SUCCESS ENABLERS
Our Story
We are an international facilities-based technology
and communications company focused on providing
our business and residential customers with a broad
array of integrated services and solutions necessary
to fully empower our customers in a rapidly evolving
digital world, which is undergoing the “4th Industrial
Revolution” or simply “4IR”.
We operate one of the world’s most interconnected networks.
Our platform empowers our customers to rapidly adjust
their digital programs to meet immediate demands, create
efficiencies, accelerate market access and reduce costs.
This allows customers to rapidly evolve their information,
communications and technology programs to address dynamic
changes without distraction from their core competencies. By
empowering our customers to rapidly acquire, analyze and act
on data, we are furthering human progress through technology
and enabling our customers to thrive in the 4IR.
Our Purpose
Lumen’s purpose to further human progress through
technology is guided by our belief that humanity is at
its best when technology advances the way we live
and work.
We believe realizing our purpose depends on continuing to listen to
the voice of our employees. We strive to meet our Employee Value
Proposition, which includes attracting and retaining amazing people,
promoting high quality people leaders, fostering an inclusive and
flexible environment, maintaining a culture of recognition and
rewarding outstanding achievement. Our Unifying Principles remain
the foundation on which we build value. Going forward, our Success
Enablers of Owning our Commitments, Growing Lumen, Ourselves &
Others, and Being Inclusive are key to Lumen’s success.
CEO
Letter
Dear Fellow Shareholders
As we close the books on 2021, we look forward to what the future holds for Lumen. We ended the year
strong, driving continued sales momentum as enterprise customers see the value of the Lumen
Platform to meet their needs to acquire, analyze, and act on data. We are continuing to augment the
Lumen Platform, enabling new technologies and expanding our addressable market opportunity.
We are confident in our ability to grow revenue in the coming years as we are seeing early traction with
edge compute and our Quantum Fiber build plan. Quantum Fiber enablements are expected to ramp
in 2022 from our 400,000 location historical run rate to as many as 1.5 to 2 million locations exiting the
year. The broadband penetration rate of our Quantum Fiber-enabled locations is already more than
double that of our copper-enabled locations. 2022 is an investment year for Lumen. We expect to
improve our product portfolio and go-to-market initiatives as we drive towards revenue growth. At the
same time, we will continue investing to transform our delivery model to optimize both customer
experience and operational efficiency.
CHANGES IN YEAR 2 OF COVID-19
DIVESTITURE TRANSACTIONS
The ongoing pandemic continued to impact individuals
and enterprises around the globe in 2021. With the lessons
learned through our response in 2020, Lumen has
transformed how we operate. But amidst all the change,
one thing remained constant: we never lost sight of the
importance of providing scalable, flexible connectivity to
our customers. It is what we do best and is fundamental to
our purpose of “furthering human progress through
technology.”
As an organization, we have demonstrated that many of
our employees can work virtually from anywhere. As we
pivot to what the future of work looks like for Lumen,
manager enablement is critical. We have focused on
leveraging forums to engage directly with our people
leaders to ensure they have the tools, resources and
information needed to be successful and lead their teams.
The future of work we envision for Lumen continues to
focus on supporting and enabling our customers and
employees and meeting their needs in a post-COVID-19
world.
We have recently begun bringing employees back to the
office while also allowing more flexibility to meet the needs
of our organization and our workforce. We expect
approximately 60% of our workforce to work remotely or
maintain a hybrid schedule. Our localized approach and
commitment to managing the needs of our customers, the
organization and our employees will not waiver.
On July 25, 2021, we entered into a definitive agreement to
divest our Latin American business to affiliates of
Stonepeak Partners LP in exchange for $2.7 billion cash,
subject to adjustments and related transaction expenses.
On August 3, 2021, we entered into a definitive agreement
to divest our incumbent local exchange ("ILEC") business
conducted within 20 Midwestern and Southern states to
affiliates of Apollo Global Management, Inc. in exchange for
$7.5 billion, subject to offsets for assumed indebtedness,
taxes, transaction expenses, and other customary purchase
price adjustments.
The transaction to divest our Latin American business will
unlock value for our shareholders while allowing us to
maintain our global presence through our strategic
relationship with Stonepeak Partners LP, who will operate
the independent, U.S. headquartered portfolio company.
The transaction allows Lumen to focus investments in key
areas of the business to drive future growth while providing
flexibility for our capital allocation strategy.
We also believe the transaction to sell our ILEC business is
an important step in our continued efforts to transform
Lumen and drive future growth for our company. We were
pleased with the attractive valuation we received for both
the Latin American and ILEC businesses, which highlights
the overall value of Lumen’s extensive asset portfolio.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
1
CEO LETTER
Throughout the year, we recognized
the importance of our services through
what we do best: providing scalable,
flexible connectivity to further human
progress through technology
We are making excellent progress toward closing the
announced divestitures, which will sharpen the focus of our
investments on the most strategic areas of our business
and improve our revenue mix. The net proceeds will
provide us with the flexibility to pay down debt and invest
for growth.
LUMEN BRAND ONE YEAR LATER
As we look back on our first year under the new Lumen
brand name, we have received a positive reception both
from an internal and external perspective.
Externally, we are gaining strong traction in our shift
towards becoming a technology company. Our focus has
shifted away from offering purely network-centric services
and towards delivering a secure platform for next
generation apps on the Lumen Platform. Four out of five IT
decision makers are now familiar with Lumen with nearly
two-thirds of them viewing Lumen as a technology
company, rather than a telecommunications company, and
over half would consider purchasing Lumen solutions.
Internally, the rebranding has been tremendously useful to
rally the Company towards enterprise growth and focusing
on our new identity as a technology company. We are
investing in the digital experience across the customer
journey, and our Customer Success organization is focused
on driving a better customer experience. We are all aligned
behind this Digital-First culture change, beginning with
the stake in the ground to become Lumen and the launch
of Quantum Fiber.
ESG AND CORPORATE
GOVERNANCE INITIATIVES
In the Fall of 2020 and the Spring of 2021, we began
discussing plans to re-think our ESG program and
disclosures to better reflect Lumen’s re-brand and
identify our best sustainability opportunities. While we
have traditionally had a strong Corporate Responsibility
program, we tended to separately manage “E”, “S”, and “G”.
During 2021 we pivoted, and our new sustainability strategy
focuses on integrating a cohesive and coordinated
sustainability vision supporting Lumen’s overall business
strategy.
We are evolving our strategy, with a focus on
communicating issues, risks, and opportunities significant
to our industry and business. In an effort to elevate our
communication and inform our stakeholders of the steps
Lumen is undertaking to address sustainability matters, we
completed a third-party materiality assessment in August
2021, designed to inform our strategy and establish
meaningful goals for Lumen and our long-term vision. We
have also established a Lumen Sustainability Management
committee which is responsible for driving our
sustainability agenda with the Board and senior leadership.
On the corporate governance front we have been focusing
on raising transparency around Board oversight. We
continue our practice of having robust year-round
shareholder engagement to learn more about the trends
and opportunities impacting our shareholders and how we
can best be responsive to their concerns. Our disclosure
strategy is ever evolving, and we are working to incorporate
greater detail and integrated messaging throughout our
periodic reports, proxy statement, and ESG report.
One of our focuses in 2021 continued to be around board
diversity and refreshment. We work to ensure our Board is
identifying, maintaining, and evolving the complementary
skills, experiences, and perspectives needed to pursue a
successful strategy and realize Lumen’s long-term vision.
2
CEO LETTER
We embrace the rich mix of cultures,
viewpoints and backgrounds that come
from our diverse global workforce,
and we draw from their experiences
in all areas of the business – from
company culture to customers to the
communities we serve.
Effective with the annual meeting, our average Board
tenure will now be 7.7 years, well below our target
maximum of 10 years and down from 9 years in 2019 and 12
years in 2018. For 2022, we are proposing an 11-director
slate, within our objective for 10 to 12 directors. We remain
committed to our other targets and expectations related to
key Board composition and governance policies, including:
• Rotating Board chairs and assignments every five years;
• With the exception of the CEO, having all Board
members be independent, which is the case with the
director nominees up for election this year; and
• Continually enhancing critical skills for our Board,
through both Board refreshment and targeted
education programs for current directors.
The Board believes that year-round engagement with
our shareholders is a critical component in our efforts
to continually enhance our governance practices. We
appreciate and value your ongoing feedback.
ANNUAL MEETING
This year, our virtual annual meeting will be held
on Wednesday, May 18 at noon CT. Details on how to
register can be found in the accompanying
proxy statement. As always, we encourage you to vote your
shares prior to the annual meeting.
In closing, on behalf of the entire Board of Directors, thank
you for your investment in and support of Lumen. We are
glad to have you along with us on this journey.
Regards,
Jeff Storey
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LUMEN TECHNOLOGIES
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
3
Table of
Contents
Overview
Notice of 2022 Annual Shareholders Meeting
About Lumen
Proxy Voting Roadmap
Governance
ITEM 1
Election of Directors
Board of Directors and Governance
Board Composition – Qualifications
Skills and Diversity
Our Director Nominees
How Our Board is Evaluated and Selected
How Our Board is Organized
Board Committees
Our Board’s Responsibilities & Engagement
Director Compensation
ITEM 2
Ratify KPMG as Our 2022
Independent Auditor
Audit Committee Report
Annual Evaluation and Selection of
Independent Auditors
Audit and Other Fees
Compensation
Our Executive Officers
ITEM 3
Advisory Vote on Executive
Compensation – “Say-On-Pay”
Compensation Discussion & Analysis
SECTION ONE
Executive Summary
2021 Executive Compensation Aligned with
Business Performance
Lumen Business Highlights
7
8
12
14
16
16
18
24
25
26
28
36
39
40
42
43
44
46
47
48
48
48
Shareholder Engagement and 2021 Compensation
Enhancements
New Independent Compensation Consultant
SECTION TWO
Compensation Philosophy and Oversight
Compensation Objectives and Design
Our Pay Elements
SECTION THREE
Pay and Performance Alignment
Goal Setting
Incentive Program Guidelines
Pay Mix
Realized and Realizable Pay for Our CEO
SECTION FOUR
Compensation Design, Awards and
Payouts for 2021
Target Compensation
Base Salary
2021 Short-Term Incentive Program
2021 Long-Term Incentive Compensation
Other Benefits
SECTION FIVE
HRCC Engagement and
Compensation Governance
HRCC Human Capital Resources Priorities
HRCC Executive Compensation Review Process
Role of CEO and Management
Role of Compensation Consultants
Role of Peer Companies
Our Governance of Executive Compensation
Human Resources and Compensation
Committee Report
Compensation Tables
Summary Compensation Table
Grant of Plan Based Awards
Outstanding Equity Awards
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
50
50
51
51
53
55
55
55
57
58
59
59
59
60
66
69
71
71
73
74
74
74
78
81
82
82
83
84
5
TABLE OF CONTENTS
Stock Vesting Table
Pension Benefits
Deferred Compensation
Potential Termination Payments
CEO Pay Ratio Disclosure
Stock Ownership Guidelines
Other Items
OTHER MATTERS
Stock Ownership
Ownership of Executive Officers &
Directors
Transactions with Related Parties
Delinquent Section 16(a) Reports
Compensation Committee Interlocks
and Insider Participation
Lumen Performance History
Frequently asked Questions about
Voting and The Annual Meeting
OTHER INFORMATION
PROXY MATERIALS
Annual Financial Report
Appendices
APPENDIX A - Non-GAAP Reconciliations
APPENDIX B - Annual Financial Report
85
85
86
87
91
91
92
92
93
94
94
94
95
96
101
101
101
A-1
B-1
6
FORWARD-LOOKING
STATEMENTS
Except for historical and factual information contained
herein, matters set forth in our 2022 proxy materials
identified by words such as “expects,” “believes,” “will” and
similar expressions are forward-looking statements as
defined by the federal securities laws and are subject to the
“safe harbor” protection thereunder. These forward-looking
statements are not guarantees of future results and are
based on current expectations only and are subject to
uncertainties. Actual events and results may differ materially
from those anticipated by us in those statements due to
several factors, including those disclosed in our other filings
with the SEC. We may change our intentions or plans
discussed in our forward-looking statements without notice
at any time and for any reason.
CERTAIN DEFINED TERMS
All references in this proxy statement or related materials to
“we,” “us,” “our,” the “Company” or “Lumen” refer to Lumen
Technologies, Inc. In addition, each reference to (i) the
“Board” refers to our Board of Directors, (ii) “Voting Shares”
refers collectively to our shares of Common Stock (“Common
Shares”) and shares of Series L Preferred Stock (“Preferred
Shares”), (iii) “Meeting,” “the meeting” “annual shareholders
meeting” or “annual meeting” refers to the 2022 annual
meeting of our shareholders described further herein, (iv)
“named executives,” “named officers,” “named executive
officers” or “NEOs” refers to the five officers listed in the
Summary Compensation Table in this proxy statement, (v)
“HRCC” refers to the Human Resources and Compensation
Committee of our Board, (vi) “NCG Committee” refers to the
Nominating and Corporate Governance Committee of our
Board, (vii) “SLT”, “senior leadership team” or “senior officers”
refers to our executive officers and a limited number of
additional officers whose compensation is determined by the
HRCC, (viii) “Qwest” refers to Qwest Communications
International Inc., which we acquired on April 1, 2011, (ix)
“Level 3” refers to Level 3 Parent, LLC and its predecessor,
Level 3 Communications, Inc., (x) “Level 3 Combination” refers
to our business combination with Level 3, which was
consummated on November 1, 2017, (xi) “SEC” refers to the
U.S. Securities and Exchange Commission, (xii) “ESG” refers to
environmental, social and governance, (xiii) “GAAP” refers to
U.S. generally accepted accounting principles, (xiv) “NYSE”
refers to the New York Stock Exchange., (xv) “TSR” refers to
total shareholder return; (xvi) “STI” refers to short-term
incentive compensation, (xvii) “LTI” refers to long-term
incentive compensation, (xviii) “CD&A” refers to the
“Compensation, Discussion and Analysis” section of this proxy
statement, (xix) “SOP” refers to Say on Pay, and (xx) “4IR”
refers the 4th Industrial Revolution. Unless otherwise
provided, all information is presented as of the date of this
proxy statement.
Notice of 2022 Annual
Shareholders Meeting
2022 ANNUAL MEETING INFORMATION
Date and Time
Location
Record Date
Wednesday
May 18, 2022
12:00 noon CT
virtualshareholder
meeting.com/
LUMN2022
You can vote if you were
a shareholder of record
at the close of business
on March 24, 2022.
Proxy Mail Date
On or about
April 7, 2022
ITEMS OF BUSINESS
ITEM 1
Elect the 11 Director nominees
named in this proxy statement
ITEM 2
Ratify the appointment of KPMG
LLP as our independent auditor
for 2022
ITEM 3
Conduct a non-binding advisory
vote to approve our executive
compensation
Vote FOR
See page 14
Vote FOR
See page 39
Vote FOR
See page 46
Transact other business that may properly come before the annual meeting
PROXY VOTING
Shareholders are invited to attend the live virtual meeting. Even if you expect to attend, we urge you to vote in advance
using any of the following methods:
Your vote is important to us. We urge your participation.
By Internet
By phone
By mail
visit proxyvote.
com
1-800-690-6903
mark, sign, date & return
proxy card
Live virtual
meeting
vote electronically
at the virtual
annual meeting
Headquarters: 100 CenturyLink Drive, Monroe, LA 71203
Meeting Details: See “Frequently Asked Questions” in this proxy statement for further details.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held on
May 18, 2022
The Notice of 2022 Annual Meeting, Proxy Statement, and 2021 Annual Report and information on the means to vote by
Internet are available at proxyvote.com
Stacey W. Goff, Secretary
April 7, 2022
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
7
About
Lumen
Who We Are
We are an international facilities-based technology and
communications company focused on providing our business and
residential customers with a broad array of integrated services and
solutions necessary to fully participate in our rapidly evolving digital
world, which we believe is undergoing the 4th Industrial Revolution
(4IR). We operate one of the world’s most interconnected networks and
our platform empowers our customers to rapidly adjust digital
programs to meet immediate demands, create efficiencies, accelerate
market access and reduce costs – enabling customers to rapidly evolve
their information, communications and technology programs to
address dynamic changes without distraction from their core
competencies. By empowering our customers to rapidly acquire,
analyze and act on data, we are furthering human progress through
technology and enabling our customers to thrive.
In 2020, we launched the Lumen Platform and rebranded from CenturyLink to
Lumen Technologies to better position us for the future. The Lumen brand speaks
to the way that we interface differently with our customers with a focus on
delivering digital experiences that are designed to drive their success as they
navigate the 4IR.
We conduct our operations under the following three brands: (i) “Lumen,” which is
our flagship brand for serving the enterprise and wholesale markets, (ii) “Quantum
Fiber,” which is our brand for providing fiber-based services to residential and small
business customers, and (iii) “CenturyLink,” which is our long-standing brand for
providing mass-marketed legacy copper-based services.
With approximately 190,000 on-net buildings and 500,000 route miles of fiber optic
cable globally, we are among the largest providers of communications services to
domestic and global enterprise customers. Our terrestrial and subsea fiber optic
long-haul network throughout North America, Europe, Latin America and Asia
Pacific connects to the metropolitan fiber networks we operate. We provide services
in over 60 countries, with most of our revenue being derived in the United States.
We believe our secure global platform plays a central role in facilitating
communications worldwide.
8
Key 2021 Financial Highlights
During 2021, we delivered solid results, despite the ongoing global pandemic.
