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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File No. 001-7784
LUMEN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Louisiana72-0651161
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
100 CenturyLink Drive,
Monroe,Louisiana71203
(Address of principal executive offices)(Zip Code)
(318388-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per shareLUMNNew York Stock Exchange
Preferred Stock Purchase RightsN/ANew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerNon-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No 
On April 30, 2021, there were 1,105,312,538 shares of common stock outstanding.
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TABLE OF CONTENTS

 
 
 
* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements.
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Special Note Regarding Name Change

On September 14, 2020, we commenced operating under the brand name “Lumen” and, on January 22, 2021, we officially changed our legal name from “CenturyLink, Inc.” to “Lumen Technologies, Inc.”

Special Note Regarding Forward-Looking Statements

This report and other documents filed by us under the federal securities law include, and future oral or written statements or press releases by us and our management may include, forward-looking statements about our business, financial condition, operating results or prospects. These "forward-looking" statements are defined by, and are subject to the "safe harbor" protections under, the federal securities laws. These statements include, among others:    

statements regarding how the health and economic challenges raised by the COVID-19 pandemic may impact our business, operations, cash flows or financial position;

forecasts of our anticipated future results of operations, cash flows or financial position;

statements concerning the anticipated impact of our transactions, investments, product development, participation in government programs, and other initiatives, including synergies or costs associated with these initiatives;

statements about our liquidity, profitability, profit margins, tax position, tax assets, tax rates, asset values, contingent liabilities, growth opportunities, growth rates, acquisition and divestiture opportunities, business prospects, regulatory and competitive outlook, market share, product capabilities, investment and expenditure plans, business strategies, dividend and securities repurchase plans, leverage, capital allocation plans, financing alternatives and sources, and pricing plans; and

other similar statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts, many of which are highlighted by words such as “may,” “will,” “would,” “could,” “should,” “plan,” “believes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “likely,” “seeks,” “hopes,” or variations or similar expressions with respect to the future.

These forward-looking statements are based upon our judgment and assumptions as of the date such statements are made concerning future developments and events, many of which are beyond our control. These forward-looking statements, and the assumptions upon which they are based, (i) are not guarantees of future results, (ii) are inherently speculative and (iii) are subject to a number of risks and uncertainties. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us in those statements if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. All of our forward-looking statements are qualified in their entirety by reference to our discussion of factors that could cause our actual results to differ materially from those anticipated, estimated, projected or implied by us in those forward-looking statements. Factors that could affect actual results include but are not limited to:

uncertainties regarding the impact that COVID-19 health and economic disruptions will continue to have on our business, operations, cash flows and corporate initiatives;

the effects of competition from a wide variety of competitive providers, including decreased demand for our more mature service offerings and increased pricing pressures;

the effects of new, emerging or competing technologies, including those that could make our products less desirable or obsolete;

our ability to attain our key operating imperatives, including simplifying and consolidating our network, simplifying and automating our service support systems, strengthening our relationships with customers and attaining projected cost savings;

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our ability to safeguard our network, and to avoid the adverse impact of possible security breaches, service outages, system failures, or similar events impacting our network or the availability and quality of our services;

the effects of ongoing changes in the regulation of the communications industry, including the outcome of legislative, regulatory or judicial proceedings relating to content liability standards, intercarrier compensation, universal service, service regulation, broadband deployment, data protection, privacy and net neutrality;

our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages;

possible changes in the demand for our products and services, including increased demand for high-speed data transmission services;

our ability to successfully maintain the quality and profitability of our existing product and service offerings and to introduce profitable new offerings on a timely and cost-effective basis;

our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt repayments, dividends, pension contributions and other benefits payments;

our ability to successfully and timely implement our operating plans and corporate strategies, including our deleveraging strategy;

changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, whether based upon COVID-19 disruptions, changes in our cash flows, cash requirements, financial performance, financial position, market conditions or otherwise;

the impact of any future material acquisitions or divestitures that we may engage in;

the negative impact of increases in the costs of our pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations;

the potential negative impact of customer complaints, government investigations, security breaches or service outages impacting us or our industry;

adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower credit ratings, unstable markets or otherwise;

our ability to meet the terms and conditions of our debt obligations and covenants, including our ability to make transfers of cash in compliance therewith;

our ability to maintain favorable relations with our security holders, key business partners, suppliers, vendors, landlords and financial institutions;

our ability to meet evolving environmental, social and governance ("ESG") expectations and benchmarks, and effectively communicate and implement our ESG strategies;

our ability to collect our receivables from, or continue to do business with, financially-troubled customers, including, but not limited to, those adversely impacted by the economic dislocations caused by the COVID-19 pandemic;

our ability to use our net operating loss carryforwards in the amounts projected;

any adverse developments in legal or regulatory proceedings involving us;

