ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides an overview of our financial performance, liquidity, and the business environment in which we operate. This discussion is intended to help readers understand our results and key factors influencing our operations. The MD&A should be read together with our audited consolidated financial statements and accompanying notes included in Item 8. All references to “Notes” in this section refer to the Notes to Consolidated Financial Statements in Item 8.
This section includes forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed or implied. For a discussion of these risks, see “Special Note Regarding Forward-Looking Statements” immediately prior to Item 1 and “Risk Factors” in Item 1A.
The MD&A generally discusses results for the years ended December 31, 2025 and 2024, including year-over-year comparisons between these periods. For discussions of 2023 results and comparisons between 2024 and 2023 that are not in this document, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2024. We reclassified certain prior period amounts to conform to the current period presentation, including the recategorization of our Business revenue by product category and sales channel in our segment reporting for 2024 and 2023.
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OVERVIEW
We are a leading digital networking services company, empowering enterprise businesses to fuel growth in a multi-cloud, AI-first marketplace by connecting people, data, and applications quickly, securely, and effortlessly. We operate in a rapidly evolving landscape with growing demand for secure, high-speed connectivity. Our strategy focuses on growing and transforming our network and business to deliver next-generation solutions that meet these needs and build the backbone of the AI economy.
Reporting Segments
Our reporting segments are currently organized by customer focus.
• Business segment : Serves enterprise and wholesale customers through five distinct sales channels: Large Enterprise, Mid-Market Enterprise, Public Sector, Wholesale, and International and Other. Revenue is reported under four product categories: Grow, Nurture, Harvest, and Other.
• Mass Markets segment : Serves residential and small business customers. Revenue is reported under three product categories: Fiber Broadband, Other Broadband, and Voice and Other.
From time to time, we may change the categorization of our products and services. For additional information see Note 16 — Segment Information and Note 4 — Revenue Recognition in Item 8.
As of December 31, 2025, we served 2.4 million broadband subscribers under our Mass Markets segment. Our methodology for counting broadband subscribers may be different than the methodologies used by other companies.
2026 Divestiture
On May 21, 2025, we entered into a definitive agreement to sell our Mass Markets Fiber-to-the-Home business in the Territory to AT&T (the "Mass Markets Fiber-to-the-Home divestiture"). On February 2, 2026, we completed the Mass Markets Fiber-to-the-Home divestiture in exchange for pre-tax cash proceeds of $5.75 billion, subject to post-closing adjustments. In connection with the sale, we have entered into a transition services agreement under which we will provide to AT&T various support services and certain long-term agreements under which we and AT&T will provide to each other various network and other commercial services.
Current Business Environment and Macroeconomic Factors
The macroeconomic environment in which we operate remains dynamic and continues to affect our business. Key factors that have impacted us and our customers include:
• Revenue mix : Shifts in technology and economic conditions have driven us to continuously review our strategy and as such, we expect to see continued reduction in legacy voice, broadband, and other legacy services, while fueling growth in our strategic products.
• Inflationary pressures and build costs : Rising costs for labor, materials, and energy have increased operating expenses and capital expenditures, particularly to support our continued PCF buildout and other network transformations.
• Supply constraints : Shortages of critical components and other materials have slowed certain network expansion efforts.
• Customer behavior : Certain customers have delayed purchasing decisions, which has occasionally impacted sales cycles.
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To date, we do not believe these factors have materially impacted our financial performance or position. However, ongoing economic and geopolitical uncertainty, tariffs, inflation, and supply constraints could increase costs, reduce revenues, delay network expansion, or disrupt service delivery, which could materially impact our results. If these conditions persist, our projected cash flows and market capitalization could decline. For further information relating to these matters, see “— Trends Impacting Our Operations” below and "Risk Factors" in Item 1A.
We are actively managing these challenges through disciplined capital allocation, cost optimization, and strategic investments in network infrastructure. We believe these actions position us to navigate current macroeconomic conditions while pursuing long-term growth opportunities.
We expect continued demand for high-capacity, low-latency connectivity solutions, supported by enterprise digital transformation and government broadband programs. While macroeconomic uncertainty and competitive pressures present risks, we believe our transformation initiatives position us to deliver long-term value.
Trends Impacting Our Operations
Our operations are shaped by evolving technology, customer expectations, and market dynamics. Key trends that impact us, and will continue to impact us, include:
• Automation and digital innovation : Growing demand for automated experiences and advanced technologies like AI and multi-cloud platforms requires ongoing investment in technology and infrastructure to enhance service quality and reduce costs.
• Legacy decline and margin pressure : Legacy wireline services continue to shrink, while newer offerings often deliver lower margins — especially those involving third-party connectivity — necessitating cost optimization and pricing discipline.
• Globalization and network expansion amid cost pressures : Distributed business models drive demand for high-capacity, low-latency networks. We are expanding our network capacity to capture growth, while managing vendor cost increases and dis-synergies from recent divestitures.
• Monetizing network assets with execution risk : We aim to generate revenue through custom connectivity solutions, including PCF, by leveraging excess conduit and fiber assets. These opportunities can be significant but depend on market demand, regulatory conditions, and timely execution.
These and other developments and trends impacting our operations are discussed in "Risk Factors" in Item 1A and elsewhere throughout MD&A.
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RESULTS OF OPERATIONS
In this section, we discuss our overall results of operations and highlight special items that are not included in "SEGMENT RESULTS", which covers the performance of our two reporting segments in more detail.
Operating Revenue
The following table summarizes our consolidated operating revenue by segment and sales channels within the Business segment as described in Note 4 — Revenue Recognition in Item 8:
Years Ended December 31,
2025 vs 2024 % Change
2024 vs 2023 % Change
(Dollars in millions)
Business Segment:
Large Enterprise
Mid-Market Enterprise
Public Sector
Wholesale
International and Other
Business Segment Revenue
Mass Markets Segment Revenue
Total operating revenue
Operating revenue decreased $706 million in 2025 compared to 2024. See our segment results below for information on the drivers of revenue.
Operating revenue decreased $1.4 billion in 2024 compared to 2023, primarily due to $547 million from the sale of the EMEA business and the sale of select CDN contracts in the fourth quarter of 2023.
