[10-Q] QWEST CORP Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Qwest Corporation reported lower third‑quarter results as it prepares to divest a major fiber business. Total operating revenue was $1,161 million versus $1,363 million a year ago, with declines across Other Broadband, Voice and Other, Fiber Broadband, legacy Harvest, and Nurture, plus lower Affiliate Services. Operating income was $243 million versus $498 million; net income was $176 million versus $365 million.
The company classified the Mass Markets fiber‑to‑the‑home business as held for sale and expects to sell it with certain affiliates to AT&T for a pre‑tax total of $5.75 billion, subject to adjustments, with closing anticipated in early 2026. Assets held for sale were $2,689 million and liabilities held for sale were $13 million as of September 30, 2025. Depreciation on the disposal group was suspended, reducing Q3 depreciation by an estimated $25 million.
For the nine months, operating cash flow was $1,360 million, capital expenditures were $582 million, and interest income from affiliates rose on a $937 million note receivable. Long‑term debt was $1,689 million (fair value $1,336 million). Litigation and non‑income tax accruals totaled $70 million.
Positive
- None.
Negative
- None.
Insights
Revenue fell while a large fiber divestiture advances.
Qwest posted lower Q3 revenue at
The planned sale of the fiber-to-the-home business to AT&T for
Cash generation remains solid with nine‑month operating cash flow of
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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, 2025
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 Number 001-03040
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (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 | ||||||||||||
THE REGISTRANT, AN INDIRECT WHOLLY-OWNED 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 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 | ☐ | ||||||||
| ☒ | 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 ☒
All of the capital stock of the registrant is held by an affiliate of the registrant. None of the capital stock is publicly held.
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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 | 25 | ||||||
Overview | 25 | |||||||
Results of Operations | 28 | |||||||
Liquidity and Capital Resources | 31 | |||||||
Other Information | 36 | |||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 37 | ||||||
Item 4. | Controls and Procedures | 37 | ||||||
Part II - Other Information | ||||||||
Item 1. | Legal Proceedings | 38 | ||||||
Item 1A. | Risk Factors | 38 | ||||||
Item 5. | Other Information | 39 | ||||||
Item 6. | Exhibits | 40 | ||||||
Signature | 41 | |||||||
* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements. | ||||||||
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Special Note Regarding Forward-Looking Statements
This report and other documents filed by us under the federal securities laws 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, within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve substantial risks and uncertainties. These statements include, among others:
•forecasts of our anticipated future results of operations, cash flows, or financial position;
•statements concerning our completed, pending, or proposed transactions, including with respect to our agreement to sell the Lumen Technologies, Inc. ("Lumen") Mass Markets fiber-to-the-home business operated by us and certain of our affiliates in 11 states to AT&T, investments, product development, Quantum Fiber buildouts, transformation plans, deleveraging plans, modernization and simplification initiatives, participation in government programs, and other initiatives, including benefits or costs associated therewith;
•statements about our liquidity, profitability, profit margins, tax positions, 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, impacts from regulatory and legislative developments, investment and expenditure plans, business strategies, debt leverage, capital allocation plans, financing or refinancing alternatives and sources, and pricing plans; and
•other similar statements of our expectations, beliefs, future plans and strategies, anticipated developments, and other matters that are not historical facts, many of which are highlighted by words such as “may,” “will,” “would,” “could,” “should,” “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 and are based on current expectations only, (ii) are inherently speculative, and (iii) are subject to a number of risks and uncertainties, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated, projected, or implied by us in those statements if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. All of our forward-looking statements are qualified in their entirety by reference to 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 intense 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 attaining projected cost savings, simplifying and consolidating our network, simplifying and automating our service support systems, attaining our infrastructure buildout targets, replacing aging or obsolete plant and equipment, and strengthening our relationships with customers;
•our ability to safeguard our network, and to avoid the adverse impact of cyber-attacks, security breaches, service outages, system failures, or similar events impacting our network or the availability and quality of our services;
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•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 and obligations, broadband deployment, data protection, network security, privacy, and net neutrality;
•our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, debt obligations, taxes, and pension contributions and other benefits payments;
•our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages;
•our ability to successfully adjust to changes in customer demand for our products and services, including increased demand for high-speed data transmission services, low-latency connectivity, and scalable infrastructure driven largely by the growth of artificial intelligence (“AI”) applications and workloads, and the risk that we may misjudge the timing, scale, or nature of such demand, leading to potential misalignment of our investments or strategic priorities;
•our ability to enhance our growth products and manage the decline of our legacy products, including by maintaining the quality and profitability of our existing offerings, introducing profitable new offerings on a timely and cost-effective basis and transitioning customers from our legacy products to our newer offerings;
•our ability to successfully and timely implement our corporate strategies, including our transformation, modernization and simplification, buildout, and deleveraging strategies;
•our ability to successfully consummate and timely realize the anticipated benefits from the pending sale to AT&T of the Lumen Mass Markets fiber-to-the-home business operated by us and certain of our affiliates in 11 states;
•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 impact of any future material acquisitions or divestitures that we may transact, including our pending sale of the Lumen Mass Markets fiber-to-the-home business in 11 states;
•the negative impact of increases in the costs of Lumen’s pension, healthcare, post-employment, or other benefits, including those caused by changes in capital markets, interest rates, mortality rates, demographics, or regulations;
•the impact of events that harm our reputation or brands, including 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 acceptable terms, whether caused by unstable markets, debt covenant restrictions, changes in our financial position, lower credit ratings, or otherwise;
•the ability of us and our affiliates to meet the terms and conditions of our respective 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, or lenders;
•our ability to timely obtain necessary hardware, software, equipment, services, governmental permits and other items on favorable terms;
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•the potential adverse effects arising out of allegations regarding the release of hazardous materials into the environment from network assets owned or operated by us or our predecessors, including any resulting governmental actions, removal costs, litigation, compliance costs, or penalties;
•our ability to collect our receivables from, or continue to do business with, financially troubled customers;
•our ability to continue to use intellectual property necessary to conduct our operations;
•any adverse developments in legal or regulatory proceedings involving us or our affiliates, including Lumen Technologies;
•changes in tax, trade, tariff, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels, including any adverse impact of a prolonged shutdown of the U.S. government;
•our ability to fully realize any anticipated benefits from recently-enacted federal tax legislation;
•the effects of changes in accounting policies, practices, or assumptions, including changes that could potentially require additional future impairment charges;
•the effects of adverse weather, terrorism, epidemics, pandemics, war, rioting, vandalism, societal unrest, political discord, 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 or 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, public health, or geopolitical conditions; and
•other risks referenced in the "Risk Factors" section or other portions of this report or other of our filings with the U.S. Securities and Exchange Commission (the "SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2024.
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, our assessment of regulatory, technological, industry, competitive, economic, and market conditions 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 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, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| OPERATING REVENUE | |||||||||||||||||||||||
| Operating revenue | $ | ||||||||||||||||||||||
| Operating revenue—affiliates | |||||||||||||||||||||||
| Total operating revenue | |||||||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
| Cost of services and products (exclusive of depreciation and amortization) | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Operating expenses—affiliates | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| OPERATING INCOME | |||||||||||||||||||||||
| OTHER (EXPENSE) INCOME | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income—affiliate, net | |||||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Total other income (expense), net | ( | ( | |||||||||||||||||||||
| INCOME BEFORE INCOME TAX EXPENSE | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| NET INCOME | $ | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
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QWEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | ||||||||||
Accounts receivable, less allowance of $ | |||||||||||
Assets held for sale | |||||||||||
| Advances to affiliates | |||||||||||
Note receivable - affiliates | |||||||||||
Other current assets, net | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, net of accumulated depreciation of $ | |||||||||||
| GOODWILL AND OTHER ASSETS | |||||||||||
| Goodwill | |||||||||||
Intangible assets, net | |||||||||||
Other assets, net | |||||||||||
| Total goodwill and other assets | |||||||||||
| TOTAL ASSETS | $ | ||||||||||
| LIABILITIES AND STOCKHOLDER'S EQUITY | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Current maturities of long-term debt | $ | ||||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Salaries and benefits | |||||||||||
| Income and other taxes | |||||||||||
Other current liabilities | |||||||||||
Liabilities held for sale | |||||||||||
| Current portion of deferred revenue | |||||||||||
| Total current liabilities | |||||||||||
| LONG-TERM DEBT | |||||||||||
| DEFERRED CREDITS AND OTHER LIABILITIES | |||||||||||
| Deferred income taxes, net | |||||||||||
| Affiliate obligations, net | |||||||||||
Other liabilities | |||||||||||
| Total deferred credits and other liabilities | |||||||||||
COMMITMENTS AND CONTINGENCIES (Note 9) | |||||||||||
| STOCKHOLDER'S EQUITY | |||||||||||
Common stock - | |||||||||||
| Retained earnings | |||||||||||
| Total stockholder's equity | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | ||||||||||
See accompanying notes to consolidated financial statements.
