LEVEL 3 PARENT, LLC, 10-Q filed on 8/5/2021
Quarterly Report
v3.21.2
Cover Page
 6 Months Ended
Jun. 30, 2021
shares
Cover [Abstract]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Jun. 30, 2021
Document Transition Report false
Entity File Number 001-35134
Entity Registrant Name LEVEL 3 PARENT, LLC
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 47-0210602
Entity Address, Address Line One 1025 Eldorado Blvd.,
Entity Address, City or Town Broomfield,
Entity Address, State or Province CO
Entity Address, Postal Zip Code 80021-8869
City Area Code 720
Local Phone Number 888-1000
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Non-accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding 0
Entity Central Index Key 0000794323
Amendment Flag false
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2021
Document Fiscal Period Focus Q2
v3.21.2
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
OPERATING REVENUE        
Operating revenues $ 1,985 $ 1,984 $ 3,974 $ 3,964
OPERATING EXPENSES        
Cost of services and products (exclusive of depreciation and amortization) 868 890 1,746 1,766
Selling, general and administrative 273 312 567 622
Operating expenses - affiliates 131 80 238 173
Depreciation and amortization 436 405 873 821
Total operating expenses 1,708 1,687 3,424 3,382
OPERATING INCOME 277 297 550 582
OTHER (EXPENSE) INCOME        
Interest income - affiliate 15 13 33 26
Interest expense (89) (96) (182) (202)
Other income (expense), net 6 22 10 (12)
Total other expense, net (68) (61) (139) (188)
INCOME BEFORE INCOME TAXES 209 236 411 394
Income tax expense 62 60 113 105
NET INCOME 147 176 298 289
Non-Affiliate Revenue        
OPERATING REVENUE        
Operating revenues 1,929 1,932 3,863 3,864
Affiliate Services        
OPERATING REVENUE        
Operating revenues $ 56 $ 52 $ 111 $ 100
v3.21.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Statement of Comprehensive Income [Abstract]        
NET INCOME $ 147 $ 176 $ 298 $ 289
OTHER COMPREHENSIVE INCOME (LOSS)        
Foreign currency translation adjustments, net of $(4), $(4), $3 and $19 tax 80 8 (8) (220)
Other comprehensive income (loss), net of tax 80 8 (8) (220)
COMPREHENSIVE INCOME $ 227 $ 184 $ 290 $ 69
v3.21.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Statement of Comprehensive Income [Abstract]        
Foreign currency translation adjustments, tax effect $ (4) $ (4) $ 3 $ 19
v3.21.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
CURRENT ASSETS    
Cash and cash equivalents $ 233 $ 190
Accounts receivable, less allowance of $42 and $45 705 683
Note receivable - affiliate 1,468 1,468
Other 322 297
Total current assets 2,728 2,638
Property, plant and equipment, net of accumulated depreciation of $3,258 and $2,818 10,608 10,518
GOODWILL AND OTHER ASSETS    
Goodwill 7,406 7,405
Other intangible assets, net 6,228 6,605
Other, net 1,517 1,410
Total goodwill and other assets 15,151 15,420
TOTAL ASSETS 28,487 28,576
CURRENT LIABILITIES    
Current maturities of long-term debt 17 14
Accounts payable 507 495
Accounts payable - affiliates 370 869
Accrued expenses and other liabilities    
Salaries and benefits 189 220
Income and other taxes 119 111
Current operating lease liabilities 275 241
Other 157 159
Current portion of deferred revenue 319 315
Total current liabilities 1,953 2,424
LONG-TERM DEBT 10,336 10,373
DEFERRED REVENUE AND OTHER LIABILITIES    
Deferred revenue 1,416 1,396
Operating lease liabilities 986 903
Other 626 575
Total deferred revenue and other liabilities 3,028 2,874
COMMITMENTS AND CONTINGENCIES (Note 7)
MEMBER'S EQUITY    
Member's equity 13,412 13,139
Accumulated other comprehensive loss (242) (234)
Total member's equity 13,170 12,905
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 28,487 $ 28,576
v3.21.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 42 $ 45
Accumulated depreciation $ 3,258 $ 2,818
v3.21.2
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
OPERATING ACTIVITIES        
Net income $ 147 $ 176 $ 298 $ 289
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization 436 405 873 821
Deferred income taxes     92 88
Changes in current assets and liabilities:        
Accounts receivable     (26) (149)
Accounts payable     (9) 5
Other assets and liabilities, net     (74) (82)
Other assets and liabilities, affiliate     (499) 194
Changes in other noncurrent assets and liabilities, net     13 25
Other, net     (35) (34)
Net cash provided by operating activities     633 1,157
INVESTING ACTIVITIES        
Capital expenditures     (591) (726)
Collections on note receivable - affiliate     0 122
Proceeds from sale of property, plant and equipment and other assets     52 80
Net cash used in investing activities     (539) (524)
FINANCING ACTIVITIES        
Net proceeds from issuance of long-term debt     891 1,188
Distributions     (25) (675)
Payments of long-term debt     (925) (5)
Other     (1) (2)
Net cash (used in) provided by financing activities     (60) 506
Net increase in cash, cash equivalents and restricted cash     34 1,139
Cash, cash equivalents and restricted cash at beginning of period     205 338
Cash, cash equivalents and restricted cash at end of period 239 1,477 239 1,477
Supplemental cash flow information:        
Income taxes paid, net     (16) (12)
Interest paid (net of capitalized interest of $8 and $13)     (190) (199)
Cash, cash equivalents and restricted cash:        
Cash and cash equivalents 233 1,462 233 1,462
Restricted cash included in Other current assets 2 3 2 3
Restricted cash included in Other, net noncurrent assets 4 12 4 12
Total $ 239 $ 1,477 $ 239 $ 1,477
v3.21.2
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Statement of Cash Flows [Abstract]    
Capitalized interest $ 8 $ 13
v3.21.2
CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY (UNAUDITED) - USD ($)
$ in Millions
Total
MEMBER'S EQUITY
MEMBER'S EQUITY
Cumulative Effect, Period of Adoption, Adjustment
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period at Dec. 31, 2019   $ 13,724 $ (3) $ (179)
MEMBER'S EQUITY        
Net income $ 289 289    
Distributions   (718)    
Other   9    
Other comprehensive income (loss) (220)     (220)
Balance at end of period at Jun. 30, 2020 12,902 13,301   (399)
Balance at beginning of period at Mar. 31, 2020   13,524   (407)
MEMBER'S EQUITY        
Net income 176 176    
Distributions   (400)    
Other   1    
Other comprehensive income (loss) 8     8
Balance at end of period at Jun. 30, 2020 12,902 13,301   (399)
Balance at beginning of period at Dec. 31, 2020 12,905 13,139   (234)
MEMBER'S EQUITY        
Net income 298 298    
Distributions   (25)    
Other   0    
Other comprehensive income (loss) (8)     (8)
Balance at end of period at Jun. 30, 2021 13,170 13,412   (242)
Balance at beginning of period at Mar. 31, 2021   13,290   (322)
MEMBER'S EQUITY        
Net income 147 147    
Distributions   (25)    
Other   0    
Other comprehensive income (loss) 80     80
Balance at end of period at Jun. 30, 2021 $ 13,170 $ 13,412   $ (242)
v3.21.2
CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Dec. 31, 2019
Income tax expense (benefit) $ 62 $ 60 $ 113 $ 105  
MEMBER'S EQUITY | Cumulative Effect, Period of Adoption, Adjustment          
Income tax expense (benefit)         $ (2)
v3.21.2
Background
 6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Background Background
General

