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Recently Completed Divestitures of the Latin American and ILEC Businesses | 9 Months Ended
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Sep. 30, 2022
Discontinued Operations and Disposal Groups [Abstract] |
Recently Completed Divestitures of the Latin American and ILEC Businesses | Recently Completed Divestitures of the Latin American and ILEC Businesses Latin American Business On August 1, 2022, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., sold Lumen’s Latin American business pursuant to a definitive agreement dated July 25, 2021 for pre-tax cash proceeds of approximately $2.7 billion, subject to certain post-closing adjustments. During both the three and nine months ended September 30, 2022, we recorded a $593 million pre-tax gain on disposal associated with the sale of our Latin American business. This gain is reflected as operating income within the consolidated statements of operations. In connection with the sale, we entered into a transition services agreement under which we will provide to the purchaser various support services. In addition, Lumen and the purchaser entered into commercial agreements whereby they will provide each other various network and other commercial services. In addition, we agreed to indemnify the purchaser for certain matters for which future cash payments by Lumen could be required. Lumen has estimated the fair value of these indemnifications to be $86 million, which is included in other long-term liabilities in our consolidated balance sheet and has reduced our gain on the sale accordingly. The Latin American business was included in our continuing operations and classified as assets and liabilities held for sale on our consolidated balance sheets through the closing of the transaction on August 1, 2022. As a result of closing the transaction, we derecognized net assets of $1.9 billion, primarily made up of property, plant and equipment, net of accumulated depreciation, of $1.7 billion, goodwill of $245 million, other intangible assets, net of accumulated amortization, of $140 million, and deferred income tax liabilities, net, of $154 million. ILEC Business On October 3, 2022, we and certain of our affiliates closed the sale of our incumbent local exchange ("ILEC") business primarily conducted within 20 Midwestern and Southeastern states pursuant to a definitive agreement dated August 3, 2021, as amended and supplemented to date. See Note 17—Subsequent Events for additional information regarding this divestiture. In the accompanying consolidated balance sheet as of September 30, 2022, the assets and liabilities of our ILEC business are classified as held for sale and are measured at the lower of (i) the carrying value of the disposal group and (ii) the fair value of the disposal group, less costs to sell. Effective with the designation of the ILEC business as held for sale on August 3, 2021, we suspended recording depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets while these assets are classified as held for sale. We estimate that we would have recorded an additional $114 million and $350 million of depreciation, intangible amortization, and amortization of right-of-use assets for the three and nine months ended September 30, 2022, respectively, and an additional $81 million of depreciation, intangible amortization, and amortization of right-of-use assets for the three and nine months ended September 30, 2021 if the ILEC business did not meet the held for sale criteria. The principal components of the held for sale assets and liabilities of the ILEC business as of the dates below are as follows:
| September 30, 2022 | December 31, 2021
| ILEC Business |  |
| (Dollars in millions)
Assets held for sale(1) |  |  |  |  |
Cash and cash equivalents | $ | — |  |  | 1 |  |  |
Accounts receivable, less allowance of $19 and $21 | 195 |  |  | 227 |  |  |
Other current assets | 52 |  |  | 45 |  |  |
Property, plant and equipment, net accumulated depreciation of $8,170 and $8,303 | 3,651 |  |  | 3,491 |  |  |
Goodwill(2) | 2,581 |  |  | 2,615 |  |  |
Other intangible assets, net | 158 |  |  | 158 |  |  |
Other non-current assets | 38 |  |  | 38 |  |  |
Total assets held for sale | $ | 6,675 |  |  | 6,575 |  |  |
Liabilities held for sale(1) |  |  |  |  |
Accounts payable | $ | 56 |  |  | 64 |  |  |
Salaries and benefits | 32 |  |  | 25 |  |  |
Income and other taxes | 30 |  |  | 24 |  |  |
Interest | 38 |  |  | 10 |  |  |
Current portion of deferred revenue | 87 |  |  | 90 |  |  |
Other current liabilities | 47 |  |  | 35 |  |  |
Long-term debt, net of discounts(3) | 1,400 |  |  | 1,377 |  |  |
Pension and other post-retirement benefits(4) | 27 |  |  | 56 |  |  |
Other non-current liabilities | 71 |  |  | 141 |  |  |
Total liabilities held for sale | $ | 1,788 |  |  | 1,822 |  |  |
______________________________________________________________________ (1)As a result of the above-described sale of our Latin American business on August 1, 2022, this table excludes $2.2 billion of assets and $435 million of liabilities relating to the Latin American business. The net assets of the Latin American business were classified as held for sale on our accompanying balance sheet as of December 31, 2021. (2)The assignment of goodwill was based on the relative fair value of the applicable reporting units prior to being classified as held for sale. (3)Long-term debt, net of discounts, as of September 30, 2022 and December 31, 2021 includes (i) $1.4 billion aggregate principal amount of 7.995% Embarq senior notes maturing in 2036, (ii) $114 million and $117 million of related unamortized discounts, respectively, and (iii) $76 million and $57 million of long-term finance lease obligations, respectively. (4)Excludes pension obligation of approximately $2.5 billion for the ILEC business as of both September 30, 2022 and December 31, 2021, which we transferred to the purchaser of the ILEC business upon closing. As of January 1, 2022, we spun off a new pension plan (the "Lumen Pension Plan") in anticipation of this transfer. Along with the transfer of the $2.5 billion pension benefit obligation, we allocated $2.2 billion of assets to the new plan in January 2022 and contributed $319 million of additional cash to the new plan's trust in September 2022 to fully fund the pension plan. See Note 8—Employee Benefits for additional information. As a result of our evaluation of the recoverability of the carrying value of the ILEC assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we did not record any estimated loss on disposal during the nine months ended September 30, 2022. For information on the October 3, 2022 disposal of the ILEC business, see Note 17—Subsequent Events. Other We do not believe either of these divestitures represent a strategic shift for Lumen. Therefore, neither of the divested businesses meet the criteria to be classified as a discontinued operation. As a result, we continued to report our operating results for the Latin American and ILEC businesses (the "disposal groups") in our consolidated operating results through their disposal dates of August 1, 2022 and October 3, 2022, respectively (see Note 17—Subsequent Events for additional information regarding the close of the sale of the ILEC business). The pre-tax net income of the ILEC business is estimated to be as follows in the tables below:
| ILEC business pre-tax net income
| 2022 |  | 2021
| (Dollars in millions)
Three Months Ended September 30, | $ | 164 |  |  | 234 |
Nine Months Ended September 30, | $ | 576 |  |  | 528 |

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI https://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=2122178 + Details
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