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QWEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Provision for uncollectible accounts | |||||||||||
| Changes in current assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued income and other taxes | |||||||||||
| Other current assets and liabilities, net | ( | ||||||||||
| Changes in other assets and liabilities, net | |||||||||||
| Changes in affiliate obligations, net | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| INVESTING ACTIVITIES | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Changes in advances to affiliates | ( | ||||||||||
| Net increase in note receivable - affiliates | ( | ||||||||||
| Proceeds from sale of property, plant and equipment and other assets | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Payments of long-term debt | ( | ( | |||||||||
| Changes in advances from affiliates | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase in cash, cash equivalents and restricted cash | |||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | ||||||||||
| Supplemental cash flow information: | |||||||||||
| Income taxes paid, net | $ | ( | ( | ||||||||
Interest paid, including affiliate interest (net of capitalized interest of $ | ( | ( | |||||||||
| Supplemental noncash information regarding financing activities: | |||||||||||
| Repayment of long-term debt in exchange for reductions of advances from affiliates | $ | ||||||||||
| Cash, cash equivalents, and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | ||||||||||
| Restricted cash included in Other assets, net | |||||||||||
| Total | $ | ||||||||||
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, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| COMMON STOCK | |||||||||||||||||||||||
| Balance at beginning of period | $ | ||||||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| RETAINED EARNINGS | |||||||||||||||||||||||
| Balance at beginning of period | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| TOTAL STOCKHOLDER'S EQUITY | $ | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
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QWEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
References in this report on Form 10-Q, for all periods presented, to "QC," "Qwest," "we," "us," 'the Company" and "our" refer to Qwest Corporation and its consolidated subsidiaries, unless the context otherwise requires. References to "Lumen Technologies" or "Lumen" refer to our ultimate parent company, Lumen Technologies, Inc. and its consolidated subsidiaries, including Level 3 Parent, LLC ("Level 3") and Level 3 Financing, Inc. (“Level 3 Financing”).
Note 1—Background
General
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 are unleashing the world's digital potential by providing a broad array of integrated products and services to our domestic and global Business customers and our domestic Mass Markets customers. Our specific products and services are detailed in Note 4—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, 2024, 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 state 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, 2024.
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 (Lumen Technologies and its other subsidiaries, referred to herein as affiliates) have not been eliminated.
We reclassified certain prior period amounts to conform to the current period presentation, including the recategorization of our Business revenue by product category. See Note 4—Revenue Recognition for additional information. These changes had no impact on total operating revenue, total operating expenses or net income for any period.
Segments
Our operations are integrated into and reported as part of Lumen Technologies. Lumen's CEO is our chief operating decision maker ("CODM") and reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the SEC. Our CODM assesses performance and allocates resources in conjunction with and based on the operations of Lumen Technologies. 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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Assets Held for Sale
Summary of Significant Accounting Policies
Refer to the significant accounting policies and accounting pronouncements adopted in 2024 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, 2024.
Recently Issued Accounting Pronouncements
In September 2025, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2025-07 (“ASU 2025-07”), "Derivatives and Hedging (Topic 815)" and "Revenue from Contracts with Customers (Topic 606)." The guidance refines the scope of Topic 815 to clarify which contracts are subject to derivative accounting. This ASU also provides clarification under Topic 606 for share-based payments from a customer in a revenue contract. The amendments in ASU 2025-07 are effective for fiscal years beginning after December 15, 2026, and interim reporting periods, with early adoption permitted. The Company is currently evaluating ASU 2025-07 to determine the impact it may have on our consolidated financial statements.
In September 2025, the FASB issued ASU 2025-06, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software" ("ASU 2025-06") which amends the guidance in ASC 350-40, "Intangibles—Goodwill and Other—Internal-Use Software." This ASU modernizes the recognition and disclosure framework for internal-use software costs, removing the previous “development stage” model and introducing a more judgment-based approach. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, and for interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating ASU 2025-06 to determine the impact it may have on our consolidated financial statements.
In July 2025, the Financial Accounting Standards Board (the "FASB") issued ASU 2025-05 "Measurement of Credit Losses for Accounts Receivable and Contract Assets" (“ASU 2025-05”). This ASU provides entities with a practical expedient to simplify the estimation of expected credit losses on current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606 by allowing the assumption that current conditions as of the balance sheet date will not change during the remaining life of the asset. This standard is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating ASU 2025-05 to determine the impact it may have on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-04, "Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments." This ASU clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions rather than as debt extinguishments. This standard is effective for the annual period of fiscal 2026, and early adoption is permitted. As of September 30, 2025, we did not have any outstanding convertible debt instruments and do not expect this ASU will have any impact on our consolidated financial statements.
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In November 2024, the FASB issued ASU 2024-03, "Disaggregation of Income Statement Expenses." This ASU requires additional footnote disclosure of the details of certain income statement expense line items as well as additional disclosure about selling expenses. This standard is effective for the annual period of fiscal 2027, and early adoption is permitted. The guidance will be applied prospectively, with the option for retrospective application. We are currently evaluating the impact the adoption of this standard will have on our disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU requires that public business entities must annually (1) disclose specific categories in their rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). This ASU will become effective for us for the annual reporting period ending December 31, 2025. The Income Taxes footnote to the consolidated financial statements included in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2025 will align with the standard. We do not anticipate this standard will affect our operating results.
Note 2—Planned Divestiture of the Lumen Mass Markets Fiber-to-the-Home Business
On May 21, 2025, we and certain of our affiliates entered into a definitive agreement to sell to AT&T the Lumen Mass Markets fiber-to-the-home business, operated by us and certain of our affiliates in 11 states for a pre-tax total of $5.75 billion in cash, subject to working capital and various other purchase price adjustments. The portion of this amount attributable to us cannot currently be calculated, and will be dependent upon several variables.
The actual amount of our net after-tax proceeds from this divestiture could vary substantially from the amounts we currently estimate, including if we experience delays in completing the transaction or if there are changes in other assumptions that impact our estimates.
We do not believe this divestiture transaction represents a strategic shift for us and therefore, does not meet the criteria to be classified as a discontinued operation. As a result, we will continue to report our operating results for the Mass Markets fiber-to-the-home business (the "disposal group") in our consolidated operating results until the transaction is closed. We anticipate closing this divestiture in early 2026, upon receipt of all requisite regulatory approvals, as well as the satisfaction of other customary conditions.
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As of September 30, 2025 in the accompanying consolidated balance sheet, the assets and liabilities of the disposal group are classified as held for sale and measured at the lower of (i) the carrying value when we classified the disposal group as held for sale or (ii) the fair value of the disposal group, less costs to sell. Effective with the designation of the disposal group as held for sale on May 21, 2025, we suspended recording depreciation of property, plant and equipment while these assets are classified as held for sale. We estimate that we would have recorded an additional $25 million and $40 million of depreciation for the three and nine months ended September 30, 2025, respectively, if the disposal group did not meet the held for sale criteria.
Under the terms of the purchase agreement, Lumen agreed to grant the purchaser an indefeasible right to use (“IRU”) certain Lumen retained fiber assets following the close of the transaction in order to service the transferred customer contracts. The value of these retained Lumen assets subject to the IRU is excluded from assets held for sale in the table below.
