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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 September 30, 2022
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. 001-03040

QWEST CORPORATION
(Exact name of registrant as specified in its charter)

Colorado |  | 84-0273800
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
100 CenturyLink Drive, | Monroe, | Louisiana |  | 71203
(Address of principal executive offices) |  | (Zip Code)

(318) 388-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class |  | Trading Symbol(s) |  | Name of Each Exchange on Which Registered
6.5% Notes Due 2056 |  | CTBB |  | New York Stock Exchange
6.75% Notes Due 2057 |  | CTDD |  | New York Stock Exchange

THE REGISTRANT, A WHOLLY OWNED INDIRECT SUBSIDIARY OF LUMEN TECHNOLOGIES, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
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 (§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, a 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 filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller 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 November 3, 2022, there was one share of common stock outstanding.

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TABLE OF CONTENTS

| Special Note Regarding Forward-Looking Statements | 3
Part I. | Financial Information |
Item 1. | Financial Statements |
| Consolidated Statements of Operations (Unaudited) | 6
| Consolidated Balance Sheets (Unaudited) | 7
| Consolidated Statements of Cash Flows (Unaudited) | 8
| Consolidated Statements of Stockholder's Equity (Unaudited) | 9
| Notes to Consolidated Financial Statements (Unaudited) * | 10
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 22
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 35
Item 4. | Controls and Procedures | 35
Part II. | Other Information |
Item 1. | Legal Proceedings | 36
Item 1A. | Risk Factors | 36
Item 6. | Exhibits | 37
Signature | 38
* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements, unless otherwise specified.

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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:
•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, Quantum Fiber buildout plans, 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, debt leverage, capital allocation plans, financing alternatives and sources, and pricing plans;
•statements regarding how the health and economic challenges raised by the COVID-19 pandemic may impact our business, financial position, operating results or prospects; 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,” “plans,” “believes,” “expects,” “anticipates,” “estimates,” "forecasts," “projects,” "proposes," "targets," “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 below to factors that could cause our actual results to differ materially from those anticipated, estimated, projected or implied by us in those forward- looking statements. These factors include but are not limited to:
•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 successfully and timely attain our key operating imperatives, including simplifying and consolidating our network, simplifying and automating our service support systems, attaining our Quantum Fiber buildout plans, strengthening our relationships with customers and attaining projected cost savings;
•our ability to safeguard our network, and to avoid the adverse impact of possible cyber-attacks, 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 standards, broadband deployment, data protection, privacy and net neutrality;
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•our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages.
•changes in customer 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 corporate strategies, including our deleveraging strategy;
•changes in our operating plans, corporate strategies or capital allocation plans, whether based upon, changes in our cash flows, cash requirements, financial performance, financial position, market or regulatory conditions, or otherwise;
•the negative impact of increases in the costs of Lumen’s pension, healthcare, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics, 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 debt 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;
•Lumen's ability to meet evolving environmental, social and governance ("ESG") expectations and benchmarks, and effectively communicate and implement its ESG strategies;
•our ability to collect our receivables from, or continue to do business with, financially troubled customers;
•our ability to continue to use or renew intellectual property used to conduct our operations;
•any adverse developments in legal or regulatory proceedings involving us or our affiliates, including Lumen Technologies;
•changes in tax, communications, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels, including those arising from recently-enacted federal legislation promoting broadband spending;
•the effects of changes in accounting policies, practices or assumptions, including changes that could potentially require additional future impairment charges;
•continuing uncertainties regarding the impact that COVID-19 disruptions could have on our business, operations, cash flows and corporate initiatives;
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•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 changes in interest rates and inflation;
•the effects of more general factors such as changes in exchange rates, in operating costs, in public policy, in the views of financial analysts, or in general market, labor, economic or geopolitical conditions; and
•other risks referenced in the "Risk Factors" section of this report 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 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
QWEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (Dollars in millions)
OPERATING REVENUE |  |  |  |  |  |  |
Operating revenue | $ | 1,024 |  |  | 1,135 |  |  | 3,148 |  |  | 3,452 |
Operating revenue—affiliates | 594 |  |  | 595 |  |  | 1,758 |  |  | 1,794 |
Total operating revenue | 1,618 |  |  | 1,730 |  |  | 4,906 |  |  | 5,246 |
OPERATING EXPENSES |  |  |  |  |  |  |
Cost of services and products (exclusive of depreciation and amortization) | 427 |  |  | 426 |  |  | 1,249 |  |  | 1,305 |
Selling, general and administrative | 138 |  |  | 36 |  |  | 361 |  |  | 249 |
Operating expenses—affiliates | 176 |  |  | 177 |  |  | 536 |  |  | 561 |
Depreciation and amortization | 217 |  |  | 232 |  |  | 640 |  |  | 780 |
Total operating expenses | 958 |  |  | 871 |  |  | 2,786 |  |  | 2,895 |
OPERATING INCOME | 660 |  |  | 859 |  |  | 2,120 |  |  | 2,351 |
OTHER (EXPENSE) INCOME |  |  |  |  |  |  |
Interest expense | (28) |  |  | (47) |  |  | (84) |  |  | (142) |
Interest expense—affiliate, net | (14) |  |  | (25) |  |  | (55) |  |  | (87) |
Other (expense) income, net | (1) |  |  | (3) |  |  | 4 |  |  | (7) |
Total other expense, net | (43) |  |  | (75) |  |  | (135) |  |  | (236) |
INCOME BEFORE INCOME TAX EXPENSE | 617 |  |  | 784 |  |  | 1,985 |  |  | 2,115 |
Income tax expense | 158 |  |  | 202 |  |  | 506 |  |  | 542 |
NET INCOME | $ | 459 |  |  | 582 |  |  | 1,479 |  |  | 1,573 |

See accompanying notes to consolidated financial statements.
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QWEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

| September 30, 2022 |  | December 31, 2021
| (Dollars in millions)
ASSETS |  |  |
CURRENT ASSETS |  |  |
Cash and cash equivalents | $ | 5 |  |  | 2 |
Accounts receivable, less allowance of $35 and $38 | 273 |  |  | 301 |
Advances to affiliates | 231 |  |  | — |
Other | 121 |  |  | 187 |
Total current assets | 630 |  |  | 490 |
Property, plant and equipment, net of accumulated depreciation of $7,415 and $6,879 | 8,246 |  |  | 8,180 |
GOODWILL AND OTHER ASSETS |  |  |
Goodwill | 9,360 |  |  | 9,360 |
Other intangible assets, net | 154 |  |  | 199 |
Other, net | 133 |  |  | 141 |
Total goodwill and other assets | 9,647 |  |  | 9,700 |
TOTAL ASSETS | $ | 18,523 |  |  | 18,370 |
LIABILITIES AND STOCKHOLDER'S EQUITY |  |  |
CURRENT LIABILITIES |  |  |
Accounts payable | $ | 204 |  |  | 206 |
Advances from affiliates | — |  |  | 55 |
Note payable - affiliate | — |  |  | 1,187 |
Accrued expenses and other liabilities |  |  |
Salaries and benefits | 129 |  |  | 138 |
Income and other taxes | 114 |  |  | 94 |
Other | 127 |  |  | 182 |
Current portion of deferred revenue | 168 |  |  | 174 |
Total current liabilities | 742 |  |  | 2,036 |
LONG-TERM DEBT | 2,155 |  |  | 2,156 |
DEFERRED CREDITS AND OTHER LIABILITIES |  |  |
Deferred income taxes, net | 1,272 |  |  | 1,276 |
Affiliate obligations, net | 569 |  |  | 597 |
Other | 671 |  |  | 670 |
Total deferred credits and other liabilities | 2,512 |  |  | 2,543 |
COMMITMENTS AND CONTINGENCIES (Note 7) |  |  |
STOCKHOLDER'S EQUITY |  |  |
Common stock - one share without par value, owned by Qwest Services Corporation | 10,050 |  |  | 10,050 |
Retained earnings | 3,064 |  |  | 1,585 |
Total stockholder's equity | 13,114 |  |  | 11,635 |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 18,523 |  |  | 18,370 |

