Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") provides an overview of our financial performance, liquidity, and the business environment in which we operate. This discussion is intended to help readers understand our results and key factors influencing our operations. The MD&A should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025 and with the consolidated financial statements and accompanying notes in Item 1 of Part I of this report. Unless otherwise indicated, all references to “Notes” in this section refer to the Notes to Consolidated Financial Statements in Item 1 of Part I of this report.
This section includes forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed or implied. For a discussion of these risks and uncertainties, see (i) "Special Note Regarding Forward-Looking Statements" immediately prior to Item 1 of Part I of this report, (ii) "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025 and in Part II, Item 1A in this report, and (iii) our other SEC filings.
Interim results are not necessarily indicative of results for the entire year, and actual results may differ materially from those expressed or implied.
OVERVIEW
We are a leading digital networking services company, empowering enterprise businesses to fuel growth in a multi-cloud, AI-first marketplace by connecting people, data, and applications quickly, securely, and effortlessly. We operate in a rapidly evolving landscape with growing demand for secure, high-speed connectivity. Our strategy focuses on growing and transforming our network and business to deliver next-generation solutions that meet these needs and build the backbone of the AI economy.
Products and Services
We categorize revenue from our operations within the products and services listed below based on the customers we serve.
•Business customers: Serves enterprise and wholesale customers through five distinct sales channels: Large Enterprise, Mid-Market Enterprise, Public Sector, Wholesale, and International and Other. Revenue is reported under two product categories: Strategic and Legacy.
•Mass Markets customers: Serves residential and small business customers. Revenue is reported under three product categories: Fiber Broadband, Other Broadband, and Voice and Other.
From time to time, we may change the categorization of our products and services. For additional information see Note 4—Revenue Recognition.
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Strategy
Our strategic goal is to be the trusted provider of network services and to digitally connect people, data, and applications quickly, securely, and effortlessly. To attain this goal, we strive to, among other things:
•deliver best in class physical infrastructure to meet network, transport, data, and computing needs;
•optimize and innovate the way locations, data centers, and clouds connect;
•limit, detect, and mitigate network and data security vulnerabilities;
•expand our product offerings and strengthen our digital self-service ordering platforms;
•create a more adaptive, programmable and integrated network;
•continue to monetize our network-related assets, principally through the sale of PCF solutions;
•expand our network capacity through our artificial intelligence ("AI") backbone initiative;
•manage our non-core business for cash flow; and
•strengthen our financial position and performance through our modernization and simplification initiatives, designed to lower costs and reduce debt.
These strategic initiatives are intended to support our efforts to build the backbone of the AI economy, cloudify and agentify telecom, and scale a programmable, partner‑driven connectivity platform for hyperscalers and enterprises.
2026 Divestiture and Acquisition
Mass Markets Fiber-to-the-Home Divestiture
On May 21, 2025, we entered into a definitive agreement to sell our Mass Markets Fiber-to-the-Home business in the Territory to AT&T (the "Mass Markets Fiber-to-the-Home divestiture"). On February 2, 2026, we completed the Mass Markets Fiber-to-the-Home divestiture in exchange for pre-tax cash proceeds of $5.72 billion, which are subject to working capital and other negotiated post-closing adjustments. In connection with the sale, we have entered into a transition services agreement under which we will provide to AT&T various support services and certain long-term agreements under which we and AT&T will provide to each other various network and other commercial services.
Alkira Acquisition
On May 4, 2026, our wholly owned subsidiary, Level 3 Communications, entered into an agreement and plan of merger to acquire Alkira for $487 million in cash, subject to customary adjustments. The transaction closed on July 1, 2026.
For further information on our divestiture or acquisition, see Note 2—Divestiture and Acquisition.
Current Business Environment and Macroeconomic Factors
The macroeconomic environment in which we operate remains dynamic and continues to affect our business. Key factors that have impacted us and our customers include:
•Revenue mix: Shifts in technology and economic conditions have driven us to continuously review our strategy. We expect to see continued reduction in legacy voice, broadband, and other legacy services, while fueling growth in our strategic products.
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•Inflationary pressures and build costs: Rising costs for labor, materials, and energy have increased operating expenses and capital expenditures, particularly to support our continued PCF buildout and other network transformations.
•Supply constraints: Shortages of critical components and other materials have slowed certain network expansion efforts.
•Geopolitical instability: The conflict in the Middle East, including disruptions and heightened uncertainty regarding commercial transit through the Strait of Hormuz, has disrupted global shipping routes and increased cybersecurity threats targeting telecommunications infrastructure. While we have not experienced a direct material impact to date, prolonged instability could affect our supply chain, increase operating costs, and elevate risks to our network infrastructure.