The principal components of the held for sale assets and liabilities of the disposal group as of September 30, 2025 are as follows:
| September 30, 2025 | |||||
| (Dollars in millions) | |||||
| Assets held for sale | |||||
Accounts receivable, less allowance of $ | $ | ||||
Other current assets, net | |||||
Property, plant and equipment, net of accumulated depreciation of $ | |||||
| Goodwill | |||||
Other assets, net | |||||
Total Assets held for sale | $ | ||||
| Liabilities held for sale | |||||
| Other current liabilities | $ | ||||
| Current portion of deferred revenue | |||||
Other non-current liabilities | |||||
Total Liabilities held for sale | $ | ||||
Note 3—Goodwill and Intangible Assets
Goodwill and Intangible assets, net on our consolidated balance sheets consisted of the following:
| September 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
Goodwill, less accumulated impairment losses of $ | $ | ||||||||||
Intangible assets, less accumulated amortization of $ | $ | ||||||||||
______________________________________________________________________
(1) As of September 30, 2025, this amount excluded goodwill classified as held for sale of $1.3 billion. See Note 2—Planned Divestiture of the Lumen Mass Markets Fiber-to-the-Home Business.
As of September 30, 2025 and December 31, 2024, the gross carrying amount of goodwill and intangible assets was $7.4 8.9 billion.
Substantially all of our goodwill was derived from Lumen's acquisition of us in which the purchase price exceeded the fair value of the net assets acquired.
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We are required to 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 have one reporting unit.
We determined that the classification of the Lumen Mass Markets fiber-to-the-home business as held for sale, as described in Note 2—Planned Divestiture of the Lumen Mass Markets Fiber-to-the-Home Business, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of April 30, 2025. We performed a pre-classification goodwill impairment test using the market approach to test for impairment prior to the classification of these assets as held for sale and to determine the April 30, 2025 fair values to be utilized for goodwill impairment testing. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which supported a range of fair values derived from annualized revenue and earnings before interest, tax, depreciation and amortization ("EBITDA") multiples between 1.8 x and 3.1 x and 5.8 x and 8.0 x, respectively.
As of April 30, 2025, based on our assessments performed, the estimated fair value of our equity exceeded our carrying value of equity by approximately 15 % and 14 % for the pre-classification and post-classification, respectively. We concluded that we had no impairment as of our April 30, 2025 assessment date.
The following table shows the rollforward of goodwill from December 31, 2024 to September 30, 2025.
(Dollars in millions) | |||||
As of December 31, 2024(1) | $ | ||||
Reclassified as held for sale(2) | ( | ||||
As of September 30, 2025(1) | $ | ||||
______________________________________________________________________
(1) Goodwill at both September 30, 2025 and December 31, 2024 is net of accumulated impairment losses of $2.4
(2) Reflects the $1.3 billion of goodwill reclassified as held for sale related to our pending divestiture. See Note 2—Planned Divestiture of the Lumen Mass Markets Fiber-to-the-Home Business
Total amortization expense for finite-lived intangible assets for the three months ended September 30, 2025 and 2024 totaled $8 million and $4 million, respectively, and for the nine months ended September 30, 2025 and 2024 totaled $25 million and $29 million, respectively.
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Note 4—Revenue Recognition
We categorize our revenue derived from our operations based on the customers we serve, as follows: (i) revenue derived from serving our Mass Markets customers are categorized primarily within the first three categories listed below, (ii) revenue derived from servicing our Business customers are categorized primarily in the 'Harvest', 'Nurture' and 'Grow' categories listed below, and (iii) revenue derived from serving our affiliates are categorized in the 'Affiliate Services' category listed:
•Other Broadband, under which we provide primarily lower speed broadband services to residential and small business customers utilizing our copper-based network infrastructure;
•Voice and Other, under which we derive revenues from (i) providing local and long-distance services, professional services, and other ancillary services, (ii) federal broadband and state support payments, and (iii) equipment, IT solutions and other services;
•Fiber Broadband, under which we provide high speed broadband services to residential and small business customers utilizing our fiber-based network infrastructure;
•Harvest, which includes our legacy services managed for cash flow, including Time Division Multiplexing voice and private line services;
•Nurture, which includes our more mature offerings, including primarily ethernet;
•Grow, which includes existing and emerging products and services in which we are significantly investing, including our dark fiber and wavelengths services; and
•Affiliate Services, which are (i) communications services that we provide to our affiliates and also provide to external customers and (ii) application development and support services that we provide to our affiliates, as described further in Note 8—Affiliate Transactions.
Reconciliation of Total Revenue to Revenue from Contracts with Customers
The following tables provide our total revenue by product and service category as well as the amount of revenue that is not subject to Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:
| Three Months Ended September 30, 2025 | Nine Months Ended September 30, 2025 | ||||||||||||||||||||||
| 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) | |||||||||||||||||||||||
| Other Broadband | $ | ( | ( | ||||||||||||||||||||
| Voice and Other | ( | ( | |||||||||||||||||||||
| Fiber Broadband | ( | ( | |||||||||||||||||||||
| Harvest | ( | ( | |||||||||||||||||||||
| Nurture | ( | ( | |||||||||||||||||||||
| Grow | ( | ( | |||||||||||||||||||||
| Affiliate Services | ( | ( | |||||||||||||||||||||
| Total revenue | $ | ( | ( | ||||||||||||||||||||
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| Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | ||||||||||||||||||||||
| 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) | |||||||||||||||||||||||
| Other Broadband | $ | ( | ( | ||||||||||||||||||||
| Voice and Other | ( | ( | |||||||||||||||||||||
| Fiber Broadband | ( | ( | |||||||||||||||||||||
| Harvest | ( | ( | |||||||||||||||||||||
| Nurture | ( | ( | |||||||||||||||||||||
| Grow | ( | ( | |||||||||||||||||||||
| Affiliate Services | ( | ( | |||||||||||||||||||||
| Total revenue | $ | ( | ( | ||||||||||||||||||||
(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, 2025 and 2024, our gross rental revenue was $66 million and $67 million, respectively, which represented 6 % and 5 %, respectively, of our operating revenue for three months ended September 30, 2025 and 2024. For the nine months ended September 30, 2025 and 2024, our gross rental revenue was $205 million and $209 million, respectively, which represented approximately 6 % and 5 %, respectively, of our operating revenue for the nine months ended September 30, 2025 and 2024.
Customer Receivables and Contract Balances
The following table provides balances of customer receivables and contract liabilities, net of amounts classified as held for sale:
| September 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
Customer receivables, less allowance of $ | $ | ||||||||||
Contract liabilities(3) | |||||||||||
______________________________________________________________________
(1)Customer receivables includes affiliate receivables.
(2) As of September 30, 2025, this amount excluded $11 million of customer receivables, net associated with the disposal group classified as held for sale.
(3) As of September 30, 2025, this amount excluded $11 million of contract liabilities associated with the disposal group classified as held for sale.
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, 2025, we recognized $18 million and $158 million, respectively, of revenue that was included in contract liabilities of $244 million as of January 1, 2025, including contract liabilities that were classified as held for sale. During the three and nine months ended September 30, 2024, we recognized $14 million and $162 million, respectively, of revenue that was included in contract liabilities of $269 million as of January 1, 2024.
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Performance Obligations
As of September 30, 2025, we expect to recognize approximately $1.9 billion of revenue in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied. As of September 30, 2025, the transaction price related to unsatisfied performance obligations that are expected to be recognized for the remainder of 2025, 2026 and thereafter was $303 million, $701 million and $918 million, respectively.
These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue in amounts for 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 and (iii) the value of unsatisfied performance obligations for contracts which relate to the disposal group.
Contract Costs
The following tables provide changes in our contract acquisition costs and fulfillment costs:
| Three Months Ended September 30, 2025 | Nine Months Ended September 30, 2025 | ||||||||||||||||
Acquisition Costs | Fulfillment Costs | Acquisition Costs | Fulfillment Costs | ||||||||||||||
| (Dollars in millions) | |||||||||||||||||
Balance at beginning of period(1) | $ | ||||||||||||||||
| Cost Incurred | |||||||||||||||||
| Amortization | ( | ( | ( | ( | |||||||||||||
Change in contract costs held for sale | ( | ( | |||||||||||||||
Balance at end of period(2) | $ | ||||||||||||||||
______________________________________________________________________
(1) The beginning balance for the three months ended September 30, 2025 excluded $6 million of fulfillment costs associated with the disposal group classified as held for sale.