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

Basis of Presentation

Our consolidated balance sheet as of December 31, 2020, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading. We believe these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations and cash flows for the first six months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which we have a controlling interest. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (Lumen Technologies and its other subsidiaries, referred to herein as affiliates) have not been eliminated. Due to exchange restrictions and other conditions, effective at the end of the third quarter of 2015 we deconsolidated our Venezuelan subsidiary and began accounting for our investment in our Venezuelan subsidiary using the cost method of accounting. The factors that led to our conclusions at the end of the third quarter of 2015 continued to exist through the second quarter of 2021.

We reclassified certain prior period amounts to conform to the current period presentation, including our revenue by product and service categories. See Note 3—Revenue Recognition for additional information. These changes had no impact on total operating revenue, total operating expenses or net income for any period.

Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Other, net included affiliate operating lease assets of $248 million and $83 million as of June 30, 2021 and December 31, 2020, respectively. Additionally, current operating lease liabilities included the current portion of affiliate operating lease liabilities of $60 million and $31 million as of June 30, 2021 and December 31, 2020, respectively, and operating lease liabilities included the noncurrent portion of affiliate operating lease liabilities of $194 million and $65 million as of June 30, 2021 and December 31, 2020, respectively.
Segments

Our operations are integrated into and reported as part of Lumen Technologies. Lumen's chief operating decision maker ("CODM") is our CODM, but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the SEC. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we have one reportable segment.

Summary of Significant Accounting Policies

Refer to the significant accounting policies described in Note 1 — Background and Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Recently Adopted Accounting Pronouncements

Debt

On January 1, 2021, we adopted ASU 2020-09, "Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762" ("ASU 2020-09"). This ASU amends and supersedes various SEC paragraphs to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The adoption of ASU 2020-09 did not have a material impact to our consolidated financial statements.

Investments

On January 1, 2021, we adopted ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815)" ("ASU 2020-01"). This ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments - Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. As of June 30, 2021, we determined there was no application or discontinuation of the equity method during the reporting periods. The adoption of ASU 2020-01 did not have an impact to our consolidated financial statements.

Income taxes

On January 1, 2021, we adopted ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)" ("ASU 2019-12"). This ASU removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU 2019-12 did not have a material impact to our consolidated financial statements.

Measurement of Credit Losses on Financial Instruments

We adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") on January 1, 2020 and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $3 million, net of tax effect of $2 million. Please refer to Note 4—Credit Losses on Financial Instruments for more information.
Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04" or "Reference Rate Reform"), designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period. Subject to certain criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications and hedging accounting relationships made until December 31, 2022. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. Based on our review of our key material contracts through June 30, 2021, we do not expect ASU 2020-04 to have any material impact on the consolidated financial statements.
v3.21.2
Goodwill, Customer Relationships and Other Intangible Assets
 6 Months Ended
Jun. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill, Customer Relationships and Other Intangible Assets Goodwill, Customer Relationships and Other Intangible Assets
Goodwill, customer relationships and other intangible assets consisted of the following:
June 30, 2021December 31, 2020
(Dollars in millions)
Goodwill$7,406 7,405 
Customer relationships, less accumulated amortization of $2,599 and $2,246
$5,800 6,156 
Capitalized software, less accumulated amortization of $292 and $256
393 401 
Trade names, less accumulated amortization of $96 and $83
35 48 
Total other intangible assets, net$6,228 6,605 

Our goodwill was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We assess our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our assessment determines the carrying value of equity of our reporting unit exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess goodwill at our reporting unit. In reviewing the criteria for reporting units, we have determined that we are one reporting unit.

The following table shows the rollforward of goodwill from December 31, 2020 through June 30, 2021:
(Dollars in millions)
As of December 31, 2020
$7,405 
Effect of foreign currency exchange rate changes1 
As of June 30, 2021$7,406 
_______________________________________________________________________________
(1)Goodwill at June 30, 2021 and December 31, 2020 is net of accumulated impairment loss of $3.7 billion.

Total amortization expense for intangible assets for the three months ended June 30, 2021 and 2020 totaled $216 million and $208 million, respectively, and for the six months ended June 30, 2021 and 2020 totaled $427 million and $416 million, respectively. As of June 30, 2021, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $16.6 billion.
We estimate that total amortization expense for intangible assets for the years ending December 31, 2021 through 2025 will be as follows:
(Dollars in millions)
2021 (remaining six months)$421 
2022784 
2023756 
2024745 
2025681 
v3.21.2
Revenue Recognition
 6 Months Ended
Jun. 30, 2021
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
Beginning in the first quarter of 2021, we categorize our products, services and revenue among the following five categories:
•Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;
•IP and Data Services, which include Ethernet, IP, and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;
•Fiber Infrastructure Services, which include dark fiber, optical services and equipment;
•Voice and Other, which include Time Division Multiplexing ("TDM") voice, private line and other legacy services; and
•Affiliate Services, which include communications services provided to our affiliates that we also provide to our external customers.
Disaggregated Revenue by Service Offering

The following tables provide disaggregation of revenue from contracts with customers based on service offering for the three and six months ended June 30, 2021 and 2020. It also shows the amount of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:
Three Months Ended June 30, 2021Three Months Ended June 30, 2020
Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with CustomersTotal Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Compute and Application Services$283 (127)156 265 (122)143 
IP and Data Services888 — 888 880 — 880 
Fiber Infrastructure Services401 (55)346 368 (52)316 
Voice and Other357 (3)354 419 (2)417 
Affiliate Services56 (56)— 52 (52)— 
Total revenue$1,985 (241)1,744 1,984 (228)1,756 
Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with CustomersTotal Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Compute and Application Services$563 (254)309 540 (247)293 
IP and Data Services1,769 — 1,769 1,761 — 1,761 
Fiber Infrastructure Services798 (108)690 737 (102)635 
Voice and Other733 (5)728 826 (4)822 
Affiliate Services111 (111)— 100 (100)— 
Total revenue$3,974 (478)3,496 3,964 (453)3,511 
_____________________________________________________________________
(1) Includes lease revenue which is not within the scope of ASC 606.