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changes in tax, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels, including those arising from pending proposals of the Biden Administration to increase infrastructure spending and federal income tax rates;

the effects of changes in accounting policies, practices or assumptions, including changes that could potentially require additional future impairment charges;

the effects of adverse weather, terrorism, epidemics, pandemics, rioting, societal unrest, or other natural or man-made disasters or disturbances;

the potential adverse effects if our internal controls over financial reporting have weaknesses or deficiencies, or otherwise fail to operate as intended;

the effects of more general factors such as changes in interest rates, in exchange rates, in operating costs, in public policy, in the views of financial analysts, or in general market, labor, economic or geo-political conditions; and

other risks referenced in the "Risk Factors" section or other portions of this report or other of our filings with the U.S. Securities and Exchange Commission (the "SEC").

Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned not to unduly rely upon our forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise. Furthermore, any information about our intentions contained in any of our forward-looking statements reflects our intentions as of the date of such forward-looking statement, and is based upon, among other things, existing regulatory, technological, industry, competitive, economic and market conditions, and our assumptions as of such date. We may change our intentions, strategies or plans (including our dividend or other capital allocation plans) at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LUMEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended March 31,
20212020
 (Dollars in millions, except per share amounts, and shares in thousands)
OPERATING REVENUE$5,029 5,228 
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)2,136 2,235 
Selling, general and administrative756 853 
Depreciation and amortization1,150 1,160 
Total operating expenses4,042 4,248 
OPERATING INCOME987 980 
OTHER (EXPENSE) INCOME
Interest expense(389)(449)
Other income (expense), net34 (98)
Total other expense, net(355)(547)
INCOME BEFORE INCOME TAXES632 433 
Income tax expense157 119 
NET INCOME$475 314 
BASIC AND DILUTED EARNINGS PER COMMON SHARE
BASIC$0.44 0.29 
DILUTED$0.44 0.29 
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC1,082,474 1,075,459 
DILUTED1,091,586 1,081,754 
See accompanying notes to consolidated financial statements.
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LUMEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 Three Months Ended March 31,
 20212020
 (Dollars in millions)
NET INCOME$475 314 
OTHER COMPREHENSIVE INCOME (LOSS):  
Items related to employee benefit plans:  
Change in net actuarial loss, net of $(12) and $(12) tax
38 38 
Change in net prior service cost, net of $(1) and $ tax
1 1 
Reclassification of realized loss on interest rate swaps to net income, net of $(5) and $ tax
15 5 
Unrealized holding loss on interest rate swaps, net of $ and $26 tax
 (80)
Foreign currency translation adjustment, net of $7 and $23 tax
(86)(239)
Other comprehensive loss(32)(275)
COMPREHENSIVE INCOME$443 39 
See accompanying notes to consolidated financial statements.
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LUMEN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2021 (Unaudited)December 31, 2020
 (Dollars in millions
and shares in thousands)
ASSETS  
CURRENT ASSETS  
Cash and cash equivalents$486 406 
Accounts receivable, less allowance of $162 and $191
1,883 1,962 
Other924 808 
Total current assets3,293 3,176 
Property, plant and equipment, net of accumulated depreciation of $32,214 and $31,596
26,091 26,338 
GOODWILL AND OTHER ASSETS  
Goodwill18,854 18,870 
Other intangible assets, net7,884 8,219 
Other, net2,706 2,791 
Total goodwill and other assets29,444 29,880 
TOTAL ASSETS$58,828 59,394 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES  
Current maturities of long-term debt$3,841 2,427 
Accounts payable1,017 1,134 
Accrued expenses and other liabilities  
Salaries and benefits846 1,008 
Income and other taxes346 314 
Current operating lease liabilities387 379 
Interest285 291 
Other307 328 
Current portion of deferred revenue758 753 
Total current liabilities7,787 6,634 
LONG-TERM DEBT27,599 29,410 
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net3,471 3,342 
Benefit plan obligations, net4,435 4,556 
Other4,233 4,290 
Total deferred credits and other liabilities12,139 12,188 
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY  
Preferred stock—non-redeemable, $25.00 par value, authorized 2,000 and 2,000 shares, issued and outstanding 7 and 7 shares
  