See accompanying notes to consolidated financial statements.
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QWEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

| Nine Months Ended September 30,
| 2022 |  | 2021
| (Dollars in millions)
OPERATING ACTIVITIES |  |  |
Net income | $ | 1,479 |  |  | 1,573 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 640 |  |  | 780 |
Deferred income taxes | (4) |  |  | (24) |
Provision for uncollectible accounts | 42 |  |  | 18 |
Accrued interest on affiliate note | 28 |  |  | 57 |
Net loss on early retirement of debt | — |  |  | 8 |
Changes in current assets and liabilities: |  |  |
Accounts receivable | (15) |  |  | 7 |
Accounts payable | (34) |  |  | (19) |
Accrued income and other taxes | 20 |  |  | 17 |
Other current assets and liabilities, net | (31) |  |  | (113) |
Changes in other noncurrent assets and liabilities, net | 11 |  |  | 10 |
Changes in affiliate obligations, net | (69) |  |  | (23) |
Other, net | 7 |  |  | 8 |
Net cash provided by operating activities | 2,074 |  |  | 2,299 |
INVESTING ACTIVITIES |  |  |
Capital expenditures | (613) |  |  | (557) |
Changes in advances to affiliates | (231) |  |  | (368) |
Proceeds from sale of property, plant and equipment and other assets | 42 |  |  | 31 |
Net cash used in investing activities | (802) |  |  | (894) |
FINANCING ACTIVITIES |  |  |
Payment of note payable - affiliate | (1,215) |  |  | — |
Payments of long-term debt | — |  |  | (235) |
Dividends paid | — |  |  | (570) |
Changes in advances from affiliates | (55) |  |  | (592) |
Net cash used in financing activities | (1,270) |  |  | (1,397) |
Net increase in cash, cash equivalents and restricted cash | 2 |  |  | 8 |
Cash, cash equivalents and restricted cash at beginning of period | 4 |  |  | 15 |
Cash, cash equivalents and restricted cash at end of period | $ | 6 |  |  | 23 |
Supplemental cash flow information: |  |  |
Income taxes paid, net | $ | (497) |  |  | (557) |
Interest paid, including affiliate interest (net of capitalized interest of $20 and $14) | $ | (130) |  |  | (129) |
Supplemental noncash information of investing activities: |  |  |
Sale of property, plant and equipment in exchange for receivable | — |  |  | 56 |
Cash, cash equivalents and restricted cash: |  |  |
Cash and cash equivalents | $ | 5 |  |  | 2 |
Restricted cash - noncurrent | 1 |  |  | 21 |
Total | $ | 6 |  |  | 23 |

See accompanying notes to consolidated financial statements.
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QWEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(UNAUDITED)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (Dollars in millions)
COMMON STOCK |  |  |  |  |  |  |
Balance at beginning of period | $ | 10,050 |  |  | 10,050 |  |  | 10,050 |  |  | 10,050 |
Balance at end of period | 10,050 |  |  | 10,050 |  |  | 10,050 |  |  | 10,050 |
RETAINED EARNINGS |  |  |  |  |  |  |
Balance at beginning of period | 2,605 |  |  | 469 |  |  | 1,585 |  |  | 48 |
Net income | 459 |  |  | 582 |  |  | 1,479 |  |  | 1,573 |
Dividends declared and paid to Qwest Services Corporation | — |  |  | — |  |  | — |  |  | (570) |
Balance at end of period | 3,064 |  |  | 1,051 |  |  | 3,064 |  |  | 1,051 |
TOTAL STOCKHOLDER'S EQUITY | $ | 13,114 |  |  | 11,101 |  |  | 13,114 |  |  | 11,101 |

See accompanying notes to consolidated financial statements.
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QWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Unless the context requires otherwise, references in this report to "QC" refer to Qwest Corporation, references to "Qwest," "we," "us," and "our" refer to Qwest Corporation and its consolidated subsidiaries, references to "QSC" refer to our direct parent company, Qwest Services Corporation and its consolidated subsidiaries, and references to "Lumen Technologies" or "Lumen" refer to our ultimate parent company, Lumen Technologies, Inc. and its consolidated subsidiaries including Level 3 Parent, LLC, referred to as "Level 3".
(1) Background
General
We are an integrated communications company engaged primarily in providing a broad array of communications services to our mass markets and business customers. Our specific products and services are detailed in Note 3—Revenue Recognition of this report.
We generate the majority of our total consolidated operating revenue from services provided in the 14-state region of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. We refer to this region as our local service area.
Basis of Presentation
Our consolidated balance sheet as of December 31, 2021, 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 note 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 nine 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, 2021.
The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (referred to herein as affiliates) have not been eliminated.
Operating lease assets are included in Other, net under goodwill and other assets on our consolidated balance sheets. Current operating lease liabilities are included in Other under accrued expenses and other liabilities on our consolidated balance sheets. Noncurrent operating lease liabilities are included in Other under deferred credits and other liabilities on our consolidated balance sheets.
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.
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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, 2021.
Recently Adopted Accounting Pronouncements
Government Assistance
On January 1, 2022, we adopted Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance" ("ASU 2020-10"). This ASU increases transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. The ASU only impacts annual financial statement note disclosures. Therefore, the adoption of ASU 2021-10 did not have a material impact to our consolidated financial statements.
Leases
On January 1, 2022, we adopted ASU 2021-05, “Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments” (“ASU 2021-05”). This ASU (i) amends the lease classification requirements for lessors to align them with practice under ASC Topic 840, (ii) provides criteria for lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease; and (iii) provides guidance with respect to net investments by lessors under operating leases and other related topics. The adoption of ASU 2021-05 did not have a material impact to our consolidated financial statements.
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 guidance 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)” ("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 September 30, 2022, we determined there was no application or discontinuation of the equity method during the reporting periods covered by this report. 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, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“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.
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Recently Issued Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-04, “Liabilities-Supplier Finance Program (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” (“ASU 2022-04”). These amendments require that a company that uses a supplier finance program in connection with the purchase of goods or services disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, program activity during the period, changes from period to period and potential magnitude of program transactions. ASU 2022-04 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we are reviewing our supplier finance agreements to determine the impact to disclosures in our consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2022-03”). These amendments clarify that a contractual restriction on the sales of an investment in equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we do not expect ASU 2022-03 to have an impact to our consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosures” (“ASU 2022-02”). These amendments eliminate the TDR recognition and measurement guidance, enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-02 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we do not expect ASU 2022-02 to have an impact to our consolidated financial statements.
In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging-Portfolio Layer Method” (ASU 2022-01). The ASU expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method. ASU 2022-01 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we do not expect ASU 2022-01 to have an impact to our consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of September 30, 2022, we do not expect ASU 2021-08 to have an impact to our consolidated financial statements.
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 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 optional expedients 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 September 30, 2022, ASU 2021-01 does not have a material impact to our consolidated financial statements.
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(2) Goodwill, Customer Relationships and Other Intangible Assets
Goodwill, customer relationships and other intangible assets consisted of the following:

| September 30, 2022 |  | December 31, 2021
| (Dollars in millions)
Goodwill | $ | 9,360 |  |  | 9,360 |
Customer relationships, less accumulated amortization of $— and $5,699 (1) | $ | — |  |  | — |
Other intangible assets, less accumulated amortization of $1,911 and $1,876 | 154 |  |  | 199 |
Total other intangible assets, net | $ | 154 |  |  | 199 |