•Customer behavior: Certain customers have delayed purchasing decisions, which has occasionally impacted sales cycles.
To date, we do not believe these factors have materially impacted our financial performance or position. However, ongoing economic and geopolitical uncertainty including risks arising from the conflict in the Middle East, tariffs, inflation, and supply constraints could increase costs, reduce revenues, delay network expansion, or disrupt service delivery, which could materially impact our results. If these conditions persist, our projected cash flows and market capitalization could decline. For further information relating to these matters, see “— Trends Impacting Our Operations” below and "Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025.
We are actively managing these challenges through disciplined capital allocation, cost optimization, and strategic investments in network infrastructure. We believe these actions position us to navigate current macroeconomic conditions while pursuing long-term growth opportunities.
We expect continued demand for high-capacity, low-latency connectivity solutions, supported by enterprise digital transformation and government broadband programs. While macroeconomic uncertainty and competitive pressures present risks, we believe our transformation initiatives position us to deliver long-term value.
Trends Impacting Our Operations
Our operations are shaped by evolving technology, customer expectations, and market dynamics. Key trends that impact us, and will continue to impact us, include:
•Automation and digital innovation: Growing demand for automated experiences and advanced technologies like AI and multi-cloud platforms requires ongoing investment in technology and infrastructure to enhance service quality and reduce costs.
•Legacy decline and margin pressure: Legacy wireline services continue to shrink, while newer offerings often deliver lower margins — especially those involving third-party connectivity — necessitating cost optimization and pricing discipline.
•Globalization and network expansion amid cost pressures: Distributed business models drive demand for high-capacity, low-latency networks. We are expanding our network capacity to capture growth, while managing vendor cost increases and dis-synergies from recent divestitures.
•Monetizing network assets with execution risk: We aim to generate revenue through custom connectivity solutions, including PCF, by leveraging excess conduit and fiber assets. These opportunities can be significant but depend on market demand, regulatory conditions, and timely execution.
These and other developments and trends impacting our operations are discussed elsewhere in this Item 2.
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RESULTS OF OPERATIONS
The following table summarizes the results of our consolidated operations:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(Dollars in millions, except per share amounts)
Operating revenue $ 2,805 3,092 5,704 6,274
Operating expenses 2,893 3,695 5,190 6,770
Operating (loss) income (88) (603) 514 (496)
Total other expense, net (167) (546) (592) (898)
Loss before income taxes (255) (1,149) (78) (1,394)
Income tax (benefit) expense (54) (234) 323 (278)
Net loss $ (201) (915) (401) (1,116)
Basic loss per common share $ (0.20) (0.92) (0.40) (1.12)
Diluted loss per common share $ (0.20) (0.92) (0.40) (1.12)
Operating Revenue
The following table summarizes our consolidated operating revenue recorded under our revenue categories described in Note 4—Revenue Recognition:
Three Months Ended June 30, % Change Six Months Ended June 30, % Change
2026 2025 2026 2025
(Dollars in millions) (Dollars in millions)
Business Revenue:
Strategic $ 1,289 1,130 14 % 2,535 2,269 12 %
Legacy 1,155 1,360 (15) % 2,353 2,745 (14) %
Total Business Revenue 2,444 2,490 (2) % 4,888 5,014 (3) %
Mass Markets Revenue
Fiber Broadband 17 217 (92) % 109 426 (74) %
Other Broadband 192 245 (22) % 397 502 (21) %
Voice and Other 152 140 9 % 310 332 (7) %
Total Mass Markets Revenue 361 602 (40) % 816 1,260 (35) %
Total consolidated operating revenue $ 2,805 3,092 (9) % 5,704 6,274 (9) %
Operating revenue decreased $287 million and $570 million. The following were primary drivers within each revenue category:
•Strategic revenue increased $159 million and $266 million. This was primarily as a result of:
◦an increase of $109 million and $180 million in revenue from dark fiber and conduit; and
◦an increase of $17 million and $36 million from growth in IP services.
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•Legacy revenue decreased $205 million and $392 million. This was primarily as a result of:
◦a decrease of $70 million and $150 million in VPN services; and
◦a decrease of $83 million and $154 million in voice services and private line services.
•Fiber Broadband revenue decreased $200 million and $317 million. This was primarily as a result of:
◦fewer Mass Market subscribers as a result of our divestiture of the Mass Markets Fiber-to-the-Home business, as further described above.
•Other Broadband revenue decreased $53 million and $105 million. This was primarily as a result of:
◦fewer Mass Market customers for our low speed copper-based broadband services.
•Voice and Other revenue increased $12 million and decreased $22 million. This was primarily as a result of:
◦an increase due to the withdrawal from the Federal Communications Commission's ("FCC's") Rural Digital Opportunity Fund ("RDOF") program in the prior year, and an offsetting decrease in voice revenue; and
◦a decrease due to a decline in voice revenue, and an offsetting increase due to the withdrawal from the RDOF program.