Operating Expenses
The following table summarizes our operating expenses; however, these expense categories may not be comparable to those of other companies:
Years Ended December 31,
% Change
(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)
Selling, general and administrative
Net loss on sale of businesses
Depreciation and amortization
Goodwill impairment
Total operating expenses
nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
Cost of Services and Products (exclusive of depreciation and amortization)
Cost of services and products (exclusive of depreciation and amortization) decreased $65 million in 2025 compared to 2024. This was primarily as a result of:
• a decrease of $114 million in equipment and maintenance expense;
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• an offsetting increase of $26 million in professional fees; and
• an offsetting increase of $17 million in employee-related expenses.
Selling, General and Administrative
Selling, general and administrative expenses increased $227 million in 2025 compared to 2024. This was primarily as a result of:
• an increase of $72 million in hardware and software expenses;
• an increase of $56 million in employee-related expenses;
• an increase of $49 million in fees related to our voluntary relinquishment of FCC Rural Digital Opportunity Fund (“RDOF”) funding in the second quarter of 2025; and
• an increase of $40 million related to a loss on the sale of operating assets in the first half of 2025 and recognition in the first quarter of 2024 of a deferred gain on the sale of select CDN contracts.
Net Loss on Sale of Businesses
For a discussion of the net loss on the sale of businesses that we recognized for 2025 and 2024, see Note 2 — Divestitures in Item 8.
Depreciation and Amortization
The following table provides detail of our depreciation and amortization expense:
Years Ended December 31,
% Change
(Dollars in millions)
Depreciation
Amortization
Total depreciation and amortization
Depreciation decreased $144 million in 2025 compared to 2024. This was primarily as a result of:
• a decrease of $104 million due to the discontinuation of the depreciation of the tangible assets of our Mass Markets Fiber-to-the-Home business held for sale during the second quarter of 2025;
• a decrease of $18 million from accelerated depreciation of CDN assets in 2024; and
• a decrease of $8 million due to decommissioned assets.
Amortization decreased $63 million in 2025 compared to 2024. This was primarily as a result of:
• a decrease of $45 million from accelerated amortization of software assets in 2024; and
• a decrease of $24 million associated with a net reduction in amortizable assets.
Further analysis of our segment operating expenses by segment is provided below in "Segment Results."
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Goodwill Impairments
We are required to perform impairment tests related to our goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs. The classification of our Mass Markets Fiber-to-the-Home business as held for sale, as described in Note 2 — Divestitures in Item 8, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of April 30, 2025.
As of April 30, 2025, we had three reporting units for goodwill impairment testing, which are (i) Mass Markets, (ii) North America Business ("NA Business") and (iii) Asia Pacific ("APAC") region. When we performed our impairment tests during the second quarter of 2025, we concluded that the estimated fair value of our Mass Markets reporting unit was less than our carrying value of equity for this unit as of our testing date. As a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $628 million in the second quarter of 2025.
For a discussion of the goodwill impairment we recognized in 2025, see Note 3 — Goodwill and Intangible Assets in Item 8.
Other Consolidated Results
The following tables summarize our total other expense, net and income tax expense:
Years Ended December 31,
% Change
(Dollars in millions)
Interest expense
Net (loss) gain on early retirement of debt
Other income, net
Total other expense, net
Income tax benefit
nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
Interest Expense
Interest expense decreased $88 million in 2025 compared to 2024. This was primarily as a result of:
• a decrease in average outstanding long-term debt of $1.0 billion; and
• a decrease in average interest rate from 7.50% to 7.12%.
Net (Loss) Gain on Early Retirement of Debt
For a discussion of the debt transactions that resulted in the net (loss) gain on debt that we recognized in 2025 and 2024, see Note 7 — Long-Term Debt and Credit Facilities in Item 8.
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Other Income, Net
Other income, net reflects certain items not directly related to our core operations, including:
Years Ended December 31,
(Dollars in millions)
Pension and post-retirement net periodic expense
Foreign currency gain (loss)
Gain on sale of investment
Loss on investment in limited partnership
Transition and separation services
Interest income
Other
Other income, net
Income Tax Expense
For 2025 and 2024, our effective income tax rate was 36.0% and 76.1%, respectively. The effective tax rate for 2025 includes a $333 million favorable impact driven by statute of limitations releases on uncertain tax positions previously disclosed and for 2024 includes a $135 million favorable impact of the exclusion of cancellation of debt income under Section 108 of the Internal Revenue Code in 2024.
For additional information, see Note 15 — Income Taxes in Item 8 and "CRITICAL ACCOUNTING ESTIMATES — Income Taxes" below.
SEGMENT RESULTS
In this section we provide a reconciliation of segment revenue to total operating revenue and discuss the performance of our two reporting segments. Our segment performance measurement is segment adjusted earnings before interest, tax, depreciation and amortization ("EBITDA").
Results in this section include results of our EMEA business prior to its sale on November 1, 2023:
Years Ended December 31,
(Dollars in millions)
Operating revenue:
Business
Mass Markets
Total operating revenue
For additional information on our product and services categories and our reportable segments, see Note 4 — Revenue Recognition and Note 16 — Segment Information in Item 8.
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Business Segment
Years Ended December 31,
Percent Change
(Dollars in millions)
Business Segment Product Categories:
Grow
Nurture
Harvest
Other
Total Business Segment Revenue
Expenses:
Total expense
Total adjusted EBITDA
Business Segment Revenue
Business segment revenue decreased $471 million in 2025 compared to 2024. Business segment revenue decreased $1.2 billion in 2024 compared to 2023 driven by a $547 million decrease from the sale of the EMEA business and the sale of select CDN contracts in the fourth quarter of 2023.
Business Segment Product Categories
For 2025 compared to 2024, and for 2024 compared to 2023, the following were the primary drivers within each product category:
• Grow increased $219 million in 2025. This was primarily as a result of:
◦ an increase of $112 million in revenue from dark fiber and conduit; and
◦ an increase of $74 million from growth in IP services.
• Grow decreased $115 million in 2024. This was primarily as a result of:
◦ a decrease of $272 million from the sale of the divested business in 2023;
◦ a decrease of $42 million in revenue from wavelength services;
◦ an offsetting increase of $112 million in revenue from dark fiber and conduit; and
◦ an offsetting increase of $107 million from growth in IP services.
• Nurture decreased $458 million in 2025. This was primarily as a result of:
◦ a decrease of $344 million principally attributable to declines in traditional VPN services; and
◦ a decrease of $116 million from declines in Ethernet services.