Specifically, we:
•
Reported Net Income of $2.033 billion for the full year 2021, compared to a reported Net Loss of
$1.232 billion for the full year 2020, which included a non-cash goodwill impairment charge of
$2.642 billion
• Delivered solid profitability and strong cash flow:
– Expanded our Adjusted EBITDA margin to 42.8%, compared to 41.0% for 2020
– Diluted EPS of $1.91, compared to $(1.14) per share for 2020
– Delivered Free Cash Flow of $3.742 billion for 2021, compared to $2.979 billion for 2020,
excluding cash paid for special items
– Returned approximately $2.1 billion to shareholders through quarterly dividends and stock
repurchases
•
Reduced Net Debt by approximately $1.5 billion in 2021 and exited 2021 maintaining leverage at
3.6x Net Debt to Adjusted EBITDA
For information on how our non-GAAP metrics used above reconcile to GAAP measures
and a description of our special items, see Appendix A. For more complete information
on Lumen and our recent performance, see the remainder of this proxy statement,
including Appendix B.
ABOUT LUMEN
100+
basis points
increase in
adjusted
EBITDA margin
$1.5B
decrease in
net debt
$2.1B
returned to
shareholders
through
dividends and
stock
repurchases
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
9
ABOUT LUMEN
ESG Highlights
OUR PEOPLE – HUMAN CAPITAL
Lumen’s ability to fulfill our purpose is dependent on the quality and capabilities of
our people. Lumen’s highly competitive business requires attracting, developing and
retaining a motivated team that is inspired by leadership, engaged in meaningful work,
driven by growth opportunities and thriving in a culture that embraces diversity, inclusion
and belonging.
Diversity and Inclusion Steering Committee
Lumen’s Diversity and Inclusion Steering Committee (DISC), is
made up of senior leaders and executives, including Lumen’s
Chief Diversity and Inclusion Officer. Our DISC helps shape, drive
and champion our overall diversity, inclusion and belonging
strategy.
Commitment to Pay Equity
Following the pay equity reviews we conducted over the past
few years, we adjusted employees’ pay where needed. As part of
our commitment to fair and equitable compensation, we plan to
continue regular gender, race, and ethnicity pay equity studies
of our U.S., non-represented employees and to make pay
adjustments where warranted.
OHS Management Systems
We have implemented occupational health and safety
management systems for employees in our North America;
Europe, Middle East and Africa (EMEA); and Latin America
(LatAm) regions. Our environment, health and safety team and
relevant business units implement these systems and perform
periodic reviews designed to identify and achieve improvements
in overall safety and performance.
Benefits enhancements
Lumen offers progressive employee benefits and enhancements
that recognize the diverse needs of our employees and their
families. These include a comprehensive wellness program,
flexible time off, extended maternity/parental leave, the Milk
Stork program for nursing mothers, fertility benefits, gender-
affirming and same sex/domestic partner healthcare benefits,
adoption benefits, survivor benefits, financial wellness, mental
health benefits and disability accommodations.
OUR IMPACT – ENVIRONMENT
Environmental stewardship is inherent in our Lumen purpose. We actively
review the impact of our operations and make choices to reduce our
environmental footprint. We believe our commitment to environmental
sustainability promotes the financial health of our business, the quality
of service we provide and value creation for our employees, communities,
customers and investors. Our EHS team oversees and executes the company’s
EHS and environmental sustainability visions, which are available to all
employees on the Lumen intranet.
Energy and Emissions
We have continued to make solid progress on our greenhouse
gas (GHG) emission reduction targets.
Renewable Energy Initiatives
In 2019, Lumen purchased 280,189 megawatt hours of renewably
sourced zero-carbon electricity.
10
ABOUT LUMEN
Customer Initiatives
Lumen’s Platform for Amazing Things helps customers reduce
their energy consumption by enabling smart technologies,
dematerialization and virtualization. We align our Lumen
Platform with our customers’ goal to reduce the effects of
climate change with the goal of attracting more customers by
communicating our success in supporting these energy
consumption reduction technologies.
Transportation Initiatives
We work to reduce transportation emissions by:
• Dispatching and operating our fleet more efficiently through
the installation of GPS on over 9,500 of our vehicles. These
efficiencies are resulting in fuel expense savings as well as
reduced GHG emissions.
• Using flex-fuel vehicles, which produce significantly less GHG
emissions than traditional vehicles.
• Reviewing the impact of using mass-produced hybrid and
electric vehicles from major manufacturers.
OUR COMMITMENT – GOVERNANCE AND SOCIAL CAPITAL
Lumen’s Platform for Amazing Things and the opportunities presented by
the 4IR have created a strategic opportunity for evaluating and evolving our
sustainability program and developing additional reporting responsive to
various frameworks, including SASB standards and TCFD recommendations.
To achieve our ESG program goals, during 2021 we engaged with stakeholders to learn their
perspectives on sustainability generally and our evolving programs specifically.
Cybersecurity
As part of our cybersecurity risk management efforts, we
periodically assess our program, including:
•
•
•
Adequacy and effectiveness of the company’s internal
controls regarding cybersecurity.
Emerging cybersecurity developments and threats.
Cybersecurity response and contingency plans in the event
of security breaches or other system disruptions.
Employee Volunteer Program and Volunteer Grants
Lumen awards volunteer grants to eligible charities through
our Dollars for Doers program. The program allows employees
to receive up to $1,000 each calendar year to be granted to
the eligible charity where they volunteer. In 2020, we awarded
over 90 grants, totaling over $45,000 in support of employee
volunteerism.
Data Privacy
We have adopted a data minimization policy designed to
comply with applicable state, U.S. and other international
jurisdictions’ laws and ensure appropriate protections when
sharing information with third parties, including vendors.
Commitment to Human Rights
In 2020, Lumen implemented a global human rights policy
outlining our expectations in areas including privacy, data
security, individual rights, freedom of association, diversity,
inclusion and fair treatment, and working conditions including
forced and child labor.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
11
Proxy Voting
Roadmap
ITEM 1
Election of Directors
See page 14
Skills
BOARD DEMOGRAPHICS
Age
65.7
Tenure
7.7
years old average
Average years
An Engaged Board of Directors
≥90%
attendance rate
Each director attended more than 90% of
Board meetings and standing committee
meetings
8 regular Board meetings and 21 standing
committee meetings
Independence
10 of 11
nominees are independent
All members of the Audit, Human
Resources & Compensation, and Nominating
& Corporate Governance
committees are independent.
FOR
The Board unanimously recommends a vote FOR each nominee
12
ITEM 2
Ratify KPMG as Our 2022
Independent Auditor
PROXY VOTING ROADMAP
See page 39
KPMG is an Independent firm with few ancillary services and reasonable fees. They provide significant industry
and financial reporting expertise to the Company. The audit committee annually evaluates KPMG and determined
that its retention continues to be in the best interests of Lumen and its shareholders.
FOR
The Board unanimously recommends a vote FOR this proposal
ITEM 3
Advisory Vote on Executive
Compensation – “Say-On-Pay”
See page 46
Pay and Performance Alignment
• Executive compensation targeted at the 50th
percentile of peers and aligned with short-
and long-term business goals and strategy.
FOR
The Board unanimously recommends a vote FOR this proposal
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
13
I T E M 1
Election of Directors
Lumen’s mission is to further human progress through technology. We believe that
strong corporate governance is key to achieving our mission.
Following the NCG Committee’s recommendation, the Board of Directors has nominated the
11 nominees below for a one-year term expiring at our 2023 annual meeting of shareholders, or until his
or her successor is duly elected and qualified. All of the nominees were elected to the Board at the 2021
annual meeting.
To be elected, each of the 11 nominees must receive an affirmative vote of a majority of the votes cast
in the director’s election. Any director failing to receive a majority of votes cast must promptly tender
his or her resignation, which will be addressed by us in the manner described in our Bylaws.
Director Nominees
Quincy L. Allen
Kevin P. Chilton
W. Bruce Hanks
Laurie Siegel
Martha Helena Bejar
Steven T. “Terry” Clontz
Hal Stanley Jones
Jeffrey K. Storey
Peter C. Brown
T. Michael Glenn
Michael Roberts
Refreshment
Board and committee refreshment are regularly reviewed by our Nominating and Corporate Governance (NCG)
Committee. Our Board periodically receives recommendations from the NCG Committee about possible changes
designed to staff the Board and its committees with individuals who have the skills, experiences and perspectives
necessary to make meaningful contributions to shaping and implementing Lumen’s business strategies.
In 2021 and for our 2022 slate of nominees, the NCG Committee and Board considered a wide range of factors in assessing
the composition of the Board, including:
•
•
shareholder input on important elements of Board composition;
skill sets necessary to advise and oversee the successful development and implementation of our business strategies,
including our continued evolution to a digital technology company offering a simpler and improved customer
experience;
• balancing fresh, diverse perspectives with institutional and industry knowledge;
•
•
current and long-term needs of the Board; and
independence and potential conflicts.
14
ITEM 1 - ELECTION OF DIRECTORS
Recent Board Changes
We have made a concerted effort over the past couple years to refresh and refocus our Board.
In 2020, the NCG Committee retained an independent firm to help identify potential candidates with the skills, attributes
and experience that matched the needs of the Board. The search resulted in the appointment of Quincy L. Allen to
the Board, effective February 25, 2021, who is an industry, technology, and operational expert.
Effective January 1, 2020, we added Hal Jones to the Board, who is a financial, risk management, and mergers/acquisitions
expert. Mr. Jones was among several director candidates recommended to the Board by Southeastern Asset
Management, our fourth largest shareholder at the time of his appointment. In connection with adding Mr. Jones to the
Board, we announced the retirement of several directors and various governance changes, which we discussed in our
2020 proxy statement and are summarized elsewhere herein.
FOR
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH
OF THE ABOVE NAMED NOMINEES FOR DIRECTOR.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
15
Board of Directors
and Governance
Board Composition – Qualifications, Skills and Diversity
Our Board collectively possesses a wide array of skills, experiences and perspectives that we believe strengthen its ability
to fulfill its oversight roles in creating and maintaining long-term sustainable shareholder value.
Each year, the Board reviews the skills necessary to effectively discharge its oversight responsibilities. We strive to maintain
a well-rounded and diverse Board. Below please find information about our nominees.
BOARD NOMINEE COMPOSITION
16
Diversity
36%
of 11 nominees
Tenure
7.7
years average tenure
Independence
91%
Independent
BOARD OF DIRECTORS AND GOVERNANCE
SKILLS AND RELEVANCE TO LUMEN’S STRATEGY
Lumen’s NCG Committee uses a skills matrix as part of the Board’s annual evaluation, succession planning and director
nomination process. The goal is to ensure our director nominees collectively possess the relevant skills and backgrounds
for effective governance and meaningful strategy oversight that enhances financial performance and builds stakeholder
value. The skills listed in this matrix only indicate the most prominent skills that our Board relies upon. This matrix is not a
comprehensive reflection of the wide variety of skills that our director nominees possess and routinely contribute to
Lumen.
BOARD SKILLS MATRIX
Skill
Customer experience
Digital Transformation
ESG
Finance
Global Business experience
HR Leadership
Industry experience
M&A experience/ Legal
Risk Management/Cybersecurity
Strategy
Technology & Innovation
Diversity
Gender Diversity
Ethnic Diversity
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
17
BOARD OF DIRECTORS AND GOVERNANCE
Our Director Nominees
The first item for consideration at the meeting will be the election of the following 11 nominees:
QUINCY ALLEN
Experience
Quincy L. Allen has over 35 years of leadership experience in the technology services industry.
IBM Corporation
• Go-To-Market Leader of Cognitive Process
Services and Chief Marketing Officer for
IBM Cloud (2015 to 2018)
Unisys Corporation, a global information
technology company
• Chief Marketing and Strategy Officer
(2012 to 2015)
Vertis Communications, a direct marketing
and advertising company
• Chief Executive Officer (2009 to 2010)
Xerox Corporation
(1982-2009)
• President of the Global Services and
Strategic Marketing Group
• President of Production Systems Group
Director since: 2021
Independent
62 years old
Committees:
Audit Committee
Risk and Security Committee
Other Public Company Directorships
Skills
Mr. Allen currently also serves on the boards of Office Depot and ABM Industries, Inc.
Customer Experience
Digital Transformation
Finance
Global Business Experience
Strategy
Technology & Innovation
MARTHA
HELENA BEJAR
Experience
Martha Helena Bejar is a telecommunications expert with innovative experience.
Red Bison Advisory Group, LLC, which
provides business advisory services
• Co-founder and principal (2014 to 2019)
Wipro’s Information Technology Services
affiliate
• President of Worldwide Sales and
Unium, Inc., a Wi-Fi technology provider
• Chief Executive Officer 2016 to 2018
Flow Mobile, Inc., a broadband wireless
company
• Chief Executive Officer 2012 to 2015
Operations 2009 to 2011
Microsoft Corporation
• Corporate Vice President for the
communications sector 2007 to 2009.
Other
Infocrossing, Inc. (a U.S.-based cloud services
affiliate of Wipro Limited)
• Chief Executive Officer and Chairperson
• Prior to 2007, Ms. Bejar held diverse
executive sales, operations, engineering and
R&D positions at Nortel and Bellsouth/ AT&T.
2011 to 2012
Other Public Company Directorships
Ms. Bejar currently serves on the boards of CommVault Systems; Sportsman’s Warehouse
Holdings, Inc.; and Quadient SA (formerly Neopost). In the last five years she served on the
boards of Mitel Networks Corporation and Polycom, Inc.
Director since: 2016
Independent
60 years old
Committees:
Human Resources and
Compensation Committee
CHAIR Nominating and Corporate
Governance Committee
Skills
Customer Experience
ESG
Finance
Global Business Experience
Industry Experience
Technology & Innovation
18
PETER C. BROWN
Experience
BOARD OF DIRECTORS AND GOVERNANCE
Peter C. Brown is a business leader with significant, finance, strategy, corporate development,
and management experience.
Grassmere Partners, LLC, a private
investment firm
• Chairman (2009-present)
AMC Entertainment Inc.
• Chairman and Chief Executive Officer
(1999 to 2009)
• Chief Financial Officer (1991 to 1999)
EPR Properties, a NYSE-listed real estate
investment trust
• Founder and Chairman of the Board
(1997-2000)
• Member of the Audit Committee and
Chairman of the Finance Committee (2010
to present)
Other Public Company Directorships
He serves on the board of Cinedigm Corporation where he is Chairman of the Nominating and
Audit Committees, and serves on the Compensation Committee.
Director since: 2009
Independent
63 years old
Committees:
Audit Committee
Risk and Security Committee
Skills
Customer Experience
Digital Transformation
Finance
Global Business Experience
M&A Experience/ Legal
Strategy
KEVIN P. CHILTON
Experience
Kevin P. Chilton is retired from the U.S. Air Force as a four-star general and contributes
considerable cybersecurity, risk management and scientific leadership experience to our
Board.
Chilton & Associates, LLC, a consulting
company
• President (2011-present)
34-year military career
• Commander, U.S. Strategic Command
(2007 to 2011), overseeing the U.S.
Department of Defense’s nuclear, space
and cyberspace operations;
• Commander, U.S. Air Force, Space
Command (2006 to 2007)
• NASA astronaut (1987 to 1996), including
three space shuttle flights;
• Deputy Program Manager of the
International Space Station (1996 to 1998)
Other Public Company Directorships
He serves on the board of AeroJet Rocketdyne and, in the last five years, has served on the
boards of Anadarko Petroleum Corp., Level 3 Communications, Inc., Orbital Sciences
Corporation and Orbital ATK, Inc.
Director since: 2017
Independent
67 years old
Committees:
Audit Committee
CHAIR Risk and Security
Committee
Skills
ESG
Finance
M&A Experience/ Legal
Risk Management/
Cybersecurity
Strategy
Technology & Innovation
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
19
BOARD OF DIRECTORS AND GOVERNANCE
STEVEN T.
“TERRY” CLONTZ
Experience
Steven T. “Terry” Clontz is an innovative technology leader with global telecommunications
experience developed throughout his career in several executive roles in the
telecommunications industry.
StarHub, Ltd., a Singaporean
telecommunications company
• Chief Executive Officer (1999 to 2010)
ST Telemedia Pte. Ltd.
• Senior Executive Vice President
(International) (2010 to 2017)
• Corporate Advisor (2018 to present)
IPC Information Systems
• Chief Executive Officer, President and
Director (1995 to 1998)
BellSouth International, Inc.
• President, Asia-Pacific (1987 to 1995)
Temasek International Advisors Pte. Ltd.
• Corporate Advisor (2010 to present)
Other
Mr. Clontz’s leadership experience includes
various positions with other communications
companies, including Cloud9 Technologies
LLC; and STT GDC Pte. Ltd.
Other Public Company Directorships
He serves on the board of StarHub Ltd. and, in the last five years, has served on the board of
Level 3 Communications, Inc. (2012 to 2017).
Experience
T. Michael Glenn brings significant market development, customer, communications, strategic
development and operational experience to our Board having served in executive leadership
roles.
FedEx Corp.
• Executive Vice President of Market
Development and Corporate
Communications (1998 to 2016)
• President and Chief Executive Officer
of FedEx Corporate Services and a
member of its five-person Executive
Committee responsible for developing and
implementing strategic business activities
• Senior Vice President, Worldwide
Marketing, Customer Service and
Corporate Communications for FedEx
Express
Oak Hill Capital Partners, a private
equity firm
• Senior Advisor (2017 to 2020)
Other Public Company Directorships
He serves on the board of Pentair PLC and, in the last five years, has served on the board of
Level 3 Communications, Inc.
Director since: 2017
Independent
71 years old
Committees:
Human Resources and
Compensation Committee
Nominating and Corporate
Governance Committee
Skills
Global Business Experience
Industry Experience
M&A Experience/ Legal
Risk Management/
Cybersecurity
Strategy
Technology & Innovation
T. MICHAEL
GLENN
Director since: 2017
Independent
66 years old
Chairman of the Board
Committees:
Human Resources and
Compensation Committee
Skills
Customer Experience
Digital Transformation
Finance
Global Business Experience
M&A Experience/ Legal
Strategy
20
BOARD OF DIRECTORS AND GOVERNANCE
W. BRUCE HANKS
Experience
W. Bruce Hanks is a corporate development and planning, operations, finance and public
accounting leader with telecommunications expertise.