Operating Lease Income

We lease various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease revenue are included in operating revenue in our consolidated statements of operations.

For the three months ended June 30, 2021 and 2020, our gross rental income was $202 million and $192 million, respectively, which represents approximately 10% of our operating revenue for both the three months ended June 30, 2021 and 2020. For the six months ended June 30, 2021 and 2020, our gross rental income was $399 million and $368 million, respectively, which represents 10% and 9%, respectively, of our operating revenue for the six months ended June 30, 2021 and 2020.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of June 30, 2021 and December 31, 2020:
June 30, 2021December 31, 2020
(Dollars in millions)
Customer receivables (1)
$704 683 
Contract assets32 38 
Contract liabilities325 385 
_____________________________________________________________________
(1)Reflects gross customer receivables of $746 million and $728 million, net of allowance for credit losses of $42 million and $45 million, at June 30, 2021 and December 31, 2020, respectively.

Contract liabilities are consideration we have received from our customers or billed in advance of providing the goods or services promised in the future. We defer recognizing this consideration until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets. During the three and six months ended June 30, 2021, we recognized $28 million and $121 million, respectively, of revenue that was included in contract liabilities as of January 1, 2021. During the three and six months ended June 30, 2020, we recognized $30 million and $129 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020.
Performance Obligations

As of June 30, 2021, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $3.8 billion. We expect to recognize approximately 88% of this revenue through 2023, with the balance recognized thereafter.

These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), and (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606.

Contract Costs

The following tables provide changes in our contract acquisition costs and fulfillment costs:
Three Months Ended June 30,
20212020
(Dollars in millions)
Acquisition CostsFulfillment CostsAcquisition CostsFulfillment Costs
Beginning of period balance$75 123 86 122 
Costs incurred15 23 7 21 
Amortization(15)(22)(16)(21)
End of period balance$75 124 77 122 

Six Months Ended June 30,
20212020
(Dollars in millions)
Acquisition CostsFulfillment CostsAcquisition CostsFulfillment Costs
Beginning of period balance$78 122 79 121 
Costs incurred29 46 30 44 
Amortization(32)(44)(32)(43)
End of period balance$75 124 77 122 

Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average expected customer life of approximately 30 months for our business customers. Amortized fulfillment costs are included in cost of services and products, and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are anticipated to be amortized in the next 12 months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond 12 months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.
v3.21.2
Credit Losses on Financial Instruments
 6 Months Ended
Jun. 30, 2021
Credit Loss [Abstract]  
Credit Losses on Financial Instruments Credit Losses on Financial Instruments
In accordance with ASC 326, "Financial Instruments - Credit Losses," we aggregate financial assets with similar risk characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets. We monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change each reporting period. Financial assets that do not share risk characteristics with other financial assets are evaluated separately. Our financial assets measured at amortized cost primarily consist of accounts receivable.

We use a loss rate method to estimate our allowance for credit losses. Our determination of the current expected credit loss rate begins with our use of historical loss experience as a percentage of accounts receivable. We measure our historical loss period based on the average days to recognize accounts receivable as credit losses. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to adjust our historical loss rate. We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period. We measure our forecast period based on the average days to collect payment on billed accounts receivable. To determine our current allowance for credit losses, we combine the historical and expected credit loss rates and apply them to our period end accounts receivable.

If there is a deterioration of a customer's financial condition or if future default rates in general differ from currently anticipated default rates (including changes caused by COVID-19), we may need to adjust the allowance for credit losses, which would affect earnings in the period that adjustments are made.

The assessment of the correlation between historical observed default rates, current conditions and forecasted economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the allowance for credit losses. The amount of credit loss is sensitive to changes in circumstances and forecasted economic conditions. Our historical credit loss experience, current conditions and forecast of economic conditions may also not be representative of the customers' actual default experience in the future.

The following table presents the activity of our allowance for credit losses for our accounts receivable portfolio:
(Dollars in millions)
Beginning balance at December 31, 2020
$45 
Provision for expected losses4 
Write-offs charged against the allowance(10)
Recoveries collected3 
Ending balance at June 30, 2021
$42 
v3.21.2
Long-Term Debt
 6 Months Ended
Jun. 30, 2021
Debt Disclosure [Abstract]  
Long-term Debt Long-Term Debt
The following chart reflects our consolidated long-term debt, including finance leases, unamortized discounts and premiums, net and unamortized debt issuance costs, but excluding intercompany debt:
Interest Rates (1)
Maturities (1)
June 30, 2021December 31, 2020
(Dollars in millions)
Level 3 Financing, Inc.
Senior Secured Debt: (2)
Senior notes
3.400% - 3.875%
2027 - 2029
$1,500 1,500 
Tranche B 2027 Term Loan (3) (5)
LIBOR + 1.75%
2027
3,111 3,111 
Senior Notes and other debt:
Senior notes (4)
3.625% - 5.375%
2025 - 2029
5,515 5,515 
Finance leasesVariousVarious250 255 
Unamortized premiums, net38 60 
Unamortized debt issuance costs(61)(54)
Total long-term debt10,353 10,387 
Less current maturities(17)(14)
Long-term debt, excluding current maturities$10,336 10,373 
______________________________________________________________________
(1)As of June 30, 2021.
(2)See Note 6—Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, 2020 for a description of certain parent or subsidiary guarantees and liens securing this debt.
(3)The Tranche B 2027 Term Loan had an interest rate of 1.854% at June 30, 2021 and 1.897% at December 31, 2020.
(4)This debt is fully and unconditionally guaranteed by certain affiliates of Level 3 Financing, Inc., including Level 3 Parent, LLC and Level 3 Communications, LLC.
(5)See Note 1— Background for our considerations of the impact of Reference Rate Reform on our debt subject to rate reference changes from LIBOR.

New Issuances

On January 13, 2021, Level 3 Financing, Inc. issued $900 million aggregate principal amounts of its 3.750% Sustainability-Linked Senior Notes due 2029 (the "Sustainability-Linked Notes"). The net proceeds were used, together with cash on hand, to redeem certain of its outstanding senior note indebtedness. See "—Redemption of Senior Notes" below. The Sustainability-Linked Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.