(2) The ending balance for both the three and nine months ended September 30, 2025 excluded fulfillment costs associated with the disposal group classified as held for sale of $7 million.
| Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | ||||||||||||||||
| Acquisition Costs | Fulfillment Costs | Acquisition Costs | Fulfillment Costs | ||||||||||||||
| (Dollars in millions) | |||||||||||||||||
Balance at beginning of period | $ | ||||||||||||||||
| Cost incurred | |||||||||||||||||
| Amortization | ( | ( | ( | ( | |||||||||||||
Balance at end of period | $ | ||||||||||||||||
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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.
We amortize deferred acquisition and fulfillment costs based on the transfer of services on a straight-line basis over the average contract life of 47 months for Mass Markets customers and 34 months for Business customers, respectively. We include amortized fulfillment costs in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. We include the amount of these deferred costs that are anticipated to be amortized in the next 12 months in Other current assets, net on our consolidated balance sheets. We include the amount of deferred costs expected to be amortized beyond the next 12 months in Other assets, net on our consolidated balance sheets. We assess deferred acquisition and fulfillment costs for impairment on a quarterly basis.
Note 5—Long-Term Debt
The following table reflects our consolidated long-term debt as of the dates indicated below, including unamortized discounts and premiums and unamortized debt issuance costs:
Interest Rates (1) | Maturities (1) | September 30, 2025 | December 31, 2024 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Senior notes | 2030-2057 | $ | |||||||||||||||||||||
Finance leases | Various | Various | |||||||||||||||||||||
| Unamortized premiums, net | |||||||||||||||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||||||||||||||
| Total long-term debt | |||||||||||||||||||||||
| Less current maturities | ( | ( | |||||||||||||||||||||
| Long-term debt, excluding current maturities | $ | ||||||||||||||||||||||
_______________________________________________________________________________
(1)As of September 30, 2025.
Long-Term Debt Maturities
Set forth below is the aggregate principal amount of our long-term debt as of September 30, 2025 (excluding unamortized premiums, net and unamortized debt issuance costs) maturing during the following years:
(Dollars in millions) | |||||
| 2025 (remaining three months) | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 and thereafter | |||||
| Total long-term debt | $ | ||||
Qwest Guarantees of Lumen Debt
Lumen’s obligations under its credit agreements entered into on March 22, 2024 and its superpriority secured senior notes issued on and after March 22, 2024 are unsecured, but Qwest Corporation and certain of its subsidiaries have provided an unsecured guarantee of Lumen’s obligations under these agreements and senior notes. See Note 6—Long-Term Debt and Note Payable - Affiliate in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2024.
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Other Related Information
For information about our senior notes, our 2024 debt transactions and our intercompany debt arrangements, see Note 6—Long-Term Debt and Note Payable - Affiliate 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, 2024.
Compliance
As of September 30, 2025, we believe we were in compliance with the financial covenants contained in our material debt agreements in all material respects.
Note 6—Property, Plant and Equipment
Net property, plant and equipment is composed of the following:
| Depreciable Lives | September 30, 2025 | December 31, 2024 | |||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| Land | N/A | $ | |||||||||||||||
Fiber, conduit and other outside plant(1) | |||||||||||||||||
Central office and other network electronics(2) | |||||||||||||||||
Support assets(3) | |||||||||||||||||
Construction in progress(4) | N/A | ||||||||||||||||
| Gross property, plant and equipment | |||||||||||||||||
| Accumulated depreciation | ( | ( | |||||||||||||||
| Net property, plant and equipment | $ | ||||||||||||||||
_______________________________________________________________________________
(1)Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles, and other supporting structures.
(2)Central office and other network electronics consists of circuit and packet switches, routers, transmission electronics, and electronics providing service to customers.
(3)Support assets consist of buildings, computers, and other administrative and support equipment.
(4)Construction in progress includes inventory held for construction and property of the aforementioned categories that has not been placed in service as it is still under construction.
As of September 30, 2025, we classified certain property, plant and equipment, net as held for sale and discontinued recording depreciation on the disposal group. See Note 2—Planned Divestiture of the Lumen Mass Markets Fiber-to-the-Home Business.
We recorded depreciation expense of $154 million and $502 million, respectively, for the three and nine months ended September 30, 2025 and $179 million and $528 million, respectively, for the three and nine months ended September 30, 2024.
Note 7—Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, advances to and from affiliates, note receivable - affiliates, accounts payable, and long-term debt, excluding finance leases. Due to their short-term nature, the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, advances to and from affiliates, note receivable - affiliates, accounts payable approximate their fair values.
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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 using the below-described 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, 2025 and December 31, 2024, as well as the input level used to determine the fair values indicated below:
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
Input Level | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||||||||
Liabilities—Long-term debt (excluding finance leases) | 2 | $ | |||||||||||||||||||||||||||
Note 8—Affiliate Transactions
We provide incumbent local exchange carrier telecommunications services to our affiliates that are similar to the services we provide to external customers. We periodically review and update our prices for affiliate network services to align with regulated rates, where applicable, or competitive market-based rates charged to external customers, taking into consideration the average third party customer contract term to which those affiliate services pertain. These services are billed directly to our affiliates and recognized as affiliate revenue on our consolidated statements of operations.
We also provide to our affiliates shared services in the form of application development and support services, as well as network support and technical services, and administrative and corporate support. In this regard, we function as a service company to other Lumen affiliates, and correspondingly recognize affiliate revenue based on the costs for the services that we provide to those affiliates.
Whenever possible, costs for shared services are incurred directly by our affiliates for the services they use. When these shared costs are not directly incurred, they are allocated among all affiliates based upon what we determine to be the most reasonable method, first using cost causative measures, or, if no cost causative measure is available, using a general allocator. From time to time, we may adjust the basis for allocating the costs of a shared service among affiliates. Any such changes in allocation methodologies are generally applied prospectively.
On March 31, 2025, we entered into an unsecured revolving promissory note with our ultimate parent Lumen Technologies, under which Lumen Technologies is permitted to borrow up to $3.0 billion from us at an 8.3 % interest rate per annum. The principal amount is payable upon demand by us and prepayable by Lumen Technologies at any time, but no later than March 31, 2030, which will automatically renew on the maturity date for successive 12-month periods unless we elect otherwise. The facility has covenants and is subject to other limitations. As of September 30, 2025, we had $937 million of principal and capitalized interest due from Lumen Technologies under this promissory note.
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The following table provides details of our affiliate revenue:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
Direct affiliate revenue | $ | ||||||||||||||||||||||
Allocated affiliate revenue | |||||||||||||||||||||||
Total operating revenue—affiliates | $ | ||||||||||||||||||||||
Note 9—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.
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. Subject to these limitations, at September 30, 2025 and December 31, 2024 we had accrued $70 million and $17 million, respectively, in the aggregate for our litigation and non-income tax contingencies, which are included in Other current liabilities, or Other liabilities on our consolidated balance sheets as of such dates. We cannot at this time estimate the reasonably possible loss or range of loss, if any in excess of this $70 million accrual due to the inherent uncertainties and speculative nature of contested proceedings. 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.
In this Note, a reference to a "putative" class action means a class has been alleged, but not certified, in that matter.
Principal Proceedings
Environmental Litigation
Parish of St. Mary. On July 9, 2024, a putative class action complaint was filed in the 16th Judicial District Court for the Parish of St. Mary, State of Louisiana, Case 138575 asserting claims on behalf of all parishes, municipalities, and citizens owning real properties in the State of Louisiana that have been affected by lead-sheathed telecommunications cables installed by AT&T and Lumen or their predecessors. The complaint seeks damages and injunctive relief under Louisiana state law. The case was removed to the United States District Court Western District of Louisiana Lafayette Division, Case 6:24-CV-01001-RRS-DJA. On December 6, 2024, the plaintiffs voluntarily dismissed the class action complaint without prejudice. On December 13, 2024, St. Mary’s Parish along with other parishes, municipalities, and two individuals served a notice of intent to file citizen suit under the Louisiana Environmental Quality Act, asserting claims identical to the class action which the plaintiffs voluntarily dismissed. In April 2025, the Village of Parks (one of the municipalities which had served a notice of intent to file a citizen suit) served Lumen with a petition in an action captioned Village of Parks v. Lumen Technologies, Inc., Case 95026, in the 16th Judicial District Court for the Parish of St. Martin, State of Louisiana. The Village of Parks petition seeks damages and injunctive relief under Louisiana state law relating to the above-described allegations about lead-sheathed telecommunication cables.