Operating Expenses
The following table summarizes our operating expenses:
Three Months Ended June 30, % Change Six Months Ended June 30, % Change
2026 2025 2026 2025
(Dollars in millions) (Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization) $ 1,415 1,624 (13) % 2,850 3,311 (14) %
Selling, general and administrative 779 755 3 % 1,573 1,430 10 %
Net loss (gain) on sale of business 31 — nm (565) — nm
Depreciation and amortization 668 688 (3) % 1,332 1,401 (5) %
Goodwill impairment — 628 nm — 628 nm
Total operating expenses $ 2,893 3,695 (22) % 5,190 6,770 (23) %
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nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
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Cost of Services and Products (exclusive of depreciation and amortization)
Cost of services and products (exclusive of depreciation and amortization) decreased $209 million and $461 million. This was primarily as a result of:
•a decrease of $104 million and $290 million in network expense;
•a decrease of $141 million and $232 million in employee-related expenses; and
•an offsetting increase of $28 million and $52 million in professional fees.
Selling, General and Administrative
Selling, general and administrative expenses increased $24 million and $143 million. This was primarily as a result of:
•an increase of $38 million and $131 million in employee-related expenses; and
•an increase of $30 million and $56 million in hardware and software expenses; and
•an offsetting decrease of $49 million, for each period, due to fees related to the relinquishment of our funding received under the Federal Communications Commission's RDOF in the second quarter of 2025.
Net Loss (Gain) on Sale of Business
For a discussion of the net loss (gain) on sale of business that we recognized during the six months ended June 30, 2026, see Note 2—Divestiture and Acquisition.
Depreciation and Amortization
The following table details our depreciation and amortization expense:
Three Months Ended June 30, % Change Six Months Ended June 30, % Change
2026 2025 2026 2025
(Dollars in millions) (Dollars in millions)
Depreciation $ 420 440 (5) % 833 901 (8) %
Amortization 248 248 — % 499 500 — %
Total depreciation and amortization $ 668 688 (3) % 1,332 1,401 (5) %
Depreciation decreased $20 million and $68 million. This was primarily as a result of:
•a decrease of $21 million and $64 million due to the discontinuation of the depreciation of the tangible assets of our Mass Markets Fiber-to-the-Home business held for sale during the second quarter of 2025.
Amortization was flat for the periods presented.
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Other Consolidated Results
The following table summarizes our total other expense, net and income tax (benefit) expense:
Three Months Ended June 30, % Change Six Months Ended June 30, % Change
2026 2025 2026 2025
(Dollars in millions) (Dollars in millions)
Interest expense $ (201) (338) (41) % (426) (685) (38) %
Net gain (loss) on early retirement of debt 6 (236) nm (220) (271) (19) %
Other income, net 28 28 — % 54 58 (7) %
Total other expense, net $ (167) (546) (69) % (592) (898) (34) %
Income tax expense (benefit) $ (54) (234) (77) % 323 (278) nm
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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 $137 million and $259 million. This was primarily as a result of:
•a decrease in average outstanding long-term debt of $5 billion and $2 billion; and
•a decrease in average interest rate from 7.31% to 6.92% and 7.49% to 6.83%.
Net Gain (Loss) on Early Retirement of Debt
For a discussion of certain transactions that resulted in the net gain (loss) on debt we recognized for the three and six months ended June 30, 2026, see Note 5—Long-Term Debt and Credit Facilities. See Note 7—Long-Term Debt and Credit Facilities to the consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2025 for discussion of the 2025 transactions that resulted in the net loss on debt recognized for the three and six months ended June 30, 2025.
Other Income, Net
Other income, net reflects certain items not directly related to our core operations, including:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(Dollars in millions)
Pension and post-retirement net periodic expense $ (24) (46) (50) (92)
Foreign currency (loss) gain (7) 11 (11) 13
Transition and separation services 26 40 67 77
Interest income 34 20 48 41
Other (1) 3 — 19
Total other income, net $ 28 28 54 58
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Income Tax Expense
Our effective tax rate was as follows:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
(Dollars in millions)
Effective tax rate 21.2 % 20.4 % (414.1) % 19.9 %
Our effective tax rate for the six months ended June 30, 2026 was driven primarily by tax attributable to nondeductible goodwill from the Mass Markets Fiber-to-the-Home divestiture. Our effective tax rate for both the three and six months ended June 30, 2025 include a $42 million unfavorable impact from our goodwill impairment.