Redemption of Senior Notes

On February 12, 2021, Level 3 Financing, Inc. redeemed all $900 million aggregate principal amount of its outstanding 5.375% Senior Notes due 2024. This transaction resulted in a gain of $16 million.
Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of June 30, 2021 (excluding unamortized premiums, net, and unamortized debt issuance costs), maturing during the following years:
(Dollars in millions)
2021 (remaining six months)$11 
202213 
202315 
202416 
2025817 
2026 and thereafter9,504 
Total long-term debt$10,376 

Covenants

The term loan and senior notes of Level 3 Financing, Inc. contain extensive affirmative and negative covenants. Such covenants include, among other things and subject to certain significant exceptions, restrictions on their ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with their affiliates including Lumen Technologies and its other subsidiaries, dispose of assets and merge or consolidate with any other person. Also, in connection with a "change of control" of Level 3 Parent, LLC, or Level 3 Financing, Inc., Level 3 Financing will be required to offer to repurchase or repay certain of its long-term debt at a price of 101% of the principal amount of debt repurchased or repaid, plus accrued and unpaid interest.

Certain of Lumen's and our debt instruments contain cross-payment default or cross-acceleration provisions.

Compliance

As of June 30, 2021, we believe we were in compliance with the financial covenants contained in our debt agreements in all material respects.
v3.21.2
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial Instruments Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, note receivable-affiliate and long-term debt, excluding finance lease and other obligations. Due to their short-term nature, the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, note receivable-affiliate and accounts payable approximate their fair values.
The three input levels in the hierarchy of fair value measurements are defined by the FASB are generally as follows:
Input LevelDescription of Input
Level 1Observable inputs such as quoted market prices in active markets.
Level 2Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3Unobservable inputs in which little or no market data exists.

The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding finance leases, as well as the input level used to determine the fair values indicated below:
June 30, 2021December 31, 2020
Input LevelCarrying AmountFair ValueCarrying AmountFair Value
(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases2$10,103 10,217 10,132 10,340 
v3.21.2
Commitments, Contingencies and Other Items
 6 Months Ended
Jun. 30, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments, Contingencies and Other Items Commitments, Contingencies and Other Items
We are subject to various claims, legal proceedings and other contingent liabilities, including the matters described below, which individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. As a matter of course, we are prepared to both litigate these matters to judgment as needed, as well as to evaluate and consider reasonable settlement opportunities.

Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for our litigation and non-income tax contingencies at June 30, 2021 aggregated to approximately $46 million and are included in other current liabilities and other liabilities in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows.

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of our Peruvian subsidiaries asserting $26 million of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. In May 2021, the Company paid the remaining amount on the fractioning regimes entered into by the Company to pay the amount assessed while it was appealed.

We challenged the assessments via administrative and then judicial review processes. In October 2011, the highest administrative review tribunal (the Tribunal) decided the central issue underlying the 2002 assessments in SUNAT's favor. We appealed the Tribunal's decision to the first judicial level, which decided the central issue in favor of Level 3. SUNAT and the Company filed cross-appeals with the court of appeal. In May 2017, the court of appeal issued a decision reversing the first judicial level. In June 2017, we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level. Oral argument was held before the Supreme Court of Justice in October 2018. A decision on this case is pending.
In October 2013, the Tribunal decided the central issue underlying the 2001 assessments in SUNAT’s favor. We appealed that decision to the first judicial level in Peru, which decided the central issue in favor of SUNAT. In June 2017, we filed an appeal with the court of appeal. In November 2017, the court of appeals issued a decision affirming the first judicial level and we filed an appeal of the decision to the Supreme Court of Justice. Oral argument was held before the Supreme Court of Justice in June 2019. In May 2021, the Company was served with a favorable and final decision from the Supreme Court of Justice.

Brazilian Tax Claims

The São Paulo and Rio de Janeiro state tax authorities have issued tax assessments against our Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”), mainly with respect to revenue from leasing certain assets and revenue from the provision of Internet access services by treating such activities as the provision of communications services, to which the ICMS tax applies. We filed objections to these assessments in both states, arguing, among other things that neither the lease of assets nor the provision of Internet access qualifies as “communication services” subject to ICMS.

We have appealed to the respective state judicial courts the decisions by the respective state administrative courts that rejected our objections to these assessments. In cases in which state lower courts ruled partially in our favor finding that the lease assets are not subject to ICMS in connection, the State appealed those rulings. In other cases, the assessment was affirmed at the first administrative level and we have appealed to the second administrative level. Other assessments are still pending state judicial decisions.

We are vigorously contesting all such assessments in both states and view the assessment of ICMS on revenue from equipment leasing and Internet access to be without merit. These assessments, if upheld, could result in a loss of up to $53 million as of June 30, 2021, in excess of the reserved accruals established for these matters.

Qui Tam Action

We were notified in late 2017 of a qui tam action pending against Level 3 Communications, Inc. and others in the U.S. District Court for the Eastern District of Virginia, captioned United States of America ex rel., Stephen Bishop v. Level 3 Communications, Inc. et al. The original qui tam complaint and an amended complaint were filed under seal on November 26, 2013 and June 16, 2014, respectively. The court unsealed the complaints on October 26, 2017.

The amended complaint alleged that we, principally through two former employees, submitted false claims and made false statements to the government in connection with two government contracts. The relator sought damages in this lawsuit of approximately $50 million. The case was settled in the second quarter of 2021 for an immaterial amount.

Other Proceedings, Disputes and Contingencies

From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, regulatory hearings relating primarily to our rates or services, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third-party tort actions.

We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of which are seeking substantial recoveries. These cases have progressed to various stages and one or more may go to trial during 2021 if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.

We are subject to various foreign, federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none individually is reasonably expected to exceed $300,000 in fines and penalties.
The outcome of these other proceedings described under this heading is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.

