

Commitments and Contingencies

 

 

 

 

 

Stockholders' Equity (Deficit)
28,647

 
33,143

 
(31,058
)
 
17,614

 
(38,220
)
 
10,126

Total Liabilities and Stockholders' Equity (Deficit)
$
29,264

 
$
43,326

 
$
8,377

 
$
19,260

 
$
(76,210
)
 
$
24,017

Schedule of Condensed Consolidating Statements of Cash Flows 
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2016

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities
$
(35
)
 
$
(332
)
 
$
489

 
$
1,664

 
$
—

 
$
1,786

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(537
)
 
(491
)
 
—

 
(1,028
)
Decrease in restricted cash and securities, net
5

 
—

 
6

 
—

 
—

 
11

Proceeds from the sale of property, plant and equipment and other assets
—

 
—

 
—

 
1

 
—

 
1

Net Cash Provided by (Used in) Investing Activities
5

 
—

 
(531
)
 
(490
)
 
—

 
(1,016
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
—

 
764

 
—

 
—

 
—

 
764

Payments on and repurchases of long-term debt and capital leases
—

 
(806
)
 
(1
)
 
(11
)
 
—

 
(818
)
Increase (decrease) due from/to affiliates, net
34

 
368

 
798

 
(1,200
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities
34

 
326

 
797

 
(1,211
)
 
—

 
(54
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Net Change in Cash and Cash Equivalents
4

 
(6
)
 
755

 
(38
)
 
—

 
715

Cash and Cash Equivalents at Beginning of Period
12

 
6

 
727

 
109

 
—

 
854

Cash and Cash Equivalents at End of Period
$
16

 
$
—

 
$
1,482

 
$
71

 
$
—

 
$
1,569



Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2015

 
Level 3 Communications, Inc.
 
Level 3 Financing, Inc.
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Net Cash Provided by (Used in) Operating Activities
$
(39
)
 
$
(447
)
 
$
57

 
$
1,728

 
$
—

 
$
1,299

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(307
)
 
(592
)
 
—

 
(899
)
Cash related to deconsolidated Venezuela operations
—

 
—

 
—

 
(83
)
 
 
 
(83
)
(Increase) decrease in restricted cash and securities, net
(25
)
 
—

 
1

 
—

 
—

 
(24
)
Proceeds from sale of property, plant and equipment and other assets
—

 
—

 
—

 
3

 
—

 
3

Other
—

 
—

 
(14
)
 
—

 
—

 
(14
)
Net Cash Used in Investing Activities
(25
)
 
—

 
(320
)
 
(672
)
 
—

 
(1,017
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
—

 
3,947

 
—

 
—

 
—

 
3,947

Payments on and repurchases of long-term debt and capital leases
(313
)
 
(3,780
)
 
(1
)
 
(8
)
 
—

 
(4,102
)
Increase (decrease) due from/to affiliates, net
383

 
281

 
516

 
(1,180
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities
70

 
448

 
515

 
(1,188
)
 
—

 
(155
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
(16
)
 
—

 
(16
)
Net Change in Cash and Cash Equivalents
6

 
1

 
252

 
(148
)
 
—

 
111

Cash and Cash Equivalents at Beginning of Period
7

 
5

 
307

 
261

 
—

 
580

Cash and Cash Equivalents at End of Period
$
13

 
$
6

 
$
559

 
$
113

 
$
—

 
$
691

Organization and Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
schedule of consolidation [Line Items]
 
 
 
 
 
Revenue
$ 2,033 
$ 2,062 
$ 6,140 
$ 6,176 
 
Adjusted EBITDA by Segment
716 
657 
2,141 
1,957 
 
Deferred Finance Costs, Current, Net
 
 
 
 
19 
Deferred Finance Costs, Noncurrent, Net
 
 
 
 
109 
Cash related to deconsolidated Venezuela operations
 
 
0 
83 
 
Latin America [Member]
 
 
 
 
 
schedule of consolidation [Line Items]
 
 
 
 
 
Adjusted EBITDA by Segment
80 
78 
218 
237 
 
VENEZUELA |
Latin America [Member]
 
 
 
 
 
schedule of consolidation [Line Items]
 
 
 
 
 
Revenue
 
25 
 
72 
 
Adjusted EBITDA by Segment
 
$ 16 
 
$ 46 
 
Organization and Summary of Significant Accounting Policies New Accounting Pronouncements (Details) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Jan. 1, 2016
Dec. 31, 2015
New Accounting Pronouncement, Early Adoption [Line Items]
 
 
 
 
 
 
 
 
New Accounting Pronouncement or Change in Accounting Principle, Cumulative Effect of Change on Equity or Net Assets
 
 
 
 
 
 
$ 42 
 
Net Income
143 
156 
128 
1 
427 
110 
 
 
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification
10 
 
 
 
21 
 
 
 
Earnings Per Share, Basic
$ 0.40 
$ 0.44 
$ 0.36 
$ 0.00 
$ 1.19 
$ 0.31 
 
 
Earnings Per Share, Diluted
$ 0.39 
$ 0.43 
$ 0.36 
$ 0.00 
$ 1.18 
$ 0.31 
 
 
Weighted Average Number of Shares Outstanding, Diluted
361,907 
361,250 
360,745 
358,714 
361,072 
355,453 
 
 
Accumulated deficit
(8,750)
(8,893)
(9,049)
 
(8,750)
 
 
(9,219)
Scenario, Previously Reported [Member]
 
 
 
 
 
 
 
 
New Accounting Pronouncement, Early Adoption [Line Items]
 
 
 
 
 
 
 
 
Net Income
 
149 
124 
 
 
 
 
 
Earnings Per Share, Basic
 
$ 0.42 
$ 0.35 
 
 
 
 
 
Earnings Per Share, Diluted
 
$ 0.41 
$ 0.34 
 
 
 
 
 
Weighted Average Number of Shares Outstanding, Diluted
 
360,867 
360,339 
 
 
 
 
 
Accumulated deficit
 
$ (8,946)
$ (9,095)
 
 
 
 
 
Subsequent Events (Details) (Subsequent Event [Member], USD $)
3 Months Ended
Dec. 31, 2016
Oct. 31, 2016
Subsequent Event [Member]
 
 
Subsequent Event [Line Items]
 
 
Ownership Percentage by STT
 
18.00% 
stock conversion ratio
 
1.4286 
cash consideration per share
 
$ 26.50 
Business Acquisition, Date of Acquisition Agreement
Oct. 31, 2016 
 
Earnings Per Share (Details) (USD $)
Share data in Millions, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2015
Stock options, outperform stock appreciation rights (OSOs), restricted stock units and warrants
Sep. 30, 2015
Stock options, outperform stock appreciation rights (OSOs), restricted stock units and warrants
Oct. 31, 2016
Subsequent Event [Member]
Earnings per share
 