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Blum. On November 6, 2023, a putative class action complaint was filed in the 16th Judicial District Court for the Parish of St. Mary, State of Louisiana, Case 137935 asserting claims on behalf of all citizens owning real properties in the State of Louisiana that have been affected by lead-sheathed telecommunications cables installed by AT&T, BellSouth, Verizon, and Lumen or their predecessors. The complaint seeks damages and injunctive relief under Louisiana state law. The case has been removed to Federal Court in the United States District Court Western District of Louisiana Lafayette Division, Case 6:23-CV-01748. In December 2024, the plaintiffs filed an amended complaint and a motion for remand. In September 2025, the motion to remand was denied.
FCRA Litigation
In November 2014, a putative class action complaint captioned Bultemeyer v. CenturyLink, Inc. was filed in the United States District Court for the District of Arizona, Case CV-14-02530-PHX-SPL, alleging violations of the Fair Credit Reporting Act (the "FCRA"). In February 2017, the case was dismissed for lack of standing. The plaintiff appealed and the Ninth Circuit reversed and remanded. Class certification was contested and ultimately granted in 2023. The Ninth Circuit denied Lumen’s request to appeal the class certification ruling. A jury trial was conducted in September 2024. The jury found that CenturyLink willfully violated the FCRA, and awarded each class member $500 for statutory damages and $2,000 for punitive damages. The district court denied Lumen’s post-trial motions for relief, and October 16, 2024, Lumen filed an appeal which is captioned Bultemeyer v. CenturyLink, Inc., Case 24-6413, in the U.S. Court of Appeals for the Ninth Circuit. We have not accrued a contingent liability for this matter. While liability is possible, we have not determined it to be probable, and damages exposure, if any, is uncertain.
Huawei Network Deployment Investigations
Qwest has received requests from the following federal agencies for information relating to the use of equipment manufactured by Huawei Technologies Company ("Huawei") in networks operated by Lumen and Qwest.
•DOJ. Lumen has received a civil investigative demand from the U.S. Department of Justice in the course of a False Claims Act investigation alleging that Lumen Technologies, Inc. and Lumen Technologies Government Solutions, Inc. failed to comply with certain specified requirements in federal contracts concerning their use of Huawei equipment.
•FCC. The FCC’s Enforcement Bureau issued a Letter of Inquiry to Lumen Technologies, Inc. regarding its written certifications to the FCC that Lumen has complied with FCC rules governing the use of resources derived from the High Cost Program, Lifeline Program, Rural Health Care Program, E-Rate Program, Emergency Broadband Benefit Program, and the Affordable Connectivity Program. Under these programs federal, funds may not be used to facilitate the deployment or maintenance of equipment or services provided by Huawei, a company the FCC has determined poses a national security threat to the integrity of U.S. communications networks or the communications supply chain.
•Team Telecom. The Committee for the Assessment of Foreign Participation in the United States Telecommunications Service Sector (comprised of the U.S. Attorney General, and the Secretaries of the Department of Homeland Security, and the Department of Defense), commonly referred to as Team Telecom, issued questions and requests for information relating to Lumen’s FCC licenses and its use of Huawei equipment.
Marshall Fire Litigation
On December 30, 2021, a wildfire referred to as the Marshall Fire ignited near Boulder, Colorado. The Marshall Fire killed two people, and it burned thousands of acres, including entire neighborhoods. Approximately 300 lawsuits seeking substantial monetary relief have been filed naming as defendants Qwest Corporation, an additional telecommunications company, and certain power companies. The complaints involving Qwest have been consolidated with Kupfner et al., v. Public Service Company of Colorado, et al., Case 2022-cv-30195, pending in Colorado District Court, Boulder, Colorado. In September 2025, the court vacated the trial date because the defendants reached agreements in principle to settle with virtually all of the plaintiffs, subject to final documentation. The court set a status conference for November 5, 2025.
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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, tax issues, or environmental law issues, grievance hearings before labor regulatory agencies, miscellaneous third-party tort actions or commercial disputes.
We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, which are seeking substantial recoveries. These cases have progressed to various stages and one or more may go to trial within the next 12 months if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers.
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. In addition, in the past we acquired companies that had installed lead-sheathed cables several decades earlier, or had operated certain manufacturing companies in the first part of the 1900s. Under applicable environmental laws, we could be named as a potentially responsible party for a share of the remediation of environmental conditions arising from the historical operations of our predecessors.
The outcomes of these other proceedings described under this heading are not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.
The matters listed 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, 2024. 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 we currently consider insignificant may ultimately affect us materially.
Note 10—Other Financial Information
Other Current Assets, net
The following table presents details of Other current assets, net on our consolidated balance sheets:
| September 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
| Prepaid expenses | $ | ||||||||||
| Contract acquisition costs | |||||||||||
| Contract fulfillment costs | |||||||||||
| Other | |||||||||||
Total Other current assets, net(1) | $ | ||||||||||
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Current Liabilities
Accounts Payable
Included in accounts payable at September 30, 2025 and December 31, 2024 were $36 million and $57 million, respectively, associated with capital expenditures.
Other Current Liabilities
The following table presents details of Other current liabilities on our consolidated balance sheets:
| September 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
| Current affiliate obligation | $ | ||||||||||
| Current operating lease liability | |||||||||||
| Legal reserves | |||||||||||
| Other | |||||||||||
| Total Other current liabilities | $ | ||||||||||
______________________________________________________________________
(1) As of September 30, 2025, Other current liabilities excludes $2 million associated with the disposal group reclassified as held for sale.
Other Liabilities
The following table presents details of Other liabilities on our consolidated balance sheets:
| September 30, 2025 | December 31, 2024 | ||||||||||
| (Dollars in millions) | |||||||||||
| Unrecognized tax benefits | $ | ||||||||||
| Deferred revenue | |||||||||||
| Operating lease liability | |||||||||||
| Other | |||||||||||
| Total Other liabilities | $ | ||||||||||
______________________________________________________________________
Note 11—Labor Union Contracts
As of September 30, 2025, approximately 39 % of our employees were represented by the Communications Workers of America (CWA) or the International Brotherhood of Electrical Workers (IBEW). None of our represented employees are subject to collective bargaining agreements that are scheduled to expire within the twelve-month period ending September 30, 2026.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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" immediately prior to Item 1 of Part I of this report for factors relating to these statements and "Risk Factors" in Item 1A of Part II of this report and in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2024 or other of our filings with the SEC for a discussion of certain factors applicable to our business, financial condition, results of operations, liquidity, or prospects.
Overview
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with the information included in our Annual Report on Form 10-K for the year ended December 31, 2024 and with the consolidated financial statements and related notes in Item 1 of Part I of this report. The results of operations and cash flows for the first nine months of the year are not necessarily indicative of the results of operations and cash flows that might be expected for the entire year.
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 are unleashing the world's digital potential by providing a broad array of integrated products and services to our domestic and global Business customers and our domestic Mass Markets customers. Our specific products and services are detailed below under the heading "Products, Services and Revenue".
Our ultimate parent company, Lumen Technologies, Inc., has cash management 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 Qwest Services Corporation ("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 sheets as advances to affiliates.
At September 30, 2025, we served approximately 1.3 million broadband subscribers. Our methodology for counting broadband subscribers may be different than the methodologies used by other companies.
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Planned Divestiture of the Lumen Mass Markets Fiber-to-the-Home Business
On May 21, 2025, we and certain of our affiliates entered into a definitive agreement to sell to AT&T the Lumen Mass Markets fiber-to-the-home business (including approximately 95% of Quantum Fiber) operated by us and certain of our affiliates in 11 states for a pre-tax total of $5.75 billion in cash, subject to working capital and other various purchase price adjustments. We expect to close this transaction in early 2026, although we can provide no assurance to this effect. The actual amount of net after-tax proceeds from this divestiture could vary from the amounts we currently estimate. The sales of fiber assets to AT&T will not result in Lumen fully exiting its fiber business in any state. For additional information, see Note 2—Planned Divestiture of the Lumen Mass Markets Fiber-to-the-Home Business.