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• Nurture decreased $528 million in 2024. This was primarily as a result of:
◦ a decrease of $88 million from the sale of the divested business in 2023;
◦ a decrease of $314 million principally attributable to declines in traditional VPN services; and
◦ a decrease of $117 million from declines in Ethernet services.
• Harvest decreased $211 million in 2025. This was primarily as a result of:
◦ a decrease of $162 million principally attributable to declines in legacy voice services;
◦ a decrease of $67 million from declines in other legacy products and services; and
◦ an offsetting increase of $17 million in private line revenue attributable primarily to temporary rate increases.
• Harvest decreased $408 million in 2024. This was primarily as a result of:
◦ a decrease of $70 million from the sale of the divested business in 2023; and
◦ a decrease of $252 million from declines in legacy voice services and private line services.
• Other decreased $21 million in 2025. This was primarily as a result of:
◦ a decrease of $11 million in SAP solutions consulting services; and
◦ a decrease of $7 million in equipment sales revenue.
• Other decreased $169 million in 2024. This was primarily as a result of:
◦ a decrease of $93 million from the sale of select CDN contracts in 2023; and
◦ a decrease of $29 million in equipment sales revenue.
Business Segment Expense
Business segment expense decreased $377 million in 2025 compared to 2024. This was primarily as a result of:
• a decrease of $277 million in overall network expense; and
• a decrease of $86 million in employee-related costs due to lower headcount.
Business segment expense decreased $580 million in 2024 compared to 2023. This was primarily as a result of:
• a decrease of $209 million from the sale of the EMEA business and select CDN contracts in 2023;
• a decrease of $166 million in overall network expense; and
• a decrease of $138 million in employee-related costs.
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Business Segment Adjusted EBITDA
As a percentage of revenue, Business segment adjusted EBITDA was:
Years Ended December 31,
Segment adjusted EBITDA as a percent of segment revenue
Mass Markets Segment
Years Ended December 31,
Percent Change
(Dollars in millions)
Mass Markets Product Categories:
Fiber Broadband
Other Broadband
Voice and Other
Total Mass Markets Segment Revenue
Expenses:
Total expense
Total adjusted EBITDA
Mass Markets Segment Revenue
Mass Markets segment revenue decreased $235 million in 2025 compared to 2024 and decreased by $229 million in 2024 compared to 2023.
Mass Markets Product Categories
For 2025 compared to 2024, and for 2024 compared to 2023, the following were the primary drivers within each product category:
• Fiber Broadband increased $148 million in 2025 and increased $98 million in 2024. This was primarily as a result of growth in fiber customers, primarily driven by our increase in enabled locations from our Quantum Fiber buildout, prior to our divestiture of Mass Markets Fiber-to-the-Home, as discussed further in Note 2 — Divestitures in Item 8.
• Other Broadband decreased $218 million in 2025 and decreased $226 million in 2024. This was primarily as a result of fewer customers for lower speed copper-based broadband services.
• Voice and Other decreased $165 million in 2025 and decreased $101 million in 2024. This was primarily as a result of continued loss of copper-based voice customers. 2025 additionally decreased $46 million due to the voluntary relinquishment of our funding received under the FCC's RDOF in the second quarter of 2025. See the Liquidity and Capital Resources— Federal Broadband Support Programs in this Part II Item 7 for more information.
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Mass Markets Segment Expense
Mass Markets segment expense decreased $135 million in 2025 compared to 2024. This was primarily as a result of:
• a decrease of $62 million in employee-related costs due to lower headcount;
• a decrease of $20 million in overall network expense;
• a decrease of $18 million in marketing and advertising expense; and
• a decrease of $15 million decrease in professional fees.
Mass Markets segment expense decreased $169 million in 2024 compared to 2023. This was primarily as a result of:
• a decrease of $60 million in employee-related costs;
• a decrease of $36 million in other network related costs;
• a decrease of $33 million in professional fees; and
• a decrease of $10 million decrease in overall network expenses.
Mass Markets Segment Adjusted EBITDA
As a percentage of revenue, Mass Markets segment adjusted EBITDA was:
Years Ended December 31,
Segment adjusted EBITDA as a percent of segment revenue
LIQUIDITY AND CAPITAL RESOURCES
Overview of Sources and Uses of Cash
As a holding company, we rely on cash flows and capital resources from our subsidiaries to meet our parent-level liquidity needs. Access to subsidiary cash may be limited by debt terms, tax considerations, legal restrictions or other limitations; see "— Debt Instruments and Financing Arrangements" below and Note 7 — Long-Term Debt and Credit Facilities in Item 8.
Our primary source of liquidity is cash from operating activities. We also use our revolving credit facilities as a source of liquidity for operating activities and our other cash requirements. In addition, our recently completed Mass Markets Fiber-to-the-Home divestiture, which closed February 2, 2026, has generated significant cash proceeds subsequent to December 31, 2025, which have been primarily used to pay down debt as described below, but will also reduce our base of income-generating assets that generate our recurring cash from operating activities. Key uses of cash include operating expenses, capital expenditures, debt service, income taxes, share repurchases, pension contributions, and other benefit payments.
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Key balances as of December 31, 2025 included:
• Cash and cash equivalents : $1.0 billion
• Revolving credit availability : $722 million
• Total consolidated indebtedness : $17.8 billion
As of December 31, 2025, $76 million of our cash and cash equivalents was held outside the U.S. Certain subsidiary debt covenants may limit upstreaming of cash. We currently believe there are no material restrictions on our ability to repatriate cash and cash equivalents into the United States, and that we may do so without paying or accruing significant U.S. or foreign taxes. Other than excess foreign cash held in India, we do not currently intend to repatriate to the United States material amounts of our foreign cash and cash equivalents. See Note 15 — Income Taxes for additional information.
We regularly review liquidity and capital allocation strategies with senior management and the Board of Directors, adjusting as strategies and conditions change.
Based on current assumptions, we believe our liquidity sources — operating cash flows, available cash, and credit capacity — will be sufficient to fund near-term requirements and strategic investments. For additional information on risks that could affect liquidity, see “Risk Factors — Financial Risks” in Item 1A.