LIQUIDITY AND CAPITAL RESOURCES
Overview of Sources and Uses of Cash
As a holding company, we rely on cash flows and capital resources from our subsidiaries to meet our parent-level liquidity needs. Access to subsidiary cash may be limited by debt terms, tax considerations, legal restrictions, or other limitations; see "— Debt Instruments and Financing Arrangements" below and Note 5—Long-Term Debt and Credit Facilities.
Our primary source of liquidity is cash from operating activities. We also use our revolving credit facilities as a source of liquidity for operating activities and our other cash requirements. In addition, our recently completed Mass Markets Fiber-to-the-Home divestiture, which closed February 2, 2026, generated significant cash proceeds, which have been primarily used to pay down debt as described below, but will also reduce our base of income-generating assets that generate our recurring cash from operating activities. Key uses of cash include operating expenses, capital expenditures, debt service, income taxes, share repurchases, pension contributions, and other benefit payments.
On May 4, 2026, our wholly owned subsidiary, Level 3 Communications, LLC, entered into an agreement and plan of merger to acquire Alkira, Inc. for aggregate cash consideration of $487 million, subject to customary adjustments. The transaction closed on July 1, 2026. We expect the acquisition to reduce available liquidity by the amount of the cash consideration paid. For additional information, see Note 2—Divestiture and Acquisition.
Key balances as of June 30, 2026 included:
•Cash and cash equivalents: $1.9 billion
•Revolving credit availability (net of undrawn letters of credit): $660 million
•Total consolidated indebtedness: $13.4 billion
As of June 30, 2026, $95 million of our cash and cash equivalents was held outside the U.S. Certain subsidiary debt covenants may limit upstreaming of cash. We currently believe there are no material restrictions on our ability to repatriate cash and cash equivalents into the United States, and that we may do so without paying or accruing significant U.S. or foreign taxes. Other than excess foreign cash held in India, we do not currently intend to repatriate to the United States material amounts of our foreign cash and cash equivalents.
We regularly review liquidity and capital allocation strategies with senior management and the Board of Directors, adjusting as strategies and conditions change.
Based on current assumptions, we believe our liquidity sources — operating cash flows, available cash, and credit capacity — will be sufficient to fund liquidity requirements and strategic investments for at least the next 12 months. For additional information on risks that could affect liquidity, 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, 2025.
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Cash Flow Activities
The following table summarizes our consolidated cash flow activities:
Six Months Ended June 30, $ Change
2026 2025
(Dollars in millions)
Net cash provided by operating activities $ 2,294 1,665 629
Net cash provided by (used in) investing activities 3,156 (1,642) (4,798)
Net cash used in financing activities (4,577) (344) 4,233
Operating Activities
Net cash provided by operating activities increased $629 million. This was primarily as a result of:
•cash allocated to operating activities received as part of the divestiture of our Mass Markets Fiber-to-the-Home business associated with the fair value of the contractual credits and commercial agreements described in Note 2—Divestiture and Acquisition;
•an increase in working capital as a result of timing of payments and collections on payables and receivables and an increase in deferred revenue related to receipt of advance cash payments, partially pursuant to our recent sales of PCF solutions; and
•an offsetting decrease in net loss adjusted for non-cash expenses and gains.
Cash provided by operating activities is subject to variability period over period as a result of timing differences, including with respect to the collection of receivables and payments of interest expense, accounts payable, and bonuses.
For additional information about our operating results, see "RESULTS OF OPERATIONS" above.
Investing Activities
Net cash provided by (used in) investing activities changed by $4.8 billion. This was primarily as a result of:
•an increase of $5.0 billion due to proceeds from the Mass Markets Fiber-to-the-Home divestiture discussed elsewhere herein.
Financing Activities
Net cash used in financing activities increased $4.2 billion. This was primarily as a result of:
•an increase in net payments of long-term debt and lower proceeds from issuance of long-term debt.
See Note 5—Long-Term Debt and Credit Facilities for additional information on our outstanding debt securities.
Short-term Liquidity
As of June 30, 2026, we held cash and cash equivalents of $1.9 billion and had $660 million of borrowing capacity available under our $825 million revolving credit facility, net of undrawn letters of credit. These resources, together with cash generated from operating activities and any remaining proceeds from the Mass Markets Fiber-to-the-Home divestiture, which closed February 2, 2026, represent our primary sources of liquidity for the next 12 months.
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As of June 30, 2026, based on our current capital allocation objectives, we project expenditures for the next 12 months to include, among others, the following:
•Capital expenditures: $3.2 to $3.4 billion, primarily for network modernization and fiber expansion.
•Debt service: $56 million of finance lease obligations.
We expect to fund these expenditures primarily through operating cash flows, supplemented by available cash and borrowing capacity as needed. Based on current assumptions, we believe our liquidity sources will be sufficient to fund liquidity requirements and strategic investments for at least the next 12 months.