Investment management and financial
planning company based in Monroe,
Louisiana
• Consultant
University of Louisiana at Monroe
• Athletic Director (2001 to 2004)
Peat, Marwick & Mitchell
• Certified Public Accountant (1977-1980)
Lumen
• Various senior level roles between 1980 and
2001, including:
• Chief Operating Officer
• Senior Vice President—Corporate
Development and Strategy
• Chief Financial Officer
• Chief Administrative Officer
• President—Wireless Services
Other Public Company Directorships
Director since: 1992
Independent
67 years old
Vice Chairman of the Board
Committees:
Audit Committee (Chair)
Skills
None.
Finance
HR Leadership
Industry Experience
M&A Experience/ Legal
Risk Management/
Cybersecurity
Strategy
HAL STANLEY
JONES
Experience
Hal Stanley Jones brings significant financial, public accounting and controls experience to
our Board.
Graham Holdings (formerly known as the
Washington Post Company)
• Chief Financial Officer (2009 to 2013)
Kaplan Professional, a subsidiary of The
Washington Post
• Chief Executive Officer and President (2008
• Held various senior level positions at The
Washington Post Company (1989 to 2008)
to 2009)
PricewaterhouseCoopers
• Certified Public Accountant (1977 to 1988)
Other Public Company Directorships
He has served on the board of Playa Hotels and Resorts, N.V. since 2013 when it became
publicly traded.
Director since: 2020
Independent
69 years old
Committees:
Audit Committee
Risk and Security Committee
Skills
Digital Transformation
Finance
Global Business Experience
M&A Experience/ Legal
Risk Management/
Cybersecurity
Strategy
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
21
BOARD OF DIRECTORS AND GOVERNANCE
MICHAEL ROBERTS
Experience
Michael Roberts has Fortune 500 global executive, marketing and customer service expertise.
Westside Holdings LLC, a marketing and
brand development company
• Founder and Chief Executive Officer
(2006 to present)
McDonald’s Corporation
• President and Chief Operating Officer
(2004 to 2006)
• Chief Executive Officer of McDonald’s USA
• Prior to these roles, held various senior level
roles at McDonald’s USA (2001 to 2004)
Other Public Company Directorships
He serves on the board of W. W. Grainger, Inc.
Director since: 2011
Independent
71 years old
Committees:
Human Resources and
Compensation Committee
Nominating and Corporate
Governance Committee
Skills
Customer Experience
Digital Transformation
Global Business Experience
HR Leadership
Strategy
LAURIE SIEGEL
Experience
Laurie Siegel is a business advisor with expertise in human capital and executive
compensation.
Tyco International
• Senior Vice President of Human Resources
and Internal Communication (2003 to 2012)
G100
• Chairman (Talent Consortium)
• Senior Advisor (current)
Honeywell International, Inc.
• Held various senior level positions
(1994 to 2002)
LAS Advisory Services, a business and
human resources consultancy
• Founder and Principal since 2012
Other Public Company Directorships
She serves on the board of FactSet Research Systems, Inc. In the last five years she served on
the boards of California Resources Corporation and Volt Information Sciences, Inc.
Director since: 2009
Independent
66 years old
Committees:
Human Resources and
Compensation Committee
(Chair)
Nominating and Corporate
Governance Committee
Skills
ESG
Global Business Experience
HR Leadership
M&A Experience/ Legal
Strategy
22
BOARD OF DIRECTORS AND GOVERNANCE
Experience
Jeffrey K. Storey is an innovative, transformational telecommunications and cybersecurity
leader.
Lumen
• President and Chief Executive Officer (2018
WilTel Communications Group Inc.
• Chief Executive Officer and President (2002
to present)
to 2005)
• Chief Operating Officer (2017 to 2018)
Level 3 Communications, Inc.
• President and Chief Executive Officer (2013
to 2017)
• Held various other senior level positions
with WilTel or its affiliates (1999 to 2002)
Cox Communications
• Vice President of Commercial Services
• President and Chief Operating Officer
(1998 to 1999)
(2008 to 2013)
• Vice President and General Manager of Cox
Leucadia Telecommunications Group
(Leucadia National Corporation)
• President (2006 to 2008)
Fibernet (1994 to 1998)
Southwestern Bell Telephone
• Held various engineering and operations
positions
Other Public Company Directorships
In the last five years he served on the board of Level 3 Communications, Inc.
JEFFREY K.
STOREY
Director since: 2017
61 years old
Committees:
Risk and Security
Committee
Skills
Digital Transformation
Global Business Experience
Industry Experience
Risk Management/
Cybersecurity
Strategy
Technology & Innovation
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
23
BOARD OF DIRECTORS AND GOVERNANCE
How our Board is Evaluated and Selected
EVALUATIONS
Our NCG Committee leads an annual evaluation of our Board, its members and committees, and the Board periodically
assesses whether it has the skills, processes, structure, and policies necessary to attain its goals and fulfill its
responsibilities. While this formal evaluation is conducted on an annual basis, directors share their perspectives and
suggestions throughout the year. The NCG Committee uses this ongoing and annual feedback when considering Board
composition and other governance issues, and in connection with nominating directors to be elected to the Board. The
NCG Committee periodically engages nationally recognized firms to assist it with the design and implementation of its
director evaluation processes.
NOMINATION
In considering director nominees, the NCG Committee reviews candidates suggested by our directors, executive officers or
shareholders who comply with our Bylaws. A shareholder or group of up to 10 shareholders owning 3% or more of
Lumen’s outstanding common stock continuously for at least three years can nominate director candidates constituting
up to 20% of the Board and include these nominations in our annual meeting proxy materials. From time to time, the NCG
Committee may engage a third-party search firm to assist in identifying and evaluating qualified candidates.
The NCG Committee assesses each director candidate based on his or her skills, judgment, character, independence,
diversity, and experience in the context of the needs of the Board. Potential conflicts and over-boarding are also evaluated.
When evaluating candidates for nomination as new directors, the NCG Committee considers (and asks any search firm
that it engages to provide) a pool of candidates that includes women and individuals from diverse backgrounds, in
accordance with the “Rooney Rule” the Board adopted in 2019.
Our Corporate Governance Guidelines also establish a target average director tenure of no more than ten years, set a goal
of all Board members (except our CEO) being independent and express the Board’s general sense that no director should
be age 75 or older prior to the next annual shareholders meeting. No director may serve on more than three other
unaffiliated public company boards, unless this prohibition is waived by the Board. The NCG Committee may, but has not
formally chosen to, establish additional qualifications. The NCG Committee and the Board also evaluate on a periodic basis
the effectiveness of its nominating processes and procedures.
EDUCATION AND ORIENTATION
We encourage our directors to participate in continuing education programs focused on our business and industry, their
committee roles and responsibilities and the legal and ethical responsibilities of directors. We reimburse our directors for
the costs of these programs. We also provide continuing director education during Board and committee meetings and
other Board discussions. From time to time, these include presentations from third parties. Over the course of 2021, our
Board collectively attended a combination of over 80 continuing education webinars and seminars covering an extensive
list of topics ranging from board committee effectiveness, cybersecurity, and ESG, to human capital management and
SOX controls.
Additionally, we encourage our directors to participate in nationally recognized governance organizations, including the
National Association of Corporate Directors (“NACD”) and G100.
New directors participate in an orientation program that familiarizes them with the Company’s business, operations,
strategies and corporate governance practices and assists them in developing Company and industry knowledge to
optimize their service on the Board. New directors also attend meetings with members of our management team to
expedite their ability to effectively and fully discharge their responsibilities.
INDEPENDENCE
All directors other than our CEO are independent and the Board regularly meets in executive sessions with only the
independent directors. Each year and prior to nominating a new director, the Board evaluates and affirmatively
determines each director nominee’s independence using standards required by the SEC, NYSE and our Corporate
Governance Guidelines. Annually, each director nominee completes a detailed questionnaire that solicits information
about relationships that could have an impact on independence. Our management delivers reports on those relationships
24
BOARD OF DIRECTORS AND GOVERNANCE
to the NCG and Audit Committees. Both the NCG and Audit Committees evaluate the reports from management and
consider any other factors which could influence a nominee’s independence. During this review, the NCG and Audit
Committees consider transactions and relationships between the Company, its subsidiaries or affiliates and any directors,
executive officers, their immediate family members or an entity in which any of the foregoing have a significant interest.
Both the NCG and Audit Committee chairs make reports on these independence evaluations to the Board. In early 2022,
the Board reviewed all relationships between the Company and each director and affirmatively determined that all of our
director nominees are independent other than Mr. Storey, our CEO.
What is the Rooney Rule?
The Rooney Rule is named after former Pittsburgh Steelers owner Dan Rooney and was adopted in the National Football
League in 2003 requiring teams to interview ethnic-minority candidates for head coaching jobs. As applied at Lumen,
the rule requires us to consider at least one woman and one underrepresented minority in the slate of candidates for
open Board seats.
How our Board is Organized
BOARD LEADERSHIP STRUCTURE
The NCG Committee periodically reviews the Board’s leadership structure and, when appropriate, recommends changes,
taking into consideration the needs of the Board and the Company at the time. Since 2009, we have elected a non-
executive chairman.
Effective May 20, 2020, Mr. Glenn became Lumen’s independent, non-executive Chairman, with Mr. Hanks continuing his
role as Vice Chairman. As Chairman, Mr. Glenn presides over meetings of the Board, oversees the management,
development and functioning of the Board and performs any additional duties the Board may identify.
We believe that separation of the Chairman and CEO positions has functioned effectively over the past several years.
Separating these positions has allowed our CEO to have primary responsibility for the operational leadership and strategic
direction of our business, while allowing our Chairman to lead the Board in its fundamental role of providing guidance to
and separate oversight of management.
As noted in our Corporate Governance Guidelines, it is the sense of the Board that the Chairman of the Board and the
chairs of our committees should rotate approximately every five years.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
25
BOARD OF DIRECTORS AND GOVERNANCE
Board Committees
Each of our four standing Board committees supports the full Board with various risk management, governance and
strategic responsibilities.
AUDIT
COMMITTEE*
Meetings in 2021: 9
W. Bruce
Hanks CHAIR
Quincy L. Allen
Peter C. Brown
Kevin P. Chilton
Hal Stanley Jones
See “Audit—Audit
Committee Report” below
for additional information.
Key Responsibilities
• Oversees the Company’s system of financial
reporting
• Reviews and discusses our major financial risks,
including matters potentially impacting
financial reporting, with management, our
internal auditors and our independent auditors
• Assists the Board in fulfilling its oversight
responsibilities relating to the adequacy and
effectiveness of
–
–
–
our internal controls over financial
reporting,
our internal controls regarding information
technology security and
our disclosure controls and procedures
• Monitors the qualifications, independence and
performance of Lumen’s independent auditors
*Each member is an “audit committee financial expert”
HUMAN
RESOURCES
AND
COMPENSATION
COMMITTEE
Meetings in 2021: 4
See “CD&A” below for
additional information.
Laurie Siegel
CHAIR
T. Michael Glenn
Steven T. “Terry” Clontz
Michael Roberts
Martha H. Bejar
Key Responsibilities
• Establishes executive compensation strategy
• Oversees design and administration of equity
incentive plans
• Oversees human capital strategy, including
diversity and inclusion and talent recruiting,
development and retention
• Oversees, in consultation with management,
our compliance with regulations governing
executive and director compensation
• Monitors compensation, labor relations, and
workforce risk
26
BOARD OF DIRECTORS AND GOVERNANCE
NOMINATING
AND
CORPORATE
GOVERNANCE
COMMITTEE
Meetings in 2021: 4
Martha
Helena Bejar
CHAIR
Michael Roberts
Steven T. “Terry” Clontz
Laurie Siegel
Key Responsibilities
• Recommends to the Board nominees to serve
as directors and officers
• Oversees CEO’s annual performance evaluation
• Oversees the development and
implementation of our ESG strategies
• Oversees and recommends improvements to
our governance principles, policies and
practices
• Assists the Board in fulfilling its oversight
responsibilities with respect to the
management of risks associated with the
Company’s Board leadership structure and
corporate governance matters
• Annually leads Board and Committee
evaluations
• Evaluates Board composition, skills and
director independence
• Reviews political contributions reporting and
budget
RISK AND
SECURITY
COMMITTEE
Meetings in 2021: 4
Kevin P.
Chilton
CHAIR
Quincy L. Allen
Peter C. Brown
Jeffrey K. Storey*
Hal Stanley Jones
Key Responsibilities
• Assists the Board in fulfilling its oversight
responsibilities with respect to, among others:
–
–
–
risks posed by cyberattacks or other
casualty events
risks related to network reliability, privacy
and regulations
other key enterprise or operational risks as
jointly determined by the Committee and
management
–
insurance program reviews
• Oversees our corporate ethics and compliance
and enterprise risk management programs
and activities
• Receives periodic reports on various risk
exposures. These include quarterly reports on
cybersecurity, which typically include reports
on recent cyber intrusions, mitigation steps
taken in response to those intrusions and
ongoing cybersecurity initiatives and periodic
reports from outside consultants regarding
cyber security
• Oversees our classified activities and facilities
• Coordinates risk oversight functions of other
through a subcommittee
Board committees
* As President and CEO, Mr. Storey is our only non-independent director.
Additional information about the responsibilities of our committees is available in the committees’ respective charters,
which can be obtained on our website: https://www.lumen.com/en-us/about/governance/board-committees.html.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
27
BOARD OF DIRECTORS AND GOVERNANCE
DIRECTOR MEETING ATTENDANCE
Directors are expected to attend all Board meetings, meetings of committees on which they serve and the annual
shareholders meeting. All then current directors attended our 2021 annual meeting. During 2021 there were eight regular
meetings of the Board, as well as 21 standing committee meetings. Each director attended more than 90% of the total
number of the 2021 Board and the respective committee meetings on which he or she served. During 2021, our
independent directors met in executive session on a quarterly basis, led by our Chairman.
Our Board’s Responsibilities & Engagement
Our Board and its committees collectively oversee our business and management’s development and implementation of
our strategies through regular meetings and communications with Lumen’s executive team. We believe our governance
policies and practices provide a transparent framework for effective governance and compliance with SEC and NYSE
requirements. The Board continually reviews our governance practices for alignment with best practices and stakeholder
interests and acts to enhance our ability to oversee the execution of strategies that drive value for Lumen, our customers,
employees and shareholders. Our Corporate Governance Guidelines, along with other governance documents, including
our Code of Conduct, Bylaws and other governance policies are available on our website:
lumen.com/en-us/about/governance/documentation.html
KEY RESPONSIBILITIES OF THE BOARD
Shareholder Engagement Oversight of Strategy
Succession Planning
Oversight of Risk
Oversight of ESG
• The Board oversees
succession planning
for our senior
leadership positions,
including the CEO.
• The Board, along with
its committees,
reviews and oversees
Lumen’s risk
management
processes.
• The Board also works
with management to
assess our key short-
and long-term risks
and mitigation efforts.
• The Board and the
NCG Committee, in
conjunction with
designated
management teams
periodically evaluate
our ESG programs and
seek to identify
meaningful
opportunities to
enhance our programs.
• Members of
management and the
Board engage on a
year-round basis with
holders of our equity
and debt securities, as
well as proxy advisory
firms and ESG rating
firms, among others.
• Our Board regularly
engages in active
discussions with
management to
formulate and
implement
appropriate strategies
for the Company and
each of its business
segments.
•
In addition to regular
Board and committee
meetings, the Board
participates in an
annual in- depth
dedicated review of
the Company’s overall
strategy with our
management team.
28
BOARD OF DIRECTORS AND GOVERNANCE
SHAREHOLDER ENGAGEMENT
The Board believes that input from shareholders is a critical component in our efforts to continually enhance our
governance practices and earn our shareholders’ confidence toward improving long-term shareholder value. As illustrated
below, members of management and the Board engage on a year-round basis with holders of our equity and debt
securities, as well as proxy advisory firms and ESG rating firms, among others.
Fall
Winter
Spring
Summer
• Regular outreach
• Additional targeted
• Proxy filing
• ESG Report published
outreach
•
10-K filing
• Governance and
compensation
decisions taken
incorporating fall
feedback
focused on
shareholders’
corporate
governance views,
executive
compensation and
sustainability
•
Share investor
feedback with
committee
members
• EEO-1 Data published
• Additional targeted outreach
• Regular outreach to
largest investors and
proxy advisory firms to
discuss important
items to be considered
at the annual meeting
• Hold annual meeting
• Review and report results from
our most recent annual meeting
• Review proxy season trends with
Board
• Discuss investor feedback with
our directors
• Evaluate whether to revise our
current practices in light of
business priorities, corporate
governance trends, best practices
and regulatory developments
Communications to the Board
Communication with shareholders and other interested parties is an important part of the governance process. Any
shareholder or other stakeholder who wishes to contact the Board, Chairman or any Director can send correspondence to:
Write: P.O. Box 5061; Monroe, Louisiana 71211
Email: boardinquiries@lumen.com
In 2021, our compensation program received the support of holders of 91% of the total votes cast at our annual meeting,
which was an improvement from the 2020 vote. We continued our outreach efforts with shareholders throughout the fall,
contacting shareholders representing 58% of our outstanding common stock.
Our primary purpose for initiating these meetings was to obtain feedback from our shareholders on our enhanced
disclosure strategy, and also discuss other corporate governance topics important to shareholders including board
diversity, human capital management, employee diversity, inclusion and belonging and our ESG initiatives.
During the fall of 2021, each of the shareholder meetings was attended by our Chairman of the Board, our HRCC Chair and
our NCG Committee Chair. The input we received was shared with other members of the Board.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
29
BOARD OF DIRECTORS AND GOVERNANCE
The chart below summarizes engagement topics discussed and governance actions taken over the past couple years in
response to specific shareholder feedback or voting guidelines published by our shareholders or proxy advisors.