Cash Flow Activities
The following table summarizes our consolidated cash flow activities:
Years Ended December 31,
$ Change
(Dollars in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Operating Activities
Net cash provided by operating activities increased $405 million in 2025 compared to 2024. This was primarily as a result of:
• an increase in working capital due to general timing variability, as described below;
• an increase in deferred revenue related to receipt of advance cash payments pursuant to our recent sales of PCF solutions;
• an offsetting decrease due to higher net loss adjusted for non-cash expenses and gains; and
• an offsetting decrease due to the receipt of a federal income tax cash refund in the first quarter of 2024 which was not replicated in 2025.
Cash provided by operating activities is subject to variability period over period as a result of timing differences, including with respect to the collection of receivables and payments of interest expense, accounts payable, and bonuses.
For additional information about our operating results, see "Results of Operations" above.
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Investing Activities
Net cash used in investing activities increased $1.5 billion in 2025 compared to 2024. This was primarily as a result of:
• an increase of $1.1 billion in capital expenditures; and
• an increase due to $319 million lower proceeds from sales of property, plant and equipment, and other assets.
Financing Activities
Net cash used in financing activities decreased $532 million in 2025 compared to 2024 . This was primarily as a result of:
• an increase in net proceeds from issuance of long-term debt in 2025;
• an offsetting increase in net payments of long-term debt and revolving debt in 2025 compared to 2024; and
• an offsetting increase in debt extinguishment costs and fees, driven by the debt transactions in 2025 compared to those in 2024 described elsewhere herein.
See Note 7 — Long-Term Debt and Credit Facilities in Item 8 for additional information on our outstanding debt securities.
Short-term Liquidity Needs
As of December 31, 2025, we held cash and cash equivalents of $1.0 billion and had approximately $722 million of borrowing capacity available under our $954 million revolving credit facilities, net of undrawn letters of credit. These resources, together with cash generated from operating activities and any remaining proceeds from the Mass Markets Fiber-to-the Home divestiture, which closed February 2, 2026, represent our primary sources of liquidity for the next 12 months.
As of December 31, 2025, based on our current capital allocation objectives, we project expenditures for the next 12 months to include, among others, the following:
• Capital expenditures : $3.2 to $3.4 billion, primarily for network modernization and fiber expansion.
• Debt service : $51 million in scheduled term loan amortization and $37 million of finance lease obligations.
• RDOF relinquishment : $99 million for remittance of awards and associated fees — see "Federal Broadband Support Programs" below for further details.
We expect to fund these expenditures primarily through operating cash flows, supplemented by available cash and borrowing capacity as needed. Based on current assumptions, we believe our liquidity sources will be sufficient to fund near-term requirements and strategic investments.
For additional information on short-term liquidity needs, see “Future Contractual Obligations” below.
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Long-term Liquidity Needs
Beyond the next 12 months, we plan to refinance a substantial portion of maturing debt through future debt issuances, subject to market conditions and covenant restrictions. Our ability to access capital markets depends on credit ratings and prevailing interest rates, and we cannot assure favorable terms for future borrowings. We may also consider other sources of liquidity, such as equity offerings or asset dispositions, depending on market conditions.
For additional information on our credit ratings and factors that may affect our access to capital markets, see “— Future Debt Transactions” below.
For additional information on long-term liquidity needs, see “Future Contractual Obligations” below.
Impact of Strategic Transactions on Liquidity
Our liquidity and capital resources have been influenced by several strategic actions aimed at optimizing our financial position, enhancing flexibility, and supporting long-term transformation initiatives. Key actions include:
• Recent divestitures : The 2023 sale of our EMEA business and the 2026 sale of our Mass Markets Fiber-to-the-Home divestiture generated significant cash proceeds but reduced recurring operating cash flows. The Mass Markets Fiber-to-the-Home divestiture is also expected to reduce our Mass Markets fiber-related capital expenditures by approximately $1 billion annually. While this transaction is expected to reduce recurring revenue and operating cash flows, we believe it will sharpen our focus on enterprise and fiber growth and deliver significant cash proceeds to strengthen our financial position.
• PCF agreements : Advance payments under PCF agreements increased operating cash flow and deferred revenue. These payments vary by quarter and fund network expansion and simplification projects, which will increase capital expenditures. We expect to enter into additional agreements in the future to sell products and services as part of our PCF solutions but cannot provide any assurances as to these additional agreements or the anticipated benefits thereof. See "Risk Factors" in Item 1A.
We expect these and future transactions to influence cash flows, leverage, and investment capacity. While divestitures provide immediate liquidity and PCF agreements support network expansion, they also introduce variability in operating cash flows. We will continue to pursue opportunities aligned with our capital allocation priorities and market conditions.
Capital Expenditures
We regularly invest in capital projects to expand and improve services, enhance and modernize networks, fulfill contractual obligations, and strengthen our competitive position. Discretionary projects are evaluated based on strategic impact such as revenue growth, productivity, service levels, customer retention, and expected return on investment. Capital spending is influenced by demand, contractual and regulatory requirements, cash flow, and resource availability. We expect capital spending to be focused on:
• expanding our fiber network, including our other network capacity buildout plan;
• modernizing and enhancing network efficiency and reliability;
• developing new services; and
• replacing aging network assets.
These investments aim to improve service quality, drive innovation, and position us to meet future demand.
For additional details on our capital spending, see "Risk Factors" in Item 1A and “Cash Flow Activities — Investing Activities ” and “Impact of Strategic Transactions on Liquidity,” above.
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Debt Instruments and Financing Arrangements
Debt Instruments
In 2025, we actively managed our capital structure through a series of transactions designed to enhance financial flexibility and optimize our debt profile to address upcoming maturities and support ongoing transformation initiatives. These transactions reduced consolidated indebtedness and extended our weighted-average debt maturity profile.
Key debt balances as of December 31, 2025 included:
• Secured debt outstanding : $12.3 billion
• Unsecured debt outstanding : $5.3 billion
• Revolving credit availability : $722 million
For additional details on our debt and financing instruments and the debt activity below, see Note 7 — Long-Term Debt and Credit Facilities in Item 8.