 
 
 
 
 
cash consideration per share
 
 
 
 
 
$ 26.50 
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount
 
1 
 
4 
4 
 
Stock Awards Included in Computation of Earnings Per Share, Amount
2 
3 
4 
 
 
 
Earnings Per Share Supplemental (Details)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount
 
 
1 
 
Stock Awards Included in Computation of Earnings Per Share, Amount
2 
 
3 
4 
Performance Shares [Member]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount
1 
0 
1 
0 
Performance Restricted Stock Units
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount
 
4 
 
4 
Other Intangible Assets (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Finite-Lived Intangible Assets:
 
 
 
 
 
Finite-Lived Intangible Assets, Gross Carrying Amount
$ 2,259 
 
$ 2,259 
 
$ 2,260 
Finite-Lived Intangible Assets, Accumulated Amortization
(1,307)
 
(1,307)
 
(1,148)
Finite-Lived Intangible Assets, Net
952 
 
952 
 
1,112 
Acquired finite-lived intangible asset amortization expense
53 
58 
159 
172 
 
Acquired finite-lived intangible assets weighted average remaining useful lives (in years)
 
 
5 years 
 
 
Indefinite-Lived Intangible Assets:
 
 
 
 
 
Total identifiable acquisition-related intangible assets, Gross Carrying Amount
2,274 
 
2,274 
 
2,275 
Total identifiable acquisition-related intangible assets, Net
967 
 
967 
 
1,127 
Estimated amortization expense of finite-lived acquisition-related intangible assets
 
 
 
 
 
2016 (remaining three months)
52 
 
52 
 
 
2017
196 
 
196 
 
 
2018
193 
 
193 
 
 
2019
181 
 
181 
 
 
2020
166 
 
166 
 
 
2021
143 
 
143 
 
 
Thereafter
21 
 
21 
 
 
Finite-Lived Intangible Assets, Net
952 
 
952 
 
1,112 
Vyvx Trade Name
 
 
 
 
 
Indefinite-Lived Intangible Assets:
 
 
 
 
 
Indefinite-Lived Intangible Assets
15 
 
15 
 
15 
Customer Contracts And Relationships
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Finite-Lived Intangible Assets, Gross Carrying Amount
1,974 
 
1,974 
 
1,975 
Finite-Lived Intangible Assets, Accumulated Amortization
(1,069)
 
(1,069)
 
(932)
Finite-Lived Intangible Assets, Net
905 
 
905 
 
1,043 
Acquired finite-lived intangible assets weighted average remaining useful lives (in years)
 
 
5 years 2 months 12 days 
 
 
Estimated amortization expense of finite-lived acquisition-related intangible assets
 
 
 
 
 
Finite-Lived Intangible Assets, Net
905 
 
905 
 
1,043 
Trademarks
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Finite-Lived Intangible Assets, Gross Carrying Amount
55 
 
55 
 
55 
Finite-Lived Intangible Assets, Accumulated Amortization
(55)
 
(55)
 
(55)
Finite-Lived Intangible Assets, Net
0 
 
0 
 
0 
Estimated amortization expense of finite-lived acquisition-related intangible assets
 
 
 
 
 
Finite-Lived Intangible Assets, Net
0 
 
0 
 
0 
Patents and Developed Technology
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Finite-Lived Intangible Assets, Gross Carrying Amount
230 
 
230 
 
230 
Finite-Lived Intangible Assets, Accumulated Amortization
(183)
 
(183)
 
(161)
Finite-Lived Intangible Assets, Net
47 
 
47 
 
69 
Acquired finite-lived intangible assets weighted average remaining useful lives (in years)
 
 
2 years 10 months 24 days 
 
 
Estimated amortization expense of finite-lived acquisition-related intangible assets
 
 
 
 
 
Finite-Lived Intangible Assets, Net
$ 47 
 
$ 47 
 
$ 69 
Fair Value of Financial Instruments - Liabilities, Recurring (Details) (Fair Value, Measurements, Recurring, USD $)
In Millions, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Total Carrying Value in Consolidated Balance Sheet
 
 
Long-term Debt, including the current portion:
 
 
Term Loans
$ 4,564 
$ 4,556 
Senior Notes
6,131 
6,126 
Capital Leases and Other
187 
199 
Total Long-term Debt, including the current portion:
10,882 
10,881 
Unadjusted Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
 
 
Long-term Debt, including the current portion:
 
 
Term Loans
4,636 
4,570 
Senior Notes
6,439 
6,298 
Capital Leases and Other
0 
0 
Total Long-term Debt, including the current portion:
11,075 
10,868 
Significant Other Observable Inputs (Level 2)
 
 
Long-term Debt, including the current portion:
 