Shareholder
Engagement
Topics – 2019
to 2022
Long-Term Incentive
(LTI) Framework
Short-Term Incentive
(STI) Framework
Pay for Performance
Alignment
Board Diversity
Actions taken in response to shareholder input
2020 to 2022
2019 to 2020
• No Changes to 2020 or 2021
compensation program design –
despite COVID-19
• No one-time awards(1)
• Rotated NCG Committee Chair at
2020 annual meeting
• Reduced average Board tenure
•
Independent Chairman named at
2020 annual meeting
• All non-CEO directors independent
Governance Practices
since 2020 annual meeting
ESG
Human Capital
Resources
Board Refreshment
COVID-19 Pandemic
Response
Capital Allocation and
Growth Strategy
• Commitment to publish EEO-1 Data
on Sustainability webpage in April
2022
•
•
Formation of Sustainability
Management Committee
LTI - added Relative TSR
performance metric
Increased disclosure for:
• Board diversity
• Cyber security/ data privacy
• Human capital management
• ESG
•
Incentive design rationale
•
“Rooney Rule” – adopted for
director searches
• Board Tenure – commitment to
lower overall average years of
service
• NCG Committee Oversight –
clarified political contributions
and lobbying policies
•
•
STI – added Revenue weighted at
15%
STI – added a discretionary 20%
cap on Individual Performance
Modifier for Named Executive
Officers
• Goal Rigor – supplemental
disclosures to explain the
compelling business rationale for
our incentive compensation
performance targets
• CEO Pay – expanded “realized”
and “realizable” pay disclosure
•
•
LTI Performance Period –
returned to 3 yr. cumulative
LTI – added Relative TSR modifier
• No one-time awards
EEO-1 Data Disclosure
• Rigorous goal setting process
(1) Other than one-time awards made on April 4, 2022 in connection with retaining our new CFO.
LONG-TERM STRATEGIC PLANNING
To ensure that our business strategies create long-term, sustainable value for our shareholders, our Board regularly
engages in active discussions with management to formulate and implement appropriate strategies for the Company and
each of its business segments. The Board and management routinely discuss key initiatives, transformative technologies,
innovation, culture and corporate governance opportunities focused on driving long-term value. During 2021, this
collaboration focused on (1) elevating Lumen’s speed, scale and network resiliency; (2) realizing the potential in expanding
and maximizing the fiber network for greater efficiency and capacity; (3) enabling enterprise customers to easily enhance
performance through flexible, secure platform solutions; (4) transforming data into a strategic asset through high data
quality, consistency, and repeatability throughout the lifecycle; and (5) maximizing the potential of innovative and
disruptive technologies through collaboration. In addition to regular Board and committee meetings, which include
presentations and discussions of strategic and tactical initiatives, the Board participates in an annual in-depth dedicated
review of the Company’s overall strategy with our management team. The Board and our management team discuss the
industry and competitive landscapes, short and long-term plans, capital allocation strategies and other mission-critical
topics.
30
BOARD OF DIRECTORS AND GOVERNANCE
CEO AND EXECUTIVE SUCCESSION PLANNING
The Board and management recognize the importance of continuously developing our executive talent, identifying
potential outside candidates and preparing for emergency situations. Our HRCC, along with management, conducts
periodic talent reviews that include succession plans for our senior leadership positions, including 360° peer reviews
conducted by the NCG Committee. In 2018, the NCG Committee engaged a nationally recognized third-party consultant
to develop a comprehensive executive management succession planning strategy and since then Lumen has retained the
same consultant to continue to advise the Board and the company’s leadership with the following objectives:
• View succession planning as an ongoing process, not an “event”
• Develop a succession plan for different scenarios (emergency, accelerated and orderly)
•
Link succession planning to strategy by creating a CEO profile that focuses on what is most needed to lead Lumen in
the future, not only today
• Understand the external market of CEO-ready talent and regularly update this understanding and benchmark data
• Assess the readiness of current key Lumen executives to assume the CEO position and Lumen’s plans and timeframes
for addressing any gaps in readiness
• Ensure that key Lumen executives have clear and actionable development plans, including detailed coaching for key
executives and establish a regular and transparent process for leadership and the Board to track progress against
development goals as needed
2018
2019
2020
2021
•
Initiated our
engagement with an
independent consulting
firm regarding
succession planning
efforts
• Developed CEO success
profile
• Began assessment of
key Lumen executives
• Approved an emergency
succession plan and
related communications
plan
• Completed assessment
of key Lumen executives
• Created development
plans for key Lumen
executives
•
Identified and reviewed
potential external CEO
candidates
• Refreshed and reviewed
potential external CEO
candidates
•
•
Implemented actionable
development plans,
including detailed
coaching, for key Lumen
executives
Independent consulting
firm continued to assist
with our internal and
external development
plans and review
process
• Our CEO provided his
review and feedback of
senior leadership team
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
31
•
•
•
BOARD OF DIRECTORS AND GOVERNANCE
RISK OVERSIGHT
BOARD OF DIRECTORS
The Board, along with its committees, reviews and oversees Lumen’s risk management processes in many ways,
including receiving regular reports about our enterprise risk management (“ERM”) program, which is designed to
comprehensively identify our most significant risks.
The Board also works with management to assess our key short-and long-term risks and mitigation efforts relating
to, among other things, cybersecurity, financial reporting, strategic plans, operations, capital budgets, human
capital, corporate functions and business units.
Audit Committee
Human
Resources and
Compensation
Committee
Internal Controls over
Financial Reporting
(Quarterly)
• Executive
Compensation
(Quarterly)
• Risk Factors included
in periodic reports
(Annual with Quarterly
Reviews)
•
Investment Risk
related to Treasury
Activities (As Needed)
• Human Capital
Strategy (Quarterly)
• Workforce related risks
(Quarterly)
Nominating
and Corporate
Governance
Committee
• ESG (Quarterly)
• Political
Contributions
(Annually)
Risk and Security
Committee
• Enterprise Risk
Management
(Quarterly)
• Cybersecurity
(Quarterly)
• Ethics and Compliance
(Quarterly)
• Data Privacy
(Biannually)
Management
• Under the ERM program, management develops a response plan for prioritized risks, as well as monitoring and
mitigation plans for other identified risk focus areas.
• Management provides regular reports on the risk portfolio and response efforts to the Risk and Security Committee.
• Committees report on risk issues to the full Board.
32
Oversight of
Cybersecurity
Risks
Oversight of
Data Privacy
Risks
Oversight of Political
Contributions
Risks
BOARD OF DIRECTORS AND GOVERNANCE
As a technology and communications company that enables global transmission of
large amounts of information over our networks, maintaining the security and
integrity of information and systems under our control is a priority among our
operational risk management efforts. We view cybersecurity risk as an enterprise-
wide risk, subject to control and monitoring at various levels of management
throughout the Company. The Risk and Security Committee and its Chair review
Cybersecurity and Data Privacy quarterly and such topics of review include:
•
•
•
risk assessments from information security, privacy and internal audit
management teams with respect to cybersecurity, including the adequacy and
effectiveness of the Company’s internal controls regarding cybersecurity,
emerging cybersecurity developments and threats and
the Company’s strategy to mitigate cybersecurity risks, such as our contingency
plans in the event of security breaches or other system disruptions and cyber
insurance coverage.
To assess and mitigate cybersecurity risk, we have implemented a global information
security management program that includes administrative, technical and physical
safeguards and we periodically engage both internal and external auditors and
consultants to assess and enhance our program, all of which is subject to oversight by
and reporting to the Risk and Security Committee. We engage independent external
auditors and consultants who are fully accredited under various information security
standards, including those administered by the International Organization for
Standardization and the PCI Security Council. During 2021, Lumen took the additional
step of organizing a Security & Privacy Council that meets on a bi-monthly basis. The
meetings are led by Lumen’s Chief Privacy Officer and Chief Security Officer who
provide organization level updates and also include other presenters who provide
updates on emerging threats and other topical issues.
In addition to securing our network, we also take steps to protect the content of
information Lumen collects, stores, uses and shares. Employee and customer
information is encrypted, consistent with industry standards or legal requirements,
both at rest and in transmission. We have adopted a data minimization policy
designed to comply with and detect breaches of applicable laws and ensure
appropriate protections when sharing information with third parties, including
vendors. We maintain other plans or programs to manage our data privacy risks,
including a privacy policy and a cyber incident response plan. As part of the ERM
process, the Risk and Security Committee receives reports on data privacy protection
efforts and controls to meet and enhance legal and compliance requirements across
the enterprise.
Our Board and NCG Committee engage in the oversight of our political initiatives and
annually review Lumen’s political and lobbying activities and related budgets. We
strive to advocate public policy solutions that best serve our stakeholders. Our semi-
annual Political Contributions Reports provide transparency in this process,
demonstrating ethical corporate governance and promoting confidence in the
democratic process. Specifically, our Reports disclose our corporate political
contributions and those of our political action committees in accordance with
applicable federal and state campaign finance laws and contributions to trade
associations and 501(c) (4) organizations. Although not part of this proxy statement, our
most recent Political Contributions Reports can be located on our website at
lumen.com.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
33
BOARD OF DIRECTORS AND GOVERNANCE
Oversight of
Human Capital
Management
Risks
Our highly competitive business requires skilled and motivated employees and leaders
with the necessary expertise to execute our innovation, efficiency and transformation
strategies. Developing and retaining top talent is a priority. The Board regularly
discusses with management Lumen’s continuous efforts to attract and retain the
caliber of employee with the type of knowledge and skills necessary to realize our
goals. Both our directors and management set a “tone at the top” through:
•
regularly meeting with our most senior human resources executive to discuss
culture, talent strategy and leadership development and staying ahead of market
trends by identifying early the skills needed for our future;
• designing strategies to support diversity, inclusion and belonging programs; and
• designing strategies to bridge any gaps in our succession plans by cultivating our
in-house talent or engaging third parties.
Oversight of Other
Risks and
Information
Our Board committees oversee certain other risks specified in the preceding section
“— Board Committees,” and our Board and committees further oversee the ESG
program and other risks discussed under the heading “ESG Sustainability Leadership”
below.
ESG SUSTAINABILITY LEADERSHIP
Lumen is committed to creating lasting value for all our stakeholders. Environmental sustainability and social
responsibility are core to our business priorities.
Lumen’s Nominating and Corporate Governance Committee has primary responsibility for ESG oversight with quarterly
reviews. In addition, (i) the Audit Committee reviews data transparency and reporting, (ii) the Human Resource and
Compensation Committee reviews human capital management, and (iii) the Risk and Security Committee reviews
network reliability and privacy.
Our CEO and other members of senior management provide leadership and guidance around Lumen’s sustainability
efforts. Lumen has a Sustainability Committee that is comprised of individuals from across the business including
corporate communications, customer experience, data security and privacy, diversity, inclusion and belonging,
environmental, government relations, human resources, internal audit, investor relations, legal, and sourcing/
procurement, amongst others. The Sustainability Committee designs and oversees our sustainability program. The
Sustainability Committee meets both before and after each meeting of the Nominating and Corporate Governance
Committee to prepare for such meetings and to report on ESG outcomes and action items from the meetings.
ESG outcomes are driven by Lumen’s strategy of strengthening our business purpose by focusing on sustainability
opportunities important to our stakeholders and important to our long-term value. In August 2021, Lumen completed its
inaugural “materiality assessment,” which we plan to use to guide how we prioritize our sustainability and ESG initiatives.
Working with an independent consultant, we conducted a peer and industry benchmarking review of sustainability topics
that are common to the communications and technology industry. We assessed international standards and guidelines,
including those of the Sustainability Accounting Standards Board (SASB), the Taskforce for Climate-related Financial
Reporting (TCFD), and the Global Reporting Initiative (GRI). Lumen also sought input from a wide range of stakeholders,
including investors, employees, community partners, customers, governmental agencies and regulators, suppliers, as well
as the Board and senior leadership team.
The results of the materiality assessment revealed that the below-listed sustainability issues were of the most importance
to Lumen’s stakeholders and also had the potential to have the most impact on Lumen’s future business success.
Customer Experience – We continue to focus on the digital customer experience and to assist us in this endeavor we
created the Customer Advisory Board, which held its inaugural meeting in May 2021. Customer experience is also one of
the performance metrics used to determine the amount of our short-term incentive award payouts.
Cybersecurity and Customer Privacy – We have an integrated security system designed to ensure the security,
compliance, and privacy of customer data. We have made a commitment to the publication of a semi-annual
transparency report, with the inaugural report already having been published.
34
BOARD OF DIRECTORS AND GOVERNANCE
Network Resilience and Reliability - The strength and resiliency of our physical infrastructure minimize customer
disruptions. 4IR technologies rely on fiber and we have been expanding our fiber footprint. We are also providing disaster
recovery services.
Digital Transformation – We are enabling customers to realize opportunities and mitigate risks in 4IR transformation. We
are using technology-driven operating models to create efficiencies. We are focusing on reducing latency and enhancing
the performance of our network through our edge compute and other services.
Innovation – Lumen is modernizing its IT application landscape by building and deploying platform capabilities in Hybrid
Cloud. By anticipating market trends and customer needs, we are enabling downstream success. We are continuing to
grow our collaboration ecosystem.
Human Capital
We support the passions and interests of our employees and empower them to be a positive influence in the world. This
year we were proud to provide many opportunities to be good neighbors even through the challenges of COVID-19 by
volunteering time, money and talent to support the causes that matter most to our employees. We seek to strengthen the
communities in which we live and work through philanthropy, local community initiatives and global initiatives. Among
our efforts are:
•
•
In support of STEM Education, Lumen partnered with organizations such as Pathways in Technology
(P-TECH) to provide underserved youth with an innovative education opportunity with a direct pathway to college
attainment and career readiness
• As we adjusted to the changing needs for COVID-19, employees were provided opportunities to participate in over 30
virtual volunteering events
• Employees were also encouraged to actively volunteer individually in their communities and were supported through
our Dollars for Doers grants program
• Our policy to match charitable contributions made by our employees
• Our employees are encouraged to volunteer and donate through our annual Campaign to Fight Hunger to support
hunger relief efforts around the globe
• Employees are urged to join our partnership with Destination imagination to develop a new STEM-based outreach
challenge program called The imagineXperience. Employees volunteered to help students in underserved
communities build critical skill sets.
•
In 2022, we established a relief fund to support employees with immediate financial grants who suffered losses from
wildfires or other natural disasters.
For additional information regarding our management of human capital, please see “Compensation Discussion & Analysis
– Section five – HRCC Engagement and Compensation Governance”, and our Annual Report on Form 10-K for the year
ended December 31, 2021.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
35
BOARD OF DIRECTORS AND GOVERNANCE
Director Compensation
OVERVIEW
The Board believes that each of our non-employee directors (whom we also refer to as outside directors or non-
management directors) should be compensated through a mix of cash and equity-based compensation. Our HRCC,
consisting entirely of independent directors, has primary responsibility for periodically reviewing and considering any
revisions to director compensation.
The table and the discussion below summarize how we compensated our outside directors in 2021. This table does not
include compensation paid to our President and CEO, Jeff Storey, who does not receive any additional compensation for
his service as a director. Please see the “Summary Compensation Table” below for details regarding all compensation paid
to Mr. Storey during fiscal 2021.
2021 COMPENSATION OF OUTSIDE DIRECTORS
DIRECTORS’ COMPENSATION
Name
Current Directors
Quincy L. Allen(5)
Martha H. Bejar
Peter C. Brown
Kevin P. Chilton
Steven T. Clontz
T. Michael Glenn
W. Bruce Hanks
Hal S. Jones
Michael J. Roberts
Laurie A. Siegel
Former Director(6)
Virginia Boulet
Fees Earned or
Paid In Cash
Stock
Awards(1)(2)(3)
All Other
Compensation(4)
Total
$ 120,125
$ 206,411
$ −
$326,536
157,125
143,250
156,500
126,125
312,875
248,250
140,125
126,125
147,500
206,411
206,411
206,411
206,411
206,411
206,411
206,411
206,411
206,411
—
2,000
—
977
—
4,586
—
—
1,060
363,536
351,661
362,911
333,513
519,286
459,247
346,536
332,536
354,971
49,750
—
—
49,750
1
For fiscal 2021, the HRCC granted each outside director an award of restricted shares or restricted stock units valued at $200,000 based upon the volume-
weighted average closing price of our Common Shares over a 15-day trading period ending prior to the May 20, 2021, grant date. However, as required by SEC
rules, the dollar value reported in this column reflects the grant date fair value of that award based upon the closing stock price of our Common Shares on
the grant date in accordance with FASB ASC Topic 718. These awards vest on May 20, 2022, subject to the director’s continued service through that date (with
vesting accelerated in certain limited circumstances). See “—Cash and Stock Payments.”
2 As of December 31, 2021, outside directors held the following unvested equity-based awards: (i) Ms. Siegel and Messrs. Brown, Chilton, Clontz, Hanks, Jones
and Roberts each held 14,536 shares of restricted stock; (ii) Messrs. Allen and Glenn each held 14,536 RSUs; and (iii) Ms. Bejar held 3,634 shares of restricted
stock and 10,902 RSUs.
3 As of December 31, 2021, outside directors held the following vested RSUs deferred under the Non-Employee Director Deferred Compensation Plan: Ms. Bejar
– 8,219; Mr. Chilton – 16,439; Mr. Glenn – 31,145; Mr. Roberts – 14,706. For further information on our directors’ stock ownership, see “Ownership of Our Securities
—Executive Officers and Directors,” and for information on certain deferred equity and cash fee arrangements, see “—Non-Qualified Deferred
Compensation.”