Macroeconomic Changes
Over the past few years, macroeconomic changes have impacted us and our customers in several ways.
We believe macroeconomic changes over the past few years have resulted in (i) increases in certain revenue streams and decreases in others, (ii) operational challenges resulting from inflation and shortages of certain components and other supplies that we use in our business, (iii) delays in our cost transformation initiatives and (iv) delayed decision-making by certain of our customers. We do not believe these effects, individually or in the aggregate, have to date materially impacted our financial performance or financial position.
Industry developments over the past few years have increased fiber construction demand from customers. The resulting increase in construction labor rates continue to increase the cost of enabling units to be capable of receiving Lumen's Quantum Fiber broadband services. We believe these factors also occasionally contributed to a delay in attaining Quantum Fiber buildout targets in our service area.
Continued business and geopolitical uncertainty, new tariffs, supply constraints, or inflationary pressures could materially impact our financial results in a variety of ways, including by increasing our expenses, decreasing our revenues, further delaying our network expansion plans, further delaying customer decision-making, or otherwise interfering with our ability to deliver products and services.
To the extent these above-mentioned macroeconomic pressures continue, we could experience additional deterioration in our projected cash flows, or make significant changes to the assumed discount rates or market multiples that we use to determine the fair value of our reporting unit.
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Products, Services and Revenue
We categorize our revenue derived from our operations based on the customers we serve, as follows: (i) revenue derived from serving our Mass Markets customers are categorized primarily within the first three categories listed below, (ii) revenue derived from servicing our Business customers are categorized primarily in the 'Harvest', 'Nurture' and 'Grow' categories listed below, and (iii) revenue derived from serving our affiliates are categorized in the 'Affiliate Services' category listed:
•Other Broadband, under which we provide primarily lower speed broadband services to residential and small business customers utilizing our copper-based network infrastructure;
•Voice and Other, under which we derive revenues from (i) providing local and long-distance services, professional services, and other ancillary services, (ii) federal broadband and state support payments, and (iii) equipment, IT solutions and other services;
•Fiber Broadband, under which we provide high speed broadband services to residential and small business customers utilizing our fiber-based network infrastructure;
•Harvest, which includes our legacy services managed for cash flow, including Time Division Multiplexing voice and private line services;
•Nurture, which includes our more mature offerings, including primarily ethernet;
•Grow, which includes existing and emerging products and services in which we are significantly investing, including our dark fiber and wavelengths services; and
•Affiliate Services, which are (i) communications services that we provide to our affiliates and also provide to external customers and (ii) application development and support services that we provide to our affiliates, as described further in Note 8—Affiliate Transactions.
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.
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Results of Operations
The following table summarizes the results of our consolidated operations for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Operating revenue | $ | 1,161 | 1,363 | 3,589 | 4,144 | ||||||||||||||||||
| Operating expenses | 918 | 865 | 2,581 | 2,621 | |||||||||||||||||||
| Operating income | 243 | 498 | 1,008 | 1,523 | |||||||||||||||||||
| Total other income (expense), net | 4 | (1) | — | (29) | |||||||||||||||||||
| Income before income taxes | 247 | 497 | 1,008 | 1,494 | |||||||||||||||||||
| Income tax expense | 71 | 132 | 271 | 398 | |||||||||||||||||||
| Net income | $ | 176 | 365 | 737 | 1,096 | ||||||||||||||||||
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, 2025.
Operating Revenue
The following table summarizes our consolidated operating revenue recorded under our revenue categories described in Note 4—Revenue Recognition:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| (Dollars in millions) | (Dollars in millions) | ||||||||||||||||||||||||||||||||||
| Other Broadband | $ | 186 | 226 | (18) | % | 588 | 716 | (18) | % | ||||||||||||||||||||||||||
| Voice and Other | 111 | 127 | (13) | % | 336 | 391 | (14) | % | |||||||||||||||||||||||||||
| Fiber Broadband | 78 | 92 | (15) | % | 246 | 289 | (15) | % | |||||||||||||||||||||||||||
| Harvest | 199 | 225 | (12) | % | 633 | 704 | (10) | % | |||||||||||||||||||||||||||
| Nurture | 79 | 90 | (12) | % | 248 | 268 | (7) | % | |||||||||||||||||||||||||||
| Grow | 31 | 33 | (6) | % | 97 | 100 | (3) | % | |||||||||||||||||||||||||||
| Affiliate Services | 477 | 570 | (16) | % | 1,441 | 1,676 | (14) | % | |||||||||||||||||||||||||||
| Total revenue | $ | 1,161 | 1,363 | (15) | % | 3,589 | 4,144 | (13) | % | ||||||||||||||||||||||||||
Total operating revenue decreased by $202 million and $555 million, respectively, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024. Within each product category, these decreases were primarily due to the following factors:
•Decreases in Other Broadband of $40 million and $128 million, respectively, primarily due to fewer Mass Market customers for our lower speed copper-based broadband services;
•Decreases in Voice and Other of $16 million and $55 million, respectively, principally due to the continued loss of copper-based Mass Market voice customers and a decrease of $11 million due to the voluntary relinquishment of our funding received under the FCC's Rural Digital Opportunity Fund (“RDOF”) in the second quarter of 2025. See the "Liquidity and Capital Resources—Future Contractual Obligations" in Item 2 of Part I below for more information;
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•Decreases in Fiber Broadband of $14 million and $43 million, respectively, driven by fewer Mass Market subscribers for our fiber services, primarily as a result of customers migrating to the Quantum Fiber services offered by Lumen (which bills customers for such services and pays us for use of our network in providing such services, as further described below);
•Decreases in Harvest of $26 million and $71 million, respectively, primarily attributable to declines in legacy voice and copper broadband services for Business customers of $12 million and $52 million, respectively, and declines in private line services of $12 million and $15 million, respectively;
•Decreases in Nurture of $11 million and $20 million, respectively, primarily due to declines in Ethernet services;
•Grow revenues were relatively flat period over period; and
•Decreases in Affiliate Services of $93 million and $235 million, respectively, primarily due to (i) a decrease of $101 million and $299 million, respectively, in direct legacy telecommunication services provided to our affiliates and (ii) for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, a decrease of $5 million in employee shared services expense allocated to our affiliates. These decreases were partially offset by an increase of $2 million and $68 million, respectively, in fiber broadband services provided to our affiliates and for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, an increase of $6 million in employee shared services expense allocated to our affiliates.
Operating Expenses
The following table summarizes our consolidated operating expenses:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| (Dollars in millions) | (Dollars in millions) | ||||||||||||||||||||||||||||||||||
| Cost of services and products (exclusive of depreciation and amortization) | $ | 379 | 389 | (3) | % | 1,096 | 1,132 | (3) | % | ||||||||||||||||||||||||||
| Selling, general and administrative | 156 | 111 | 41 | % | 356 | 357 | (—) | % | |||||||||||||||||||||||||||
| Operating expenses - affiliates | 221 | 182 | 21 | % | 602 | 575 | 5 | % | |||||||||||||||||||||||||||
| Depreciation and amortization | 162 | 183 | (11) | % | 527 | 557 | (5) | % | |||||||||||||||||||||||||||
| Total operating expenses | $ | 918 | 865 | 6 | % | 2,581 | 2,621 | (2) | % | ||||||||||||||||||||||||||
Cost of Services and Products (exclusive of depreciation and amortization)
Cost of services and products (exclusive of depreciation and amortization) decreased by $10 million and $36 million, respectively, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024. The decrease was primarily due to lower employee-related expenses of $14 million and $50 million partially offset by higher network and facilities expense of $4 million and $11 million for each respective period.
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Selling, General and Administrative
Selling, general and administrative expenses increased by $45 million and decreased by $1 million, respectively, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024. For the three months ended September 30, 2025 compared to the three months ended September 30, 2024, the increase was primarily due to an increase of $41 million in professional fees and legal expenses. For the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, the decrease was primarily due to (i) a decrease of $27 million employee-related expenses and (ii) a decrease of $11 million in bad debt expense. These decreases were partially offset by (i) an increase of $34 million in professional fees and legal expenses and (ii) an increase of $12 million due to fees related to the voluntary relinquishment of our funding received under the FCC's Rural Digital Opportunity Fund (“RDOF”).