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(1)Customer relationships with a gross carrying value of $5.7 billion became fully amortized during 2021 and were retired during the first quarter of 2022.
Substantially all of 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.
As of September 30, 2022, the gross carrying amount of goodwill, customer relationships and other intangible assets was $11.4 billion. The amortization expense for finite-lived intangible assets for the three months ended September 30, 2022 and 2021 totaled $20 million and $22 million, respectively. The amortization expense for finite-lived intangible assets for the nine months ended September 30, 2022 and 2021 totaled $59 million and $154 million, respectively.
We estimate that total amortization expense for intangible assets for the years ending December 31, 2022 through 2026 will be as follows:

| (Dollars in millions)
2022 (remaining three months) | $ | 19 |
2023 | 61 |
2024 | 33 |
2025 | 15 |
2026 | 9 |

(3) Revenue Recognition
We categorize our products, services and revenue among the following categories:
•Voice and Other, which include primarily local voice services, private line and other legacy services. This category also includes federal and state support payments. These support payments are government subsidies designed to compensate us for providing certain broadband and communications services in high-cost areas or at discounts to low-income, educational, and healthcare customers. This revenue included the FCC's Connect America Fund Phase II ("CAF II") support payments, which we received through December 31, 2021, when the program ended.
•Fiber Infrastructure Services, which include high speed, fiber-based and lower speed DSL-based broadband services to residential and small business customers, and optical network services;
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•IP and Data Services, which consist primarily of Ethernet services; and
•Affiliate Services, which are communications services that we also provide to external customers. In addition, we provide to our affiliates application development and support services, network support and technical services.
Reconciliation of Total Revenue to Revenue from Contracts with Customers
The following table provides our total revenue by product and service category as well as 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 September 30, 2022 |  | Three Months Ended September 30, 2021
| Total Revenue | Adjustments for Non-ASC 606 Revenue (1) | Total Revenue from Contracts with Customers |  | Total Revenue | Adjustments for Non-ASC 606 Revenue (1) | Total Revenue from Contracts with Customers
| (Dollars in millions)
Fiber Infrastructure | $ | 487 |  | (33) |  | 454 |  |  | 495 |  | (30) |  | 465 |
Voice and Other | 429 |  | (46) |  | 383 |  |  | 522 |  | (83) |  | 439 |
IP and Data Services | 108 |  | — |  | 108 |  |  | 118 |  | — |  | 118 |
Affiliate Services | 594 |  | (11) |  | 583 |  |  | 595 |  | (9) |  | 586 |
Total Revenue | $ | 1,618 |  | (90) |  | 1,528 |  |  | 1,730 |  | (122) |  | 1,608 |

| Nine Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2021
| Total Revenue | Adjustments for Non-ASC 606 Revenue (1) | Total Revenue from Contracts with Customers |  | Total Revenue | Adjustments for Non-ASC 606 Revenue (1) | Total Revenue from Contracts with Customers
| (Dollars in millions)
Fiber Infrastructure | $ | 1,481 |  | (100) |  | 1,381 |  |  | 1,500 |  | (90) |  | 1,410 |
Voice and Other | 1,331 |  | (152) |  | 1,179 |  |  | 1,595 |  | (251) |  | 1,344 |
IP and Data Services | 336 |  | — |  | 336 |  |  | 357 |  | — |  | 357 |
Affiliate Services | 1,758 |  | (34) |  | 1,724 |  |  | 1,794 |  | (18) |  | 1,776 |
Total revenue | $ | 4,906 |  | (286) |  | 4,620 |  |  | 5,246 |  | (359) |  | 4,887 |

____________________________________________________________
(1)Includes regulatory revenue and lease revenue not within the scope of ASC 606.
Operating Lease Revenue
Qwest leases various data transmission capacity, office facilities, switching facilities and other network sites 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 September 30, 2022 and 2021, our gross rental income was $87 million and $82 million, respectively, which represents approximately 5% of our operating revenue for both periods. For the nine months ended September 30, 2022 and 2021, our gross rental income was $263 million and $239 million, which represents approximately 5% of our operating revenue for both periods.
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Customer Receivables and Contract Balances
The following table provides balances of customer receivables, contract assets and contract liabilities as of September 30, 2022 and December 31, 2021:

| September 30, 2022 |  | December 31, 2021
| (Dollars in millions)
Customer receivables (1) | $ | 278 |  |  | 298 |
Contract assets | 9 |  |  | 10 |
Contract liabilities | 341 |  |  | 317 |

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(1)Reflects gross customer receivables, including gross affiliate receivables, of $305 million and $328 million, net of allowance for credit losses of $27 million and $30 million, at September 30, 2022 and December 31, 2021, respectively.
Contract liabilities consist of 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 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 nine months ended September 30, 2022, we recognized $14 million and $178 million, respectively, of revenue that was included in contract liabilities of $317 million as of January 1, 2022. During the three and nine months ended September 30, 2021, we recognized $12 million and $187 million, respectively, of revenue that was included in contract liabilities of $300 million as of January 1, 2021.
Performance Obligations
As of September 30, 2022, we expect to recognize approximately $194 million of revenue in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied. We expect to recognize approximately 91% of this revenue through 2024.
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 tables provide changes in our contract acquisition costs and fulfillment costs:

| Three Months Ended September 30, 2022 |  | Three Months Ended September 30, 2021
| Acquisition Costs |  | Fulfillment Costs |  | Acquisition Costs |  | Fulfillment Costs
| (Dollars in millions)
Beginning of period balance | $ | 62 |  |  | 47 |  |  | 68 |  |  | 49 |
Costs incurred | 13 |  |  | 9 |  |  | 12 |  |  | 7 |
Amortization | (13) |  |  | (10) |  |  | (14) |  |  | (9) |
End of period balance | $ | 62 |  |  | 46 |  |  | 66 |  |  | 47 |

| Nine Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2021
| Acquisition Costs |  | Fulfillment Costs |  | Acquisition Costs |  | Fulfillment Costs
| (Dollars in millions)
Beginning Balance | $ | 64 |  |  | $ | 47 |  |  | 73 |  |  | $ | 54 |
Cost Incurred | 38 |  |  | 28 |  |  | 36 |  |  | 19 |
Amortization | (40) |  |  | (29) |  |  | (43) |  |  | (26) |
Ending Balances | $ | 62 |  |  | 46 |  |  | 66 |  |  | 47 |