4
Includes (i) reimbursements for the cost of annual physical examinations and related travel of $977 for Mr. Clontz, $586 for Mr. Hanks and $1,060 for Ms. Siegel,
(ii) the payments related to the attendance of the KPMG Conference of $2,000 each for Messrs. Brown and Hanks, (iii) the payments related to the
attendance of the Chief Executive Board Conference of $2,000 for Mr. Hanks. Except as otherwise noted in the prior sentence, the table above does not
reflect reimbursements for travel expenses.
5 Mr. Allen joined the Board on February 25, 2021.
6 Ms. Boulet’s term ended at the 2021 annual shareholders’ meeting.
36
BOARD OF DIRECTORS AND GOVERNANCE
CASH AND STOCK PAYMENTS
Each year, with assistance from its independent consultant, the HRCC reviews the market competitiveness of our outside
director compensation. We review the total compensation for an “average profile” director for their cash fees (retainer,
committee fees and meeting fees) and equity awards and compared those amounts against director compensation for
the “Compensation Benchmarking Peer Group” described on page 77.
As a result of the above-described process and based on input from its independent consultant, the HRCC approved
certain changes to the program to bring our director compensation to approximately the 50th percentile as compared to
our peers. These changes, described below, became effective following our Annual Shareholders’ Meeting in May 2021,
which coincides with our second quarterly meeting of our Board and its committees.
CASH FEES – During 2021, each outside director earned a combination of annual cash retainers, which are paid on a
quarterly basis with amounts prorated for any changes during the year.
We pay an annual cash retainer for attending each regular (quarterly) Board meeting (“Annual Board Retainer”). At the
beginning of 2021, the Annual Board Retainer was $75,000. As a result of the compensation review described above, we
increased the Annual Board Retainer to $100,000, effective in the second quarter of 2021. As a result, each outside director
who served on our Board the entirety of 2021 received, in total, an Annual Board Retainer of $93,750 for the full year.
We pay annual fees to the chairs of each of the following committees (“Annual Committee Chair Fees”). As part of the
market competitive review, the HRCC increased the Annual Committee Chair Fees, effective for second-quarter meetings,
as follows: (i) the chair of the Audit Committee from $25,000 to $35,000, (ii) the chair of the HRCC from $25,000 to $35,000,
(iii) the chair of the NCG Committee from $15,000 to $30,000 and (iv) the chair of the Risk and Security Committee from
$12,500 to $30,000.
As of our second quarter meeting, we began to pay the following annual fees to the non-Chair members of each of the
following committees (“Annual Committee Member Fees”): (i) the members of the Audit Committee receive $17,500, (ii)
the members of the HRCC receive $17,500, (iii) the members of the NCG Committee receive $15,000 and (iv) the members
of the Risk and Security Committee receive $15,000.
Through May 2021, each outside directors also received a $2,000 fee for attending each regular Board meeting, special
Board meeting (including each day of the Board’s annual planning session), committee meeting and separate director
education program. As a result of the market competitive review, the HRCC eliminated meeting fees in May and
reallocated these fees as part of the increases to Annual Board Retainer and Annual Committee Chair Fees and the
addition of Annual Committee Member Fees described further above.
During 2021, Mr. Glenn, in his capacity as the non-executive Chairman of the Board, received annual supplemental Board
fees of $200,000 payable in cash. The Chairman’s duties are set forth principally in our Corporate Governance Guidelines.
See “How Our Board is Organized—Board Leadership Structure.”
During 2021, Mr. Hanks, in his capacity as non-executive Vice Chairman of the Board, received annual supplemental Board
fees of $100,000 payable in cash. Under our Bylaws, the Vice Chairman is charged with the responsibility of assisting the
Chairman and performing such other duties as may be assigned to him by the Board or the Bylaws.
EQUITY GRANT – During 2021, the HRCC awarded an annual equity grant valued at $200,000 to each outside director, with
the number of shares determined by dividing this target value by the volume-weighted average closing price of our
Common Shares over a 15-day trading period ending prior to the grant date and rounding to the nearest whole share.
This grant was awarded to each director in the form of time-vested shares of restricted stock unless the director made an
election to defer all or a portion of the award under our Non-Employee Directors Deferred Compensation Plan (discussed
below). For those directors who elected to defer any portion of the grant, the portion deferred was issued to the director
as time-vested restricted stock units. These awards are scheduled to vest on May 20, 2022 (one year after their grant), with
vesting accelerated in certain circumstances as described in the award agreement.
Dividends (or, for restricted stock units, dividend equivalents) on these awards are not paid currently but rather accrue
from the grant date through the date of vesting (for restricted stock) or the date of issuance of the underlying shares (for
restricted stock units) and are subject to the same vesting terms as the related award. Dividends on shares of restricted
stock are paid to the director upon vesting while dividend equivalents on restricted stock units are paid to the director at
the same time as the underlying shares are issued to him or her.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
37
BOARD OF DIRECTORS AND GOVERNANCE
NON-QUALIFIED DEFERRED COMPENSATION
NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN – In March 2019, the Board adopted a deferred
compensation plan for our non-employee directors. Under this plan, our non-employee directors may defer up to 100% of
their cash and equity compensation.
Participants in the Non-Employee Director Deferred Compensation Plan may elect to receive payment of their account
balances in either two to five annual installments or a lump sum upon a fixed date, separation from service, or up to five
years following separation from service, subject to any federal tax rules governing deferred compensation.
All cash amounts deferred under this plan by non-employee directors are allocated among deemed investments that
follow the performance of a broad array of funds and are reflected in the market value of each participant’s account.
Distribution amounts will include investment returns (positive or negative).
If a non-employee director elects to defer all or a portion of the director’s annual equity award under this plan, as noted
above, the portion of the award subject to the deferral election will be issued as restricted stock units instead of shares of
restricted stock.
Five of our current directors, Ms. Bejar and Messrs. Allen, Chilton, Glenn and Roberts, participate in this plan.
LEGACY QWEST DEFERRED COMPENSATION PLAN – CLOSED TO NEW PARTICIPANTS AND CONTRIBUTIONS – In
connection with our 2011 merger with Qwest, we assumed the Qwest Deferred Compensation Plan for Non-Employee
Directors. Under this plan, Qwest outside directors could elect to defer all or a portion of their cash directors’ fees, which
were then converted to a number of “phantom units” based on the value of a share of Qwest stock, with credit for
dividends paid to shareholders “reinvested” in additional phantom units. Plan balances attributable to amounts deferred
on or after January 1, 2005, by Qwest directors who joined our Board following the merger were converted, based on the
merger exchange ratio, to phantom units based on the value of one of our Common Shares. Other than the crediting and
“reinvestment” of dividends for outstanding phantom units, the Company does not make any contributions to and no
additional elective deferrals are permitted under this plan. Subject to the terms of the plan, each participant’s account will
be distributed as a lump sum in cash as soon as practicable following the end of his or her service as a director. As of
December 31, 2021, Michael J. Roberts was the only remaining participant in this plan, with a balance of 8,928 phantom
units with an aggregate value of approximately $112,035.
OTHER BENEFITS
Each outside director is entitled to be reimbursed: (i) for expenses incurred in attending Board and committee meetings,
(ii) for expenses incurred in attending director education programs and (iii) up to $5,000 per year for the cost of an annual
physical examination, plus related travel expenses. We supply company-owned tablets to certain of our outside directors
for use in reviewing materials posted to a dedicated portal that permits management to communicate with the Board.
Directors may use our aircraft in connection with company-related business. However, we generally do not permit either
our directors or their family members to use our aircraft for personal trips (except when such use can be accommodated
at no incremental cost to us or on terms generally available to all of our employees in connection with a medical
emergency).
Our Bylaws require us to indemnify our directors and officers so that they will be free from undue concern about personal
liability in connection with their service to the Company. We have signed agreements with each of those individuals
contractually obligating us to provide these indemnification rights. We also provide our directors with customary directors
and officers liability insurance.
38
I T E M 2
Ratify KPMG as Our
2022 Independent Auditor
The Audit Committee of the Board has appointed KPMG LLP as our independent auditor for the fiscal
year ending December 31, 2022 and we are submitting that appointment to our shareholders for
ratification on an advisory basis at the meeting. Although shareholder ratification of KPMG’s
appointment is not legally required, we are submitting this matter to the shareholders, as in the past, as
a matter of good corporate practice.
If the shareholders fail to vote on an advisory basis in favor of the appointment, the Audit Committee will reconsider
whether to retain KPMG and may appoint that firm or another without re-submitting the matter to the shareholders. Even
if the shareholders ratify the appointment, the Audit Committee may, in its discretion, select a different independent
auditor at any time during the year if it determines that such a change would be in the Company’s best interests.
In connection with the audit of the 2021 financial statements, we entered into an engagement letter with KPMG which
sets forth the terms by which KPMG will provide audit services to us. Any future disputes between KPMG and us under
that letter will be subject to certain specified alternative dispute resolution procedures, none of which are intended to
restrict the remedies that our shareholders might independently pursue against KPMG.
KPMG has advised us that one or more of its partners plan to participate in the meeting. We understand that these
representatives will be available to respond to appropriate questions and will have an opportunity to make a statement if
they desire to do so.
For a discussion of factors the Audit Committee considered in connection with re-appointing KPMG for the 2022 audit, see
“-Annual Evaluation and Selection of Independent Auditors.”
Ratification of KPMG’s appointment as our independent auditor for 2022 will require the affirmative vote of a majority of
the votes cast on the proposal at the meeting.
FOR
THE BOARD UNANIMOUSLY RECOMMENDS
A VOTE FOR THIS PROPOSAL.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
39
ITEM 2 - RATIFY KPMG AS OUR 2022 INDEPENDENT AUDITOR
Audit Committee Report
Our Audit Committee has oversight authority over Lumen’s financial reporting function, including our internal controls
over financial reporting (“ICFR”) and our external independent audit process. In carrying out its oversight responsibilities,
the Audit Committee:
• monitors management’s responsibility for fairly presenting our financial statements in conformity with U.S. generally
accepted accounting principles (“GAAP”) by maintaining accurate and reliable financial information through our ICFR
processes;
•
•
appoints our independent auditor; and
regularly communicates with our independent auditor regarding the scope and status of its annual audit of our
consolidated financial statements, including our ICFR.
As part of the Committee’s oversight of the Company’s financial statements, the Committee reviews and discusses with
the Company’s management, and internal and external auditors, management’s key initiatives and programs aimed at
maintaining and improving ICFR, the effectiveness of the Company’s internal and disclosure control structure and the
scope and adequacy of the Company’s internal auditing program.
The Committee met 9 times in 2021 and included, whenever appropriate, executive sessions in which the Committee met
separately with KPMG, our independent auditor, as well as representatives of our Internal Audit group and management.
During 2021, the Committee discussed with KPMG: (i) those matters required to be discussed by the applicable
requirements of the SEC and the Public Company Accounting Oversight Board (“PCAOB”), including the quality of the
Company’s accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the
financial statements; (ii) the written disclosures required by PCAOB regarding the independent auditor’s communications
with audit committees concerning independence; (iii) KPMG’s independence and the effects that the provision of non-
audit services may have on KPMG’s independence; and (iv) various other matters pertaining to the audit and other matters
handled by KPMG.
Among other matters, over the course of the past year, the Committee also:
• discussed the impact of COVID-19 on the Company’s
financial statements as a whole, including short-term
and long-term liquidity, credit losses, revenue, reserves,
intangible assets and related ICFRs;
• discussed our 2021 critical accounting policies with
KPMG;
• discussed SEC regulatory changes, including
amendments to Regulation S-K;
• discussed Company capital allocation, investment and
tax planning strategies;
•
reviewed the scope of and overall plans for the annual
audit and the internal audit program, including a
review of critical accounting estimates and significant
unusual transactions;
•
•
•
•
•
reviewed KPMG’s report describing its quality control
procedures and its report included in the Company’s
Annual Report on Form 10-K;
reviewed the performance of KPMG’s lead
engagement partner;
reviewed and discussed each quarterly and annual
financial statements and related earnings press
releases before issuance, including reviewing the
Company’s issuance of guidance and use of non-GAAP
financial information, the adequacy of disclosures and
management’s ICFR report and discussion and
analysis;
reviewed and discussed the effectiveness of our
disclosure controls and procedures; and
reviewed the Company’s debt compliance process,
including primary debt covenants, debt agreement
restrictions, maintenance covenant calculations and
liquidity implications.
40
ITEM 2 - RATIFY KPMG AS OUR 2022 INDEPENDENT AUDITOR
Moreover, the Committee emphasized the continued importance of an environment supporting the integrity of the
financial reporting process; oversaw the implementation of new accounting standards and appropriate related internal
controls; met quarterly in separate executive sessions, including private sessions with the Company’s independent
auditors, internal auditors and top executives; and coordinated with other committees of the Board to oversee the
Company’s risk management function, especially with respect to matters that could impact the Company’s financial
results or financial position.
In addition, the Committee:
•
•
•
•
received quarterly reports from the Director of Internal
Audit, including the Company’s work regarding ICFR
and met with other members of the Internal Audit
staff;
received periodic reports pursuant to our policy for the
submission of confidential communications from
employees and others about accounting, internal
controls and auditing matters and conducted certain
follow-up inquiries as necessary;
received reports on the Company’s goodwill
impairment testing;
received and evaluated a report concerning the
Company’s major financial risks along with the
Company’s mitigating actions;
•
•
•
•
reviewed the Company’s accounting for income taxes;
reviewed the Company’s accounting for pension assets
and liabilities;
received updates on the Company’s transition from
LIBOR to new interest rate benchmarks; and
received an annual report with regard to any hiring of
former employees of KPMG.
Taking all of these reviews and discussions into account and subject to the limitations on the role and responsibilities of
the Committee referred to in its charter, the undersigned Committee members recommended that the Board include the
Company’s audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31,
2021.
In addition to the Company’s corporate compliance program and integrity line, the Audit Committee has established
procedures for the receipt and evaluation, on a confidential basis, of any complaints or concerns regarding our accounting,
auditing, financial reporting or related matters. To report such matters, please send written correspondence to Audit
Committee Chair, c/o Post Office Box 4364, Monroe, Louisiana 71211.
Submitted by the Audit Committee of the Board of Directors.
W. Bruce Hanks
(CHAIR)
Quincy L. Allen
Peter C. Brown
Kevin P. Chilton
Hal Stanley Jones
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
41
ITEM 2 - RATIFY KPMG AS OUR 2022 INDEPENDENT AUDITOR
Annual Evaluation and Selection of Independent Auditors
The Audit Committee annually evaluates the performance of the Company’s independent auditors, including the senior
audit engagement team, and determines whether to reengage the current independent auditors or consider other audit
firms. In deciding to retain KPMG as the Company’s independent auditors for 2022, the Audit Committee considered a
number of factors, including:
• KPMG’s global capabilities;
• KPMG’s technical expertise and knowledge of the Company’s global operations and industry;
•
The quality and candor of KPMG’s communications with the Audit Committee and management;
• KPMG’s independence;
•
The quality and efficiency of the services provided by KPMG, including input from management on KPMG’s
performance and how effectively KPMG demonstrated its independent judgment, objectivity and professional
skepticism;
• External data on audit quality and performance, including recent PCAOB reports on KPMG and its peer firms; and
•
The appropriateness of KPMG’s fees, KPMG’s tenure as Independent Auditors (including the advantages and
disadvantages of a longer tenure) and the controls and processes in place that help ensure KPMG’s continued
independence.
Over the last several years, the Audit Committee has attempted to strike an appropriate balance between auditor rotation
and retention. Over the past few years, KPMG’s engagement partner for our audit has been rotated more frequently than
required and the audit team currently includes KPMG partners with no previous relationship with the Company. In
addition, since the Level 3 Combination, not only has the engagement partner been rotated multiple times but the KPMG
office charged with the audit has alternated between Shreveport, Louisiana and Denver, Colorado. The factors that the
Audit Committee considered that favored the retention of KPMG as the Company’s independent auditors included:
• Enhanced audit quality – KPMG’s significant institutional knowledge and deep expertise of the Company’s global
business, accounting policies and practices, and internal control over financial reporting enhance audit quality.
• Competitive fees – Because of KPMG’s familiarity with the Company and the communications industry, audit and
other fees are competitive with peer companies.
• Avoid costs associated with a new auditor – Bringing on new independent auditors would be costly and require a
significant time commitment, which could lead to management distractions.
42
ITEM 2 - RATIFY KPMG AS OUR 2022 INDEPENDENT AUDITOR
Audit and Other Fees
The following table lists the aggregate fees and costs billed to us by KPMG and its affiliates for the 2020 and 2021 services
identified below:
FEES
2020
2021
$14,750,818
$14,822,340
126,705
65,470
—
152,278
96,160
—
$14,942,993
$15,070,778
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
Other
Total Fees(4)
1
Includes the cost of services rendered in connection with (i) auditing our annual consolidated financial statements, (ii) auditing our internal control over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, (iii) reviewing our quarterly financial statements, (iv) auditing the
financial statements of several of our subsidiaries, (v) reviewing our registration statements and issuing related comfort letters, (vi) statutory audits for certain
of our foreign subsidiaries and (vii) consultations regarding accounting standards.
2
3
Includes the cost of preparing agreed upon procedures reports and providing general accounting consulting services.
Includes costs associated with general tax planning, consultation and compliance (which were approximately $65,000 in 2020 and approximately $96,000 in
2021).
4 Total fees for 2021 include audit-related fees from the planned divestitures of the Latin American business and incumbent local exchange business.
The Audit Committee maintains written procedures that require it to annually review and pre-approve the scope of all
services to be performed by our independent auditor. This review includes an evaluation of whether the provision of non-
audit services by our independent auditor is compatible with maintaining the auditor’s independence in providing audit
and audit-related services. The Committee’s procedures prohibit the independent auditor from providing any non-audit
services unless the service is permitted under applicable law and is pre-approved by the Audit Committee or its Chairman.