Operating Expenses - Affiliates
Operating expenses - affiliates increased by $39 million and $27 million, respectively, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024. These increases were due to an increase of $31 million and $43 million, respectively, in allocated employee and professional services provided to us by our affiliates and an increase of $11 million of network services purchased from affiliates for the three months ended September 30, 2025, as compared to September 30, 2024. These increases were partially offset by decreases of $3 million and $13 million, respectively, in direct telecommunication services charged to us by our affiliates.
Depreciation and Amortization
The following table details our depreciation and amortization expense:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| (Dollars in millions) | (Dollars in millions) | ||||||||||||||||||||||||||||||||||
| Depreciation | $ | 154 | 179 | (14) | % | 502 | 528 | (5) | % | ||||||||||||||||||||||||||
| Amortization | 8 | 4 | 100 | % | 25 | 29 | (14) | % | |||||||||||||||||||||||||||
| Total depreciation and amortization | $ | 162 | 183 | (11) | % | 527 | 557 | (5) | % | ||||||||||||||||||||||||||
Depreciation expense decreased by $25 million and $26 million, respectively, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024. These decreases are attributable to a decrease of $25 million and $40 million for the three and nine months ended September 30, 2025, as compared to the three and nine months ended September 30, 2024, due to the discontinuation during the second quarter of 2025 of the depreciation of the tangible assets of the Lumen Mass Markets fiber-to-the-home business held for sale. These decreases were partially offset by an increase of $14 million due to net growth in depreciable assets for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024.
Amortization expense increased by $4 million and decreased by $4 million, respectively, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024 primarily due to a net change in the amount of amortizable assets.
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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, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| (Dollars in millions) | (Dollars in millions) | ||||||||||||||||||||||||||||||||||
| Interest expense | $ | (25) | (11) | 127 | % | (71) | (44) | 61 | % | ||||||||||||||||||||||||||
| Interest income—affiliate, net | 26 | 8 | nm | 63 | 14 | nm | |||||||||||||||||||||||||||||
| Other income, net | 3 | 2 | 50 | % | 8 | 1 | nm | ||||||||||||||||||||||||||||
| Total other income (expense), net | $ | 4 | (1) | nm | — | (29) | (100) | % | |||||||||||||||||||||||||||
| Income tax expense | $ | 71 | 132 | (46) | % | 271 | 398 | (32) | % | ||||||||||||||||||||||||||
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 increased by $14 million and $27 million for the three and nine months ended September 30, 2025 respectively, as compared to the three and nine months ended September 30, 2024, primarily due to lower capitalized interest of $14 million and $33 million, respectively, which was partially offset by a decrease in our average interest rate from 6.79% to 6.69% for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2025.
Interest Income - Affiliate, Net
Interest income - affiliate, net increased by $18 million and $49 million, respectively, for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024. The increase in interest income - affiliate, net was primarily due to a higher average receivable from affiliates.
Income Tax Expense
For the three and nine months ended September 30, 2025, our effective tax rate was 28.7% and 26.9%, respectively. For both the three and nine months ended September 30, 2024, our effective tax rate was 26.6%.
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.
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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 the amounts due to us from Lumen Technologies, Inc. under the above-described cash management or loan arrangements and the revolving promissory note described in Note 8—Affiliate Transactions, a significant component of our liquidity is dependent upon Lumen's ability to repay its obligations to us.
We believe that our cash and cash equivalents as of September 30, 2025 and current sources of funding will provide sufficient liquidity to enable the Company to meet its cash requirements for at least the next twelve months. 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 to the extent permitted under applicable debt covenants, 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.
On July 4, 2025, the U.S. enacted H.R.1, "A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14," commonly referred to as the One Big Beautiful Bill Act (the "OBBBA"). We do not expect the tax provisions of the OBBBA to have a material impact on our 2025 effective tax rate. We continue to assess its impact on our consolidated financial statements.
Capital Expenditures
We incur capital expenditures on an ongoing basis in order to expand and improve our service offerings, enhance and modernize our networks, and compete effectively in our markets. Lumen Technologies and we evaluate 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, our network requirements, cash flow generated by operating activities, cash required for debt services and other purposes, regulatory considerations (such as governmentally mandated infrastructure buildout requirements), and the availability of requisite supplies, labor, and permits.
Our capital expenditures continue to be focused on enhancing network operating efficiencies, supporting new service developments, and expanding our fiber network, including our Quantum Fiber buildout plan. A portion of our capital expenditures are also expected to be focused on replacing aged network assets. For more information on our capital spending, see (i) "Cash Flow Activities—Investing" below and (ii) Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2024.
Debt and Other Financing Arrangements
As of September 30, 2025, we had approximately $1.7 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net and unamortized debt issuance costs), none of which is due in the next 12 months. For additional information, see Note 5—Long-Term Debt.
Subject to market conditions, and to the extent permitted under applicable debt covenants, Qwest Corporation may issue debt securities from time to time primarily to refinance a portion of its 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 filing date of this report, the credit ratings for Qwest Corporation's senior unsecured debt were as follows:
| Agency | Credit Ratings | ||||
Moody's Investors Service, Inc.(1) | Caa2 | ||||
| Standard & Poor's | B | ||||
Fitch Ratings(1) | B+ | ||||
_______________________________________________________________________________
(1)In May and July 2025, Moody's and Fitch, respectively, placed all of Qwest's ratings on review for a potential upgrade.
Our credit ratings are reviewed and adjusted from time to time by the rating agencies. Any future changes in the senior unsecured or secured debt ratings of us or our subsidiaries could impact our access to capital or borrowing costs. We cannot provide any assurances 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, 2024.
From time to time over the past couple of years, we and our affiliates have engaged in various debt refinancings, redemptions, tender offers, exchange offers, open market purchases and other transactions designed principally to reduce our consolidated indebtedness, extend our debt maturities, lower our interest costs, improve our financial flexibility, or otherwise enhance our debt profile. Subject to market conditions, restrictions under our debt covenants, and other limitations, we expect to opportunistically pursue similar transactions in the future to the extent feasible. See Note 5—Long-Term Debt for additional information.
Note Receivable - Affiliate
On March 31, 2025, we entered into an unsecured revolving promissory note with our ultimate parent Lumen Technologies, under which Lumen Technologies is permitted to borrow up to $3.0 billion from us at an 8.3% interest rate per annum. The principal amount is payable upon demand by us and prepayable by Lumen Technologies at any time, but no later than March 31, 2030, which will automatically renew on the maturity date for successive 12-month periods unless we elect otherwise. The facility has covenants and is subject to other limitations. As of September 30, 2025, we had $937 million due from Lumen Technologies under this promissory note. For more information, see Note 8—Affiliate Transactions.
Note Payable - Affiliate
We are permitted to borrow up to $2.0 billion from our parent Lumen Technologies under a revolving promissory note. As of September 30, 2025, no amount was due to Lumen Technologies under this promissory note.
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 Note 17—Stockholder's Equity in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2024.
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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, 2024, the accounting unfunded status of Lumen's qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was approximately $645 million and approximately $1.7 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, 2024 and see Note 10—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 2025. The amount of required contributions to Lumen's qualified pension plan in 2026 and beyond will depend on a variety of factors, most of which are beyond Lumen's 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 2025.
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 current liabilities and Other 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 three and nine months ended September 30, 2025, we made net settlement payments of $12 million and $36 million, respectively, 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 2025, we expect to make aggregate settlement payments of $48 million to QCII under the plan.
For 2025, Lumen's expected annual long-term rate of return on pension plan assets is 6.5%. 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, 2024.
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, 2024.
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Federal Broadband Support Programs
The FCC's RDOF program aims to support broadband expansion in rural areas throughout America. Although we initially agreed to participate in the program in certain areas, as previously disclosed, we voluntarily relinquished a portion of our RDOF awards in the third quarter of 2024. In the second quarter of 2025, we voluntarily relinquished the remainder of our RDOF awards. As a result, we will no longer receive funding through the RDOF program and recognized a reduction to revenue of $11 million in our consolidated statements of operations in the second quarter of 2025. We will also incur fees in connection therewith. These fees are currently estimated to be $12 million and are reflected in our operating expenses within our consolidated statements of operations. We expect to remit the $23 million of revenue and fees summarized above, along with an additional $3 million relating to our 2024 relinquishment, in the first half of 2026.