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 communications 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 contract life of 32 months for mass markets customers and average contract life of 30 months for 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 a quarterly basis.
(4) Credit Losses on Financial Instruments
To assess our expected credit losses on financial instruments, we aggregate financial assets with similar risk characteristics to monitor their credit quality or deterioration over the life of such assets. We periodically monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change. We separately evaluate financial assets that do not share risk characteristics with other financial assets. Our financial assets measured at amortized cost primarily consist of accounts receivable.
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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 review 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 an unexpected deterioration of a customer's financial condition or an unexpected change in economic conditions, including macroeconomic events, we assess the need to adjust the allowance for credit losses. Any such resulting adjustments 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 our 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, and we may use methodologies that differ from those used by other companies.
The following table presents the activity of our allowance for credit losses by accounts receivable portfolio for the nine months ended September 30, 2022:

| Business |  | Mass Markets |  | Total
| (Dollars in millions)
As of December 31, 2021 | $ | 19 |  |  | 19 |  |  | 38 |
Provision for expected losses | 11 |  |  | 31 |  |  | 42 |
Write-offs charged against the allowance | (12) |  |  | (35) |  |  | (47) |
Recoveries collected | 2 |  |  | — |  |  | 2 |
Ending balance at September 30, 2022 | $ | 20 |  |  | 15 |  |  | 35 |

(5) Long-Term Debt and Note Payable - Affiliate
The following chart reflects (i) the consolidated long-term debt of Qwest Corporation and its subsidiaries, including finance lease and other obligations, unamortized premiums, net, unamortized debt issuance costs and (ii) note payable - affiliate:

| Interest Rates (1) |  | Maturities (1) |  | September 30, 2022 |  | December 31, 2021
|  |  |  |  | (Dollars in millions)
Senior notes | 6.500% - 7.750% |  | 2025 - 2057 |  | $ | 1,986 |  |  | 1,986 |
Term loan (2) | LIBOR + 2.00% |  | 2027 |  | 215 |  |  | 215 |
Finance lease and other obligations | Various |  | Various |  | 2 |  |  | 2 |
Unamortized premiums, net |  |  |  |  | 5 |  |  | 6 |
Unamortized debt issuance costs |  |  |  |  | (53) |  |  | (53) |
Total long-term debt |  |  |  |  | $ | 2,155 |  |  | 2,156 |
Note payable - affiliate | 4.862% |  | 2027 |  | $ | — |  |  | 1,187 |

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(1)As of September 30, 2022.
(2)Qwest Corporation's Term Loan had interest rates of 5.120% and 2.110% as of September 30, 2022 and December 31, 2021, respectively.
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Long-Term Debt Maturities
Set forth below is the aggregate principal amount of our long-term debt as of September 30, 2022 (excluding unamortized premiums, net, unamortized debt issuance costs and note payable-affiliate) maturing during the following years:

| (Dollars in millions)
2022 (remaining three months) | $ | — |
2023 | — |
2024 | — |
2025 | 250 |
2026 | — |
2027 and thereafter | 1,953 |
Total long-term debt | $ | 2,203 |

Note Payable - Affiliate
On June 30, 2022, Qwest Corporation entered into an amended and restated revolving promissory note ("Note Payable - Affiliate") with an affiliate of our ultimate parent company, Lumen Technologies, Inc. ("Lender"), that replaces the previous revolving promissory agreement that was scheduled to mature on June 30, 2022 ("Prior Note Payable - Affiliate"). The Note Payable - Affiliate, as amended, provides Qwest Corporation with a funding commitment of up to $2.0 billion. Any outstanding principal balance owed by Qwest Corporation under the Note Payable - Affiliate and the accrued interest thereon is due and payable on demand, but if no demand is made, then on the maturity date. The Note Payable - Affiliate has an initial maturity date of June 30, 2027, but will automatically renew for an unlimited number of successive 12-month periods unless the Lender provides notice of its intent not to renew at least 30 days prior to the initial maturity date or each subsequent maturity date.
In accordance with the terms of the amended Note Payable - Affiliate, interest shall be assessed every six months ending on June 30th and December 31st (an "Interest Period") and shall be paid within 30 days of the end of the respective Interest Period. Interest is accrued on the outstanding principal balance during the respective Interest Period using a weighted average per annum interest rate on the consolidated outstanding debt of Lumen Technologies, Inc. and its subsidiaries.
On September 30, 2022, Qwest Corporation repaid the outstanding principal and interest on the Note Payable - Affiliate of approximately $1.2 billion and $43 million, respectively.
Compliance
As of September 30, 2022, we believe we were in compliance with the financial covenants contained in our material debt agreements in all material respects.
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(6) Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, advances to and from affiliates, accounts payable, note payable-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, advances to and from affiliates, accounts payable and note payable-affiliate approximate their fair values.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy.
We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on inputs other than quoted market prices in active markets that are either directly or indirectly observable such as discounted future cash flows using current market interest rates.
The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:

Input Level |  | Description of Input
Level 1 |  | Observable inputs such as quoted market prices in active markets.
Level 2 |  | Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3 |  | Unobservable inputs in which little or no market data exists.

The following table presents the carrying amounts and estimated fair values of our financial liabilities as of September 30, 2022 and December 31, 2021, as well as the input level used to determine the fair values indicated below:

|  |  | September 30, 2022 |  | December 31, 2021
| Input Level |  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
|  |  | (Dollars in millions)
Liabilities—Long-term debt (excluding finance lease and other obligations) | 2 |  | $ | 2,153 |  |  | 2,076 |  |  | 2,154 |  |  | 2,298 |

(7) 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 September 30, 2022 aggregated to approximately $16 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.
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Principal Proceedings
Billing Practices Suits
In June 2017, a former employee of a Lumen Technologies subsidiary filed an employment lawsuit against Lumen Technologies (at the time named CenturyLink, Inc.) claiming that she was wrongfully terminated for alleging that Lumen charged some of its retail customers for products and services they did not authorize. Thereafter, based in part on the allegations made by the former employee, several legal proceedings were filed, including consumer class actions in federal and state courts, a series of securities investor class actions in federal courts, and several shareholder derivative actions in federal and Louisiana state courts. The derivative cases were brought on behalf of CenturyLink, Inc. against certain current and former officers and directors of the Company and seek damages for alleged breaches of fiduciary duties.
The consumer class actions, the securities investor class actions, and the federal derivative actions were transferred to the U.S. District Court for the District of Minnesota for coordinated and consolidated pretrial proceedings as In Re: CenturyLink Sales Practices and Securities Litigation. Lumen Technologies has settled the consumer and securities investor class actions. Those settlements are final. The derivative actions remain pending.
Lumen has engaged in discussions regarding related claims with a number of state attorneys general, and has entered into agreements settling certain of the consumer practices claims asserted by state attorneys general. While Lumen Technologies does not agree with allegations raised in these matters, it has been willing to consider reasonable settlements where appropriate.
AT&T Proceedings
In August 2022, certain of our indirect affiliates filed a complaint in federal district court in Colorado captioned Central Telephone Company of Virginia, et al, v. AT&T Corp., et al. The suit seeks relief and damages for AT&T’s failure to pay amounts for services it receives. AT&T disputes those claims and has asserted counterclaims alleging breach of contract and seeking declaratory relief. It has requested the court enjoin the plaintiffs (including us) from terminating services for its failure to pay, and it has requested the court transfer the case to federal court in the southern district of New York for further proceedings. Also in August 2022, AT&T filed a separate lawsuit in federal court in the western district of Louisiana, against Central Telephone Company of Virginia, us, and other of our indirect affiliates alleging, among other claims, breach of contract provisions pertaining to network architecture. We and the other plaintiff entities dispute AT&T’s claims.
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 or commercial disputes.
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 within the next twelve months 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 federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $300,000 in fines and penalties.
The outcome of these other proceedings described under this heading is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.
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The matters listed in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 14—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, 2021. 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.
(8) Dividends
From time to time we may declare and pay dividends to our direct parent company, QSC, sometimes in excess of our earnings to the extent permitted by applicable law. Our debt covenants do not currently limit the amount of dividends we can pay to QSC.
During the nine months ended September 30, 2022, we declared and paid no dividends to QSC. During the nine months ended September 30, 2021, we declared and paid dividends of $570 million to QSC. Dividends paid are reflected on our consolidated statements of cash flows as financing activities.
(9) Other Financial Information
Other Current Assets
The following table presents details of other current assets in our consolidated balance sheets:

| September 30, 2022 |  | December 31, 2021
| (Dollars in millions)
Prepaid expenses | $ | 45 |  |  | 50
Contract acquisition costs | 39 |  |  | 43
Contract fulfillment costs | 31 |  |  | 31
Receivable for sale of land | — |  |  | 56 |
Other | 6 |  |  | 7
Total other current assets | $ | 121 |  |  | 187

Other Noncurrent Liabilities
The following table presents details of other noncurrent liabilities in our consolidated balance sheets:

| September 30, 2022 |  | December 31, 2021
| (Dollars in millions)
Unrecognized tax benefits | $ | 448 |  |  | 435
Deferred revenue | 100 |  |  | 111
Noncurrent operating lease liability | 53 |  |  | 63
Other | 70 |  |  | 61
Total other noncurrent liabilities | $ | 671 |  |  | 670

(10) Labor Union Contracts
As of September 30, 2022, approximately 42% of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). Approximately 1% of our represented employees are subject to collective bargaining agreements that are scheduled to expire within the 12 month period ending September 30, 2023. We believe relations with our employees continue to be generally good.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this report to "QC" refer to Qwest Corporation, references to "Qwest," "we," "us" and "our" refer to Qwest Corporation and its consolidated subsidiaries, and references to "QSC" refer to Qwest Services Corporation.
All references to "Notes" in this Item 2 of Part I refer to the Notes to Consolidated Financial Statements included in Item 1 of Part I of this report.
Certain statements in this report constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements" appearing at the beginning of this report and "Risk Factors" referenced in Item 1A of Part II of this report or other of our filings with the SEC for a discussion of certain factors that could cause our actual results to differ from our anticipated results or otherwise impact our business, financial condition, results of operations, liquidity or prospects.
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Overview
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with MD&A and the other information included in our Annual Report on Form 10-K for the year ended December 31, 2021, and with the consolidated financial statements and related notes in Item 1 of Part I of this report. The results of operations for the first nine months of the year are not necessarily indicative of the results of operations that might be expected for the entire year.
We are an integrated facilities-based communications company engaged primarily in providing an array of communications products and services to our business and mass markets customers. Our specific products and services are detailed in Note 3—Revenue Recognition in Item 1 of Part I of this report and below under the heading "Products, Services and Revenue".
Our ultimate parent company, Lumen Technologies, Inc., has cash management arrangements or loan arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends. As part of these cash management or loan arrangements, affiliates provide lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate. From time to time we may declare and pay dividends to QSC, our direct parent, using cash owed to us under these advances, which has the net effect of reducing the amount of these advances. We report the balance of these transfers on our consolidated balance sheet as advances to affiliates.
At September 30, 2022, we served approximately 2.6 million broadband subscribers. Our methodology for counting broadband subscribers may not be comparable to those of other companies.
Impact of COVID-19 Pandemic and the Macroeconomic Environment
As previously described in greater detail in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021, in response to the safety and economic challenges arising out of the COVID-19 pandemic and in a continued attempt to mitigate the negative impact on our stakeholders, we have taken a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees and customers, to enable us to continue to adapt and provide our products and services worldwide to our customers, and to strengthen our communities. We expect to continue revising our responses to the pandemic or take additional steps necessary to adjust to changed circumstances.
Social distancing, business and school closures, travel restrictions, and macroeconomic changes arising out of the pandemic have impacted us, our customers and our business since March 2020. Additionally, as discussed in further detail in our prior reports, the pandemic and macroeconomic changes arising therefrom have resulted in (i) increases in certain revenue streams and decreases in others, (ii) increases in overtime expenses, (iii) operational challenges resulting from shortages of certain components and other supplies that we use in our business, and (iv) delays in our cost transformation initiatives. We have also experienced delayed decision-making by certain of our customers. Thus far, these changes have not materially impacted our financial performance or financial position. However, we continue to monitor global disruptions and work with our vendors to mitigate supply chain risks.
We reopened our offices in April 2022 under a "hybrid" working environment, which will permit some of our employees the flexibility to work remotely at least some of the time for the foreseeable future.
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Products, Services and Revenue
We categorize our products, services and revenue among the following categories:
•Fiber Infrastructure Services, which include high speed, fiber-based and lower speed DSL-based broadband services to residential and small business customers, and optical network services;
•Voice and Other, which include primarily local voice services, private line, and other legacy services. This category also includes federal and state support payments. These support payments are government subsidies designed to compensate us for providing certain broadband and communications services in high-cost areas or at discounts to low-income, educational, and healthcare customers. This revenue included the FCC's Connect America Fund Phase II ("CAF II") support payments, which we received through December 31, 2021, when the program ended;
•IP and Data Services, which consist primarily of Ethernet services; and
•Affiliate Services, which are communications services that we also provide to external customers. In addition, we provide to our affiliates application development and support services, network support and technical services.
From time to time, we may change the categorization of our products and services.
The following analysis is organized to provide the information we believe will be useful for understanding material trends affecting our business.
Results of Operations
The following table summarizes the results of our consolidated operations for the three and nine months ended September 30, 2022 and 2021:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (Dollars in millions)
Operating revenue | $ | 1,618 |  |  | 1,730 |  |  | 4,906 |  |  | 5,246 |
Operating expenses | 958 |  |  | 871 |  |  | 2,786 |  |  | 2,895 |
Operating income | 660 |  |  | 859 |  |  | 2,120 |  |  | 2,351 |
Total other expense, net | (43) |  |  | (75) |  |  | (135) |  |  | (236) |
Income before income taxes | 617 |  |  | 784 |  |  | 1,985 |  |  | 2,115 |
Income tax expense | 158 |  |  | 202 |  |  | 506 |  |  | 542 |
Net income | $ | 459 |  |  | 582 |  |  | 1,479 |  |  | 1,573 |