For additional information on short-term liquidity needs, see “Future Contractual Obligations” below.
Long-term Liquidity
Beyond the next 12 months, we plan to refinance a substantial portion of maturing debt through future debt issuances, subject to market conditions and covenant restrictions. Our ability to access capital markets depends on our credit ratings and prevailing interest rates and market conditions, and we cannot assure favorable terms for future borrowings. We may also consider other sources of liquidity, such as equity offerings or asset dispositions, depending on market conditions.
For additional information on our credit ratings and factors that may affect our access to capital markets, see “— Future Debt Transactions” below.
For additional information on long-term liquidity needs, see “Future Contractual Obligations” below.
Impact of Strategic Transactions on Liquidity
Our liquidity and capital resources have been influenced by several strategic actions aimed at optimizing our financial position, enhancing flexibility, and supporting long-term transformation initiatives. Key actions include:
•Recent divestiture: The Mass Markets Fiber-to-the-Home divestiture, which closed February 2, 2026, generated significant cash proceeds to strengthen our financial position but is expected to reduce recurring operating cash flows. The Mass Markets Fiber-to-the-Home divestiture is also expected to reduce our Mass Markets fiber-related capital expenditures by approximately $1 billion annually. While this transaction is expected to reduce recurring revenue and operating cash flows, we believe it will sharpen our focus on enterprise. It has also delivered significant cash proceeds to strengthen our financial position.
•Recent acquisition: On May 4, 2026, our wholly owned subsidiary, Level 3 Communications, LLC, entered into an agreement and plan of merger to acquire Alkira, Inc. for aggregate cash consideration of $487 million, subject to customary adjustments. The transaction closed on July 1, 2026. For additional information, see Note 2—Divestiture and Acquisition.
•PCF agreements: Advance payments under PCF agreements increased operating cash flow and deferred revenue. These payments vary by quarter and are applied to fund network expansion and simplification projects, which increases capital expenditures. We expect to enter into additional agreements in the future to sell products and services as part of our PCF solutions but cannot provide any assurances as to whether and when we may enter into these additional agreements or the anticipated benefits thereof. See "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025.
•Rural Digital Opportunity Fund ("RDOF") relinquishment: In January 2026, we paid $99 million for remittance of awards and associated fees related to the voluntary relinquishment of our RDOF awards. As a result, we will no longer receive funding through the RDOF program.
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We expect these and future transactions to influence cash flows, leverage, and investment capacity. While divestitures provide immediate liquidity and PCF agreements support network expansion, they also introduce variability in operating cash flows. We will continue to pursue opportunities aligned with our capital allocation priorities and market conditions.
Capital Expenditures
We regularly invest in capital projects to expand and improve services, enhance and modernize networks, fulfill contractual obligations, and strengthen our competitive position. Discretionary projects are evaluated based on strategic impact such as revenue growth, productivity, service levels, customer retention, and expected return on investment. Capital spending is influenced by demand, contractual and regulatory requirements, cash flow, and resource availability. We expect capital spending to be focused on:
•expanding our fiber network, including our other network capacity buildout plan;
•modernizing and enhancing network efficiency and reliability;
•developing new services; and
•replacing aging network assets.
These investments are intended to support the execution of our strategy discussed above and aim to improve service quality, drive innovation, and position us to meet future demand.
For additional details on our capital spending, see "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025 and “Cash Flow Activities — Investing Activities” and “Impact of Strategic Transactions on Liquidity,” above.
Debt Instruments and Financing Arrangements
Debt Instruments
We actively manage our capital structure through a series of transactions designed to enhance financial flexibility and optimize our debt profile to address upcoming maturities and support ongoing transformation initiatives.
Key debt balances as of June 30, 2026 included:
•Secured debt outstanding: $6.8 billion
•Unsecured debt outstanding: $6.3 billion
•Revolving credit availability (net of undrawn letters of credit): $660 million
For additional details on our debt and financing instruments and the debt activity below, see Note 5—Long-Term Debt and Credit Facilities.
2026 Debt Activity, to date:
•Senior Secured Notes Issuance and Second Lien Tender Offers — First Quarter 2026: Level 3 Financing, Inc. issued an additional $650 million of its 8.500% Senior Notes due 2036. Net proceeds from this offering were used to fund the repurchase of $607 million of its Second Lien notes, including:
◦$595 million 4.875% Second Lien Notes due 2029;
◦$8 million 4.500% Second Lien Notes due 2030; and
◦$4 million 3.875% Second Lien Notes due 2030
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•Repurchases of Debt Instruments — First Quarter 2026: Lumen applied $4.8 billion of the pre-tax proceeds from the Mass Markets Fiber-to-the-Home divestiture, along with cash on hand, to complete the following transactions:
◦Redeem the following outstanding notes in full:
▪$331 million 4.125% Superpriority Senior Secured Notes due 2029;
▪$477 million 4.125% Superpriority Senior Secured Notes due 2030; and
▪$439 million 10.000% Secured Notes due 2032.