2025 Debt Activity
Key transactions in 2025 included:
• Second Lien Notes Refinancing and Cash Tender Offers — Fourth Quarter : Level 3 Financing, Inc. issued $1.25 billion of 8.500% Senior Notes due 2036. Net proceeds, along with cash on hand, were used to retire the following of Level 3 Financing, Inc.'s Second Lien notes pursuant to cash tender offers:
◦ $434 million 3.875% Second Lien Notes due 2030;
◦ $703 million 4.500% Second Lien Notes due 2030; and
◦ $432 million 4.000% Second Lien Notes due 2031.
• Term Loan Repayments — Fourth Quarter: We and Level 3 Financing, Inc. repaid all $68 million of the outstanding former Term Loan B facilities due 2027.
• Second Credit Facilities Refinancing — Third Quarter : Level 3 Financing, Inc. amended and repriced its Term Loan B‑3 credit facility, replacing its Term Loan B‑3 with its Term Loan B‑4, maintaining $2.4 billion outstanding immediately following the transactions.
• First Lien Note Refinancings — Third Quarter : Level 3 Financing, Inc. issued $2.425 billion of 7.000% First Lien Notes due 2034. Net proceeds, and cash on hand, were used to redeem Level 3 Financing, Inc.'s then outstanding First Lien notes totaling approximately $2.1 billion, including:
◦ $1.4 billion First Lien 11.000% Senior Secured Notes due 2029; and
◦ $678 million 10.750% First Lien Notes due 2030.
• Cash Redemption — Third Quarter : Level 3 Financing, Inc. redeemed $350 million of its 10.000% Second Lien Notes due 2032 in exchange for cash.
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• First Lien Note Refinancing — Second Quarter : Level 3 Financing, Inc. issued $2.0 billion of 6.875% First Lien Notes due 2033. Net proceeds, and cash on hand, were used to redeem Level 3 Financing, Inc.'s then outstanding higher-coupon notes totaling $1.8 billion, including:
◦ $925 million First Lien 10.500% Senior Secured Notes due 2030;
◦ $668 million 10.500% First Lien Notes due 2029; and
◦ $167 million 11.000% First Lien Notes due 2029.
• First Credit Facilities Refinancing — First Quarter : Level 3 Financing, Inc. amended and repriced its Term Loan B‑1 and Term Loan B-2 credit facilities, replacing its Term Loan B-1 and B-2 with its Term Loan B-3, maintaining $2.4 billion outstanding immediately following the transaction, and extending maturity to 2032.
• Cash Redemptions — First Quarter : Lumen and Level 3 Financing, Inc. redeemed $202 million of unsecured Senior notes in exchange for cash.
For more details on the 2025 debt activity, see Note 7 — Long-Term Debt and Credit Facilities in Item 8.
2026 Debt Activity, to date:
Key transactions to date in 2026 included:
• Senior Secured Notes : Level 3 Financing, Inc. issued an additional $650 million of its 8.500% Senior Notes due 2036. Net proceeds from this offering were used to fund the purchase of $607 million of its Second Lien notes, including:
◦ $595 million 4.875% Second Lien Notes due 2029;
◦ $8 million 4.500% Second Lien Notes due 2030; and
◦ $4 million 3.875% Second Lien Notes due 2030
• Repurchases of Debt Instruments: Lumen applied $4.8 billion of the pre-tax proceeds from the Mass Markets Fiber-to-the-Home divestiture, along with cash on hand, to complete the following transactions:
◦ Redeem the following outstanding notes in full:
▪ $439 million 10.000% Secured Notes due 2032;
▪ $477 million 4.125% Superpriority Senior Secured Notes due 2030; and
▪ $331 million 4.125% Superpriority Senior Secured Notes due 2029
◦ Repay all of the outstanding term loans due under our Superpriority Revolving/Term Loan A Credit Agreement; and
◦ Repay all of the outstanding amounts due under our Superpriority Term B Credit Agreement in full satisfaction and discharge of its obligations thereunder.
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Liquidity and Credit Facilities Availability
As of December 31, 2025, we maintained $954 million of superpriority revolving credit facilities capacity, with none outstanding and $232 million in undrawn letters of credit, and $3.5 billion of drawn superpriority term loan facilities.
As of December 31, 2025, we had $234 million of total undrawn letters of credit, including $232 million issued under our revolving credit facilities and $2 million issued under a separate facility maintained by Lumen subsidiaries, the majority of which is collateralized by cash.
In addition to indebtedness under their above-mentioned credit agreements, Lumen and Level 3 Financing are indebted under their respective outstanding senior notes, and certain of Lumen's other subsidiaries are indebted under their respective outstanding senior notes.
For detailed terms, maturities, covenants, and outstanding balances, see Note 7 — Long-Term Debt and Credit Facilities in Item 8 and "— Other Matters" below.
Future Debt Transactions
Subject to market conditions, we expect to continue issuing debt securities as needed to refinance maturing obligations, including subsidiary debt, consistent with our capital allocation strategies and covenants. Availability, interest rates, and other terms of new borrowings will depend on credit ratings and market conditions, among other factors.
As of the filing date of this report, credit ratings for our and our subsidiaries' senior secured and unsecured debt were:
Borrower
Moody's Investors Service, Inc.
Standard & Poor's
Fitch Ratings (1)
Lumen Technologies, Inc.:
Unsecured
Caa1
Secured
B3/Caa1
Level 3 Financing, Inc.:
Unsecured
Secured
Qwest Corporation:
Unsecured
Caa1
(1) In February 2026, both Moody's and Fitch upgraded our corporate family ratings to B2 and B, representing a one-notch and two-notch upgrade, respectively.
Future changes in these ratings could impact our access to capital and borrowing costs. We cannot be certain that we will be able to borrow additional funds on favorable terms, or at all. See "Risk Factors — Financial Risks" in Item 1A.
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Income Tax Obligations
Net Operating Loss Carryforwards
As of December 31, 2025, we had approximately $982 million of U.S. federal NOLs that may be used to offset future federal taxable income. A portion of the NOLs are subject to annual usage limits under Section 382 of the Internal Revenue Code. We have a Section 382 Rights Agreement in place through late 2026 to help preserve our ability to use these NOLs. We expect to use substantially all remaining NOLs in future years, but we cannot assure you we will be able to utilize these federal NOLs as projected or at all.
See Note 15 — Income Taxes in Item 8 and "Risk Factors — Financial Risks — We may not be able to fully utilize our NOLs " in Item 1A.