Common stock, $1.00 par value, authorized 2,200,000 and 2,200,000 shares, issued and outstanding 1,105,533 and 1,096,921 shares
1,106 1,097 
Additional paid-in capital20,598 20,909 
Accumulated other comprehensive loss(2,845)(2,813)
Accumulated deficit(7,556)(8,031)
Total stockholders' equity11,303 11,162 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$58,828 59,394 
See accompanying notes to consolidated financial statements.
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LUMEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months Ended March 31,
 20212020
 (Dollars in millions)
OPERATING ACTIVITIES  
Net income$475 314 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization1,150 1,160 
Deferred income taxes131 105 
Provision for uncollectible accounts27 35 
Net (gain) loss on early retirement of debt(8)79 
Share-based compensation20 69 
Changes in current assets and liabilities:
Accounts receivable45 60 
Accounts payable(93)(115)
Accrued income and other taxes31 (16)
Other current assets and liabilities, net(272)(366)
Retirement benefits(71)(25)
Changes in other noncurrent assets and liabilities, net66 (14)
Other, net24 13 
Net cash provided by operating activities1,525 1,299 
INVESTING ACTIVITIES  
Capital expenditures(716)(974)
Proceeds from sale of property, plant and equipment and other assets35 35 
Other, net6  
Net cash used in investing activities(675)(939)
FINANCING ACTIVITIES  
Net proceeds from issuance of long-term debt891 1,237 
Payments of long-term debt(1,176)(2,488)
Net (payments of) proceeds from revolving line of credit(150)1,125 
Dividends paid(294)(291)
Other, net(45)(69)
Net cash used in financing activities(774)(486)
Net increase (decrease) in cash, cash equivalents and restricted cash76 (126)
Cash, cash equivalents and restricted cash at beginning of period427 1,717 
Cash, cash equivalents and restricted cash at end of period$503 1,591 
Supplemental cash flow information:  
Income taxes paid, net$(21)(6)
Interest paid (net of capitalized interest of $13 and $23)
$(387)(383)
Cash, cash equivalents and restricted cash:
Cash and cash equivalents$486 1,564 
Restricted cash included in Other current assets2 3 
Restricted cash included in Other, net noncurrent assets15 24 
Total$503 1,591 
See accompanying notes to consolidated financial statements.
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LUMEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
 Three Months Ended March 31,
 20212020
 (Dollars in millions except per share amounts)
COMMON STOCK
Balance at beginning of period$1,097 1,090 
Issuance of common stock through incentive and benefit plans9 8 
Balance at end of period1,106 1,098 
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period20,909 21,874 
Shares withheld to satisfy tax withholdings(39)(33)
Share-based compensation and other, net20 79 
Dividends declared(292)(286)
Balance at end of period20,598 21,634 
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period(2,813)(2,680)
Other comprehensive loss(32)(275)
Balance at end of period(2,845)(2,955)
ACCUMULATED DEFICIT
Balance at beginning of period(8,031)(6,814)
Cumulative effect of adoption of ASU 2016-13, Measurement of Credit Losses, net of $(2) tax
— 9 
Net income475 314 
Other 5 
Balance at end of period(7,556)(6,486)
TOTAL STOCKHOLDERS' EQUITY$11,303 13,291 
DIVIDENDS DECLARED PER COMMON SHARE$0.25 0.25 
See accompanying notes to consolidated financial statements.
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LUMEN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

References in the Notes to "Lumen Technologies, Inc.," "Lumen Technologies" or "Lumen," "we," "us," the "Company," and "our" refer to Lumen Technologies and its consolidated subsidiaries, unless the context otherwise requires. References in the Notes to "Level 3" refer to Level 3 Parent, LLC and its predecessor, Level 3 Communications, Inc., which we acquired on November 1, 2017.

(1) Background

General

We are an international facilities-based technology and communications company engaged primarily in providing a broad array of integrated services to our business and mass markets customers. Our specific products and services are detailed in Note 3—Revenue Recognition.

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 SEC. However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading. We believe that 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 three 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.