The matters listed above in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 16—Commitments, Contingencies and Other Items to the financial statements included in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2020. The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us.
v3.21.2
Accumulated Other Comprehensive Loss
 6 Months Ended
Jun. 30, 2021
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the six months ended June 30, 2021:
Pension PlansForeign Currency Translation Adjustment and OtherTotal
(Dollars in millions)
Balance at December 31, 2020$(13)(221)(234)
Other comprehensive loss, net of tax— (8)(8)
Net other comprehensive loss— (8)(8)
Balance at June 30, 2021$(13)(229)(242)

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the six months ended June 30, 2020:
Pension PlansForeign Currency Translation Adjustment and OtherTotal
(Dollars in millions)
Balance at December 31, 2019$2 (181)(179)
Other comprehensive loss, net of tax— (220)(220)
Net other comprehensive loss— (220)(220)
Balance at June 30, 2020$2 (401)(399)

During the three and six month periods ended June 30, 2021 and 2020, there were no reclassifications out of accumulated other comprehensive income (loss) in our statements of operations.
v3.21.2
Other Financial Information
 6 Months Ended
Jun. 30, 2021
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Other Financial Information Other Financial Information
Other Current Assets

The following table presents details of other current assets reflected in our consolidated balance sheets:

June 30, 2021December 31, 2020
(Dollars in millions)
Prepaid expenses$133 106 
Contract fulfillment costs61 63 
Contract acquisition costs44 47 
Contract assets28 34 
Other56 47 
Total other current assets$322 297 
v3.21.2
Subsequent Event
 6 Months Ended
Jun. 30, 2021
Subsequent Events [Abstract]  
Subsequent Event Subsequent EventOn July 25, 2021, affiliates of Level 3 Parent, LLC entered into a definitive agreement to divest our Latin American business to an affiliate of a fund advised by Stonepeak Partners LP in exchange for $2.735 billion cash, subject to certain working capital and other purchase price adjustments. We expect to close the transaction in the first half of 2022, upon receipt of all requisite regulatory approvals in the U.S. and certain countries where the Latin American business operates, as well as the satisfaction of other customary conditions. We have not yet determined the final pre-tax gain or loss on the transaction as a result of various allocations which will be required in connection with consummating the transaction and related restructuring transactions. The purchase agreement contains various customary covenants for transactions of this type, including various indemnities.
v3.21.2
Background (Policies)
 6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Basis of presentation
Our consolidated balance sheet as of December 31, 2020, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading. We believe these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations and cash flows for the first six months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which we have a controlling interest. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (Lumen Technologies and its other subsidiaries, referred to herein as affiliates) have not been eliminated. Due to exchange restrictions and other conditions, effective at the end of the third quarter of 2015 we deconsolidated our Venezuelan subsidiary and began accounting for our investment in our Venezuelan subsidiary using the cost method of accounting. The factors that led to our conclusions at the end of the third quarter of 2015 continued to exist through the second quarter of 2021.
Reclassification We reclassified certain prior period amounts to conform to the current period presentation, including our revenue by product and service categories.
Segments Our operations are integrated into and reported as part of Lumen Technologies. Lumen's chief operating decision maker ("CODM") is our CODM, but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the SEC. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we have one reportable segment.
Recently adopted and issued accounting pronouncements
Debt

On January 1, 2021, we adopted ASU 2020-09, "Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762" ("ASU 2020-09"). This ASU amends and supersedes various SEC paragraphs to reflect SEC Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The adoption of ASU 2020-09 did not have a material impact to our consolidated financial statements.

Investments

On January 1, 2021, we adopted ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815)" ("ASU 2020-01"). This ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments - Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. As of June 30, 2021, we determined there was no application or discontinuation of the equity method during the reporting periods. The adoption of ASU 2020-01 did not have an impact to our consolidated financial statements.

Income taxes

On January 1, 2021, we adopted ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)" ("ASU 2019-12"). This ASU removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU 2019-12 did not have a material impact to our consolidated financial statements.

Measurement of Credit Losses on Financial Instruments

We adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") on January 1, 2020 and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $3 million, net of tax effect of $2 million. Please refer to Note 4—Credit Losses on Financial Instruments for more information.
Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04" or "Reference Rate Reform"), designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period. Subject to certain criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications and hedging accounting relationships made until December 31, 2022. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. Based on our review of our key material contracts through June 30, 2021, we do not expect ASU 2020-04 to have any material impact on the consolidated financial statements.
Goodwill We assess our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our assessment determines the carrying value of equity of our reporting unit exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess goodwill at our reporting unit.
Operating lease income We lease various dark fiber, office facilities, colocation facilities, switching facilities, other network sites and service equipment to third parties under operating leases. Lease and sublease revenue are included in operating revenue in our consolidated statements of operations.
Credit losses on financial instruments In accordance with ASC 326, "Financial Instruments - Credit Losses," we aggregate financial assets with similar risk characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets. We monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change each reporting period. Financial assets that do not share risk characteristics with other financial assets are evaluated separately. Our financial assets measured at amortized cost primarily consist of accounts receivable.
v3.21.2
Goodwill, Customer Relationships and Other Intangible Assets (Tables)
 6 Months Ended
Jun. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of goodwill, customer relationships and other intangible assets
Goodwill, customer relationships and other intangible assets consisted of the following:
June 30, 2021December 31, 2020
(Dollars in millions)
Goodwill$7,406 7,405 
Customer relationships, less accumulated amortization of $2,599 and $2,246
$5,800 6,156 
Capitalized software, less accumulated amortization of $292 and $256
393 401 
Trade names, less accumulated amortization of $96 and $83
35 48 
Total other intangible assets, net$6,228 6,605 
Schedule of goodwill
The following table shows the rollforward of goodwill from December 31, 2020 through June 30, 2021:
(Dollars in millions)
As of December 31, 2020
$7,405 
Effect of foreign currency exchange rate changes1 
As of June 30, 2021$7,406 
_______________________________________________________________________________
(1)Goodwill at June 30, 2021 and December 31, 2020 is net of accumulated impairment loss of $3.7 billion.
Schedule of estimated amortization expense for intangible assets
We estimate that total amortization expense for intangible assets for the years ending December 31, 2021 through 2025 will be as follows:
(Dollars in millions)
2021 (remaining six months)$421 
2022784 
2023756 
2024745 
2025681 
v3.21.2
Revenue Recognition (Tables)
 6 Months Ended
Jun. 30, 2021
Revenue from Contract with Customer [Abstract]  
Disaggregation of revenue
The following tables provide disaggregation of revenue from contracts with customers based on service offering for the three and six months ended June 30, 2021 and 2020. It also shows the amount of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:
Three Months Ended June 30, 2021Three Months Ended June 30, 2020
Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with CustomersTotal Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Compute and Application Services$283 (127)156 265 (122)143 
IP and Data Services888 — 888 880 — 880 
Fiber Infrastructure Services401 (55)346 368 (52)316 
Voice and Other357 (3)354 419 (2)417 
Affiliate Services56 (56)— 52 (52)— 
Total revenue$1,985 (241)1,744 1,984 (228)1,756 
Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Total Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with CustomersTotal Revenue
Adjustments for Non-ASC 606 Revenue (1)
Total Revenue from Contracts with Customers
(Dollars in millions)
Compute and Application Services$563 (254)309 540 (247)293 
IP and Data Services1,769 — 1,769 1,761 — 1,761 
Fiber Infrastructure Services798 (108)690 737 (102)635 
Voice and Other733 (5)728 826 (4)822 
Affiliate Services111 (111)— 100 (100)— 
Total revenue$3,974 (478)3,496 3,964 (453)3,511 
_____________________________________________________________________
(1) Includes lease revenue which is not within the scope of ASC 606.
Contract with customer, asset and liability
The following table provides balances of customer receivables, contract assets and contract liabilities as of June 30, 2021 and December 31, 2020:
June 30, 2021December 31, 2020
(Dollars in millions)
Customer receivables (1)
$704 683 
Contract assets32 38 
Contract liabilities325 385 
_____________________________________________________________________
(1)Reflects gross customer receivables of $746 million and $728 million, net of allowance for credit losses of $42 million and $45 million, at June 30, 2021 and December 31, 2020, respectively.
Capitalized contract cost
The following tables provide changes in our contract acquisition costs and fulfillment costs:
Three Months Ended June 30,
20212020
(Dollars in millions)
Acquisition CostsFulfillment CostsAcquisition CostsFulfillment Costs
Beginning of period balance$75 123 86 122 
Costs incurred15 23 7 21 
Amortization(15)(22)(16)(21)
End of period balance$75 124 77 122 