Tax Law Changes
In July 2025, the U.S. enacted H.R. 1, also known as the “One, Big Beautiful Bill Act” (the “OBBBA”), which permanently allows 100% bonus depreciation, immediate expensing for domestic R&D, and favorable changes to interest expense limitations. These provisions did not have a material impact on our 2025 effective tax rate but are expected to significantly reduce our federal income tax liability. We filed a refund claim for approximately $400 million of federal estimated income taxes in July 2025 that we anticipate receiving in the first half of 2026.
The Organization for Economic Co-operation and Development ("OECD") has issued Pillar Two model rules introducing a new global minimum corporate tax of 15% for tax years effective after December 31, 2023. While the U.S. has not adopted Pillar Two legislation, certain countries in which we operate have already adopted legislation to implement Pillar Two. On January 5, 2026, the OECD announced the Side-by-Side ("SbS") package, implemented as administrative guidance and modifying the operation of Pillar Two rules that would fully exempt U.S.-parented groups from the application of certain Pillar Two top-up taxes. The SbS package also extends the current Transitional Country-by-Country Reporting ("CbCR") Safe Harbor by one year, through the end of fiscal year of 2027.The Pillar Two rules have increased our compliance requirements but did not materially impact our 2025 results. We continue to monitor evolving global and domestic tax legislation and administrative guidance.
Tax Payments and Refunds
In addition to the expected refund described above, in January 2024, Lumen received a $729 million federal income tax refund, including interest. Future tax payments will depend on many factors, including our future earnings, tax law changes, and any taxable transactions.
Pension and Post-Retirement Benefit Obligations
We maintain significant pension and post-retirement benefit plans that require ongoing cash outflows and could affect our liquidity and financial flexibility. These obligations are sensitive to market conditions and actuarial assumptions, and adverse changes could increase funding requirements and reduce cash available for other uses.
Current Status
As of December 31, 2025, our unfunded obligations were:
• Pension plans : $588 million
• Post-retirement plans : $1.7 billion
The expected long-term rate of return on pension assets, net of administrative expenses, was 6.5% for 2025 and is 6.5% for 2026. Actual investment performance may differ substantially from these assumptions, which could influence future funding needs. Lower asset returns or interest rates could increase our obligations and may require additional contributions, reducing cash available for other uses. For additional details, see “CRITICAL ACCOUNTING ESTIMATES — Pension and Post-retirement Benefits” in Item 7 and Note 11 — Employee Benefits in Item 8.
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Funding and Contributions
Benefits under the Combined Pension Plan are paid from its trust. Based on current laws and circumstances, we do not expect required contributions in 2026. Future contribution requirements will depend on factors such as investment performance, interest rates, demographics, plan changes, and funding regulations.
We may make voluntary contributions; none were made in 2025. We made a voluntary contribution to the trust for the Combined Pension Plan of $101 million in January 2026 and $170 million in 2024. Any required or voluntary contributions could reduce available cash and impact liquidity.
Settlements
We occasionally offer lump-sum settlements to certain former employees. Settlement accounting applies only when the total lump-sum payments exceed the settlement threshold, which equals the combined annual service cost and interest cost of the net periodic pension benefit expense. This threshold was not exceeded in 2025, 2024, or 2023. Future workforce reductions could result in annual lump-sum payments that trigger settlement accounting, potentially increasing earnings volatility.
Post-Retirement Benefits
Substantially all post-retirement health care and life insurance benefits are unfunded and paid from operating cash. Aggregate benefits paid under these plans, net of participant contributions and subsidies, were $172 million, $185 million, and $194 million for 2025, 2024, and 2023, respectively. In 2026, we currently expect to pay directly $181 million of post-retirement benefits, net of participant contributions and direct subsidies. See Note 11 — Employee Benefits in Item 8 for further discussion of expected future payments.
Future Contractual Obligations
We maintain obligations related to debt, leases, purchase commitments, and asset retirement, among others. Our estimated future obligations as of December 31, 2025 include:
Footnote Reference
Current
Obligation
(within next 12 months)
Long-term
Obligation
(beyond next 12 months)
Total
(Dollars in millions)
Long-term debt (excluding unamortized premiums, net and unamortized debt issuance costs)
Note 7 — Long-Term Debt and Credit Facilities
Operating leases
Note 5 — Leases
Right-of-way agreements and purchase commitments
Note 17 — Commitments, Contingencies and Other Items
Asset retirement obligations
Note 9 — Property, Plant and Equipment
Pension and post-retirement benefit plans unfunded obligations
Note 11 — Employee Benefits
Total
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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 the entirety of our RDOF awards. As a result, we will no longer receive funding through the RDOF program and recognized a reduction to revenue of $46 million in our consolidated statements of operations in the second quarter of 2025. We also incurred fees totaling $49 million in connection therewith, which are reflected in our operating expenses within our consolidated statements of operations. In January 2026, we paid the $95 million of revenue and fees summarized above, along with an additional $4 million relating to our 2024 relinquishment as repayment of funds previously received and remittance of the fees incurred.
Federal officials continue to advance broadband‑related proposals, and Congress has authorized a $65 billion program to expand broadband affordability and access. State and federal agencies are in the process of implementing these initiatives, and we expect that the release of associated funding may increase competition in newly served markets.
For additional information on these programs, see Note 4 — Revenue Recognition in Item 8, "Business — Regulation of Our Business" in Item 1, and "Risk Factors — Legal and Regulatory Risks" in Item 1A.
Other Matters
We maintain cash management and intercompany loan arrangements with most of our income-generating subsidiaries. Under these arrangements, a significant portion of subsidiary cash is periodically advanced or loaned to us or our service company affiliate. We repay these advances as needed to meet subsidiary cash requirements; however, at any point in time, we may owe a substantial amount to our subsidiaries. In accordance with GAAP, these balances are reflected on the subsidiaries’ balance sheets but eliminated in consolidation and therefore do not appear on our consolidated balance sheet. For additional information, see “Risk Factors” in Item 1A.
Our network includes a limited number of legacy lead-sheathed copper cables. Previous media reports regarding potential health and environmental risks associated with these cables have led to regulatory inquiries and lawsuits, and may result in legislative or regulatory actions, removal costs, compliance costs, or penalties. As of December 31, 2025, we have not recorded any accruals for such costs and will only accrue such costs when they become probable and reasonably estimable. For more information on related litigation and risks, see Note 17 — Commitments, Contingencies and Other Items in Item 8 and “Risk Factors” in Item 1A.