◦Repay all of the outstanding term loans due under our Superpriority Revolving/Term Loan A Credit Agreement; and
◦Repay all of the outstanding amounts due under our Superpriority Term B Credit Agreement in full satisfaction and discharge of its obligations thereunder.
•Revolving Credit Agreement — Second Quarter 2026: On April 14, 2026, we entered into the Revolving Credit Agreement (the “Lumen Credit Agreement”) providing for a revolving credit facility with commitments of $825 million. In connection with entry into the Lumen Credit Agreement, the revolving commitments outstanding under our Superpriority Revolving/Term A Credit Agreement were permanently reduced to zero and terminated. For additional information, see Note 5—Long-Term Debt and Credit Facilities.
•Supplemental Indentures and Lumen Parent Guarantee — Second Quarter 2026: On April 30, 2026, Lumen entered into supplemental indentures in connection with Level 3 Financing’s first lien notes due 2033 and 2034 and entered into a parent guarantee agreement with respect to the Existing Level 3 Credit Agreement. These arrangements provide for Lumen to unconditionally guarantee, on a senior unsecured basis and subject to release in accordance with their terms, certain obligations of Level 3 Financing and were implemented to simplify the reporting obligations of Level 3 Parent and its subsidiaries, including by permitting Level 3 Parent to satisfy certain reporting requirements under its debt agreements by furnishing Lumen’s Exchange Act reports. For additional information, see Note 5—Long-Term Debt and Credit Facilities.
•Third Credit Agreement Refinancing — Second Quarter 2026: Level 3 Financing, Inc. amended and repriced its Term Loan B‑4 credit facility, replacing its Term Loan B‑4 with its Term Loan B‑5, maintaining $2.4 billion outstanding immediately following the transactions.
•Senior Notes Issuance and Senior Notes Tender Offers — Second Quarter 2026: Level 3 Financing, Inc. issued $1.0 billion of 7.500% Senior Notes due 2037 and used the net proceeds from this offering primarily to fund the repurchase of its outstanding unsecured Senior notes, including:
◦$172 million 4.250% Senior Notes due 2028;
◦$292 million 3.625% Senior Notes due 2029; and
◦$302 million 3.750% Senior Notes due 2029.
•Exchange Offers and Consent Solicitations — Second Quarter 2026: On June 11, 2026, Qwest Corporation, a wholly‑owned subsidiary of Lumen Technologies, Inc., completed previously announced exchange offers and related consent solicitations. In connection with the settlement, Qwest issued $1.0 billion of new 6.500% Notes due 2051 and $382 million of new 6.750% Notes due 2052 (collectively, the “New Qwest Notes”). The New Qwest Notes are senior unsecured obligations of Qwest and are fully and unconditionally guaranteed by Lumen. In connection with the consent solicitations, Qwest entered into supplemental indentures relating to its 6.500% Notes due 2056 and 6.750% Notes due 2057, which eliminated substantially all restrictive covenants in the original indentures governing those series.
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Liquidity and Credit Facilities Availability
As of June 30, 2026, we maintained $825 million of revolving credit facility capacity, with no amounts outstanding and $165 million in undrawn letters of credit.
As of June 30, 2026, we had $167 million undrawn letters of credit, including the aforementioned $165 million issued under our revolving credit facility, and $2 million issued under a separate facility maintained by certain Lumen subsidiaries, the majority of which is collateralized by cash.
In addition to indebtedness under their above-mentioned credit agreements, Lumen and Level 3 Financing are indebted under their respective outstanding senior notes, and certain of Lumen's other subsidiaries are indebted under their respective outstanding senior notes.
For detailed terms, maturities, covenants, and outstanding balances, see Note 5—Long-Term Debt and Credit Facilities and "— Other Matters" below.
Future Debt Transactions
Subject to market conditions, we expect to continue issuing debt securities as needed to refinance maturing obligations, including subsidiary debt, consistent with our capital allocation strategies and covenants. Availability, interest rates, and other terms of new borrowings will depend on credit ratings and market conditions, among other factors.
As of the filing date of this report, credit ratings for our and our subsidiaries' senior secured and unsecured debt were:
Borrower Moody's Investors Service, Inc.(1) Standard & Poor's Fitch Ratings(1)
Lumen Technologies, Inc.:
Secured B3/Caa1 B+ BB
Unsecured Caa1 B BB
Level 3 Financing, Inc.:
Secured Ba3 B+ BB
Unsecured B3 B- B-
Qwest Corporation:
Unsecured Caa1 B BB
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(1) In February 2026, both Moody's and Fitch upgraded our corporate family ratings to B2 and B, representing a one-notch and two-notch upgrade, respectively.