The Chairman is authorized to pre-approve projects if the total anticipated cost of all projects pre-approved by him during
any fiscal quarter does not exceed $250,000. The Audit Committee has pre-approved the Company’s independent auditor
to provide up to $75,000 per quarter of miscellaneous permitted tax services that do not constitute discrete and separate
projects. The Chairman and the Chief Financial Officer are required periodically to advise the full Committee of the scope
and cost of services not pre-approved by the full Committee. Although applicable regulations permit us to waive these
pre-approval requirements in certain limited circumstances, the Audit Committee did not use these waiver provisions in
either 2020 or 2021.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
43
Our Executive
Officers
We currently have five executive officers. Biographical information for each of them (other than Mr. Storey, who also serves
as a director and whose biography may be found under “Board of Directors and Governance – Our Director Nominees”) is
found below:
Executive Vice President, Chief Marketing Officer
49 years old
•
Shaun Andrews is Lumen’s Executive Vice President, Chief Marketing Officer.
• With nearly 25 years of technology experience, Mr. Andrews is responsible for
Lumen’s product and solutions strategy and go-to-market approach.
• He also has oversight of global marketing, including the brand, global messaging
and digital campaigns and marketing technology.
• Mr. Andrews previously served as Lumen’s Executive Vice President, Product
Management.
• Prior to Lumen’s combination with Level 3 Communications, Inc. in 2017, Mr.
Andrews held progressive leadership and strategy roles in Product Management as
a Senior Vice President, starting with Level 3 in 2006.
• Mr. Andrews became Lumen’s Executive Vice President and Chief Marketing Officer
in 2019.
Executive Vice President, General Counsel and Secretary
56 years old
•
Stacey W. Goff is Executive Vice President, General Counsel and Secretary for
Lumen.
• Mr. Goff is responsible for Lumen’s legal function, as well as the communications,
community relations and public policy functions.
• Mr. Goff joined Lumen in 1998 and has served as General Counsel since 2009.
SHAUN
ANDREWS
STACEY W.
GOFF
44
CHRISTOPHER
STANSBURY
OUR EXECUTIVE OFFICERS
Executive Vice President, Chief Financial Officer
56 years old
• Effective April 4, 2022, Christopher Stansbury was named as Lumen’s Executive Vice
President, Chief Financial Officer for Lumen, with global responsibility for financial
planning, accounting, tax, treasury, investor relations, procurement and supply
chain management and the global real estate portfolio.
• Mr. Stansbury previously served as the Senior Vice President and Chief Financial
Officer of Arrow Electronics, Inc. from May 2016 through March 2022. Prior to that,
Mr. Stansbury served as Vice President, Finance, and Chief Accounting Officer of
Arrow Electronics, Inc. beginning in August 2014.
• Prior to joining Arrow Electronics, Inc., Mr. Stansbury held finance positions at
Hewlett-Packard, Inc. and PepsiCo, Inc.
SCOTT
TREZISE
Executive Vice President, Human Resources
53 years old
•
•
Scott Trezise is Lumen's Executive Vice President, Human Resources.
In this role, Mr. Trezise is responsible for the global employee experience, including
talent acquisition, employee engagement, recognition, training and development,
compensation and benefits, payroll, labor relations for represented employees and
contingent labor.
• Mr. Trezise joined Lumen in 2013 in his current role, and was named an executive
officer in 2013.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
45
I T E M 3
Advisory Vote on Executive
Compensation – “Say-on-Pay”
Each year, we provide our shareholders the opportunity to vote on a non-binding, advisory resolution to approve the
compensation of our named executive officers (NEOs) as disclosed in our annual proxy statements in accordance with
SEC rules.
Under our executive compensation programs, our NEOs are rewarded for achieving specific annual and long- term goals,
as well as increased shareholder value. We believe this structure aligns executive pay with our financial performance and
the creation of sustainable shareholder value. The Human Resources and Compensation Committee of our Board (HRCC)
continually reviews our executive compensation programs to ensure they achieve the goals of aligning our compensation
with both current market practices and your interests as shareholders.
As discussed in greater detail elsewhere in this proxy statement, the HRCC spends considerable time and effort to ensure
that not only do we have the right leadership in place, but also that our executive compensation programs continue to
appropriately incentivize and reward each key member of the team in a manner that aligns with shareholder interests. In
recent years, this has included a significant emphasis on shareholder outreach and taking action in response to the input
we received from shareholders. For additional information on our executive compensation programs generally and our
recent compensation actions specifically, we urge you to read the “Compensation Discussion & Analysis” and
“Compensation Tables” sections of this proxy statement.
At the meeting, we will ask you to vote, in an advisory manner, to approve the overall compensation of our NEOs, as
described in this proxy statement, including the Compensation Discussion & Analysis, the Summary Compensation Table
and the other related tables and disclosures. This proposal, commonly known as a “say-on-pay” proposal, gives you the
opportunity to express your views. This advisory vote is not intended to address any specific element of compensation, but
rather relates to the overall compensation of our named executive officers and our executive compensation policies and
practices as described in this proxy statement. Accordingly, your vote will not directly affect or otherwise limit any existing
compensation or award arrangement of any of our NEOs.
While this “say-on-pay” vote is advisory and will not be binding on our Company or the Board, it will provide valuable
information for future use by our HRCC regarding shareholder sentiment about our executive compensation. We
understand that executive compensation is an important matter for our shareholders.
Accordingly, we invite shareholders who wish to communicate with our Board on executive compensation or any other
matters to contact us as provided under “Board of Directors and Governance–Shareholder Engagement.”
Approval of this proposal will require the affirmative vote of the holders of a majority of the votes cast on the proposal at
the meeting.
THE BOARD UNANIMOUSLY RECOMMENDS
A VOTE FOR THIS PROPOSAL.
46
Compensation Discussion & Analysis
The CD&A is divided into five sections: (1) Executive Summary; (2) Compensation Philosophy and Oversight; (3) Pay and
Performance Alignment; (4) Compensation Design, Awards and Payouts; and (5) HRCC Engagement and Compensation
Governance. Please refer to the roadmap below in order to navigate this portion of the proxy statement.
ROADMAP
Compensation Discussion & Analysis
Section one - Executive Summary
2021 executive compensation aligned with business performance
Lumen business highlights
Shareholder engagement and 2021 compensation enhancements
New independent compensation consultant
Section two - Compensation Philosophy and Oversight
Compensation objectives and design
Our pay elements
Section three - Pay and Performance Alignment
Goal setting
Incentive program guidelines
Pay mix
Realized and realizable pay for our CEO
Section four - Compensation Design, Awards and Payouts for 2021
Target Compensation
Base Salary
2021 Short-term Incentive program
2020 Long-Term Incentive Compensation
Other Benefits
Section five - HRCC Engagement and Compensation Governance
HRCC Human Capital Resources Priorities
Role of Human Resources and Compensation Committee
Year-round engagement informs compensation design and awards
HRCC Executive Compensation Review Process
Role of CEO and Management
Role of Compensation Consultants
Role of Peer Companies
Our Governance of Executive Compensation
Human Resources and Compensation Committee Report
47
48
48
48
50
50
51
51
53
55
55
55
57
58
59
59
59
60
66
69
71
71
72
72
73
74
74
74
78
81
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
47
Section one - Executive Summary
As described in our Board Committee section above, the HRCC oversees our executive compensation program. More
broadly, the HRCC provides direction to management on compensation programs for all employees with the goal of
retaining the skilled talent needed for Lumen to reach its strategic objectives. The HRCC seeks to continuously improve
our compensation programs based on changing market conditions, the evolving business environment, and feedback
from our shareholders. This CD&A reflects the HRCC’s overall philosophy on employee compensation with a focus on
compensation for our five NEOs during the last fiscal year.
Jeffrey K. Storey
Indraneel Dev
Stacey W. Goff
Shaun C. Andrews
Scott A. Trezise
PRESIDENT & CHIEF
EXECUTIVE OFFICER
FORMER EXECUTIVE
VICE PRESIDENT, CHIEF
FINANCIAL OFFICER(*)
EXECUTIVE
VICE PRESIDENT,
GENERAL COUNSEL &
SECRETARY
EXECUTIVE VICE
PRESIDENT, CHIEF
MARKETING OFFICER
EXECUTIVE VICE
PRESIDENT, HUMAN
RESOURCES
(*) As previously disclosed and described elsewhere herein, Mr. Dev’s employment with Lumen ended effective April 1, 2022.
2021 executive compensation aligned with business
performance
As discussed in greater detail in this CD&A, our incentive programs are aligned with our corporate strategy and are paid
out based on our performance. In 2021, we had a solid year and our STI plan was funded at 100%.
• As we continued to focus on profitable revenue growth while executing on cost transformation initiatives, we
expanded Adjusted EBITDA margins by over 100 basis points and generated Adjusted EBITDA of $8.4 billion, which was
just below our STI target
• Our $3.7 billion of Free Cash Flow substantially exceeded our Free Cash Flow target for 2021, primarily as a result of
lower capital expenditures due to pandemic-related delays in customer decision-making environment and higher
demand for more digital, less-capital intensive services
• We achieved $19.7 billion of Revenue, falling short of our target
• We hit our target for Customer Experience, with positive satisfaction indicators telling us we’re doing well in this area
Lumen business highlights
During 2021, we made progress advancing our core business strategy to integrate and upgrade our global network and
other assets and technologies into an advanced high-bandwidth, low latency platform that is secure, reliable and fast. To
that end, we focused our efforts on strengthening our digital self-service product ordering platforms, expanding our
offering of secure edge computing services, creating a more adaptive network, and expanding our network capacity
through our Quantum Fiber buildout plan and other initiatives.
Many of our existing and potential enterprise customers were affected by uncertainty in 2021 related to the pandemic,
resulting in some delayed decision making which extended sales cycles. Despite this challenging backdrop, we improved
our sales and revenue performance throughout the year, and our sales funnel recovered to above pre-pandemic levels by
the end of 2021.
48
COMPENSATION DISCUSSION & ANALYSIS
We also announced and executed on our key capital allocation priorities:
1.
Investing to drive growth
2. Maintaining a $1.00 per share dividend
3. Staying relatively net leverage neutral through our current investment phase
4. Continued portfolio optimization
5. Evaluating opportunities for additional share repurchases
Investing to drive growth: Improving the
revenue trajectory of our business is our top
priority, and our objective is to reach top-line
growth through our Quantum Fiber buildout
and Lumen Platform initiatives. Certain
important milestones achieved during 2021
position us to achieve future growth:
• Deployed our edge computing platform
designed to cover substantially all of U.S.
enterprises with 5 milliseconds or less
latency while expanding the platform’s
bare metal service and storage
capabilities
• Expanded our Quantum Fiber network to
approximately 400 thousand new
addressable locations across our footprint
and sized our total addressable
opportunity for Quantum Fiber to be
more than 12 million locations
Maintaining a $1.00 per share dividend: We
believe that the return of cash to our
shareholders in the form of a dividend is an
important part of our value proposition, and
we are focused on supporting our dividend
even as we make the investments necessary
to reach our growth objectives. We returned
approximately $1.1 billion to our shareholders
during 2021 through dividends.
Staying relatively net leverage neutral
through the investment phase: During
2021, we lowered net debt by
approximately $1.5 billion and reduced our
net leverage. We exited the year at 3.6
times Net Debt to Adjusted EBITDA.
$8.4B
Adjusted EBITDA
$3.7B
Free Cash Flow1
3.6X
Net Debt to
Adjusted EBITDA
Continued portfolio optimization: We
announced the value-accretive
divestitures of our Latin American assets
and a 20-state portion of our domestic
ILEC footprint for aggregate gross
consideration of $10.2 billion. Upon
completion, these transactions will
streamline our portfolio, giving us
increased focus and incremental capital to
drive growth in the remaining areas of the
business. We remain open to smart
optimization of our assets going forward.
Evaluating opportunities
for additional share
repurchases: We
announced and
completed a $1 billion
share repurchase
program, reducing our
share count by
approximately 81 million
shares and lowering our
dividend payment
obligations.
For information on how our non-GAAP metrics used above reconcile to GAAP measures and a description of our special
items, see Appendix A. For more complete information on Lumen and our recent performance, see the remainder of this
proxy statement, including Appendix B.
1 Free Cash Flow excludes cash paid for special items.
WHAT'S NEW
As noted above, on July 26, 2021, we agreed to sell our Latin American business, and on
August 3, 2021, we agreed to sell part of our incumbent local exchange carrier (ILEC) business
in 20 Midwestern, Southern and Eastern states, for aggregate gross consideration of $10.2 billion. We
currently anticipate that both of these transactions will close during 2022.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
49
COMPENSATION DISCUSSION & ANALYSIS
Shareholder engagement and 2021
compensation enhancements
At our 2021 annual meeting, we received support from the holders of approximately 91% of the shares voted on our say-on-
pay proposal.
Each year we solicit shareholder feedback throughout the year on a wide range of topics, including executive
compensation. Our Chairman of the Board (who is also a member of the HRCC), HRCC Chair, NCG Committee Chair and,
as appropriate, members of management typically participate in these engagements. These conversations have enabled
us to receive input from our shareholders on how best to align the interests of management and the shareholders and
enabled many of our shareholders to gain a better understanding of the challenges of recruiting, retaining and motivating
top executive talent in a complex, rapidly changing industry that continues to face the challenges of replacing high-
margin declining legacy services with lower-margin growing digital services.
With the feedback of our 2020 shareholder engagement in mind, we refined our 2021 long-term incentive plan as follows:
• Revised our LTI plan metrics
• Maintained Adjusted
• Maintained Relative TSR
for our 2021 awards
EBITDA element, reducing it
to 50% weighting
element, changing it from a
modifier to an equal 50%
weighting
During our shareholder engagement in spring 2021, we invited shareholders representing 55% of our outstanding shares
to engage, resulting in 7 meetings with holders representing 11% of our outstanding shares. We received valuable input on
executive compensation, in addition to governance and ESG. We were encouraged by both the constructive feedback and
positive support we received regarding our compensation program changes over the last couple of years.
In our fall 2021 shareholder engagement, we invited shareholders representing 58% of our outstanding shares to engage,
resulting in 10 meetings with holders representing 8% of our outstanding shares. These discussions were focused on ESG,
board diversity and composition, capital allocation and the impact these topics have on our strategic priorities and how we
design executive compensation to incentivize our long-term success. These discussions helped to inform our 2022
executive compensation decisions.
We look forward to continuing to engage in productive dialogue with our stakeholders on all governance and
stewardship, including compensation.
New independent compensation consultant
In July 2021, the HRCC engaged Semler Brossy Consulting Group, LLC (Semler Brossy) as its new independent
compensation consultant after conducting a nationwide search. Semler Brossy replaces Meridian Compensation Partners,
LLC (Meridian), which had served as independent compensation consultant to the HRCC for the previous six years.
50
Section two - Compensation Philosophy
and Oversight
Compensation is a critical element in Lumen’s overall business strategy for attracting, developing, motivating and
retaining executives and key employees who possess the right skills and leadership expertise to execute our corporate
strategies. Our transition towards providing more adaptive digital transmission services has placed a greater premium on
attracting and retaining personnel with cutting-edge technical skills. We design our compensation programs to reward
executives and employees who are critical to our success.
Compensation objectives and design
Our compensation programs are designed to be market competitive and fiscally responsible. Providing incentive
compensation opportunities linked to our corporate performance is a key part of our compensation programs, especially
for our senior leaders. But our STI and LTI programs extend much further into our organization. For 2021, approximately
23,000 employees participated in our STI program and approximately 1,600 employees received equity grants under our
LTI program. For each participant in our incentive programs, including our NEOs, his or her target compensation and
performance metrics are determined based on the availability of talent, the criticality of skills, market compensation
benchmarks and internal equity considerations.
ALIGNING PERFORMANCE OBJECTIVES WITH STRATEGY
The HRCC selects short-term and long-term plan performance objectives designed to drive execution of our overall
business strategies. This process includes engagement with the HRCC’s independent compensation consultant,
discussing compensation trends, measuring our performance against peers and market influences throughout the year as
well as feedback from shareholder engagement regarding executive compensation and incentive design. Key design
considerations include:
Incentive Compensation Design
Target Compensation
• Aligning performance objectives and metrics with our
• Balancing between cash and equity incentive
•
short- and long-term strategies
Setting ambitious short-and long-term targets at
challenging but reasonably achievable levels that
reflect priorities and drive progress toward our long-
term vision
• Assessing effectiveness of prior year design and targets
• Ensuring that performance-based compensation
rewards performance over multiple time horizons and
aligns with long-term shareholder value while
discouraging excessive risk taking
• Being responsive to shareholder feedback
• Allowing for the flexibility to make limited
adjustments, positive or negative, as may be
appropriate
• Monitoring share expense rate and dilution
compensation
•
Targeting total compensation at the 50th percentile
• Balancing individual contribution and Company
performance
• Retaining employees with essential expertise and skill
•
Targeting internal equity by offering comparable pay to
employees who make similar contributions and have
comparable skill sets and expertise
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
51
COMPENSATION DISCUSSION & ANALYSIS
RIGOROUS DESIGN AND TARGET SETTING PROCESS
Each year over the course of several meetings, the HRCC evaluates our incentive designs for the upcoming plan year and
establishes rigorous threshold, target and maximum performance levels for the selected objectives that are rooted in our
annual budget, public guidance and long-range strategic plan.