 
Term Loans
0 
0 
Senior Notes
0 
0 
Capital Leases and Other
187 
199 
Total Long-term Debt, including the current portion:
$ 187 
$ 199 
Long-Term Debt - Schedule of Long Term Debt (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Sep. 30, 2016
Tranche B-III 2019 Term Loan
Dec. 31, 2015
Tranche B-III 2019 Term Loan
Sep. 30, 2016
TrancheB2020TermLoanTotal [Member]
Dec. 31, 2015
TrancheB2020TermLoanTotal [Member]
Sep. 30, 2016
Floating Rate Senior Notes due 2018 [Member]
Dec. 31, 2015
Floating Rate Senior Notes due 2018 [Member]
Sep. 30, 2016
2.0 Billion Tranche B-II 2022 Term Loan [Member]
Dec. 31, 2015
2.0 Billion Tranche B-II 2022 Term Loan [Member]
Sep. 30, 2016
7.0% Senior Notes due 2020
Dec. 31, 2015
7.0% Senior Notes due 2020
Sep. 30, 2016
SeniorNotes6Point125PercentDue2021 [Member]
Dec. 31, 2015
SeniorNotes6Point125PercentDue2021 [Member]
Sep. 30, 2016
5point375SeniorNotesdue2022 [Member]
Dec. 31, 2015
5point375SeniorNotesdue2022 [Member]
Sep. 30, 2016
Senior Notes 5point75Percent Due 2022 [Member]
Dec. 31, 2015
Senior Notes 5point75Percent Due 2022 [Member]
Sep. 30, 2016
Senior Notes 5point 625Percent Due 2023 [Member]
Dec. 31, 2015
Senior Notes 5point 625Percent Due 2023 [Member]
Sep. 30, 2016
Senior Notes 5.375 Percent Due 2024 [Member]
Dec. 31, 2015
Senior Notes 5.375 Percent Due 2024 [Member]
Sep. 30, 2016
Senior Notes 5point 125Percent Due 2023 [Member]
Dec. 31, 2015
Senior Notes 5point 125Percent Due 2023 [Member]
Sep. 30, 2016
Senior Notes 5point 375Percent Due 2025 [Member]
Dec. 31, 2015
Senior Notes 5point 375Percent Due 2025 [Member]
Sep. 30, 2016
Capital Leases
Dec. 31, 2015
Capital Leases
Sep. 30, 2016
Level 3 Communications, LLC
Dec. 31, 2015
Level 3 Communications, LLC
Sep. 30, 2016
Level 3 Communications, LLC
Tranche B-III 2019 Term Loan
Jan. 1, 2014
Level 3 Communications, LLC
Tranche B-III 2019 Term Loan
Sep. 30, 2016
Level 3 Communications, LLC
TrancheB2020TermLoanTotal [Member]
Jan. 1, 2014
Level 3 Communications, LLC
TrancheB2020TermLoanTotal [Member]
May 8, 2015
Level 3 Financing [Member]
2.0 Billion Tranche B-II 2022 Term Loan [Member]
Sep. 30, 2016
Level 3 Financing [Member]
7.0% Senior Notes due 2020
Sep. 30, 2016
Level 3 Financing [Member]
SeniorNotes6Point125PercentDue2021 [Member]
Sep. 30, 2016
Level 3 Financing [Member]
5.37percent Senior Notes Due 2022 [Member]
Sep. 30, 2016
Level 3 Financing [Member]
Senior Notes 5point 625Percent Due 2023 [Member]
Sep. 30, 2016
Level 3 Financing [Member]
Senior Notes 5point 125Percent Due 2023 [Member]
Sep. 30, 2016
Level 3 Financing [Member]
Senior Notes 5point 375Percent Due 2024 [Member]
Sep. 30, 2016
Level 3 Financing [Member]
Senior Notes 5point 375Percent Due 2025 [Member]
Sep. 30, 2016
Level 3 Financing [Member]
Senior Notes 5point 250Percent Due 2026 [Member]
Mar. 22, 2016
Level 3 Financing [Member]
Senior Notes 5point 250Percent Due 2026 [Member]
Dec. 31, 2015
Level 3 Financing [Member]
Senior Notes 5point 250Percent Due 2026 [Member]
Sep. 30, 2016
Parent Company [Member]
Dec. 31, 2015
Parent Company [Member]
Sep. 30, 2016
Parent Company [Member]
Senior Notes 5point75Percent Due 2022 [Member]
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate Terms
 
 
 
 
 
 
6-Month LIBOR +3.50% 
 
LIBOR +2.75% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIBOR +3.00% 
 
LIBOR +3.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stated interest rate (as a percent)
 
 
 
 
 
 
4.407% 
4.101% 
3.50% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.00% 
6.125% 
5.375% 
5.625% 
5.125% 
5.375% 
5.375% 
5.25% 
 
 
 
 
5.75% 
Debt Instrument, Face Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 815 
 
 
$ 2,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Debt Obligations
11,013 
11,025 
815 
815 
1,796 
1,796 
300 
300 
2,000 
2,000 
0 
775 
640 
640 
1,000 
1,000 
600 
600 
500 
500 
900 
900 
700 
700 
800 
800 
187 
199 
 
 
 
 
 
1,796 
 
 
 
 
 
 
 
 
775 
775 
0 
 
 
 
Total Unamortized Discount
14 
16 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized Debt Issuance Expense
(117)
(128)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
(7)
(15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2)
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0 
0 
 
Long-Term Debt, less current portion
$ 10,875 
$ 10,866 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 13 
$ 15 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 592 
$ 591 
 
Long-Term Debt - Textuals (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2016
days
Dec. 31, 2015
Sep. 30, 2016
Tranche B III 2019 and Tranche B 2020 Term Loans [Member]
Sep. 30, 2016
Senior Notes 5point 125Percent Due 2023 [Member]
Dec. 31, 2015
Senior Notes 5point 125Percent Due 2023 [Member]
Sep. 30, 2016
Senior Notes 5point 125Percent Due 2023 [Member]
Level 3 Financing [Member]
Sep. 30, 2016
Senior Notes 5point 625Percent Due 2023 [Member]
Dec. 31, 2015
Senior Notes 5point 625Percent Due 2023 [Member]
Sep. 30, 2016
Senior Notes 5point 625Percent Due 2023 [Member]
Level 3 Financing [Member]
Sep. 30, 2016
Tranche B-III 2019 Term Loan
Dec. 31, 2015
Tranche B-III 2019 Term Loan
Jan. 1, 2014
Tranche B-III 2019 Term Loan
Level 3 Financing, Inc.
Sep. 30, 2016
TrancheB2020TermLoanTotal [Member]
Dec. 31, 2015
TrancheB2020TermLoanTotal [Member]
Jan. 1, 2014
TrancheB2020TermLoanTotal [Member]
Level 3 Financing, Inc.
Sep. 30, 2016
7.0% Senior Notes due 2020
Dec. 31, 2015
7.0% Senior Notes due 2020
Sep. 30, 2016
7.0% Senior Notes due 2020
Level 3 Financing [Member]
Sep. 30, 2016
Capital Lease Obligations [Member]
Dec. 31, 2015
Capital Lease Obligations [Member]
Sep. 30, 2016
Senior Notes 5point 375Percent Due 2025 [Member]
Dec. 31, 2015
Senior Notes 5point 375Percent Due 2025 [Member]
Sep. 30, 2016
Senior Notes 5point 375Percent Due 2025 [Member]
Level 3 Financing [Member]
Sep. 30, 2016
2.0 Billion Tranche B-II 2022 Term Loan [Member]
Dec. 31, 2015
2.0 Billion Tranche B-II 2022 Term Loan [Member]
May 8, 2015
2.0 Billion Tranche B-II 2022 Term Loan [Member]
Level 3 Financing [Member]
Sep. 30, 2016
2.0 Billion Tranche B-II 2022 Term Loan [Member]
Level 3 Financing [Member]
London Interbank Offered Rate (LIBOR) [Member]
Sep. 30, 2016
2.0 Billion Tranche B-II 2022 Term Loan [Member]
Level 3 Financing [Member]
London Interbank Offered Rate (LIBOR) [Member]
Minimum [Member]
Sep. 30, 2016
Senior Notes 5point 250Percent Due 2026 [Member]
Level 3 Financing [Member]
Mar. 22, 2016
Senior Notes 5point 250Percent Due 2026 [Member]
Level 3 Financing [Member]
Dec. 31, 2015
Senior Notes 5point 250Percent Due 2026 [Member]
Level 3 Financing [Member]
Sep. 30, 2016
Floating Rate Senior Notes due 2018 [Member]
Dec. 31, 2015
Floating Rate Senior Notes due 2018 [Member]
Sep. 30, 2016
Tranche B-III 2019, Tranche B 2020 and Tranche B 2022 Term Loans [Member]
Level 3 Financing, Inc.
London Interbank Offered Rate (LIBOR) [Member]
Sep. 30, 2016
Tranche B-III 2019, Tranche B 2020 and Tranche B 2022 Term Loans [Member]
Level 3 Financing [Member]
London Interbank Offered Rate (LIBOR) [Member]
Minimum [Member]
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt, Weighted Average Interest Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.80% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stated interest rate (as a percent)
 