Future changes in these ratings could impact our access to capital and borrowing costs. We cannot be certain that we will be able to borrow additional funds on favorable terms, or at all. 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, 2025.
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Income Tax Obligations
Net Operating Loss Carryforwards
As of December 31, 2025, we had $982 million of U.S. federal net operating loss carryforwards ("NOLs") that may be used to offset future federal taxable income. A portion of the NOLs are subject to annual usage limits under Section 382 of the Internal Revenue Code. We have a Section 382 Rights Agreement in place through late 2026 to help preserve our ability to use these NOLs. We expect to use substantially all remaining NOLs in future years, but we cannot assure you we will be able to utilize these federal NOLs as projected or at all.
See Note 15—Income Taxes, in Item 8 of Part II and "Risk Factors — Financial Risks — We may not be able to fully utilize our NOLs" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025.
Tax Law Changes
In July 2025, the U.S. enacted H.R. 1, also known as the One, Big Beautiful Bill Act, which permanently allows 100% bonus depreciation, immediate expensing for domestic R&D, and favorable changes to interest expense limitations. We filed a refund claim for approximately $400 million of 2025 federal estimated income taxes that we received during the three months ended June 30, 2026. We do not expect these provisions to have a material impact on our 2026 effective tax rate but they are expected to significantly reduce our overall 2026 federal income tax liability.
The Organization for Economic Co-operation and Development ("OECD") has issued Pillar Two model rules introducing a new global minimum corporate tax of 15% for tax years effective after December 31, 2023. While the U.S. has not adopted Pillar Two legislation, certain countries in which we operate have already adopted legislation to implement Pillar Two. On January 5, 2026, the OECD announced the Side-by-Side ("SbS") package, implemented as administrative guidance and modifying the operation of Pillar Two rules that would fully exempt U.S.-parented groups from the application of certain Pillar Two top-up taxes. The SbS package also extends the current Transitional Country-by-Country Reporting Safe Harbor by one year, through the end of fiscal year of 2027. The Pillar Two rules have increased our compliance requirements, but we do not expect them to materially impact our 2026 results. We continue to monitor evolving global and domestic tax legislation and administrative guidance.
Pension and Post-retirement Benefit Obligations
We maintain significant pension and post-retirement benefit plans that require ongoing cash outflows and may affect our liquidity and financial flexibility. These obligations are sensitive to market conditions and actuarial assumptions, and adverse changes could increase funding requirements and reduce cash available for other uses.
Funding and Contributions
Benefits paid by our qualified pension plan (the "Combined Pension Plan") are paid through a trust that holds the plan's assets. Based on current laws and circumstances, we do not expect required contributions in 2026.
We occasionally make voluntary contributions in excess of required amounts. During 2026, we made a voluntary contribution of $101 million to the Combined Pension Plan trust.
Any additional contributions could reduce available cash and impact liquidity.
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Post-retirement Benefits
Substantially all post-retirement health care and life insurance benefits are unfunded, and benefits are paid directly by us with available cash. In 2026, we expect to pay $181 million of post-retirement benefits, net of participant contributions and direct subsidies.
For additional information on our expected future benefits payments for our post-retirement benefit plan, see Note 11—Employee Benefits, in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2025.
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, 2025.
Other Matters
Cash Management and Loan Arrangements
We have cash management and loan arrangements with a majority of our income-generating subsidiaries, in which a substantial portion of the aggregate cash of those subsidiaries is periodically advanced or loaned to us or our service company affiliate. Although we periodically repay these advances to fund the subsidiaries' cash requirements throughout the year, at any given point in time we may owe a substantial sum to our subsidiaries under these arrangements. In accordance with generally accepted accounting principles ("GAAP"), these arrangements are reflected in the balance sheets of our subsidiaries but are eliminated in consolidation and therefore not recognized on our consolidated balance sheets. For additional information, see "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025.
Legal Proceedings and Other Contingent Liabilities
Our network includes some residual lead-sheathed copper cables installed years ago that constitute a small portion of our network. Media coverage of potential health and environmental risks associated with these cables has resulted in regulatory inquiries and lawsuits, and could subject us to legislative or regulatory actions, removal costs, compliance costs, or penalties. As of June 30, 2026, we have not accrued for any such potential costs and will only accrue when such costs are probable and reasonably estimable. For additional information about related litigation and potential risks, see Note 11—Commitments, Contingencies and Other Items and the risk factor disclosures included under “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025.