To simplify the overall presentation of our consolidated financial statements, we report immaterial amounts attributable to noncontrolling interests in certain of our subsidiaries as follows: (i) income attributable to noncontrolling interests in other income (expense), net, (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable to noncontrolling interests in other, net, financing activities.

We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and expenses in our segment reporting. See Note 11—Segment Information for additional information. These changes had no impact on total operating revenue, total operating expenses or net income (loss) for any period.

Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.

There were no book overdrafts included in accounts payable at March 31, 2021 or December 31, 2020.
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Summary of Significant Accounting Policies

The significant accounting policy below is in addition 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.

Operating Lease Income

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

For the three months ended March 31, 2021 and 2020, our gross rental income was $332 million and $333 million, respectively, which represents approximately 7% and 6%, respectively, of our operating revenue for the three months ended March 31, 2021 and 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 March 31, 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 a material 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 $9 million, net of tax effect of $2 million. Please refer to Note 4—Credit Losses on Financial Instruments for more information.

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Recently Issued Accounting Pronouncements

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)" Scope" ("ASU 2021-01"), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. 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 2021-01 provides option guidance for a limited time to ease the potential burden in accounting for reference rate reform. As of March 31, 2021, we are currently evaluating our contracts and the optional expedients provided by the new standard.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period. Subject to certain criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications and hedging accounting relationships made until December 31, 2022. 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. As of March 31, 2021, we are evaluating the existing contracts and the impact on consolidated financial statements.

(2) Goodwill, Customer Relationships and Other Intangible Assets

Goodwill, customer relationships and other intangible assets consisted of the following:

March 31, 2021December 31, 2020
(Dollars in millions)
Goodwill$18,854 18,870 
Indefinite-life intangible assets$9 278 
Other intangible assets subject to amortization: 
Customer relationships, less accumulated amortization of $11,356 and $11,060
6,035 6,344 
Capitalized software, less accumulated amortization of $3,366 and $3,279
1,509 1,520 
Trade names, patents and other, less accumulated amortization of $134 and $120
331 77 
Total other intangible assets, net$7,884 8,219 

When we acquired Embarq Corporation in 2009, we acquired certain right-of-way assets and, because there were no legal, regulatory, contractual or other factors that would reasonably limit the useful life of these assets, we classified them as indefinite-lived and, as such, these assets were not amortized. However, as we leverage our fiber infrastructure assets, our reliance on the legacy infrastructure (largely copper-based) acquired from Embarq is diminishing. Our recent digital transformation efforts have prompted management to reassess and ultimately change the accounting treatment of these indefinite-lived assets to align with our focus on growth products versus our declining products. As a result, during the first quarter of 2021, we reclassified an indefinite-lived intangible asset to definite-lived intangible asset. As of January 1, 2021 we began amortizing the $268 million asset over its estimated 9-year remaining life. This change in the estimated remaining economic life resulted in an increase in amortization expense of approximately $7 million for the three months ended March 31, 2021 and is expected to increase amortization expense by approximately $30 million for the year ending December 31, 2021. The increase in amortization expense, net of tax, reduced consolidated net income by approximately $5 million, with no impact per basic and diluted common share, for the three months ended March 31, 2021 and is expected to reduce consolidated net income by approximately $23 million, or $0.02 per basic and diluted common share, for the year ending December 31, 2021.

Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired.
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We assess our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our assessment determines the carrying value of equity of any of our reporting units exceeds its fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assess our reporting units. Our annual impairment assessment date for indefinite-lived intangible assets other than goodwill is December 31.

Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of multiple reporting units. For each reporting unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit. If the estimated fair value of the reporting unit is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the reporting unit is less than the carrying value, we record an impairment equal to the excess amount. Depending on the facts and circumstances, we typically estimate the fair value of our reporting units by considering either or both of (i) a discounted cash flow method, which is based on the present value of projected cash flows over a discrete projection period and a terminal value, which represents the value of expected normalized cash flows of the reporting units following the discrete projection period, and (ii) a market approach, which includes the use of market multiples of publicly-traded companies whose services are comparable to ours.