 
4.00% 
 
 
5.125% 
 
 
5.625% 
 
 
 
 
 
 
 
 
7.00% 
 
 
 
 
5.375% 
3.50% 
 
 
 
 
5.25% 
 
 
4.407% 
4.101% 
 
 
Gains (Losses) on Extinguishment of Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ (40)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Redemption Period Notice Minimum Number of Days
30 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Period Notice Maximum Number of Days
60 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Redemption Price, Percentage
101.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
104.138% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Debt Obligations
11,013 
11,025 
 
700 
700 
 
500 
500 
 
815 
815 
 
1,796 
1,796 
1,796 
0 
775 
 
187 
199 
800 
800 
 
2,000 
2,000 
 
 
 
775 
775 
0 
300 
300 
 
 
2016 (remaining three months)
2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
7 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
307 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
822 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020
1,804 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2021
650 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thereafter
7,421 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Face Amount
 
 
 
 
 
 
 
 
 
 
 
$ 815 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 2,000 
 
 
 
 
 
 
 
 
 
Debt Instrument, Description of Variable Rate Basis
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIBOR 
 
 
 
 
 
 
LIBOR 
 
Debt Instrument, Basis Spread on Variable Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0.75% 
 
 
 
 
 
 
1.00% 
Accumulated Other Comprehensive Loss (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Dec. 31, 2014
Accumulated Other Comprehensive Loss [Line Items]
 
 
 
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
$ (293)
$ (275)
$ (301)
$ (147)
Other comprehensive income before reclassifications
7 
(130)
 
 
Amounts reclassified from accumulated other comprehensive income
1 
2 
 
 
Accumulated Translation Adjustment [Member]
 
 
 
 
Accumulated Other Comprehensive Loss [Line Items]
 
 
 
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
(264)
(241)
(273)
(111)
Other comprehensive income before reclassifications
9 
(130)
 
 
Amounts reclassified from accumulated other comprehensive income
0 
0 
 
 
Accumulated Defined Benefit Plans Adjustment [Member]
 
 
 
 
Accumulated Other Comprehensive Loss [Line Items]
 
 
 
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
(29)
(34)
(28)
(36)
Other comprehensive income before reclassifications
(2)
0 
 
 
Amounts reclassified from accumulated other comprehensive income
$ 1 
$ 2 
 
 
Stock-Based Compensation - Non-cash compensation expense and capitalized non-cash compensation (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Non-cash compensation expense and capitalized non-cash compensation
 
 
 
 
Nonvested restricted stock and restricted stock units (RSUs)
5 
 
5 
 
OSOs outstanding
1 
 
1 
 
Stock-based compensation expense
$ 43 
$ 34 
$ 122 
$ 93 
Employee Service Share-based Compensation, Allocation of Recognized Period Costs, Capitalized Amount
0 
0 
(1)
(1)
Non-cash compensation expense and capitalized non-cash compensation
43 
34 
121 
92 
Outperform Stock Appreciation Rights
 
 
 
 
Non-cash compensation expense and capitalized non-cash compensation
 
 
 
 
Stock-based compensation expense
0 
1 
2 
4 
Restricted Stock Units
 
 
 
 
Non-cash compensation expense and capitalized non-cash compensation
 
 
 
 
Stock-based compensation expense
26 
15 
60 
37 
Performance Restricted Stock Units
 
 
 
 
Non-cash compensation expense and capitalized non-cash compensation
 
 
 
 
Stock-based compensation expense
9 
10 
33 
23 
401 (K) Match Expense
 
 
 
 
Non-cash compensation expense and capitalized non-cash compensation
 
 
 
 
Stock-based compensation expense
$ 8 
$ 8 
$ 27 
$ 29 
Segment Information (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Dec. 31, 2015
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Goodwill
$ 7,736 
 
$ 7,736 
 
$ 7,749 
Assets
24,746 
 
24,746 
 
24,017 
Payments to Acquire Productive Assets
364 
328 
1,028 
899 
 
Adjusted EBITDA by Segment
716 
657 
2,141 
1,957 
 
Revenue
2,033 
2,062 
6,140 
6,176 
 
Income Tax Expense
(74)
(16)
(198)
(39)
 
Other Expenses
(137)
(310)
(465)
(844)
 
Depreciation, Depletion and Amortization
(319)
(296)
(930)
(872)
 
Share-based Compensation
(43)
(34)
(121)
(92)
 
Net Income (Loss) Available to Common Stockholders, Basic
143 
1 
427 
110 
 
Goodwill, Translation Adjustments
 
 
(13)
 
 
Corporate and Other [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Assets
130 
 
130 
 
129 
Payments to Acquire Productive Assets
37 
37 
116 
103 
 
Adjusted EBITDA by Segment
(204)
(244)
(654)
(723)
 
North America [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Goodwill
7,024 
 
7,024 
 
7,024 
Assets
20,618 
 
20,618 
 
19,961 
Payments to Acquire Productive Assets
245 
202 
677 
560 
 
Adjusted EBITDA by Segment
784 
760 
2,415 
2,267 
 
Goodwill, Translation Adjustments
 
 
0 
 
 
EMEA [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Goodwill
116 
 
116 
 
129 
Assets
1,760 
 
1,760 
 
1,796 
Payments to Acquire Productive Assets
38 
41 
117 
114 
 
Adjusted EBITDA by Segment
56 
63 
162 
176 
 
Goodwill, Translation Adjustments
 
 
(13)
 
 
Latin America [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Goodwill
596 
 
596 
 
596 
Assets
2,238 
 
2,238 
 
2,131 
Payments to Acquire Productive Assets
44 
48 
118 
122 
 
Adjusted EBITDA by Segment
80 
78 
218 
237 
 
Goodwill, Translation Adjustments
 
 
0 
 
 
Core Network Service [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Revenue
1,930 
1,945 
5,833 
5,814 
 