Our incentive design and targets are influenced by:
• Board approved annual and long-range financial plans, which are used to set our STI and LTI targets and inform our
external outlook
– Detailed financial and operational goals and timelines
– Anticipated timing for execution of our strategic initiatives, new product launches and completion of our pending
divestitures
– Cash flow plan to execute on our capital allocation priorities
– Prior year strategic goals and actual financial performance
– Industry and competitive trends
– Other Company-specific and external factors that influence our business
• Declines in high margin, residential voice and copper-based wireline revenue outweighing increased customer
demand for digital services and new products
– Telco services’ margin is significantly greater than the technology services margin – requiring us to simultaneously
expand our customer base and services portfolio at a faster rate than the declining telco customer base while also
protecting the value of the declining residual legacy voice and copper-based wireline revenue
– As a result, flat or slightly negative revenue growth is a rigorous goal during this telco to tech evolution
• Adapting to our revenue declines requires us to adjust our cost structure annually
– Using Adjusted EBITDA as a key financial metric in both our STI and LTI plans, with performance measured over
different time horizons, incentivizes management to rapidly adjust our operations to achieve strategic priorities
•
•
The Board’s careful review of the degree of difficulty of our compensation goals
Shareholder feedback and independent compensation consultant observations
52
COMPENSATION DISCUSSION & ANALYSIS
Our pay elements
The three core elements of our executive compensation program are base salary, annual STI bonus opportunity (typically
paid in cash); and annual LTI grants (equity awards). Our LTI awards are structured as mix of performance-based restricted
stock or RSUs (PBRS) and time-based restricted stock or RSUs (TBRS), with heavier weighting on the PBRS portion for our
senior leadership team. Each element is described below and includes the performance metrics selected for our 2021
incentive programs.
CEO
Element and Description
Performance Objectives
Aligned with Strategy
Metrics and Weighting 2021
Base Salary
Base Salary
As with most companies, base salary
is annual fixed cash compensation
that provides a competitively set and
stable component of income to our
executives.
Short-Term
Incentive Bonus
STI Program
STI bonus is annual variable cash
compensation based on the
achievement of annual performance
measures.
For 2021, the HRCC
maintained the same STI
design and elements as the
prior year, which remain
aligned to the telco to tech
transitioning strategies.
Adjusted EBITDA measures the
operational performance and
profitability of our businesses
and is commonly used by
industry investors to evaluate
our total enterprise value. (50%)
Alignment to Compensation
Philosophy STI provides competitive
short-term incentive opportunities
for our executives to earn annual
bonuses, typically paid in cash, based
on performance objectives that, if
attained, can reasonably be expected
to (i) promote our business and
strategic objectives and (ii)
correspond to those paid to similarly
situated and comparably-skilled
executives at peer companies. The
HRCC retains discretionary authority
over determining any and all
amounts to be paid under the STI
plan
Free Cash Flow is a
comprehensive measure of our
overall financial position. (25%)
Revenue generation is critical to
our goal of increasing our
strategic revenue growth in
amounts sufficient to offset our
continuing and systemic legacy
revenue losses. (15%)
Customer Experience is critical
to maintain and grow our
revenue base. (10%)
A positive or negative
adjustment for individual
performance based on “line of
sight” for their specific areas of
responsibility and individual
objectives. Any positive
adjustments for a NEO’s
individual performance are
capped at 20% of the Company
performance funding for the STI
program. (Individual
Performance modifier)
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
53
COMPENSATION DISCUSSION & ANALYSIS
CEO
Element and Description
Performance Objectives
Aligned with Strategy
Long-Term Incentive
Compensation
LTI Program
LTI is variable compensation awarded
annually in equity that vests over
three years from the date of grant,
with at least 60% of the award based
on the achievement measured
against pre-established performance
measures for a three-year period.
Time-Vested LTI Awards
(TBRS): Our grants of TBRS
are intended to reinforce the
link of interests between our
executives and our
shareholders by focusing on
the long-term value of our
common stock.
Performance-Based LTI
Awards (PBRS): In response
to shareholder input and
other factors, for our 2021 LTI
awards the HRCC reduced our
Cumulative Adjusted EBITDA
metric to a 50% weighting
and, to further strengthen the
alignment of executive and
shareholder interests,
increased the focus on relative
TSR by changing it from a
modifier to a second, equally-
weighted performance
metric.
Alignment to Compensation
Philosophy LTI fosters a culture of
ownership, aligns the long-term
interests of our executives with our
shareholders and helps to retain
executives through stock price
growth and the creation of long-term
value. In addition, the number of
shares vesting under our
performance-based awards is
dependent upon our performance
measured against key business
objectives over a multi-year period,
further strengthening the alignment
between executive pay, Company
performance and shareholder value
creation. The amount of LTI
compensation that is ultimately
realized depends on how successfully
we execute our strategic goals and
our overall stock performance.
Metrics and Weighting 2021
Adjusted EBITDA measures the
operational performance and
profitability of our businesses
and is commonly used by
industry investors to evaluate
our total enterprise value.
Cumulative Adjusted EBITDA
measures sustained, cumulative
EBITDA performance over a
three- year period. (50%)
Relative Total Shareholder
Return or TSR (3-year) rewards
for achieving stock price growth
relative to our TSR peer group
over a three-year period. (50%)
For a discussion of how the HRCC allocates compensation between these three key components, see section below
entitled “Pay and Performance Alignment.”
54
Section three - Pay and Performance
Alignment
In allocating NEO target pay opportunities among the different compensation elements, the HRCC does not adhere to a
prescribed formula but generally emphasizes performance-based and at-risk elements. The total target cash
compensation opportunity (base salary plus target STI) represents less of each NEO’s total target compensation than the
total target LTI opportunity, in order to increase alignment with shareholders’ interests and motivate performance that
creates sustainable long-term shareholder value.
Goal setting
As noted above, STI and performance-based LTI payouts are determined at the end of a performance period based on our
achievement of pre-established goals. In order to ensure compensation elements are aligned with both company
performance and our evolving corporate strategies, incentive goals and targets are not automatically carried forward from
one year to the next. Rather, the HRCC reevaluates performance goals annually, in order to establish goals that are:
•
•
•
challenging and sufficiently rigorous, based on the information available to us at the time, including the Company’s
publicly-disseminated annual outlook;
appropriately tailored to our current business conditions as well as the prevailing business environment more broadly;
aligned with shareholder interests and recent shareholder input; and
• designed to incentivize our executives to drive our key strategic objectives over the relevant performance period.
Incentive program guidelines
While our incentive goals, targets and payout criteria are designed to measure objective performance over a specified
period of time, the HRCC does have the ability to make certain adjustments to our performance calculations. To provide
structure and promote consistency in addressing such situations, the HRCC has adopted Guidelines on Administering
Incentive Plans (the Guidelines) to aid its goal of reaching balanced STI and LTI payout decisions that align performance
with our targets and corporate strategy. As described in the table below, the Guidelines provide four types of potential
adjustments to our STI or LTI metrics that can affect the overall payout.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
55
COMPENSATION DISCUSSION & ANALYSIS
Types of Adjustments Under
Our Incentive Program Guidelines
STI
LTI
2021 Adjustments Under
Our Incentive Program Guidelines
For our 2021 STI Plan:
•
See “Appendix A - Non-GAAP Reconciliation” for
details on the Non-GAAP Special Items previously
reported in our February 9, 2022 earnings release.
• Adjustments for 2021 also included the net
impact of charges and credits related to the sale
of our Texas correctional facility operations.
For our 2021 STI Plan:
• Adjustments for 2021 included the elimination of
the effect of foreign currency fluctuations and
true-up of bonus accruals for 2021 STI.
These adjustments were not included in
adjustments we publicly reported in connection
with reporting earnings.
•
For our 2021 STI Plan:
• As described below under "2021 Short-Term
Incentive Program—HRCC STI Award Oversight,”
the HRCC applied negative discretion to reduce
2021 STI awards by 9.6%.
• None for 2021.
Mandatory Adjustments to Results. The first type of
adjustment occurs after completion of each
performance period and in conjunction with our
annual external reporting process when the HRCC
reviews the financial information and assumptions
in order to make certain mandatory adjustments to
STI and LTI performance results to eliminate the
effects of certain unanticipated, material and special
events specified in the Guidelines. Generally, these
adjustments have corresponded closely, but not
exactly, with the “Non-GAAP Special Items”
supplemental schedule included in our earnings
release for the corresponding performance period.
Discretionary Adjustments to Results. The second
type of adjustment provides the HRCC with
discretionary authority to adjust STI and LTI
performance results based on any other
“extraordinary, unusual, or non-recurring
transactions or items” to prevent award payouts
from being unfairly impacted by such items. In
either case, the adjustments may be positive or
negative but will only be made if the events were
not known on the date the performance goals were
established or were not reflected in the forward-
looking financial information used to set such goals.
Discretionary Adjustments to STI Payout
Percentages. The third type of adjustment, as
discussed in greater detail below under “Short Term
Incentive Bonuses,” provides the HRCC with
additional discretionary authority under the terms of
the STI plan to adjust STI payouts. These
discretionary adjustments may be made as either a
specific feature of a given year’s STI plan established
in advance (for example, the capped individual
performance modifier included in our 2021 plan
design) or as equitable adjustments made in arrears
pursuant to the HRCC’s overall authority to
authorize final STI payouts.
Mandatory Adjustments to LTI Targets. The final
type of adjustment, adopted in early 2022, requires
the HRCC to adjust our three-year Cumulative
Adjusted EBITDA targets as applied to the
performance-based portion of our annual LTI grants
to eliminate the effects of changes in tax law,
changes in accounting standards and certain
specified extraordinary items or events.
56
COMPENSATION DISCUSSION & ANALYSIS
Pay mix
The following chart illustrates the approximate allocation of the total target compensation opportunity for our current
CEO and named executive officers (shown as CEO and 2021 NEOs, respectively, below) between elements that are fixed
and variable or performance-based pay that is “at risk.” As a result, the actual (or take home) pay that our CEO realizes in a
given year may be more or less than his total target compensation for that year, as illustrated in the bar graphs further
below.
CEO - Total Target Opportunity
2021 NEOs - Total Target Opportunity
A fixed annual salary (base salary) represents 9% of our CEO’s total target compensation and 17% of our other NEOs’
average target total compensation.
Variable pay, consisting of an STI bonus opportunity and LTI awards, represents 91% of our CEO’s total target
compensation and 83% of our other NEOs’ average target total compensation. This portion of pay is considered at-risk
since the receipt or value of the award is subject to the attainment of certain performance goals, vesting requirements
and overall stock performance. LTI performance-based compensation is the largest component, representing 46% of our
CEO’s and 39% of our other NEOs target total compensation, and provides the greatest alignment between our NEO
compensation and the interests of our shareholders.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
57
COMPENSATION DISCUSSION & ANALYSIS
Realized and realizable pay for our CEO
The chart below illustrates the realized1 and realizable2 pay for our CEO, 90% or more of which was at-risk variable
compensation (STI, TBRS and PBRS) in each the last three years3. Over the past three years, our CEO’s average realized and
realizable pay approximated 98.3% of target compensation.
1 Realized Pay measures the actual pay realized by Mr. Storey, excluding one-time awards, by adding together (i) actual salary
paid during the year, (ii) STI bonus that was ultimately paid for that year and (iii) the value of time- and performance-based LTI
awards that vested.
2 Realizable Pay measures the actual pay realizable for Mr. Storey for a given year by adding together the (i) realized pay, as
describe in note (1) and (ii) the value of unvested time- and performance-based LTI, at “target” levels, based on our stock price as
of March 1, 2022.
3 For further information on our 2019 and 2020 STI performance and 2019 PBRS performance, please see our 2020 and 2021 proxy
statements. For further discussion on our 2021 STI payout, see “2021 Short-term incentive program.” “TBD” means to be
determined upon completion of the performance periods ending on December 31, 2022 and 2023.
58
Section four - Compensation Design,
Awards and Payouts for 2021
Our fiscal 2021 executive compensation program was generally similar to our 2020 program, except for a recalibration of
our LTI program metrics.
Target Compensation
As noted previously, the three key elements of our executive compensation program are base salary, STI bonus
opportunity and LTI awards (at least 60% of which are PBRS). The HRCC has established target compensation levels for
each of our senior officers on each of these three elements, reviewing the pay mix and pay levels at least annually. As of
December 31, 2021, the total target compensation opportunities for our NEOs were as follows:
TOTAL TARGET COMPENSATION FOR FISCAL 2021(1)
NEO
Mr. Storey
Mr. Dev
Mr. Goff
Mr. Andrews
Mr. Trezise
Base Salary
STI
Target
Bonus %
STI Target
Bonus
Opportunity
Total Target
Cash
LTI Target(2)
Total Target
Compensation(3)
$1,800,011
200%
$ 3,600,022
$5,400,034
$14,000,000
$19,400,034
750,000
600,018
550,000
524,992
125%
120%
100%
100%
937,500
720,021
550,000
524,992
1,687,500
1,320,039
1,100,000
1,049,984
4,250,000
2,000,000
1,600,000
1,500,000
5,937,500
3,320,039
2,700,000
2,549,984
1 For more complete information presented in accordance with the SEC’s rules, see the Summary Compensation Table below.
2 The LTI target in this table represents the value of the target levels of equity awards to be granted as of December 31, 2021, which differ from amounts
reported in the Summary Compensation Table, which are calculated in accordance with FASB ASC Topic 718.
3 The Total Target Compensation for Messrs. Storey and Trezise was at the 50th percentile of our compensation benchmarking data, and between the 25th
and 50th percentile for Messrs. Andrews, Dev and Goff.
Each of these elements is discussed in greater detail below. For more information on how we determined specific pay
levels in 2021, see further discussion under the heading “—Compensation Benchmarking Peer Group.”
Base Salary
Early each year, the HRCC takes a number of steps in connection with setting annual base salaries, including the review of
(i) compensation tally sheets and benchmarking data, (ii) each senior officer’s pay and performance relative to other senior
officers, (iii) the scope and complexity of the role relative to benchmark data, (iv) the experience and proficiency in the role,
the criticality and skill set needed to execute the role and (vi) when the officer last received a pay increase.
Annual Review Process (February 2021). During its annual review of executive compensation in February 2021, the HRCC
reviewed the compensation benchmarking data for each senior officer, comparing the officer’s pay to our peer group.
Following this review and discussion, the HRCC increased Mr. Andrew’s annual base salary to $550,000 and left unchanged
the base salaries for our other NEOs.
Mid-Year Actions (November 2021). In November 2021, the HRCC reviewed updated compensation benchmarking data
for all executive officers and increased the salary of Mr. Trezise to $524,992 and left unchanged the base salaries for our
other NEOs.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
59
COMPENSATION DISCUSSION & ANALYSIS
2021 Short-term Incentive program
As described below, the 2021 STI design incorporates three components in determining the calculated STI bonus amount
(payout) for our NEOs:
TARGET
BONUS
OPPORTUNITY
COMPANY
PERFORMANCE
FUNDING
INDIVIDUAL
PERFORMANCE
MODIFIER
Calculated
STI Bonus
Amount
(Base Salary x STI
Target Bonus %)
(Ranges from 0% to
200%)
(20% cap on upward
adjustments for
NEOs)
This chart below shows our overall level of achievement (Company performance funding) on the financial and qualitative
metrics in our 2021 STI plan (before the application of the individual performance modifiers and negative discretion
discussed below):
2021 STI PERFORMANCE METRICS
In February 2021, the HRCC approved the 2021 STI Plan metrics and set the “threshold,” “target” and “maximum” target
goals for each metric. As discussed in detail below, the 2021 metrics were the same as those used in 2020, but in several
instances set at lower levels of targeted performance. The HRCC nonetheless believes these 2021 performance targets
were rigorously set at challenging thresholds, after taking into consideration (i) various factors influencing our business, (ii)
our Board-approved annual budget and long-range plan, (iii) our publicly disclosed 2021 guidance and (iv) other factors,
including, but not limited to, the year-over-year wireline revenue declines as reported in our periodic reports with the SEC
and the significant pressure this exerts on achieving the same or higher year-over-year performance (as further discussed
under “Section Two - Rigorous Design and Target Setting Process” above).
Adjusted EBITDA (weighted 50%)
ALIGNMENT TO STRATEGY
Adjusted EBITDA remains our most heavily-weighted financial performance objective at 50% for 2021. We believe this
metric is aligned with our shareholders’ best interests and our corporate strategy of profitable growth. As described
elsewhere, in light of the revenue decline for our higher-margin legacy services, we continuously need to adjust our cost
structure - requiring a disciplined focus on Adjusted EBITDA and margins. The metric of Adjusted EBITDA is designed to
incentivize and reward our senior officers to focus on the combination of cost savings and profitable revenue growth.
60
COMPENSATION DISCUSSION & ANALYSIS
Maximum
Target
Threshold
Below Threshold
Target Amount of
Adjusted EBITDA(1)
≥ $8,967 million
$8,500 million
$8,219 million
< $8,219 million
Payout as a % of
Target Award
Results:
200%
100%
50%
0%
$8,436 million(2)
Just below target
ACHIEVED
PAYOUT OF
96.6%(3)
1 As used in our 2021 STI plan, adjusted earnings before interest, taxes, depreciation, amortization and stock-based compensation
expense (“Adjusted EBITDA”) is a non-GAAP metric that excludes certain one time or non-recurring charges or credits and
eliminates the effects of certain unanticipated, extraordinary, unusual, or non-recurring transactions or items. See Appendix A
for more information.
2 As used in our 2021 STI plan, results includes $4 million of reduced Adjusted EBITDA to reflect the net effect of certain charges
or credits to eliminate the impact of certain unanticipated, extraordinary, unusual, or non-recurring transactions or items not
reflected in Appendix A. See “Section Three - Incentive Program Guidelines” for more information.
3 The achieved payout percentage is calculated for each financial performance objective based on a corresponding payout scale
approved by the HRCC. If the threshold performance level with respect to any particular financial performance objective under
our STI program is not attained, the bonus payable to the participating officer with respect to that portion of his or her targeted
bonus opportunity will be calculated as zero. If threshold performance is met on any particular metric, each participating officer
will earn a reduced portion of his or her target bonus amount for that portion of the award. If the maximum performance level
with respect to any particular metric is met or exceeded, each participating officer will earn a maximum of 200% of his or her
target bonus amount. Measurement of the attainment of any particular metric is interpolated if actual performance is between
(i) the “threshold” and the “target” performance levels or (ii) the “target” and the “maximum” performance levels.