For a discussion of certain trends that impact our business, see the MD&A discussion of trends impacting Lumen's business included in Lumen's reports filed with the SEC, including most recently its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022.
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Operating Revenue
The following table summarizes our consolidated operating revenue recorded under our revenue categories:

| Three Months Ended September 30, |  | % Change
| 2022 |  | 2021 |
| (Dollars in millions) |  |
Fiber Infrastructure | $ | 487 |  |  | 495 |  |  | (2) | %
Voice and Other | 429 |  |  | 522 |  |  | (18) | %
IP and Data Services | 108 |  |  | 118 |  |  | (8) | %
Affiliate Services | 594 |  |  | 595 |  |  | — | %
Total operating revenue | $ | 1,618 |  |  | 1,730 |  |  | (6) | %

| Nine Months Ended September 30, |  | % Change
| 2022 |  | 2021 |
| (Dollars in millions) |  |
Fiber Infrastructure | $ | 1,481 |  |  | 1,500 |  |  | (1) | %
Voice and Other | 1,331 |  |  | 1,595 |  |  | (17) | %
IP and Data Services | 336 |  |  | 357 |  |  | (6) | %
Affiliate Services | 1,758 |  |  | 1,794 |  |  | (2) | %
Total operating revenue | $ | 4,906 |  |  | 5,246 |  |  | (6) | %

Total operating revenue decreased by $112 million and $340 million, respectively, for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021. The decreases were primarily due to (i) decreases in our voice, traditional broadband and Ethernet services in both periods, (ii) a $36 million reduction in CAF II revenue for the three months ended September 30, 2022 compared to the same period in 2021 due to the conclusion of the CAF II program on December 31, 2021, and (iii) a $96 million reduction in CAF II revenue, net of a non-cash revenue release, related to CAF II support payments received through the end of 2021 based on our final buildout and filing submissions, for the nine months ended September 30, 2022 as compared to the same period in 2021. These declines were partially offset by growth in fiber broadband for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021.
Affiliate services revenue also decreased for the nine months ended September 30, 2022 due to a reduction in the number of employees providing services to our affiliates.
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Operating Expenses
The following table summarizes our consolidated operating expenses:

| Three Months Ended September 30, |  | % Change
| 2022 |  | 2021 |
| (Dollars in millions) |
Cost of services and products (exclusive of depreciation and amortization) | $ | 427 |  |  | 426 |  |  | — | %
Selling, general and administrative | 138 |  |  | 36 |  |  | nm
Operating expenses - affiliates | 176 |  |  | 177 |  |  | (1) | %
Depreciation and amortization | 217 |  |  | 232 |  |  | (6) | %
Total operating expenses | $ | 958 |  |  | 871 |  |  | 10 | %

_______________________________________________________________________________
nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.

| Nine Months Ended September 30, |  | % Change
| 2022 |  | 2021 |
| (Dollars in millions) |
Cost of services and products (exclusive of depreciation and amortization) | $ | 1,249 |  |  | 1,305 |  |  | (4) | %
Selling, general and administrative | 361 |  |  | 249 |  |  | 45 | %
Operating expenses - affiliates | 536 |  |  | 561 |  |  | (4) | %
Depreciation and amortization | 640 |  |  | 780 |  |  | (18) | %
Total operating expenses | $ | 2,786 |  |  | 2,895 |  |  | (4) | %

Cost of Services and Products (exclusive of depreciation and amortization)
Cost of services and products (exclusive of depreciation and amortization) was flat for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Cost of services and products (exclusive of depreciation and amortization) decreased by $56 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The decrease was primarily due to reductions in salaries and wages and employee-related expenses resulting from lower headcount.
Selling, General and Administrative
Selling, general and administrative expenses increased by $102 million and $112 million, respectively, for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021. The increase for both periods was primarily due to a gain on sale of assets in 2021 and an increase in bad debt expense, partially offset by lower property taxes.
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Operating Expenses - Affiliates
Operating expenses - affiliates was flat for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Operating expenses - affiliates decreased by $25 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. The decrease was primarily due to a decrease in the level of services provided to us by our affiliates.
Depreciation and Amortization
The following tables provide details of our depreciation and amortization expense:

| Three Months Ended September 30, |  | % Change
| 2022 |  | 2021 |
| (Dollars in millions) |  |
Depreciation | $ | 197 |  |  | 210 |  |  | (6) | %
Amortization | 20 |  |  | 22 |  |  | (9) | %
Total depreciation and amortization | $ | 217 |  |  | 232 |  |  | (6) | %

| Nine Months Ended September 30, |  | % Change
| 2022 |  | 2021 |
| (Dollars in millions) |  |
Depreciation | $ | 581 |  |  | 626 |  |  | (7) | %
Amortization | 59 |  |  | 154 |  |  | (62) | %
Total depreciation and amortization | $ | 640 |  |  | 780 |  |  | (18) | %

Depreciation expense decreased by $13 million and $45 million, respectively, for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021 primarily due to a decrease of $22 million and $67 million, respectively, resulting from the early retirement of certain copper-based infrastructure during the fourth quarter of 2021. The decreases for both periods were offset by an increase of $8 million and $17 million, respectively, due to net growth in depreciable assets, and an increase of $1 million and $4 million, respectively, from the impact of annual rate depreciable life changes.
Amortization expense decreased by $2 million for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 due primarily to the impact of annual rate depreciable life changes. Amortization expense decreased by $95 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due primarily to a decrease of $88 million resulting from customer relationships becoming fully amortized at the end of the first quarter of 2021 and a decrease of $8 million due to the impact of annual rate depreciable life changes.
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Other Consolidated Results
The following tables summarize our total other expense, net and income tax expense:

| Three Months Ended September 30, |  | % Change
| 2022 |  | 2021 |
| (Dollars in millions) |
Interest expense | $ | (28) |  |  | (47) |  |  | (40) | %
Interest expense - affiliate, net | (14) |  |  | (25) |  |  | (44) | %
Other expense, net | (1) |  |  | (3) |  |  | (67) | %
Total other expense, net | $ | (43) |  |  | (75) |  |  | (43) | %
Income tax expense | $ | 158 |  |  | 202 |  |  | (22) | %

| Nine Months Ended September 30, |  | % Change
| 2022 |  | 2021 |
| (Dollars in millions) |
Interest expense | $ | (84) |  |  | (142) |  |  | (41) | %
Interest expense - affiliate | (55) |  |  | (87) |  |  | (37) | %
Other income (expense), net | 4 |  |  | (7) |  |  | nm
Total other expense, net | $ | (135) |  |  | (236) |  |  | (43) | %
Income tax expense | $ | 506 |  |  | 542 |  |  | (7) | %

_______________________________________________________________________________
nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
Interest Expense
Interest expense decreased by $19 million and $58 million, respectively, for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021. The decrease in interest expense was primarily due to (i) a decrease in average long-term debt from $3.1 billion to $2.2 billion, which was slightly offset by the increase in our average interest rate from 6.42% to 6.50% for the three months ended September 30, 2021 compared to the three months ended September 30, 2022, and (ii) a decrease in average long-term debt from $3.2 billion to $2.2 billion and the decrease in our average interest rate from 6.44% to 6.42% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2022.
Interest Expense - Affiliate, Net
Interest expense - Affiliate, net decreased by $11 million and $32 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021. The decrease in interest expense - affiliates, net for both periods was due primarily to decreases in the average outstanding advances from our affiliates, which incur interest at the same rate as the note payable to our affiliate. See Note 5—Long-Term Debt and Note Payable - Affiliate.
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Other (Expense) Income, Net
The following tables summarize our total other (expense) income, net:

| Three Months Ended September 30, |  |
| 2022 |  | 2021 |  | % Change
| (Dollars in millions) |  |
Other expense, net | $ | (1) |  |  | (3) |  |  | (67) | %
Total other expense, net | $ | (1) |  |  | $ | (3) |  |  | (67) | %

| Nine Months Ended September 30, |  |
| 2022 |  | 2021 |  | % Change
| (Dollars in millions) |  |
Loss on extinguishment of debt | $ | — |  |  | (8) |  |  | nm
Other income, net | 4 |  |  | 1 |  |  | nm
Total other income (expense), net | $ | 4 |  |  | (7) |  |  | nm