Six Months Ended June 30,
20212020
(Dollars in millions)
Acquisition CostsFulfillment CostsAcquisition CostsFulfillment Costs
Beginning of period balance$78 122 79 121 
Costs incurred29 46 30 44 
Amortization(32)(44)(32)(43)
End of period balance$75 124 77 122 
v3.21.2
Credit Losses on Financial Instruments (Tables)
 6 Months Ended
Jun. 30, 2021
Credit Loss [Abstract]  
Activity in allowance for credit losses
The following table presents the activity of our allowance for credit losses for our accounts receivable portfolio:
(Dollars in millions)
Beginning balance at December 31, 2020
$45 
Provision for expected losses4 
Write-offs charged against the allowance(10)
Recoveries collected3 
Ending balance at June 30, 2021
$42 
v3.21.2
Long-Term Debt (Tables)
 6 Months Ended
Jun. 30, 2021
Debt Disclosure [Abstract]  
Schedule of long-term debt
The following chart reflects our consolidated long-term debt, including finance leases, unamortized discounts and premiums, net and unamortized debt issuance costs, but excluding intercompany debt:
Interest Rates (1)
Maturities (1)
June 30, 2021December 31, 2020
(Dollars in millions)
Level 3 Financing, Inc.
Senior Secured Debt: (2)
Senior notes
3.400% - 3.875%
2027 - 2029
$1,500 1,500 
Tranche B 2027 Term Loan (3) (5)
LIBOR + 1.75%
2027
3,111 3,111 
Senior Notes and other debt:
Senior notes (4)
3.625% - 5.375%
2025 - 2029
5,515 5,515 
Finance leasesVariousVarious250 255 
Unamortized premiums, net38 60 
Unamortized debt issuance costs(61)(54)
Total long-term debt10,353 10,387 
Less current maturities(17)(14)
Long-term debt, excluding current maturities$10,336 10,373 
______________________________________________________________________
(1)As of June 30, 2021.
(2)See Note 6—Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, 2020 for a description of certain parent or subsidiary guarantees and liens securing this debt.
(3)The Tranche B 2027 Term Loan had an interest rate of 1.854% at June 30, 2021 and 1.897% at December 31, 2020.
(4)This debt is fully and unconditionally guaranteed by certain affiliates of Level 3 Financing, Inc., including Level 3 Parent, LLC and Level 3 Communications, LLC.
(5)See Note 1— Background for our considerations of the impact of Reference Rate Reform on our debt subject to rate reference changes from LIBOR.
Schedule of aggregate future contractual maturities of long-term debt and capital leases (excluding discounts)
Set forth below is the aggregate principal amount of our long-term debt as of June 30, 2021 (excluding unamortized premiums, net, and unamortized debt issuance costs), maturing during the following years:
(Dollars in millions)
2021 (remaining six months)$11 
202213 
202315 
202416 
2025817 
2026 and thereafter9,504 
Total long-term debt$10,376 
v3.21.2
Fair Value of Financial Instruments (Tables)
 6 Months Ended
Jun. 30, 2021
Fair Value Disclosures [Abstract]  
Schedule of carrying amounts and estimated fair values of long-term debt, excluding capital lease obligations, and input levels to determine fair values
The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding finance leases, as well as the input level used to determine the fair values indicated below:
June 30, 2021December 31, 2020
Input LevelCarrying AmountFair ValueCarrying AmountFair Value
(Dollars in millions)
Liabilities-Long-term debt, excluding finance leases2$10,103 10,217 10,132 10,340 
v3.21.2
Accumulated Other Comprehensive Loss (Tables)
 6 Months Ended
Jun. 30, 2021
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Schedule of accumulated other comprehensive loss
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the six months ended June 30, 2021:
Pension PlansForeign Currency Translation Adjustment and OtherTotal
(Dollars in millions)
Balance at December 31, 2020$(13)(221)(234)
Other comprehensive loss, net of tax— (8)(8)
Net other comprehensive loss— (8)(8)
Balance at June 30, 2021$(13)(229)(242)

The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the six months ended June 30, 2020:
Pension PlansForeign Currency Translation Adjustment and OtherTotal
(Dollars in millions)
Balance at December 31, 2019$2 (181)(179)
Other comprehensive loss, net of tax— (220)(220)
Net other comprehensive loss— (220)(220)
Balance at June 30, 2020$2 (401)(399)
v3.21.2
Other Financial Information (Tables)
 6 Months Ended
Jun. 30, 2021
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Schedule of components other current assets
The following table presents details of other current assets reflected in our consolidated balance sheets:

June 30, 2021December 31, 2020
(Dollars in millions)
Prepaid expenses$133 106 
Contract fulfillment costs61 63 
Contract acquisition costs44 47 
Contract assets28 34 
Other56 47 
Total other current assets$322 297 
v3.21.2
Background - Basis of Presentation (Details) - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Lessee, Lease, Description [Line Items]    
Operating lease, right-of-use asset, Statement of Financial Position [Extensible Enumeration] us-gaap:OtherAssets us-gaap:OtherAssets
Current operating lease liabilities $ 275 $ 241
Operating lease liabilities 986 903
Affiliates    
Lessee, Lease, Description [Line Items]    
Operating lease assets 248 83
Current operating lease liabilities 60 31
Operating lease liabilities $ 194 $ 65
v3.21.2
Background - Segments (Details)
 6 Months Ended
Jun. 30, 2021
segment
Accounting Policies [Abstract]  
Number of reportable segments 1
v3.21.2
Background - Recently Adopted Accounting Pronouncements (Details) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Dec. 31, 2019
Mar. 31, 2021
Dec. 31, 2020
Mar. 31, 2020
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                
Member's equity $ (13,170) $ (12,902) $ (13,170) $ (12,902)     $ (12,905)  
Income tax expense (benefit) 62 60 113 105        
MEMBER'S EQUITY                
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                
Member's equity $ (13,412) $ (13,301) $ (13,412) $ (13,301) $ (13,724) $ (13,290) $ (13,139) $ (13,524)
MEMBER'S EQUITY | Cumulative Effect, Period of Adoption, Adjustment                
New Accounting Pronouncements or Change in Accounting Principle [Line Items]                
Member's equity         3      
Income tax expense (benefit)         $ (2)      
v3.21.2
Goodwill, Customer Relationships and Other Intangible Assets - Schedule of Goodwill and Other Intangible Assets (Details) - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Finite-Lived Intangible Assets [Line Items]    
Goodwill $ 7,406 $ 7,405
Other intangible assets, net 6,228 6,605
Customer relationships    
Finite-Lived Intangible Assets [Line Items]    
Other intangible assets, net 5,800 6,156
Accumulated amortization 2,599 2,246
Capitalized software    
Finite-Lived Intangible Assets [Line Items]    
Other intangible assets, net 393 401
Accumulated amortization 292 256
Trade names    
Finite-Lived Intangible Assets [Line Items]    
Other intangible assets, net 35 48
Accumulated amortization $ 96 $ 83
v3.21.2
Goodwill, Customer Relationships and Other Intangible Assets - Additional Information (Details)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
USD ($)
Jun. 30, 2020
USD ($)
Jun. 30, 2021
USD ($)
reporting_unit
Jun. 30, 2020
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]        
Number of reporting units | reporting_unit     1  
Acquired finite-lived intangible asset amortization expense $ 216 $ 208 $ 427 $ 416
Intangible assets, gross, including goodwill $ 16,600   $ 16,600  
v3.21.2
Goodwill, Customer Relationships and Other Intangible Assets - Goodwill Activity (Details) - USD ($)
$ in Millions
 6 Months Ended
Jun. 30, 2021
Dec. 31, 2020
Goodwill [Roll Forward]    
As of December 31, 2020 $ 7,405  
Effect of foreign currency exchange rate changes 1  
As of June 30, 2021 7,406  
Goodwill, accumulated impairment loss $ 3,700 $ 3,700
v3.21.2
Goodwill, Customer Relationships and Other Intangible Assets - Amortization Expense (Details)
$ in Millions
Jun. 30, 2021
USD ($)
Estimated amortization expense of finite-lived acquisition-related intangible assets  
2021 (remaining six months) $ 421
2022 784
2023 756
2024 745
2025 $ 681
v3.21.2
Revenue Recognition - Additional Information - Categories (Details)
 6 Months Ended
Jun. 30, 2021
category
Revenue from Contract with Customer [Abstract]  
Number of categories of products and services 5
v3.21.2
Revenue Recognition - Disaggregation of Revenue (Details) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Disaggregation of Revenue [Line Items]        
Total revenues $ 1,985 $ 1,984 $ 3,974 $ 3,964
Adjustments for non-ASC 606 revenue (241) (228) (478) (453)
Total revenue from contracts with customers 1,744 1,756 3,496 3,511
Compute and Application Services        
Disaggregation of Revenue [Line Items]        
Total revenues 283 265 563 540
Adjustments for non-ASC 606 revenue (127) (122) (254) (247)
Total revenue from contracts with customers 156 143 309 293
IP and Data Services        
Disaggregation of Revenue [Line Items]        
Total revenues 888 880 1,769 1,761
Adjustments for non-ASC 606 revenue 0 0 0 0
Total revenue from contracts with customers 888 880 1,769 1,761
Fiber Infrastructure Services        
Disaggregation of Revenue [Line Items]        
Total revenues 401 368 798 737
Adjustments for non-ASC 606 revenue (55) (52) (108) (102)
Total revenue from contracts with customers 346 316 690 635
Voice and Other        
Disaggregation of Revenue [Line Items]        
Total revenues 357 419 733 826
Adjustments for non-ASC 606 revenue (3) (2) (5) (4)
Total revenue from contracts with customers 354 417 728 822
Affiliate Services        
Disaggregation of Revenue [Line Items]        
Total revenues 56 52 111 100
Adjustments for non-ASC 606 revenue (56) (52) (111) (100)
Total revenue from contracts with customers $ 0 $ 0 $ 0 $ 0
v3.21.2
Revenue Recognition - Operating Lease Income (Details) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]        
Rental income $ 202 $ 192 $ 399 $ 368
Percent of operating revenue 10.00% 10.00% 10.00% 9.00%
v3.21.2
Revenue Recognition - Customer Receivables and Contract Balances (Details) - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Revenue from Contract with Customer [Abstract]    
Customer receivables $ 704 $ 683
Contract assets 32 38
Contract liabilities 325 385
Accounts receivable, gross 746 728
Allowance for credit losses $ 42 $ 45
v3.21.2
Revenue Recognition - Additional Information - Customer Receivables and Contract Balances (Details) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Customer Receivables and Contract Balances [Line Items]        
Revenue recognized $ 28 $ 30 $ 121 $ 129
Minimum        
Customer Receivables and Contract Balances [Line Items]        
Contract term     1 year  
Maximum        
Customer Receivables and Contract Balances [Line Items]        
Contract term     5 years  
v3.21.2
Revenue Recognition - Additional Information - Remaining Performance Obligation (Details)
$ in Billions
Jun. 30, 2021
USD ($)
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation $ 3.8
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-07-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Remaining performance obligation, percentage 88.00%