As previously announced, we completed an internal reorganization in January 2021. We now, as a result, report two segments: Business and Mass Markets. The following table shows the rollforward of goodwill assigned to our reportable segments, including the reorganization, from December 31, 2020 through March 31, 2021:

 International and Global AccountsEnterpriseSmall and Medium BusinessWholesaleConsumerBusinessMass MarketsTotal
 (Dollars in millions)
As of December 31, 2020(1)
$2,555 4,738 2,808 3,114 5,655 — — 18,870 
January 2021 reorganization(2,555)(4,738)(2,808)(3,114)(5,655)12,173 6,697  
Effect of foreign currency exchange rate change and other— — — — — (16) (16)
As of March 31, 2021(1)
$— — — — — 12,157 6,697 18,854 
______________________________________________________________________
(1)Goodwill at March 31, 2021 and December 31, 2020 is net of accumulated impairment losses of $12.9 billion.

The January 2021 reorganization was considered a change in event or circumstance which required an assessment of our goodwill for impairment. We performed a qualitative impairment assessment and concluded it is more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at January 31, 2021. Therefore, no impairment existed as of our assessment date.

Total amortization expense for intangible assets for the three months ended March 31, 2021 and 2020 totaled $425 million and $431 million, respectively. As of March 31, 2021, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $41.6 billion.

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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 nine months)$893 
20221,081 
2023985 
2024887 
2025797 

(3) Revenue Recognition

Product and Service Categories

Beginning in the first quarter of 2021, we categorize our products and services revenue among the following four categories for the Business segment:

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; and

Voice and Other, which includes Time Division Multiplexing ("TDM") voice, private line and other legacy services.

Beginning in the first quarter of 2021, we categorize our products and services revenue among the following four categories for the Mass Markets segment:

Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to residential customers;

Small Business Group ("SBG") Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

Voice and Other, which includes primarily local and long-distance services, retail video services (including our linear and TV services), professional services and other ancillary services; and

Connect America Fund ("CAF") II, which consists of Connect America Fund II support payments designed to reimburse us for various costs related to certain telecommunications services.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following table provides total revenue by segment, sales channel and product category. It also provides 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:

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Three Months Ended March 31, 2021Three Months Ended March 31, 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)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services$179 (69)110 201 (69)132 
IP and Data Services427  427 437  437 
Fiber Infrastructure Services216 (30)186 202 (26)176 
Voice and Other191  191 201  201 
Total IGAM Revenue1,013 (99)914 1,041 (95)946 
Large Enterprise
Compute and Application Services165 (15)150 154 (17)137 
IP and Data Services395  395 401  401 
Fiber Infrastructure Services124 (15)109 138 (10)128 
Voice and Other253  253 273  273 
Total Large Enterprise Revenue937 (30)907 966 (27)939 
Mid-Market Enterprise
Compute and Application Services36 (8)28 34 (8)26 
IP and Data Services453 (1)452 466 (1)465 
Fiber Infrastructure Services60 (2)58 54 (4)50 
Voice and Other167  167 207  207 
Total Mid-Market Enterprise Revenue716 (11)705 761 (13)748 
Wholesale
Compute and Application Services48 (40)8 46 (40)6 
IP and Data Services305  305 318  318 
Fiber Infrastructure Services154 (31)123 153 (30)123 
Voice and Other422 (63)359 452 (68)384 
Total Wholesale Revenue929 (134)795 969 (138)831 
Business Segment by Product Category
Compute and Application Services428 (132)296 435 (134)301 
IP and Data Services1,580 (1)1,579 1,622 (1)1,621 
Fiber Infrastructure Services554 (78)476 547 (70)477 
Voice and Other1,033 (63)970 1,133 (68)1,065 
Total Business Segment Revenue$3,595 (274)3,321 3,737 (273)3,464 
Mass Markets Segment by Product Category
Consumer Broadband$731 (52)679 722 (53)669 
SBG Broadband39 (4)35 39 (3)36 
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Three Months Ended March 31, 2021Three Months Ended March 31, 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)
Voice and Other541 (21)520 607 (29)578 
CAF II123 (123) 123 (123) 
Total Mass Markets Segment$1,434 (200)1,234 1,491 (208)1,283 
Total revenue$5,029 (474)4,555 5,228 (481)4,747 
_____________________________________________________________________
(1)Includes regulatory revenue and lease revenue not within the scope of ASC 606.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of March 31, 2021 and December 31, 2020:

March 31, 2021December 31, 2020
 (Dollars in millions)
Customer receivables(1)
$1,805 1,889 
Contract assets103 108 
Contract liabilities883 950 
______________________________________________________________________
(1)Reflects gross customer receivables of $2.0 billion and $2.1 billion, net of allowance for credit losses of $148 million and $174 million, at March 31, 2021 and December 31, 2020, respectively.