Core Network Service [Member] |
North America [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Revenue
1,572 
1,551 
4,778 
4,636 
 
Core Network Service [Member] |
EMEA [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Revenue
182 
211 
564 
623 
 
Core Network Service [Member] |
Latin America [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Revenue
176 
183 
491 
555 
 
Wholesale Voice Services [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Revenue
103 
117 
307 
362 
 
Wholesale Voice Services [Member] |
North America [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Revenue
99 
110 
293 
342 
 
Wholesale Voice Services [Member] |
EMEA [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Revenue
2 
3 
8 
10 
 
Wholesale Voice Services [Member] |
Latin America [Member]
 
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
 
Revenue
$ 2 
$ 4 
$ 6 
$ 10 
 
Commitments, Contingencies and Other Items - Lawsuits (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 3 Months Ended
Sep. 30, 2016
Sep. 30, 2016
Peruvian Tax Litigation
Pending Litigation
Sep. 30, 2016
Peruvian Tax Litigation, Before Interest
Pending Litigation
Sep. 30, 2016
Peruvian Tax Litigation, Income Tax witholding 2001 and 2002
Pending Litigation
Sep. 30, 2016
Peruvian Tax Litigation, VAT for 2001 and 2002
Pending Litigation
Sep. 30, 2016
Peruvian Tax Litigation, Disallowance of VAT in 2005
Pending Litigation
Sep. 30, 2016
Employee Severance and Contractor Termination Disputes
Pending Litigation
Sep. 30, 2016
up to
Brazilian Tax Claims
Pending Litigation
Sep. 30, 2015
Brazilian Tax Reserve Release [Member]
Brazilian Tax Claims
Pending Litigation
Dec. 31, 2014
Brazilian Tax Reserve Release [Member]
Brazilian Tax Claims
Pending Litigation
Loss Contingencies
 
 
 
 
 
 
 
 
 
 
Estimated Litigation Liability
$ 113 
 
 
 
 
 
 
 
 
 
Loss Contingency, Asserted Claim
 
29 
26 
3 
7 
16 
29 
 
 
 
Release of Loss Contingency Accrual
 
15 
 
 
 
 
 
 
 
 
Loss Contingency Accrual, Period Increase (Decrease)
 
 
 
 
 
 
 
 
6 
3 
Loss Contingency Accrual, Payments
 
 
 
 
 
 
 
 
 
5 
Loss Contingency, Range of Possible Loss, Portion Not Accrued
 
 
 
 
 
 
 
$ 48 
 
 
Commitments, Contingencies and Other Items - Other Commitments (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Commitments and Contingencies Disclosure [Abstract]
 
 
Amount outstanding under letters of credit or other similar obligations
$ 39 
$ 46 
Collateralized by cash, that is reflected on the consolidated balance sheets as restricted cash
$ 33 
$ 43 
Condensed Consolidating Financial Information - Statements of Comprehensive Income (Loss) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Condensed Consolidating Financial Information
 
 
 
 
 
 
Revenue
$ 2,033 
 
 
$ 2,062 
$ 6,140 
$ 6,176 
Costs and Expenses:
 
 
 
 
 
 
Network access costs
675 
 
 
706 
2,045 
2,125 
Network related expenses
337 
 
 
369 
1,014 
1,088 
Depreciation and amortization
319 
 
 
296 
930 
872 
Selling, general and administrative Expenses
348 
 
 
364 
1,061 
1,098 
Total Costs and Expenses
1,679 
 
 
1,735 
5,050 
5,183 
Operating Income (Loss)
354 
 
 
327 
1,090 
993 
Other Income (Expense):
 
 
 
 
 
 
Interest income
1 
 
 
0 
3 
1 
Interest expense
(139)
 
 
(145)
(414)
(490)
Interest income (expense) affiliates, net
0 
 
 
0 
0 
0 
Equity in net earnings (losses) of subsidiaries
0 
 
 
0 
0 
0 
Other, net
1 
 
 
(165)
(54)
(355)
Total Other Expense
(137)
 
 
(310)
(465)
(844)
Income (Loss) before Income Taxes
217 
 
 
17 
625 
149 
Income Tax Expense
(74)
 
 
(16)
(198)
(39)
Net Income (Loss)
143 
156 
128 
1 
427 
110 
Other Comprehensive Income (Loss), Net of Income Taxes
(15)
 
 
(72)
8 
(128)
Comprehensive Income (Loss)
128 
 
 
(71)
435 
(18)
Level 3 Communications, Inc.
 
 
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
 
 
Revenue
0 
 
 
0 
0 
0 
Costs and Expenses:
 
 
 
 
 
 
Network access costs
0 
 
 
0 
0 
0 
Network related expenses
0 
 
 
0 
0 
0 
Depreciation and amortization
0 
 
 
0 
0 
0 
Selling, general and administrative Expenses
1 
 
 
1 
3 
3 
Total Costs and Expenses
1 
 
 
1 
3 
3 
Operating Income (Loss)
(1)
 
 
(1)
(3)
(3)
Other Income (Expense):
 
 
 
 
 
 
Interest income
0 
 
 
0 
0 
0 
Interest expense
(9)
 
 
(9)
(27)
(42)
Interest income (expense) affiliates, net
342 
 
 
320 
1,027 
984 
Equity in net earnings (losses) of subsidiaries
(193)
 
 
(309)
(581)
(811)
Other, net
0 
 
 
0 
0 
(18)
Total Other Expense
140 
 
 
2 
419 
113 
Income (Loss) before Income Taxes
139 
 
 
1 
416 
110 
Income Tax Expense
4 
 
 
0 
11 
0 
Net Income (Loss)
143 
 
 
1 
427 
110 
Other Comprehensive Income (Loss), Net of Income Taxes
(15)
 
 
(72)
8 
(128)
Comprehensive Income (Loss)
128 
 
 
(71)
435 
(18)
Level 3 Financing, Inc.
 