We are also involved in various other legal proceedings that could substantially impact our financial position. See Note 11—Commitments, Contingencies and Other Items for additional information.
Critical Accounting Estimates
Our consolidated financial statements included in Item 1 of Part I of this report have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting estimates as compared to those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
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SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
Level 3 Parent, LLC
Level 3 Parent, LLC, our wholly owned subsidiary, had the following results of operations, prior to consolidated Lumen to Level 3 Parent, LLC eliminations:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Level 3 Parent, LLC
(Dollars in millions)
Operating revenue $ 1,619 1,558 3,214 3,133
Operating revenue-affiliates 80 68 158 140
Total operating revenue 1,699 1,626 3,372 3,273
Cost of services and products (exclusive of depreciation and amortization) 690 694 1,400 1,415
Selling, general and administrative 276 297 575 548
Operating expenses - affiliates 309 257 591 513
Depreciation and amortization 356 342 706 680
Total operating expenses 1,631 1,590 3,272 3,156
OPERATING INCOME 68 36 100 117
Interest expense (143) (203) (292) (418)
Interest income - affiliate 39 73 108 144
Net gain (loss) on early retirement of debt 6 (236) (71) (270)
Other income, net 5 23 11 39
Total other expense, net (93) (343) (244) (505)
Income tax benefit (7) (81) (37) (102)
NET LOSS $ (18) (226) $ (107) (286)
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The following table presents summarized financial information reflected in our consolidated balance sheets, prior to consolidated Lumen to Level 3 Parent, LLC eliminations:
June 30, 2026 December 31, 2025
Level 3 Parent, LLC
(Dollars in millions)
Cash and cash equivalents $ 1,061 380
Note receivable - affiliate 1,468 2,668
Other current assets 1,027 1,070
Property, plant, and equipment, net of accumulated depreciation of $4,978 and $4,772 9,771 9,030
Operating lease assets - affiliates 113 159
Other noncurrent assets 3,993 4,346
Total assets $ 17,433 17,653
Current maturities of long-term debt $ 54 36
Accounts payable - affiliates 279 312
Current operating lease liabilities - affiliates 59 80
Other current liabilities 2,142 2,212
Long-term debt 10,001 9,627
Noncurrent deferred revenue 7,349 6,054
Noncurrent operating lease liabilities - affiliates 51 76
Other noncurrent liabilities 969 1,028
Total member’s deficit (3,471) (1,772)
Total liabilities and member’s deficit $ 17,433 17,653
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The following table presents summarized financial information reflected in our consolidated statements of cash flows, prior to consolidated Lumen to Level 3 Parent, LLC eliminations:
Six Months Ended June 30,
2026 2025
Level 3 Parent, LLC
(Dollars in millions)
Net cash provided by operating activities $ 1,991 1,182
Capital expenditures (1,168) (692)
Other investing activities, net 1,218 7
Net cash provided by (used in) investing activities 50 (685)
Net cash used in financing activities (1,359) (170)
Net increase in cash, cash equivalents and restricted cash $ 682 327
Cash, cash equivalents and restricted cash at beginning of period $ 382 602
Cash, cash equivalents and restricted cash at end of period $ 1,064 929
Supplemental cash flow information:
Interest paid (net of capitalized interest of $57 and $25) $ (234) (429)
Qwest Corporation
Qwest Corporation is our wholly owned subsidiary and has six series of currently outstanding Senior Notes, two referred to as the Old Qwest Notes, two referred to as the New Qwest Notes, and two referred to as the Qwest Notes due 2030.
In connection with the registration, listing and issuance of the New Qwest Notes, which are fully and unconditionally guaranteed by us on an unsubordinated unsecured basis, we have presented below the accompanying summarized financial information pursuant to Rule 13-01 of Regulation S-X "Guarantors and issuers of guaranteed securities registered or being registered."
The following table presents summarized financial information specified in Rule 1-02(bb)(1) of Regulation S-X:
Three Months Ended June 30, 2026 Six Months Ended June 30, 2026
Qwest Corporation
(Dollars in millions)
Operating revenue $ 598 1,207
Operating revenue - affiliates 403 845
Operating expenses 558 1,337
Operating expenses - affiliates 222 447
OPERATING INCOME 221 268
NET INCOME (LOSS) 181 (45)
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The following tables present summarized financial information reflected in our consolidated balance sheets:
June 30, 2026 December 31, 2025
Qwest Corporation
(Dollars in millions)
Advances to affiliates $ 2,909 666
Note receivable - affiliate 1,476 937
Other current assets 315 2,902
Other noncurrent assets 11,179 11,315
Other current liabilities 634 653
Affiliate obligations, net 377 399
Other noncurrent liabilities 3,996 3,852
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