_______________________________________________________________________________
nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
Income Tax Expense
For the three and nine months ended September 30, 2022 our effective tax rates were 25.6% and 25.5%, respectively. For the three and nine months ended September 30, 2021 our effective tax rates were 25.8% and 25.6%, respectively.
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Liquidity and Capital Resources
Overview of Sources and Uses of Cash
We are an indirectly wholly-owned subsidiary of Lumen Technologies, Inc. As such, factors relating to, or affecting, Lumen's liquidity and capital resources could have material impacts on us, including impacts on our credit ratings, our access to capital markets and changes in the financial market's perception of us.
Our ultimate parent company, Lumen Technologies, Inc., has cash management arrangements or loan arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends. As part of these cash management or loan arrangements, affiliates provide lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate. From time to time we may declare and pay dividends to QSC, our direct parent, sometimes in excess of our earnings to the extent permitted by applicable law, using cash owed to us under these advances, which has the net effect of reducing the amount of these advances. Our debt covenants do not currently limit the amount of dividends we can pay to QSC. Given our cash management arrangement with our ultimate parent, Lumen Technologies, Inc., and the resulting amounts due to us from Lumen Technologies, Inc., a significant component of our liquidity is dependent upon Lumen's ability to repay its obligation to us.
We anticipate that our future liquidity needs will be met through (i) our cash provided by our operating activities, (ii) amounts due to us from Lumen Technologies, (iii) our ability to refinance QC's debt securities at maturity and (iv) capital contributions, advances or loans from Lumen Technologies or its affiliates if and to the extent they have available funds or access to available funds that they are willing and able to contribute, advance or loan.
Capital Expenditures
We incur capital expenditures on an ongoing basis in order to enhance and modernize our networks, compete effectively in our markets and expand and improve our service offerings. Lumen Technologies evaluates capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and the expected return on investment. The amount of Lumen’s consolidated capital investment, and our portion thereof, is influenced by, among other things, demand for Lumen’s services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations (such as Lumen's CAF Phase II or RDOF infrastructure buildout requirements). For more information on Lumen’s total capital expenditures, please see its annual and quarterly reports filed with the SEC.
For more information on our capital spending, see "Cash Flow Activities" below and Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.
Debt and Other Financing Arrangements
As of September 30, 2022, we had a face amount of approximately $2.2 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net, unamortized debt issuance costs, and Note Payable - Affiliate). None of our outstanding debt is due in the next 12 months (excluding finance lease obligations).
Subject to market conditions, and to the extent feasible, Qwest Corporation may issue debt securities, from time to time in the future primarily to refinance a portion of our maturing debt. The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned to Qwest Corporation by credit rating agencies, among other factors.
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As of the date of this report, the credit ratings for Qwest Corporation's senior unsecured debt were as follows:

Agency | Credit Ratings
Standard & Poor's | BB+
Moody's Investors Service, Inc. | Ba2
Fitch Ratings | BB

Lumen's and Qwest Corporation's credit ratings are reviewed and adjusted from time to time by the rating agencies. With the recent downgrade of our credit rating, we may experience increased borrowing costs. For additional information regarding Lumen's and Qwest Corporation's funding arrangements, see Risk Factors—Financial Risks in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.
From time to time over the past couple of years, we have engaged in various refinancings, redemptions, tender offers, open market purchases and other transactions designed to reduce our consolidated indebtedness, lower our interest costs, improve our financial flexibility or otherwise enhance our debt profile. We plan to continue to pursue similar transactions in the future. Whether and when we implement any additional such transactions depends on a wide variety of factors, including without limitation market conditions, our upcoming debt maturities, and our cash requirements. There is no guarantee that we will be successful in implementing any such transactions or attaining our stated objectives.
Note Payable - Affiliate
The Note Payable - Affiliate (as defined in Note 5—Long-Term Debt and Note Payable - Affiliate) between Qwest Corporation and an affiliate of our ultimate parent company, Lumen Technologies, Inc., was amended and restated on June 30, 2022. The Note Payable - Affiliate, as amended, provides Qwest Corporation with a funding commitment of up to $2.0 billion. Any outstanding principal balance owed by us under the Note Payable - Affiliate and the accrued interest thereon is due and payable on demand, but if no demand is made, then on the maturity date. The Note Payable - Affiliate has an initial maturity date of June 30, 2027, but will automatically renew for an unlimited number of successive 12-month periods unless the Lender provides notice of its intent not to renew at least 30 days prior to the initial maturity date or each subsequent maturity date. Interest on the Note Payable - Affiliate is accrued on the outstanding balance during an interest period using a weighted average per annum interest rate on the consolidated outstanding debt of Lumen Technologies, Inc. and its subsidiaries.
The Note Payable - Affiliate is reflected on our consolidated balance sheets as a current liability. On September 30, 2022, Qwest Corporation repaid the outstanding principal and interest on the Note Payable - Affiliate of approximately $1.2 billion and $43 million, respectively.
For additional information about our indebtedness, see Note 5—Long-Term Debt and Note Payable - Affiliate.
Dividends
We periodically pay dividends to QSC, our direct parent company, which reduce our capital resources for debt repayments and other purposes. For additional information, see (i) our consolidated statements of cash flows and stockholder's equity, (ii) Note 8—Dividends and (iii) the discussion above under the heading "Overview".
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Pension and Post-retirement Benefit Obligations
Lumen Technologies is subject to material obligations under its existing defined benefit pension plans and post-retirement benefit plans. At December 31, 2021, the accounting unfunded status of Lumen's qualified defined benefit pension plan and qualified post-retirement benefit plans was approximately $1.1 billion and approximately $2.8 billion, respectively. For additional information about Lumen's pension and post-retirement benefit arrangements, see "Critical Accounting Policies and Estimates—Pension and Post-Retirement Benefit Obligations" in Item 7 of Lumen's Annual Report on Form 10-K for the year ended December 31, 2021 and see Note 11—Employee Benefits to the consolidated financial statements in Item 8 of Part II of the same report.
A substantial portion of our active and retired employees participate in Lumen's qualified pension plan and post-retirement benefit plans. On December 31, 2014, the Qwest Communications International Inc. ("QCII") pension plan and a pension plan of an affiliate were merged into the CenturyLink Retirement Plan, which is now named the Lumen Combined Pension Plan. Our contributions are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees of our affiliates. Prior to the pension plan merger, the above-noted employees participated in the QCII pension plan.
Benefits paid by Lumen's qualified pension plan are paid through a trust that holds all of the plan's assets. Based on current laws and circumstances, Lumen Technologies does not expect any contributions to be required for their qualified pension plan during 2022. The amount of required contributions to Lumen's qualified pension plan in 2022 and beyond will depend on a variety of factors, most of which are beyond their control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations. Lumen Technologies occasionally makes voluntary contributions in addition to required contributions and reserves the right to do so in the future. Lumen Technologies has advised that it does not expect to make a voluntary contribution to the trust of the qualified pension plan in 2022.
Substantially all of Lumen's post-retirement health care and life insurance benefits plans are unfunded and are paid by Lumen Technologies with available cash.
The affiliate obligations, net in other within current liabilities and noncurrent liabilities on our consolidated balance sheets primarily represents the cumulative allocation of expenses, net of payments, associated with QCII's pension plans and post-retirement benefits plans prior to the plan mergers. In 2015, we agreed to a plan to settle the outstanding pension and post-retirement affiliate obligations, net balance with QCII over a 30 year term. Under the plan, payments are scheduled to be made on a monthly basis. For the nine months ended September 30, 2022, we made net settlement payments of $46 million to QCII in accordance with the plan. Changes in the affiliate obligations, net are reflected in operating activities on our consolidated statements of cash flows. For the year ended 2022, we expect to make aggregate settlement payments of $61 million to QCII under the plan.
For 2022, Lumen's expected annual long-term rate of return on pension plan assets is 5.5%. However, actual returns could be substantially different.
For additional information, see “Risk Factors—Financial Risks” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.
Future Contractual Obligations
For information regarding our estimated future contractual obligations, see the MD&A discussion included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021.
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Connect America Fund & Rural Digital Opportunity Fund
Between 2015 and 2021, Lumen received approximately $500 million annually through CAF Phase II, a program that ended on December 31, 2021. Our share of this CAF Phase II funding was approximately $145 million annually. In connection with the CAF II funding, we were required to meet certain specified infrastructure buildout requirements in 13 states by the end of 2021, which required substantial capital expenditures. In the first quarter of 2022, we recognized $13 million of previously deferred revenue related to the conclusion of the CAF program based upon our final buildout and filing submissions. The government has the right to audit our compliance with the CAF program and the ultimate outcome of any remaining examinations is unknown, but could result in a liability to us in excess of our reserve accruals established for these matters.
In early 2020, the FCC created the Rural Digital Opportunity Fund ( the "RDOF"), which is a new federal support program designed to replace the CAF Phase II program. On December 7, 2020, the FCC allocated in its RDOF Phase I auction $9.2 billion in support payments over 10 years to deploy high speed broadband to over 5.2 million unserved locations. Lumen Technologies started receiving support payments under this program in the second quarter of 2022, but our share of these payments is not material.
For additional information on these programs, see (i) "Business—Regulation of Our Business—Universal Service" in Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, (ii) "Risk Factors—Legal and Regulatory Risks" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 and (iii) the periodic reports filed by Lumen Technologies.
Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the Obama Administration. In November 2021, the U.S. Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants. As of the date of this report, various state and federal agencies are continuing to take steps to make this funding available to eligible applicants, including us. It remains premature to speculate on the potential impact of this legislation on us.
Cash Flow Activities
The following table summarizes our consolidated cash flow activities:

| Nine Months Ended September 30, |  | $ Change
| 2022 |  | 2021 |
| (Dollars in millions)
Net cash provided by operating activities | $ | 2,074 |  |  | 2,299 |  |  | (225) |
Net cash used in investing activities | $ | (802) |  |  | (894) |  |  | (92) |
Net cash used in financing activities | $ | (1,270) |  |  | (1,397) |  |  | (127) |

Operating Activities
Net cash provided by operating activities decreased by $225 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 primarily due to lower net income adjusted for non-cash items and partially offset by increases related to changes in working capital. Cash provided by operating activities is subject to variability period over period as a result of timing differences, including with respect to collection of receivables and payments of interest expense, accounts payable and bonuses.
Investing Activities
Net cash used in investing activities decreased by $92 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 primarily due to reduced advances to affiliates, partially offset by an increase in capital expenditures.
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Financing Activities
Net cash used in financing activities decreased by $127 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 primarily due to a decrease in dividends paid to our parent and a decrease in repayments of advances from affiliates and third-party debt. The decreases were partially offset by the repayment of the Note Payable - Affiliate.
See Note 5—Long-Term Debt and Note Payable - Affiliate, for additional information on our outstanding debt securities and financing activities.
Other Matters
We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. See Note 7—Commitments, Contingencies and Other Items for additional information.
Lumen Technologies is involved in several legal proceedings to which we are not a party that, if resolved against it, could have a material adverse effect on its business and financial condition. As a wholly owned subsidiary of Lumen Technologies, our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in Lumen's quarterly and annual reports filed with the SEC. Because we are not a party to any of the matters, we have not accrued any liabilities for these matters as of September 30, 2022.
Market Risk
As of September 30, 2022, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations, amended and restated revolving promissory note and fluctuations in certain foreign currencies.
Management periodically reviews our exposure to interest rate fluctuations and periodically implements strategies to manage the exposure. From time to time, we have used derivative instruments to (i) swap our exposure to changing or variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. As of September 30, 2022, we had no such instruments outstanding. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. As of September 30, 2022, we did not hold or issue derivative financial instruments for trading or speculative purposes.
At September 30, 2022, we had approximately $2.0 billion (excluding finance lease and other obligations) of long-term debt outstanding which bears interest at fixed rates and is therefore not exposed to interest rate risk. At September 30, 2022, we had $215 million floating rate debt exposed to changes in the London InterBank Offered Rate (LIBOR). A hypothetical increase of 100 basis points in LIBOR relative to this debt would decrease our annual pre-tax earnings by $2 million.
Certain shortcomings are inherent in the method of analysis in evaluating our market risks. Actual values may differ materially from those disclosed by us from time to time if market conditions vary from the assumptions used in the analyses performed. Our analyses only incorporate the risk exposures that existed at September 30, 2022.
Other Information
Lumen's and our website is www.lumen.com. We routinely post important investor information in the "Investor Relations" section of our website at ir.lumen.com. The information contained on, or that may be accessed through, our website is not part of this quarterly report. You may obtain free electronic copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed by us or our ultimate controlling stockholder Lumen Technologies, Inc., and all amendments to those reports, in the "Investor Relations" section of our website (ir.lumen.com) under the heading "SEC Filings." These reports are available on our website as soon as reasonably practicable after they are electronically filed with the SEC.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H(2).
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file or furnish under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure this information is accumulated and communicated to our senior management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer, Jeff K. Storey, and our Executive Vice President and Chief Financial Officer, Chris Stansbury, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective, as of September 30, 2022, in providing reasonable assurance the information required to be disclosed by us in this report was accumulated and communicated in the manner provided above.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Internal Controls
The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. By their nature, our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management's control objectives.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 7—Commitments, Contingencies and Other Items included in Item 1 of Part I of this report is incorporated herein by reference. The ultimate outcome of the matters described in Note 7 may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing in such Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us. For more information, see “Risk Factors—Legal and Regulatory Risks” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition or future results. We urge you to carefully consider (i) the other information set forth in this report and (ii) the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
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ITEM 6. EXHIBITS
Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference. All other exhibits are provided as part of this electronic submission.

Exhibit Number | Description
31.1* | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101* | Financial statements from the Quarterly Report on Form 10-Q of Qwest Corporation for the period ended September 30, 2022, formatted in Inline XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Stockholder's Equity and (v) the Notes to the Consolidated Financial Statements.
104* | Cover page formatted as Inline XBRL and contained in Exhibit 101.

_______________________________________________________________________________
* Exhibit filed herewith.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 3, 2022.

| QWEST CORPORATION
| By: | /s/ Andrea Genschaw
| Andrea Genschaw Senior Vice President, Controller (Principal Accounting Officer)

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