 
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
 
 
Revenue
0 
 
 
0 
0 
0 
Costs and Expenses:
 
 
 
 
 
 
Network access costs
0 
 
 
0 
0 
0 
Network related expenses
0 
 
 
0 
0 
0 
Depreciation and amortization
0 
 
 
0 
0 
0 
Selling, general and administrative Expenses
1 
 
 
0 
4 
0 
Total Costs and Expenses
1 
 
 
0 
4 
0 
Operating Income (Loss)
(1)
 
 
0 
(4)
0 
Other Income (Expense):
 
 
 
 
 
 
Interest income
0 
 
 
0 
0 
0 
Interest expense
(124)
 
 
(135)
(380)
(436)
Interest income (expense) affiliates, net
526 
 
 
498 
1,585 
1,495 
Equity in net earnings (losses) of subsidiaries
(539)
 
 
(671)
(1,568)
(1,723)
Other, net
0 
 
 
0 
(39)
(145)
Total Other Expense
(137)
 
 
(308)
(402)
(809)
Income (Loss) before Income Taxes
(138)
 
 
(308)
(406)
(809)
Income Tax Expense
(55)
 
 
(1)
(175)
(2)
Net Income (Loss)
(193)
 
 
(309)
(581)
(811)
Other Comprehensive Income (Loss), Net of Income Taxes
0 
 
 
0 
0 
0 
Comprehensive Income (Loss)
(193)
 
 
(309)
(581)
(811)
Level 3 Communications, LLC
 
 
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
 
 
Revenue
907 
 
 
830 
2,652 
2,480 
Costs and Expenses:
 
 
 
 
 
 
Network access costs
330 
 
 
300 
965 
919 
Network related expenses
242 
 
 
252 
716 
713 
Depreciation and amortization
100 
 
 
78 
280 
227 
Selling, general and administrative Expenses
262 
 
 
274 
775 
789 
Total Costs and Expenses
934 
 
 
904 
2,736 
2,648 
Operating Income (Loss)
(27)
 
 
(74)
(84)
(168)
Other Income (Expense):
 
 
 
 
 
 
Interest income
1 
 
 
0 
2 
0 
Interest expense
(1)
 
 
0 
(2)
(2)
Interest income (expense) affiliates, net
(804)
 
 
(762)
(2,407)
(2,297)
Equity in net earnings (losses) of subsidiaries
169 
 
 
(186)
569 
174 
Other, net
(1)
 
 
3 
2 
2 
Total Other Expense
(636)
 
 
(945)
(1,836)
(2,123)
Income (Loss) before Income Taxes
(663)
 
 
(1,019)
(1,920)
(2,291)
Income Tax Expense
0 
 
 
0 
(2)
0 
Net Income (Loss)
(663)
 
 
(1,019)
(1,922)
(2,291)
Other Comprehensive Income (Loss), Net of Income Taxes
0 
 
 
0 
0 
0 
Comprehensive Income (Loss)
(663)
 
 
(1,019)
(1,922)
(2,291)
Other Non-Guarantor Subsidiaries
 
 
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
 
 
Revenue
1,160 
 
 
1,271 
3,590 
3,832 
Costs and Expenses:
 
 
 
 
 
 
Network access costs
379 
 
 
445 
1,182 
1,342 
Network related expenses
95 
 
 
117 
298 
375 
Depreciation and amortization
219 
 
 
218 
650 
645 
Selling, general and administrative Expenses
84 
 
 
89 
279 
306 
Total Costs and Expenses
777 
 
 
869 
2,409 
2,668 
Operating Income (Loss)
383 
 
 
402 
1,181 
1,164 
Other Income (Expense):
 
 
 
 
 
 
Interest income
0 
 
 
0 
1 
1 
Interest expense
(5)
 
 
(1)
(5)
(10)
Interest income (expense) affiliates, net
(64)
 
 
(56)
(205)
(182)
Equity in net earnings (losses) of subsidiaries
0 
 
 
0 
0 
0 
Other, net
2 
 
 
(168)
(17)
(194)
Total Other Expense
(67)
 
 
(225)
(226)
(385)
Income (Loss) before Income Taxes
316 
 
 
177 
955 
779 
Income Tax Expense
(23)
 
 
(15)
(32)
(37)
Net Income (Loss)
293 
 
 
162 
923 
742 
Other Comprehensive Income (Loss), Net of Income Taxes
(15)
 
 
(72)
8 
(128)
Comprehensive Income (Loss)
278 
 
 
90 
931 
614 
Eliminations
 
 
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
 
 
Revenue
(34)
 
 
(39)
(102)
(136)
Costs and Expenses:
 
 
 
 
 
 
Network access costs
(34)
 
 
(39)
(102)
(136)
Network related expenses
0 
 
 
0 
0 
0 
Depreciation and amortization
0 
 
 
0 
0 
0 
Selling, general and administrative Expenses
0 
 
 
0 
0 
0 
Total Costs and Expenses
(34)
 
 
(39)
(102)
(136)
Operating Income (Loss)
0 
 
 
0 
0 
0 
Other Income (Expense):
 
 
 
 
 
 
Interest income
0 
 
 
0 
0 
0 
Interest expense
0 
 
 
0 
0 
0 
Interest income (expense) affiliates, net
0 
 
 
0 
0 
0 
Equity in net earnings (losses) of subsidiaries
563 
 
 
1,166 
1,580 
2,360 
Other, net
0 
 
 
0 
0 
0 
Total Other Expense
563 
 
 
1,166 
1,580 
2,360 
Income (Loss) before Income Taxes
563 
 
 
1,166 
1,580 
2,360 
Income Tax Expense
0 
 
 
0 
0 
0 
Net Income (Loss)
563 
 
 
1,166 
1,580 
2,360 
Other Comprehensive Income (Loss), Net of Income Taxes
15 
 
 
72 
(8)
128 
Comprehensive Income (Loss)
$ 578 
 
 
$ 1,238 
$ 1,572 
$ 2,488 
Condensed Consolidating Financial Information - Balance Sheets (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Sep. 30, 2015
Dec. 31, 2014
Current Assets:
 
 
 
 
Cash and cash equivalents
$ 1,569 
$ 854 
$ 691 
$ 580 
Restricted cash and securities
8 
8 
 
 
Receivables, less allowances for doubtful accounts
749 
757 
 
 
Due from affiliates
0 
0 
 
 
Other
131 
111 
 
 
Total Current Assets
2,457 
1,730 
 
 
Property, Plant and Equipment, net
10,167 
9,878 
 
 
Restricted Cash and Securities
31 
42 
 
 
Goodwill and Other Intangibles Assets, net
8,703 
8,876 
 
 
Investment in Subsidiaries
0 
0 
 
 
Deferred Tax Assets
3,339 
3,441 
 
 
Other Assets, net
49 
50 
 
 
Total Assets
24,746 
24,017 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
Accounts payable
728 
629 
 
 
Current portion of long-term debt
7 
15 
 
 
Accrued payroll and employee benefits
194 
218 
 
 
Accrued interest
135 
108 
 
 
Current portion of deferred revenue
263 
267 
 
 
Due to affiliates
0 
0 
 
 
Other
180 
179 
 
 
Total Current Liabilities
1,507 
1,416 
 
 
Long-Term Debt, less current portion
10,875 
10,866 
 
 
Deferred Revenue, less current portion
1,010 
977 
 
 
Other Liabilities
630 
632 
 
 
Commitments and Contingencies
   
   
 