Contract liabilities are consideration we have received from our customers or billed in advance of providing goods or services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets. During the three months ended March 31, 2021, we recognized $425 million of revenue that was included in contract liabilities as of January 1, 2021. During the three months ended March 31, 2020, we recognized $495 million of revenue that was included in contract liabilities as of January 1, 2020.

Performance Obligations

As of March 31, 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 $5.2 billion. We expect to recognize approximately 90% 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.

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Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:

Three Months Ended March 31, 2021
Acquisition CostsFulfillment Costs
(Dollars in millions)
Beginning of period balance$289 216 
Costs incurred44 37 
Amortization(54)(37)
End of period balance$279 216 

Three Months Ended March 31, 2020
Acquisition CostsFulfillment Costs
(Dollars in millions)
Beginning of period balance$326 221 
Costs incurred49 36 
Amortization(55)(37)
End of period balance$320 220 

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

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of approximately 30 months for mass markets and business customers. Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred costs that are anticipated to be amortized in the next 12 months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond the next 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.

(4) 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 implemented the new standard effective January 1, 2020, using a loss rate method to estimate our allowance for credit losses. Our determination of the current expected credit loss rate begins with our use of historical loss experience as a percentage of accounts receivable. We measure our historical loss period based on the average days to recognize accounts receivable as credit losses. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to adjust our historical loss rate. We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period. We measure our forecast period based on the average days to collect payment on billed accounts receivable. To determine our current allowance for credit losses, we combine the historical and expected credit loss rates and apply them to our period end accounts receivable.
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In conjunction with our internal reorganization, as referenced in Note 11—Segment Information, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns. Additionally, we reassessed our historical loss period for the segment portfolio reorganization.

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

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

The following table presents the activity of our allowance for credit losses by accounts receivable portfolio:

BusinessMass MarketsTotal
(Dollars in millions)
Beginning balance at January 1, 2021(1)
$109 82 191 
Provision for expected losses13 14 27 
Write-offs charged against the allowance(19)(48)(67)
Recoveries collected5 6 11 
Ending balance at March 31, 2021
$108 54 162 
______________________________________________________________________ 
(1)As described in Note 11—Segment Information, we completed an internal reorganization in January 2021. As a result of this change, allowance for credit losses previously included in the Consumer and Business portfolio of $70 million related to consumer and $12 million related to our small business group, respectively, were reclassified to the Mass Markets allowance for credit losses on January 1, 2021.

For the three months ended March 31, 2021, we decreased our allowance for credit losses for our business and mass markets accounts receivable portfolios primarily due to higher write-off activity in the quarter with the easing of prior delays due to COVID-19 related restrictions in 2020.

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(5) Long-Term Debt and Credit Facilities

The following chart reflects the consolidated long-term debt of Lumen Technologies and its subsidiaries, including unamortized discounts and premiums, net and unamortized debt issuance costs, but excluding intercompany debt:
Interest Rates(1)
Maturities(1)
March 31, 2021December 31, 2020
   (Dollars in millions)
Senior Secured Debt: (2)
Lumen Technologies, Inc.
Revolving Credit Facility
LIBOR + 2.00%
2025$ 150 
Term Loan A (3)
LIBOR + 2.00%
20251,094 1,108 
Term Loan A-1 (3)
LIBOR + 2.00%
2025312 316 
Term Loan B (4)
LIBOR + 2.25%
20274,938 4,950 
Senior notes4.000%20271,250 1,250 
Subsidiaries:
Level 3 Financing, Inc.
Tranche B 2027 Term Loan (5)
LIBOR + 1.75%
20273,111 3,111 
Senior notes
3.400% - 3.875%
2027 - 2029
1,500 1,500 
Embarq Corporation subsidiaries
First mortgage bonds
7.125% - 8.375%
2023 - 2025
138 138 
Senior Notes and Other Debt:    
Lumen Technologies, Inc.
Senior notes
4.500% - 7.650%
2021 - 2042
8,645 8,645 
Subsidiaries:
Level 3 Financing, Inc.
Senior notes
3.625% - 5.375%
2025 - 2029
5,515 5,515 
Qwest Corporation
Senior notes
6.500% - 7.750%
2021 - 2057
2,935 3,170 
Term Loan (6)
LIBOR + 2.00%
2027215 215 
Qwest Capital Funding, Inc.
Senior notes
6.875% - 7.750%
2021 - 2031
352 352 
Embarq Corporation and subsidiary
Senior note7.995%20361,437 1,437 
Finance lease and other obligationsVariousVarious327 295 
Unamortized discounts, net  (96)(78)
Unamortized debt issuance costs(233)(237)
Total long-term debt  31,440 31,837 
Less current maturities   (3,841)(2,427)
Long-term debt, excluding current maturities  $27,599 29,410 
______________________________________________________________________ 
(1)As of March 31, 2021.
(2)See Note 6—Long-Term Debt and Credit Facilities 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)Term Loans A and A-1 had interest rates of 2.109% and 2.147% as of March 31, 2021 and December 31, 2020, respectively.
(4)Term Loan B had interest rates of 2.359% and 2.397% as of March 31, 2021 and December 31, 2020, respectively.
(5)The Tranche B 2027 Term Loan had interest rates of 1.859% and 1.897% as of March 31, 2021 and December 31, 2020, respectively.
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(6)Qwest Corporation Term Loan had interest rates of 2.110% and 2.150% as of March 31, 2021 and December 31, 2020, respectively.

Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of March 31, 2021 (excluding unamortized discounts, net, and unamortized debt issuance costs), maturing during the following years:

 (Dollars in millions)
2021 (remaining nine months)$2,410 
20221,541 
2023966 
20241,143 
20252,907 
2026 and thereafter22,802 
Total long-term debt$31,769 

Repayments

During the three months ended March 31, 2021, Lumen Technologies and its affiliates repaid or redeemed approximately $1.3 billion of their respective debt obligations, which primarily included $150 million of payments on our revolving credit facility, $900 million redemption of Level 3 Financing, Inc. senior notes and $235 million redemption of Qwest Corporation senior notes. These redemptions resulted in a net gain of $8 million.

New Issuances

On January 13, 2021, Level 3 Financing, Inc. issued $900 million aggregate principal amount of 3.750% Sustainability-Linked Senior Notes due 2029 (the "Sustainability-Linked Notes"). The net proceeds were used, together with cash on hand, to redeem certain of its outstanding senior note indebtedness. See "—Repayments" above. The Sustainability-Linked Notes are (i) guaranteed by Level 3 Parent, LLC and (ii) expected to be guaranteed by Level 3 Communications, LLC, upon the receipt of all requisite material governmental authorizations.

Covenants

Certain of our debt instruments contain affirmative and negative covenants. Debt at Lumen Technologies, Inc. and Level 3 Financing, Inc. contain more extensive covenants including, among other things and subject to certain exceptions, restrictions on their ability to declare or pay dividends, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with their affiliates, dispose of assets and merge or consolidate with any other person. Also, Lumen Technologies, Inc. and certain of its affiliates will be required to offer to purchase certain of their respective outstanding debt under certain circumstances in connection with certain specified "change of control" transactions.

Certain of our debt instruments contain cross-payment default or cross-acceleration provisions.

Compliance

As of March 31, 2021, Lumen Technologies, Inc. believes it and its subsidiaries were in compliance with the provisions and financial covenants in their respective material debt agreements in all material respects.

(6) Severance

Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions result primarily from the progression or completion of our post-acquisition integration plans, increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to the loss of customers purchasing certain services.

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Changes in our accrued liabilities for severance expenses were as follows:

Severance
 (Dollars in millions)
Balance at December 31, 2020$103 
Accrued to expense 
Payments, net(25)
Balance at March 31, 2021$78 

(7) Employee Benefits

For detailed description of the various defined benefit pension plans (qualified and non-qualified) and post-retirement benefits plans we sponsor, see Note 10—Employee Benefits 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.

Net periodic benefit income for the Lumen Combined Pension Plan ("Combined Pension Plan") includes the following components:

 Combined Pension Plan
 Three Months Ended March 31,
 20212020
 (Dollars in millions)
Service cost$13 16 
Interest cost50 82 
Expected return on plan assets(138)(149)
Recognition of prior service credit(2)(3)
Recognition of actuarial loss49 50 
Net periodic pension benefit income$(28)(4)

Net periodic benefit expense for our post-retirement benefit plans includes the following components:

 Post-Retirement Benefit Plans
 Three Months Ended March 31,
 20212020
 (Dollars in millions)
Service cost$4 4 
Interest cost12