We are also involved in other legal proceedings that could materially affect our financial position. See Note 17 — Commitments, Contingencies and Other Items in Item 8.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue, and expenses. Certain policies and estimates are considered critical because they involve significant judgments and assumptions and could materially impact our financial statements. These include:
• goodwill and intangible assets;
• pension and post-retirement benefits;
• loss contingencies; and
• income taxes.
While we believe our estimates are reasonable based on information available at the time they were made, actual results may differ and could be material.
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Goodwill and Intangible Assets
Historically, we had a significant amount of goodwill and have intangible assets that are assessed at least annually for impairment. As of December 31, 2025, intangible assets totaled $4.5 billion (excluding goodwill and intangible assets classified as held for sale), representing 13% of our total assets. Our remaining goodwill was fully impaired or reclassified as held for sale as of December 31, 2025. The impairment analyses of these assets are considered critical because of their significance to us and our segments, the subjective nature of certain assumptions used to estimate fair value, and because it can materially impact reported results and future expense.
Allocation and Amortization
Goodwill was allocated to our reporting units within the Business and Mass Markets segments when there is a change in composition. Intangible assets acquired in business combinations — such as goodwill, customer relationships, capitalized software, trademarks, and trade names — are recorded at estimated fair value at acquisition. Other intangible assets, primarily capitalized software, not arising from business combinations are initially recorded at cost.
Intangible assets without legal, regulatory, contractual, or other limiting factors are classified as indefinite-lived and are not amortized. For finite-lived intangible assets, we amortize using the straight-line method over the following estimated lives:
• Customer relationships : 7 - 14 years
• Capitalized software : 3 - 7 years
• Other intangible assets : 9 - 20 years
The amount of future amortization expense may differ materially from current amounts, depending on the results of our annual reviews.
Impairment Testing
Goodwill
Goodwill is tested annually as of October 31, or more frequently if events or changes in circumstances indicate potential impairment. We first consider qualitative factors. If necessary, we perform a quantitative test comparing the reporting unit’s estimated fair value to its carrying amount. If fair value is lower, we record a non-cash impairment charge for the difference.
Prior to the Mass Markets Fiber-to-the-Home business divestiture, we had three reporting units for goodwill testing: Mass Markets, NA Business, and APAC. Prior to the divestiture in 2023, the EMEA region was considered its own reporting unit. Our reporting units are not discrete legal entities with discrete full financial statements. Reporting units share assets and liabilities, which are allocated based on relative revenue or EBITDA. These allocations can materially affect fair value estimates. For each reporting unit, we compare its estimated fair value of equity to the carrying value of equity that we assign to the reporting unit.
Intangible Assets
Finite-lived intangible assets are evaluated for impairment when triggering events or changes in circumstances occur.
Fair Value Estimation
Depending on the facts and circumstances, we typically estimate the fair value of our reporting units by considering either or both of (i) a discounted cash flow method and (ii) a market approach.
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Discounted Cash Flow Method
Under the discounted cash flow method, we estimate fair value by calculating the present value of projected cash flows over a discrete period plus a terminal value based on normalized future cash flows.
• Cash flow projections : Derived from estimates developed from our long-range plan, informed by industry trends — including wireline-specific factors — competitive landscape, product lifecycles, operational initiatives, and capital allocation strategies. These projections consider recent historical results and are consistent with our short-term financial forecasts and long-term business strategies.
• Discount rate : Determined using a weighted average cost of capital, reflecting market participant assumptions for cost of equity and after-tax cost of debt, and incorporating risks inherent in the projections.
• Terminal value : Represents expected normalized cash flows beyond the discrete projection period.
• Uncertainty : Actual cash flows may differ significantly from projections due to inherent uncertainties.
Market Approach
Under the market approach, we estimate fair value of a reporting unit based upon market multiples applied to the reporting unit’s revenue and EBITDA, adjusted for an appropriate control premium based on recent market transactions.
• Market multiples : Derived using publicly traded companies whose services and operating characteristics are comparable to ours.
• Revenue and EBITDA : Derived using actual results and estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of certain strategic initiatives.
• Weighting : Revenue and EBITDA multiples are weighted based on the characteristics of each reporting unit.
• Control premium : Our implied control premium is a factor used to evaluate our fair value assessment and is evaluated for reasonableness, as described in the "Reconciliation" bullet below.
Our development of fair value estimates under both the discounted cash flow method and the market approach method are subject to inherent uncertainties and rely on assumptions about industry trends, competitive conditions, product lifecycles, and capital allocation.
• Reconciliation : Estimated fair values are reconciled to our market capitalization to ensure reasonableness compared to market transactions.
Sensitivity and Risk Factors
Changes in assumptions used in the discounted cash flow method or market approach — such as asset and liability allocations — can materially affect fair value estimates, and actual results could vary significantly from our estimates and assumptions.
We perform sensitivity analyses using a range of discount rates and EBITDA multiples and believe our methods and assumptions are reasonable. However, any changes to these inputs can significantly impact whether impairment charges are required and the magnitude of those charges.
For additional information on our goodwill balances by segment and results of our impairment analyses, see Note 3 — Goodwill and Intangible Assets in Item 8.
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Pension and Post-retirement Benefits
We sponsor a noncontributory qualified defined benefit pension plan (the “Combined Pension Plan”), and several non-qualified pension plans for certain eligible highly compensated employees. Non-qualified plans are excluded from the disclosures below due to their immaterial impact on consolidated results. We also provide post-retirement health care and life insurance benefits to certain eligible retirees. See Note 11 — Employee Benefits in Item 8 for detailed plan descriptions, funding status, and investment strategies.
Our obligations are based on actuarial valuations requiring significant judgment and assumptions, including discount rate, mortality rates, and expected rate of return on plan assets. We consider these estimates critical because they involve complex actuarial models and significant judgment, and small changes can materially impact our financial condition and results of operations.
Key Assumptions
In computing our pension and post-retirement health care and life insurance benefit obligations, our most significant assumptions are the discount rate and mortality rates. In computing our periodic pension expense, our most significant assumptions are the discount rate and the expected rate of return on plan assets. In computing our post-retirement benefit expense, our most significant assumption is the discount rate.