Expected timing of satisfaction, period 2 years 6 months
v3.21.2
Revenue Recognition - Contract Cost (Details) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Acquisition Costs        
Capitalized Contract Cost [Roll Forward]        
Beginning of period balance $ 75 $ 86 $ 78 $ 79
Costs incurred 15 7 29 30
Amortization (15) (16) (32) (32)
End of period balance 75 77 75 77
Fulfillment Costs        
Capitalized Contract Cost [Roll Forward]        
Beginning of period balance 123 122 122 121
Costs incurred 23 21 46 44
Amortization (22) (21) (44) (43)
End of period balance $ 124 $ 122 $ 124 $ 122
v3.21.2
Revenue Recognition - Additional Information - Contract Costs (Details)
 6 Months Ended
Jun. 30, 2021
Business Customers | Weighted Average  
Contract Costs [Line Items]  
Length of customer life 30 months
v3.21.2
Credit Losses on Financial Instruments (Details)
$ in Millions
 6 Months Ended
Jun. 30, 2021
USD ($)
Financing Receivable, Allowance for Credit Loss [Roll Forward]  
Beginning balance at January 1, 2020 $ 45
Provision for expected losses 4
Write-offs charged against the allowance (10)
Recoveries collected 3
Ending balance at June 30, 2021 $ 42
v3.21.2
Long-Term Debt - Schedule of Long Term Debt (Details) - USD ($)
$ in Millions
 6 Months Ended
Jun. 30, 2021
Dec. 31, 2020
Long-term debt    
Long-term debt, gross $ 10,376  
Unamortized premiums, net 38 $ 60
Unamortized debt issuance costs (61) (54)
Total long-term debt 10,353 10,387
Less current maturities (17) (14)
Long-term debt, excluding current maturities 10,336 10,373
Senior notes | Senior Notes with Varied Maturity Date    
Long-term debt    
Long-term debt, gross $ 1,500 1,500
Senior notes | Senior Notes with Varied Maturity Date | Minimum    
Long-term debt    
Stated interest rate 3.40%  
Senior notes | Senior Notes with Varied Maturity Date | Maximum    
Long-term debt    
Stated interest rate 3.875%  
Senior notes | 3.625% - 5.375% Senior Notes    
Long-term debt    
Long-term debt, gross $ 5,515 5,515
Senior notes | 3.625% - 5.375% Senior Notes | Minimum    
Long-term debt    
Stated interest rate 3.625%  
Senior notes | 3.625% - 5.375% Senior Notes | Maximum    
Long-term debt    
Stated interest rate 5.375%  
Term loan | Tranche B 2027 Term Loan    
Long-term debt    
Long-term debt, gross $ 3,111 $ 3,111
Effective percentage 1.854% 1.897%
Term loan | Tranche B 2027 Term Loan | LIBOR    
Long-term debt    
Basis spread on variable rate 1.75%  
Finance leases    
Long-term debt    
Long-term debt, gross $ 250 $ 255
v3.21.2
Long-Term Debt - Additional Information (Details) - USD ($)
 6 Months Ended
Feb. 12, 2021
Jun. 30, 2021
Jan. 13, 2021
Long-term debt      
Redemption price, percentage   101.00%  
Senior notes | 5.375% Senior Notes Due 2024      
Long-term debt      
Stated interest rate 5.375%    
Amount of debt redeemed $ 900,000,000    
Gain from extinguishment of debt $ 16,000,000    
Senior notes | 3.750% Sustainability-Linked Senior Notes Due 2029      
Long-term debt      
Debt instrument, face amount     $ 900,000,000
Stated interest rate     3.75%
v3.21.2
Long-Term Debt - Debt Maturities (Details)
$ in Millions
Jun. 30, 2021
USD ($)
Debt Disclosure [Abstract]  
2021 (remaining six months) $ 11
2022 13
2023 15
2024 16
2025 817
2026 and thereafter 9,504
Total long-term debt $ 10,376
v3.21.2
Fair Value of Financial Instruments (Details) - Fair Value, Measurements, Recurring - Significant Other Observable Inputs (Level 2) - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Carrying Amount    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis    
Liabilities-Long-term debt, excluding finance leases $ 10,103 $ 10,132
Fair Value    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis    
Liabilities-Long-term debt, excluding finance leases $ 10,217 $ 10,340
v3.21.2
Commitments, Contingencies and Other Items (Details)
 6 Months Ended
Jun. 30, 2021
USD ($)
Employee
contract
subsidiary
patent
Loss Contingencies [Line Items]  
Estimated litigation liability $ 46,000,000
Number of patents allegedly infringed | patent 1
Unfavorable Regulatory Action  
Loss Contingencies [Line Items]  
Estimate of possible loss $ 300,000
Peruvian Tax Litigation, Before Interest | Pending Litigation  
Loss Contingencies [Line Items]  
Number of subsidiaries with tax assessment | subsidiary 1
Asserted claim $ 26,000,000
Brazilian Tax Claims | Maximum  
Loss Contingencies [Line Items]  
Estimate of possible loss $ 53,000,000
United States of America ex rel., Stephen Bishop v. Level 3 Communications, Inc. et al.  
Loss Contingencies [Line Items]  
Number of former employees names in lawsuit | Employee 2
Number of government contracts in question | contract 2
Damages sought, value $ 50,000,000
v3.21.2
Accumulated Other Comprehensive Loss (Details) - USD ($)
$ in Millions
 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
AOCI Attributable to Parent, Net of Tax [Roll Forward]    
Balance at beginning of period $ 12,905  
Other comprehensive loss, net of tax (8) $ (220)
Net other comprehensive loss (8) (220)
Balance at end of period 13,170 12,902
Pension Plans    
AOCI Attributable to Parent, Net of Tax [Roll Forward]    
Balance at beginning of period (13) 2
Other comprehensive loss, net of tax 0 0
Net other comprehensive loss 0 0
Balance at end of period (13) 2
Foreign Currency Translation Adjustment and Other    
AOCI Attributable to Parent, Net of Tax [Roll Forward]    
Balance at beginning of period (221) (181)
Other comprehensive loss, net of tax (8) (220)
Net other comprehensive loss (8) (220)
Balance at end of period (229) (401)
Total    
AOCI Attributable to Parent, Net of Tax [Roll Forward]    
Balance at beginning of period (234) (179)
Balance at end of period $ (242) $ (399)
v3.21.2
Other Financial Information (Details) - USD ($)
$ in Millions
Jun. 30, 2021
Dec. 31, 2020
Prepaid Expense and Other Assets, Current [Abstract]    
Prepaid expenses $ 133 $ 106
Contract assets 28 34
Other 56 47
Total other current assets 322 297
Fulfillment Costs    
Prepaid Expense and Other Assets, Current [Abstract]    
Contract costs 61 63
Acquisition Costs    
Prepaid Expense and Other Assets, Current [Abstract]    
Contract costs $ 44 $ 47
v3.21.2
Subsequent Event (Details)
$ in Millions
Jul. 25, 2021
USD ($)
Subsequent Event | Latin American Business | Discontinued Operations, Disposed of by Sale  
Subsequent Event [Line Items]  
Cash consideration for disposal of business $ 2,735
v3.21.2
Label Element Value
Accounting Standards Update [Extensible Enumeration] us-gaap_AccountingStandardsUpdateExtensibleList Accounting Standards Update 2016-13 [Member]