For additional information on these programs, see the following sections within Lumen's Annual Report on Form 10-K for the year ended December 31, 2024: (i) Note 3—Revenue Recognition to our consolidated financial statements in Item 8 of Part II, (ii) "Business—Regulation of Our Business—Universal Service" in Item 1 of Part I, and (iii) "Risk Factors—Legal and Regulatory Risks" in Item 1A of Part I. Additionally, refer to the quarterly reports filed by Lumen Technologies.
Cash Flow Activities
The following table summarizes our consolidated cash flow activities for the nine months ended September 30, 2025 and September 30, 2024:
| Nine Months Ended September 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| Net cash provided by operating activities | $ | 1,360 | 1,646 | (286) | |||||||||||||
| Net cash used in investing activities | (1,114) | (1,346) | (232) | ||||||||||||||
| Net cash used in financing activities | (237) | (288) | (51) | ||||||||||||||
Operating Activities
Net cash provided by operating activities decreased by $286 million for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 primarily due to lower net income adjusted for non-cash income and expenses. 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. For additional information about our operating results, see "Results of Operations" above.
Investing Activities
Net cash used in investing activities decreased by $232 million for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 due to (i) a decrease in advances to affiliates and (ii) a decrease in capital expenditures, partially offset by the issuance of a note receivable - affiliate.
Financing Activities
Net cash used in financing activities decreased by $51 million for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 due to a decrease resulting from the timing of repayments of advances from affiliates, partially offset by higher repayments of debt in 2025 as compared to 2024.
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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 9—Commitments, Contingencies and Other Items for additional information.
Our network includes some residual lead-sheathed copper cables installed years ago that constitute a small portion of our network. Recent 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 September 30, 2025, 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 9—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 1 of Part I of this report, and the risk factor disclosures referenced under “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2024.
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, 2025.
Other Information
Lumen's and our website is www.lumen.com. We routinely post important investor information in the "Investors" 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) and Rule 15d-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 leadership team, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our President and Chief Executive Officer, Kate Johnson, and our Executive Vice President and Chief Financial Officer, Chris Stansbury, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2025. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2025, our disclosure controls and procedures were effective 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) and 15d-15(f) of the Exchange Act) that occurred during the third quarter of 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Procedures
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 9—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 1 of Part I of this report is incorporated herein by reference. The ultimate outcome of the matters described in Note 9 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 not significant 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, 2024.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition, results of operations, or prospects. We recommend that you carefully consider (i) the other information set forth elsewhere 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, 2024, as supplemented by the additional disclosures below:
We may not be able to complete our pending divestiture or realize the anticipated benefits thereof.
On May 21, 2025, we and certain of our affiliates agreed to sell the Lumen Mass Markets fiber-to-the-home business operated by us and certain of our affiliates in 11 states and enter into various post-closing commercial agreements with the purchaser designed to ensure the continuity of services to customers. The completion of this divestiture is subject to receipt of several regulatory approvals and other customary closing conditions, the satisfaction of which is not assured and may not occur on the timeline that we expect. The pendency of this divestiture could impact us in several ways, including impacting relationships with our customers, vendors, and employees, restricting our operations, and diverting management’s attention from operating our business in the ordinary course. If we are unable to complete the divestiture as expected, we could face significant negative consequences, including negative reactions from the financial markets and challenges in achieving our debt reduction goals, which could adversely affect our credit ratings, and cause difficulty executing on our strategic priorities, objectives, or goals. We have also incurred significant costs, including the diversion of management resources, for which we will have received little or no benefit if the divestiture does not close.
Even if we successfully complete this divestiture, we may, among other things, (i) incur greater tax or other costs or realize fewer benefits than anticipated under the purchase agreement and the post-closing commercial agreements that we and our affiliates plan to enter into with the purchaser, (ii) experience operational difficulties segregating the divested assets from our retained assets, and (iii) experience losses or increased inefficiencies from stranded or underutilized assets. Moreover, these divestitures will reduce our future cash flows and result in certain dis-synergies. In addition, we may be exposed to ongoing obligations and liabilities associated with the divestiture, including as a result of any indemnification obligations.
Changes in U.S. and foreign government administrative policy, including the imposition of, or increases in, tariffs, and changes to existing trade agreements, could have a material adverse effect on us.
As a result of changes to U.S. and foreign government administrative policy, there may be changes to existing trade agreements, the imposition of or significant increases in tariffs on goods imported into the U.S. and adverse responses by foreign governments to U.S. trade policies, among other possible changes. The U.S. administration has implemented or increased tariffs and announced it intends to implement or increase additional tariffs, and it remains unclear what the U.S. administration or foreign governments will or will not do with respect to tariffs or trade agreements and policies. A trade war; other governmental action related to tariffs or trade agreements; changes in U.S. social, political, regulatory, and economic conditions or in laws and policies governing foreign trade, manufacturing, development, and investment in the territories and countries where we currently develop and sell products; and any resulting negative sentiments toward the U.S. as a result of such changes, could have a material adverse effect on our business, results of operations or financial condition.
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ITEM 5. OTHER INFORMATION
(a)None.
(b)None.
(c)During the quarter ended September 30, 2025, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act) adopted terminated
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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 No. | Description | Incorporated by Reference | Filed or Furnished | |||||||||||||||||
Filer and File No.(1) | Form | Date(2) | ||||||||||||||||||
3.1 | Amended and Restated Articles of Incorporation of Qwest Corporation. | Registrant | 10-Q Exhibit No. 3.1 | 5/13/2013 | ||||||||||||||||
3.2 | Amended and Restated Bylaws of Qwest Corporation. | Registrant | 10-K Exhibit No. 3.3 | 1/13/2004 | ||||||||||||||||
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed | ||||||||||||||||||
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed | ||||||||||||||||||
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Furnished | ||||||||||||||||||
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Furnished | ||||||||||||||||||
101 | Financial statements from the Quarterly Report on Form 10-Q of Qwest Corporation for the period ended September 30, 2025, 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. | Filed | ||||||||||||||||||
104 | Cover page formatted as Inline XBRL and contained in Exhibit 101. | Filed | ||||||||||||||||||
_______________________________________________________________________________
(1)For purposes of this column, (i) "Registrant" means Qwest Corporation (File No. 001-03040) and (ii) "Lumen" means Lumen Technologies, Inc. (File No. 001-07784), formerly named CenturyLink, Inc., CenturyTel, Inc. and Century Telephone Enterprises, Inc.
(2)Represents (i) the date appearing on the cover page of each applicable 10-K or 10-Q report and (ii) the date of filing with respect to all other reports.
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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 October 30, 2025.
| QWEST CORPORATION | ||||||||
| By: | /s/ Donald Holt | |||||||
Donald Holt Chief Accounting Officer and Controller (Principal Accounting Officer and authorized officer) | ||||||||
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FAQ
How did Qwest (CTBB) perform in Q3 2025?
Operating revenue was $1,161 million vs. $1,363 million a year ago; operating income was $243 million vs. $498 million; net income was $176 million vs. $365 million.
What is the status of Qwest’s planned sale to AT&T?
Qwest and affiliates agreed to sell the Mass Markets fiber-to-the-home business for $5.75 billion pre‑tax cash, subject to adjustments, with closing anticipated in early 2026.
What assets did Qwest classify as held for sale in Q3 2025?
As of September 30, 2025, assets held for sale were $2,689 million and liabilities held for sale were $13 million.
How did affiliate transactions affect Qwest’s results?
Operating revenue—affiliates was $477 million in Q3 2025 vs. $570 million a year ago; interest income from affiliates rose on a $937 million note receivable.
What were Qwest’s cash flow and capex through nine months of 2025?
Net cash provided by operating activities was $1,360 million, with capital expenditures of $582 million.
What is Qwest’s debt position as of September 30, 2025?
Long‑term debt was $1,689 million carrying value, with a disclosed fair value of $1,336 million.
Did Qwest adjust depreciation due to assets held for sale?
Yes. Depreciation on the disposal group was suspended, reducing Q3 depreciation by an estimated $25 million.
Qwest
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