Discount rate : The discount rate reflects the rate at which obligations could be settled at year-end, determined based on a cash flow matching analysis using hypothetical yield curves from high-quality U.S. corporate bonds and projected benefit payments. This process ensures a uniform rate that produces the same present value of the estimated future benefit payments as is generated by discounting each year’s benefit payments by spot rates derived from yields on the 60th–90th percentile of high-quality bonds.
Mortality rates : Mortality assumptions help predict the expected life of plan participants and are based on published tables from the Society of Actuaries (“SOA”), which update life expectancy projections for North America. We adopt new tables immediately upon release. No updates were issued in 2025, 2024, or 2023.
Expected rate of return : The expected return on plan assets is the long-term return we anticipate earning on the plans’ assets, net of administrative expenses. The rate is determined based on the strategic allocation of plan assets and long-term risk and return forecasts for each asset class. These forecasts are primarily derived from third-party investment management organizations, to which we add a factor of 50 basis points to reflect the benefit we expect to result from our active management of the assets. The rate is reviewed annually by management and our Board of Directors and adjusted as needed for market or investment strategy changes.
These assumptions are based on future events and are inherently uncertain, actual results may differ materially from estimates. Management monitors these assumptions regularly and updates them based on market conditions, plan experience, and other relevant factors.
Actuarial Losses and Gains
Actuarial gains and losses arise when actual experience differs from these assumptions or when assumptions are updated. These gains and losses are recorded in Other Comprehensive Income and amortized into earnings over time.
As of January 1, 2025, the Combined Pension Plan net actuarial loss balance was $1.4 billion with 65% subject to amortization over an average remaining service period of 9 years and 35% indefinitely deferred. As of January 1, 2025 the post-retirement benefit plans net actuarial gain balance was $404 million with 75% subject to amortization and 25% indefinitely deferred.
As of January 1, 2024 the Combined Pension Plan net actuarial loss balance was $1.4 billion with 64% subject to amortization over an average remaining service period of 13 years and 36% indefinitely deferred. As of January 1, 2024 the post-retirement benefit plans net actuarial gain balance was $337 million with 75% subject to amortization and 25% indefinitely deferred.
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As of the January 1, 2023 the Combined Pension Plan net actuarial loss balance of $1.4 billion, 62% was subject to amortization over an average remaining service period of 14 years and 38% indefinitely deferred during 2023. As of January 1, 2023 the post-retirement benefit plans net actuarial gain balance was $371 million with 56% subject to amortization and 44% indefinitely deferred.
Sensitivity Analysis
Changes in any of the assumptions used could significantly affect benefit obligations and expenses. The following table illustrates the estimated impact on benefit obligations assuming a hypothetical one percentage point change in the discount rate.
Percentage point change
Increase/(decrease) in Benefit Obligation
as of December 31, 2025
(Dollars in millions)
Combined Pension Plan discount rate
Post-retirement benefit plans discount rate
Similarly, changes in mortality assumptions or asset return expectations could significantly affect net periodic benefit cost and other comprehensive income. Because these assumptions are inherently uncertain and based on future events, actual results may differ materially from estimates.
Loss Contingencies
We are involved in several potentially material legal proceedings, as described in Note 17 — Commitments, Contingencies and Other Items in Item 8. Accounting for these matters requires significant judgment due to inherent uncertainty, complex legal interpretations, and evolving circumstances. We recognize an expense when a loss is probable and reasonably estimable. Determining whether a loss is probable and reasonably estimable involves significant judgment and assumptions about future events. These assumptions include legal interpretations, regulatory developments, and estimates of potential exposure. Actual outcomes may differ from these estimates, and such differences could materially affect our consolidated financial statements. Changes in assumptions or new developments could significantly increase or decrease earnings.
We evaluate these and other pending or threatened tax and legal matters on a quarterly basis.
Income Taxes
Given the significant judgment, inherent complexity, uncertainty of outcomes, varying internal and external factors, and overall potential to materially impact our financial results, we consider various aspects related to income taxes to be critical accounting estimates.
Uncertain Tax Positions
We apply the “more-likely-than-not” threshold when determining uncertain tax positions. This involves significant uncertainty because it requires management to apply judgment and make assumptions when estimating exposures related to various tax positions. We do not recognize any portion of an uncertain tax position if, in our judgment, the position has less than a 50% likelihood of being sustained. The validity of any tax position is ultimately a matter of tax law; the body of statutory, regulatory, and interpretive guidance on the application of the law is complex and often ambiguous, particularly in certain non-U.S. jurisdictions in which we operate. As such, our judgments may not be upheld, which could materially affect our consolidated financial statements. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be adverse to Lumen and exceed the amount reserved. We evaluate these tax matters on a quarterly basis.
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Deferred Taxes
Our provision for income taxes includes amounts for current and deferred tax consequences. Deferred tax assets and liabilities reflect future tax effects of:
• tax credit carryforwards;
• differences between financial statement carrying values of assets and liabilities and tax basis of those assets and liabilities; and
• NOLs and other tax attribute carryforwards.
Deferred taxes are computed using enacted tax rates expected to apply in the year in which the temporary differences are expected to affect taxable income. Changes in tax rates impacting deferred income tax assets and liabilities are recognized in earnings in the period of enactment.
The measurement of deferred taxes requires significant judgment related to the realization of tax basis. We evaluate whether tax positions taken in filed returns are more likely than not to be sustained upon audit. Determining applicable tax rates and timing of reversals involves judgment about future income apportionment among jurisdictions. Changes in our practices or these judgments could materially affect our financial condition and results of operations.
Valuation Allowances
We establish valuation allowances when it is more likely than not that some or all deferred tax assets will not be realized. This assessment considers recent pre-tax earnings, forecasts of future earnings, and the timing and nature of deductions and benefits, all of which involve the exercise of significant judgment. We review valuation allowances quarterly and adjust as needed for changes in tax law, interactions with taxing authorities, developments in case law, or other relevant factors.
As of December 31, 2025, we had a valuation allowance of $328 million, primarily related to state NOLs expected to expire unused. Future changes in earnings forecasts or the nature and estimated timing of future deductions and benefits may require adjustments to valuation allowances, which could materially impact our financial condition or results of operations.
We evaluate tax matters on a quarterly basis; see Note 15 — Income Taxes in Item 8 for additional details.
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