 
Stockholders' Equity (Deficit)
10,724 
10,126 
 
 
Total Liabilities and Stockholders’ Equity (Deficit)
24,746 
24,017 
 
 
Level 3 Communications, Inc.
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
16 
12 
13 
7 
Restricted cash and securities
0 
0 
 
 
Receivables, less allowances for doubtful accounts
0 
0 
 
 
Due from affiliates
16,717 
12,415 
 
 
Other
0 
0 
 
 
Total Current Assets
16,733 
12,427 
 
 
Property, Plant and Equipment, net
0 
0 
 
 
Restricted Cash and Securities
22 
27 
 
 
Goodwill and Other Intangibles Assets, net
0 
0 
 
 
Investment in Subsidiaries
16,846 
16,772 
 
 
Deferred Tax Assets
48 
38 
 
 
Other Assets, net
0 
0 
 
 
Total Assets
33,649 
29,264 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
Accounts payable
0 
0 
 
 
Current portion of long-term debt
0 
0 
 
 
Accrued payroll and employee benefits
0 
0 
 
 
Accrued interest
3 
11 
 
 
Current portion of deferred revenue
0 
0 
 
 
Due to affiliates
0 
0 
 
 
Other
0 
0 
 
 
Total Current Liabilities
3 
11 
 
 
Long-Term Debt, less current portion
592 
591 
 
 
Deferred Revenue, less current portion
0 
0 
 
 
Other Liabilities
15 
15 
 
 
Commitments and Contingencies
   
   
 
 
Stockholders' Equity (Deficit)
33,039 
28,647 
 
 
Total Liabilities and Stockholders’ Equity (Deficit)
33,649 
29,264 
 
 
Level 3 Financing, Inc.
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
0 
6 
6 
5 
Restricted cash and securities
0 
0 
 
 
Receivables, less allowances for doubtful accounts
0 
0 
 
 
Due from affiliates
20,980 
22,759 
 
 
Other
0 
0 
 
 
Total Current Assets
20,980 
22,765 
 
 
Property, Plant and Equipment, net
0 
0 
 
 
Restricted Cash and Securities
0 
0 
 
 
Goodwill and Other Intangibles Assets, net
0 
0 
 
 
Investment in Subsidiaries
17,692 
17,714 
 
 
Deferred Tax Assets
2,713 
2,847 
 
 
Other Assets, net
0 
0 
 
 
Total Assets
41,385 
43,326 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
Accounts payable
0 
1 
 
 
Current portion of long-term debt
0 
0 
 
 
Accrued payroll and employee benefits
0 
0 
 
 
Accrued interest
124 
90 
 
 
Current portion of deferred revenue
0 
0 
 
 
Due to affiliates
0 
0 
 
 
Other
0 
0 
 
 
Total Current Liabilities
124 
91 
 
 
Long-Term Debt, less current portion
10,103 
10,092 
 
 
Deferred Revenue, less current portion
0 
0 
 
 
Other Liabilities
0 
0 
 
 
Commitments and Contingencies
   
   
 
 
Stockholders' Equity (Deficit)
31,158 
33,143 
 
 
Total Liabilities and Stockholders’ Equity (Deficit)
41,385 
43,326 
 
 
Level 3 Communications, LLC
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
1,482 
727 
559 
307 
Restricted cash and securities
1 
1 
 
 
Receivables, less allowances for doubtful accounts
41 
47 
 
 
Due from affiliates
0 
0 
 
 
Other
89 
56 
 
 
Total Current Assets
1,613 
831 
 
 
Property, Plant and Equipment, net
3,780 
3,423 
 
 
Restricted Cash and Securities
9 
14 
 
 
Goodwill and Other Intangibles Assets, net
355 
363 
 
 
Investment in Subsidiaries
3,691 
3,734 
 
 
Deferred Tax Assets
0 
0 
 
 
Other Assets, net
12 
12 
 
 
Total Assets
9,460 
8,377 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
Accounts payable
367 
195 
 
 
Current portion of long-term debt
2 
2 
 
 
Accrued payroll and employee benefits
160 
186 
 
 
Accrued interest
0 
0 
 
 
Current portion of deferred revenue
113 
119 
 
 
Due to affiliates
40,551 
37,990 
 
 
Other
138 
115 
 
 
Total Current Liabilities
41,331 
38,607 
 
 
Long-Term Debt, less current portion
13 
15 
 
 
Deferred Revenue, less current portion
724 
680 
 
 
Other Liabilities
148 
133 
 
 
Commitments and Contingencies
   
   
 
 
Stockholders' Equity (Deficit)
(32,756)
(31,058)
 
 
Total Liabilities and Stockholders’ Equity (Deficit)
9,460 
8,377 
 
 
Other Non-Guarantor Subsidiaries
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
71 
109 
113 
261 
Restricted cash and securities
7 
7 
 
 
Receivables, less allowances for doubtful accounts
708 
710 
 
 
Due from affiliates
2,854 
2,816 
 
 
Other
42 
55 
 
 
Total Current Assets
3,682 
3,697 
 
 
Property, Plant and Equipment, net
6,387 
6,455 
 
 
Restricted Cash and Securities
0 
1 
 
 
Goodwill and Other Intangibles Assets, net
8,348 
8,513 
 
 
Investment in Subsidiaries
0 
0 
 
 
Deferred Tax Assets
578 
556 
 
 
Other Assets, net
37 
38 
 
 
Total Assets
19,032 
19,260 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
Accounts payable
361 
433 
 
 
Current portion of long-term debt
5 
13 
 
 
Accrued payroll and employee benefits
34 
32 
 
 
Accrued interest
8 
7 
 
 
Current portion of deferred revenue
150 
148 
 
 
Due to affiliates
0 
0 
 
 
Other
42 
64 
 
 
Total Current Liabilities
600 
697 
 
 
Long-Term Debt, less current portion
167 
168 
 
 
Deferred Revenue, less current portion
286 
297 
 
 
Other Liabilities
467 
484 
 
 
Commitments and Contingencies
   
   
 
 
Stockholders' Equity (Deficit)
17,512 
17,614 
 
 
Total Liabilities and Stockholders’ Equity (Deficit)
19,032 
19,260 
 
 
Eliminations
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
0 
0 
0 
0 
Restricted cash and securities
0 
0 
 
 
Receivables, less allowances for doubtful accounts
0 
0 
 
 
Due from affiliates
(40,551)
(37,990)
 
 
Other
0 
0 
 
 
Total Current Assets
(40,551)
(37,990)
 
 
Property, Plant and Equipment, net
0 
0 
 
 
Restricted Cash and Securities
0 
0 
 
 
Goodwill and Other Intangibles Assets, net
0 
0 
 
 
Investment in Subsidiaries
(38,229)
(38,220)
 
 
Deferred Tax Assets
0 
0 
 
 
Other Assets, net
0 
0 
 
 
Total Assets
(78,780)
(76,210)
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
Accounts payable
0 
0 
 
 
Current portion of long-term debt
0 
0 
 
 
Accrued payroll and employee benefits
0 
0 
 
 
Accrued interest
0 
0 
 
 
Current portion of deferred revenue
0 
0 
 
 
Due to affiliates
(40,551)
(37,990)
 
 
Other
0 
0 
 
 
Total Current Liabilities
(40,551)
(37,990)
 
 
Long-Term Debt, less current portion
0 
0 
 
 
Deferred Revenue, less current portion
0 
0 
 
 
Other Liabilities
0 
0 
 
 
Commitments and Contingencies
   
   
 
 
Stockholders' Equity (Deficit)
(38,229)
(38,220)
 
 
Total Liabilities and Stockholders’ Equity (Deficit)
$ (78,780)
$ (76,210)
 
 
Condensed Consolidating Financial Information - Statements of Cash Flows (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities
$ 1,786 
$ 1,299 
Cash Flows from Investing Activities:
 
 
Capital expenditures
(1,028)
(899)
Cash related to deconsolidated Venezuela operations
0 
(83)
(Increase) decrease in restricted cash and securities, net
11 
(24)
Proceeds from sale of property, plant, and equipment and other assets
1 
3 
Other
0 
(14)
Net Cash Used in Investing Activities
(1,016)
(1,017)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
764 
3,947 
Payments on and repurchases of long-term debt and capital leases
(818)
(4,102)
Increase (decrease) due from-to affiliates, net
0 
0 
Net Cash Provided by (Used in) Financing Activities
(54)
(155)
Effect of Exchange Rates on Cash and Cash Equivalents
(1)
(16)
Net Change in Cash and Cash Equivalents
715 
111 
Cash and Cash Equivalents at Beginning of Period
854 
580 
Cash and Cash Equivalents at End of Period
1,569 
691 
Level 3 Communications, Inc.
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities
(35)
(39)
Cash Flows from Investing Activities:
 
 
Capital expenditures
0 
0 
Cash related to deconsolidated Venezuela operations
 
0 
(Increase) decrease in restricted cash and securities, net
5 
(25)
Proceeds from sale of property, plant, and equipment and other assets
0 
0 
Other
 
0 
Net Cash Used in Investing Activities
5 
(25)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
0 
0 
Payments on and repurchases of long-term debt and capital leases
0 
(313)
Increase (decrease) due from-to affiliates, net
34 
383 
Net Cash Provided by (Used in) Financing Activities
34 
70 
Effect of Exchange Rates on Cash and Cash Equivalents
0 
0 
Net Change in Cash and Cash Equivalents
4 
6 
Cash and Cash Equivalents at Beginning of Period
12 
7 
Cash and Cash Equivalents at End of Period
16 
13 
Level 3 Financing, Inc.
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities
(332)
(447)
Cash Flows from Investing Activities:
 
 
Capital expenditures
0 
0 
Cash related to deconsolidated Venezuela operations
 
0 
(Increase) decrease in restricted cash and securities, net
0 
0 
Proceeds from sale of property, plant, and equipment and other assets
0 
0 
Other
 
0 
Net Cash Used in Investing Activities
0 
0 
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
764 
3,947 
Payments on and repurchases of long-term debt and capital leases
(806)
(3,780)
Increase (decrease) due from-to affiliates, net
368 
281 
Net Cash Provided by (Used in) Financing Activities
326 
448 
Effect of Exchange Rates on Cash and Cash Equivalents
0 
0 
Net Change in Cash and Cash Equivalents
(6)
1 
Cash and Cash Equivalents at Beginning of Period
6 
5 
Cash and Cash Equivalents at End of Period
0 
6 
Level 3 Communications, LLC
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities
489 
57 
Cash Flows from Investing Activities:
 
 
Capital expenditures
(537)
(307)
Cash related to deconsolidated Venezuela operations
 
0 
(Increase) decrease in restricted cash and securities, net
6 
1 
Proceeds from sale of property, plant, and equipment and other assets
0 
0 
Other
 
(14)
Net Cash Used in Investing Activities
(531)
(320)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
0 
0 
Payments on and repurchases of long-term debt and capital leases
(1)
(1)
Increase (decrease) due from-to affiliates, net
798 
516 
Net Cash Provided by (Used in) Financing Activities
797 
515 
Effect of Exchange Rates on Cash and Cash Equivalents
0 
0 
Net Change in Cash and Cash Equivalents
755 
252 
Cash and Cash Equivalents at Beginning of Period
727 
307 
Cash and Cash Equivalents at End of Period
1,482 
559 
Other Non-Guarantor Subsidiaries
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities
1,664 
1,728 
Cash Flows from Investing Activities:
 
 
Capital expenditures
(491)
(592)
Cash related to deconsolidated Venezuela operations
 
(83)
(Increase) decrease in restricted cash and securities, net
0 
0 
Proceeds from sale of property, plant, and equipment and other assets
1 
3 
Other
 
0 
Net Cash Used in Investing Activities
(490)
(672)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
0 
0 
Payments on and repurchases of long-term debt and capital leases
(11)
(8)
Increase (decrease) due from-to affiliates, net
(1,200)
(1,180)
Net Cash Provided by (Used in) Financing Activities
(1,211)
(1,188)
Effect of Exchange Rates on Cash and Cash Equivalents
(1)
(16)
Net Change in Cash and Cash Equivalents
(38)
(148)
Cash and Cash Equivalents at Beginning of Period
109 
261 
Cash and Cash Equivalents at End of Period
71 
113 
Eliminations
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities
0 
0 
Cash Flows from Investing Activities:
 
 
Capital expenditures
0 
0 
(Increase) decrease in restricted cash and securities, net
0 
0 
Proceeds from sale of property, plant, and equipment and other assets
0 
0 
Other
 
0 
Net Cash Used in Investing Activities
0 
0 
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
0 
0 
Payments on and repurchases of long-term debt and capital leases
0 
0 
Increase (decrease) due from-to affiliates, net
0 
0 
Net Cash Provided by (Used in) Financing Activities
0 
0 
Effect of Exchange Rates on Cash and Cash Equivalents
0 
0 
Net Change in Cash and Cash Equivalents
0 
0 
Cash and Cash Equivalents at Beginning of Period
0 
0 
Cash and Cash Equivalents at End of Period
$ 0 
$ 0