Free Cash Flow (weighted 25%)
ALIGNMENT TO STRATEGY
Free Cash Flow is critical to supporting our key strategic initiatives and our commitment to supporting our dividend and
investing in our growth segments.
2021 Goals
Target Amount of
Free Cash Flow(1)
Payout as a % of
Target Award
Results:
Maximum
Target
Threshold
Below Threshold
≥ $3,540 million
$2,950 million
$2,360 million
< $2,360 million
150%
100%
50%
0%
$3,750 million(2)
Above maximum
ACHIEVED
PAYOUT OF
150%
1 As used in our 2021 STI plan, Free Cash Flow is a non-GAAP measure of net cash from operating activities less capital
expenditures and before dividends, adjusted for certain one-time or non-recurring charges or credits and eliminates the effects
of certain unanticipated, extraordinary, unusual, or non-recurring transactions or items. See Appendix A for more information.
2 As used in our 2021 STI plan, results include $8 million of additional Free Cash Flow to reflect the net effect of certain charges or
credits to eliminate the impact of certain unanticipated, extraordinary, unusual, or non-recurring transactions or items not
reflected in Appendix A. See “Section Three - Incentive Program Guidelines” for more information.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
61
COMPENSATION DISCUSSION & ANALYSIS
Revenue (weighted 15%)
ALIGNMENT TO STRATEGY
The generation of revenue is critical to our goal of increasing our strategic revenue in amounts sufficient to offset our
continuing and systemic legacy revenue losses. Thus, we included Revenue as a metric for 15% for our 2021 STI plan.
The HRCC believes our senior officers are appropriately incentivized to achieve our 2021 revenue targets with a balanced
approach, since the majority of our 2021 STI is based on Adjusted EBITDA and free cash flow, which rewards our senior
officers for achieving profitable revenue growth.
2021 Goals
Maximum
Target
Threshold
Below Threshold
Target Amount of
Revenue
≥ $20,818 million
$20,017 million
$19,217 million
< $19,217 million
Payout as a % of
Target Award
Results:
$19,689 million(1)
Below target
200%
100%
50%
0%
ACHIEVED
PAYOUT OF
91.8%
1. As used in our 2021 STI plan, results include $2 million of additional revenue to reflect the net effect of certain charges or credits
to eliminate the impact of certain unanticipated, extraordinary, unusual, or non-recurring transactions or items not reflected in
Appendix A. See “Section Three - Incentive Program Guidelines” for more information.
62
COMPENSATION DISCUSSION & ANALYSIS
Customer Experience (weighted 10%)
ALIGNMENT TO STRATEGY
We are committed to meeting the needs of all our customers. Improving customer satisfaction and service scores,
reducing customer inconveniences and decreasing repair times are critical to supporting our goal of improving our
revenue trajectories.
We believe the ease of doing business with the Company is a top driver of customer loyalty, which will be reflected in Net
Promoter Score (NPS). Customer experience research suggests increased promoter scores will generate increased
customer spending within 24 months. As such, the primary measures for Customer Experience performance are NPS and
Customer Ease Score (CES)
2021 GOALS
Although there are quantitative metrics involved in Customer Experience, the overall metric is qualitative in nature. Each
business unit is charged with improving relationships with our customers and is part of the annual planning process. Our
customer experience goals and transformation programs are informed and prioritized using customer data trends and
insights. Using regression analysis, we can model which programs drive the greatest improvements for the greatest
number of customers. For goal setting, we consider historical Lumen performance trends and industry benchmarks to
ensure that we are setting appropriate growth targets by segment.
TARGETS
In February 2021, the HRCC approved the following goals and objectives for our 2021 STI plan:
• Execute Company-wide on transformative programs that truly improve the way we operate in order to improve NPS
and CES for each of our business units
•
Improve relationship NPS and CES for each of our business units as follows:
– Enterprise: NPS +6 and CES +4 points
– Consumer: NPS +3 and CES +2 points
– Small Business: NPS +3 and CES +2 points
PERFORMANCE HIGHLIGHTS
Enterprise Results
• Relationship NPS +7
• Relationship CES +2
• Transactional scores up year over year
Consumer Results
• Relationship NPS +8
• Relationship CES +3
• Transactional scores up year over year
Small Business Results
• Relationship NPS -1
• Relationship CES flat
• Transactional scores are mixed year over year
Network Operations Performance
• Exceeded Enterprise transactional goals
• Exceeded Consumer transactional goals
ACHIEVED
PAYOUT OF
100%
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
63
COMPENSATION DISCUSSION & ANALYSIS
HRCC STI AWARD OVERSIGHT
In February 2022, the HRCC reviewed audited results of the Company’s performance as compared to the financial and
operational performance targets and respective weighting for the established metrics for our 2021 STI plan and
determined that the calculated STI payout based on Company performance (the “Weighted Payout Percent before
Discretion”) was 109.6% (as confirmed by our Internal Auditors), based on the financial metrics detailed above, before
considering each NEO’s individual performance modifier as discussed below. After a discussion of the Company’s
performance for 2021, the HRCC elected to apply discretion to reduce the STI bonus payout by 9.6% for an “at target” or
100% STI bonus funding.
Weighted Payout Percent before Discretion
HRCC Applied Discretion
Company Performance Funding
109.6%
(9.6%)
100.0%
BONUS AMOUNTS
As contemplated by the STI plan and the Guidelines, the HRCC reserves the right to increase or decrease the STI bonus
payout level based on their qualitative assessments for each senior officer’s performance against certain specific objectives
and benchmarks, as well as overall company and individual performance during the year. For 2021, these adjustments are
indicated in the “Individual Performance Modifier” heading in the table below. In certain circumstances, the HRCC may
apply discretion to modify senior officer compensation, with any upward adjustments for NEOs capped at 20% (or 120% of
company performance funding). The HRCC discussed each NEO’s 2021 performance and leadership accomplishments and
approved the following adjustments to their Individual Performance Modifiers, as quantified in the table below.
NEO
Mr. Storey
Individual Performance Scorecard
▪ Exceed Expectations - (i) successful negotiation of two value-accretive
divestitures, for aggregate gross consideration of $10.2 billion
▪ Met Expectations - (i) solid execution on deleverage plan and (ii) continued
improvement in areas of culture and workforce diversity, inclusion, belonging
and social responsibility
▪ Below Expectations - (i) missed our 2021 product and Revenue goals and (ii)
need to improve execution of our revenue growth initiatives
Individual
Performance
Modifier
100%
Mr. Dev
▪ Met Expectations - (i) solid execution on deleverage plan and (ii) continued
100%
transformation of the Finance organization
▪ Below Expectations - (i) missed our 2021 Revenue target and (ii) need to
improve execution of our revenue growth initiatives
Mr. Goff
▪ Exceeded Expectations - (i) lead the negotiations, regulatory approvals and
100%
integration process for ILEC transaction, (ii) improved internal
communications platforms and (iii) highly engaged workforce
▪ Met Expectations - (i) delivered high level of service in an efficient and cost
effective manner, (ii) favorable litigation and arbitration results and (iii)
supporting our strategic initiatives through advice and advocacy across our
business
▪ Exceeded Expectations - (i) execution on Edge computing and our platform
strategy and (ii) recognizing our top talent and strengthening our talent
pipeline
▪ Met Expectations - year-over-year increase in workforce diversity
▪ Below Expectations - missed our 2021 product and financial goals
▪ Exceeded Expectations - strategic advisor to deliver actionable and innovative
people solutions that contribute to building and strengthening our talent
pipeline
▪ Met Expectations - (i) developing high performance culture, (ii) enhancing the
employee experience and (ii) increasing our workforce diversity, inclusion,
belonging and social responsibility
95%
100%
Mr. Andrews
Mr. Trezise
64
COMPENSATION DISCUSSION & ANALYSIS
The HRCC approved each NEO’s STI bonus as summarized in the table below.
2021 STI BONUS AMOUNTS
NEO
Mr. Storey
Mr. Dev
Mr. Goff
Mr. Andrews
Mr. Trezise
Target Bonus
Opportunity(1)
$3,600,022
937,500
720,021
546,301
495,694
X
X
X
X
X
Company
Performance
Funding(2)
Individual
Performance
Modifier(3)
100%
100%
100%
100%
100%
X
X
X
X
X
100%
100%
100%
95%
100%
=
=
=
=
=
Calculated STI
Bonus Amount
$3,600,022
937,500
720,021
518,986
495,694
1 Determined based on earned salary and applicable STI target bonus percentage during 2021. The amount for Mr. Andrews reflects a pro-rated amount based
on an increase in salary (from $525,000 to $550,000), effective as of February 24, 2021. The amount for Mr. Trezise reflects a pro-rated amount based on both
an increase in STI target bonus percentage (90% to 100%) and salary (from $500,011 to $524,992), effective as of February 24, 2021 and November 17, 2021,
respectively.
2 Calculated and adjusted as discussed above.
3 See “Bonus amounts” above.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
65
COMPENSATION DISCUSSION & ANALYSIS
2021 Long-Term Incentive Compensation
For 2021, our annual LTI grants consisted of a mix of time- and performance-based equity awards, as described below.
Form of LTI Award
Time-Based Restricted Stock or
RSUs (TBRS)
Performance-Based Restricted
Stock or RSUs (PBRS)
Mix
CEO Other NEOs
36% 40%
64% 60%
Vesting and Performance Period
One-third vesting each year over three-years; subject to
continued service on vesting date.
Three-year performance period with vesting on March 1,
2024 with payout ranging from 0% to 200% based on
achievement as measured against performance metrics
subject to continued service through vesting date.
2021 ANNUAL LTI GRANTS
In February 2021, the HRCC reviewed the compensation benchmarking data for all executive officers and increased the
target LTI grant values for each of Messrs. Storey, Dev Andrews and Trezise to $14,000,000, $4,250,000, $1,600,000 and
$1,200,000 respectively, and left unchanged the LTI target grant value for Mr. Goff. The HRCC granted annual LTI awards to
our NEOs in February 2021 with a similar mix to the awards granted to them in 2020, except for Mr. Storey. For Mr. Storey,
the increase in his target LTI grant value was allocated entirely to the performance-based portion of his award, meaning
that PBRS now composes 64% of his target LTI grant value with the remaining 36% delivered as TBRS. See further
discussion under the heading “Role of Peer Companies” below.
In February 2021, the HRCC granted the LTI awards to each NEO as detailed below.
2021 ANNUAL LTI GRANTS
Named Officer
Mr. Storey(5)
Mr. Dev
Mr. Goff
Mr. Andrews
Mr. Trezise
Time-Vested
Restricted Shares or RSUs
Performance-Based
Restricted Shares or RSUs
No. of
Shares(1)(3)
Grant
Value(4)
No. of
Shares(2)(3)
Grant
Value(4)
Total Grant
Value(4)
419,601
142,697
67,152
53,721
40,291
$5,040,000
1,700,000
800,000
640,000
480,000
745,958
$8,960,000
$14,000,000
214,047
100,728
80,583
60,437
2,550,000
1,200,000
960,000
720,000
4,250,000
2,000,000
1,600,000
1,200,000
1 For Messrs. Dev, Goff, Andrews and Trezise, represents the number of restricted shares or RSUs granted on February 24, 2021; for Mr. Storey represents the
number of RSUs granted on February 26, 2021.
2 As discussed under “2021 Annual LTI Performance Metrics” below, the actual number of shares that vest in the future may be lower or higher, depending on
the level of performance achieved.
3 Dividends on the shares of restricted stock (or, with respect to RSUs, dividend equivalents) will not be paid on unvested awards but will accrue and be paid or
be forfeited in tandem with the vesting of the related shares or RSUs.
4 For purposes of these grants, we determined both the number of time-vested and performance-based restricted shares or RSUs by dividing the total grant
value granted to the executive by the volume-weighted average closing price of a share of our common stock over the 15-trading-day period ending one
trading day prior to the grant date, rounding to the nearest whole share. However, as noted previously, for purposes of reporting these awards in the
Summary Compensation Table, our shares of time-vested restricted stock or RSUs are valued based on the closing price of our common stock on the date of
grant and our shares of performance-based restricted stock or RSUs are valued as of the grant date based on probable outcomes, as required by applicable
accounting and SEC disclosure rules. See footnote 1 to the Summary Compensation Table for more information.
5 Mr. Storey’s annual grant was awarded on February 26, 2021 in the form of RSUs.
2021 ANNUAL LTI PERFORMANCE METRICS
The 2021 metrics approved by the HRCC in early 2021 were similar to those used in 2020 with the following changes to
better align the 2021 LTI plan with our corporate strategy and strike the right balance between performance incentives
and long-term shareholder interests.
66
COMPENSATION DISCUSSION & ANALYSIS
• Cumulative Adjusted EBITDA – Reduced weighting from 100% to 50%. Adjusted EBITDA measures the operational
performance and profitability of our businesses as we continue to make progress on our telecommunications to
technology transformation strategy.
• Relative TSR – Introduced as a new stand-alone metric weighted at 50% in lieu of its prior use as a modifier in our 2020
annual LTI awards. We believe the change improves alignment with shareholder interests by rewarding for our stock
performance relative to our peers.
Following the end of the three-year performance period, the number of shares vesting under the PBRS granted in 2021 will
be calculated by: (i) determining achievement of the three-year Cumulative Adjusted EBITDA target and (ii) determining
achievement of Lumen’s TSR performance relative to our TSR Peer Group, each of which is described further below. Each
metric is calculated independently with the ultimate payout ranging between 0%-200% of the number granted. Any
shares earned under the PBRS will vest in full on March 1, 2024, subject to the holder’s continued employment through
that date (except as otherwise provided in the applicable award agreement).
CUMULATIVE ADJUSTED EBITDA METRIC (weighted 50%)
ALIGNMENT TO STRATEGY
As noted in our discussion of STI metrics above, in light of the revenue decline for our high-margin, legacy voice and
copper wireline services, we annually adjust our cost structure, requiring a disciplined focus on Adjusted EBITDA and
margins. The metric of Adjusted EBITDA incentivizes our senior officers to focus on the combination of cost savings and
profitable revenue growth. For this reason, the HRCC elected to use Adjusted EBITDA as a performance metric for both
2021 STI and LTI awards, albeit measured over different periods.
RIGOR OF GOAL SETTING
The HRCC based the three-year Cumulative Adjusted EBITDA targets on our long-range plan, which we believe includes
significant stretch goals and aligns with market consensus.
The HRCC believes that these targets were set at levels that were both appropriate and sufficiently rigorous, particularly
when viewed in light of (i) our industry operating environment, (ii) wireline industry trends, (iii) the competitive landscape,
(iv) product lifecycles, (v) our operational initiatives, (vi) our capital allocation priorities and (vii) several other Company-
specific items that influence our business.
Performance Level Attainment
Target Amount of Cumulative
Adjusted EBITDA(1)
Payout as a % of this
Component of Target Award(2)
Maximum
Target
Threshold
Below Threshold
≥ Maximum Amount
Target Amount(3)
Threshold Amount
< Threshold
200%
100%
50%
0%
1 Cumulative Adjusted EBITDA is the sum of our Adjusted EBITDA excluding special items (except with adjustments to reflect a 100% bonus accrual for each
year) for 2021, 2022 and 2023. See Appendix A for more information.
2 Payouts interpolated between defined performance levels.
3 We do not feel it is appropriate to disclose our Cumulative Adjusted EBITDA target as it would constitute competitively sensitive forward-looking guidance.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
67
COMPENSATION DISCUSSION & ANALYSIS
RELATIVE TSR METRIC (weighted 50%)
ALIGNMENT TO STRATEGY
The HRCC believes a relative metric is an important way to ensure that Lumen’s performance is measured appropriately
relative to peers. Our Relative TSR performance shares are measured on our percentile rank versus the other 15 companies
in our TSR peer group over the three-year period, which could result in a payout of 0-200% of this component of the target
award. However, if Lumen’s TSR is negative over the three-year period, the payout cannot exceed target regardless of our
TSR performance relative to our peers. We believe this cap better aligns the LTI payout with the interests of our
shareholders if our TSR is negative over the three-year performance period.
RIGOR OF GOAL SETTING
With the aid of its compensation consultant, the HRCC set a TSR peer group that is focused principally on broader universe
of companies we believe investors are considering when they decide whether to invest in us or our industry. As a result,
our TSR peer group is comprised of telecommunications, cable and other communications companies that are generally
comparable to us in terms of size, markets and operations. For information regarding our TSR peer group, see further
discussion under the heading “— TSR Peer Group” below.
Maximum
Target
Threshold
Below Threshold
Target
≥ 75th Percentile
50th Percentile
25th Percentile
< 25th Percentile
1 Payouts interpolated between defined performance levels.
OUTSTANDING PERFORMANCE-BASED LTI AWARDS
Payout as a % of this
Component of Target Award(1)
200%
100%
50%
0%
Both of the announced divestitures are expected to be completed during 2022, which is during the third and second year
of each three-year performance period for our 2020 and 2021 LTI awards, respectively. When each three-year cumulative
adjusted EBITDA target for our 2020 and 2021 LTI awards were set in the first quarter of each performance period, we had
not yet entered into definitive agreements for these divestitures and thus the targets assumed our continued ownership
of those businesses throughout the full three-year performance period. The HRCC is currently evaluating the impact these
divestitures will have on our retained business post-close and the performance results for our 2020 and 2021 LTI awards.
SHARE DILUTION, BURN RATE AND STOCK-BASED COMPENSATION EXPENSE
As part of their governance and oversight function, the HRCC approves the LTI grant values for our officers and, under
delegated authority, approximately 1,600 eligible employees who participated in our 2021 annual LTI program. The HRCC
also closely monitors our share usage, burn rate, dilution and overhang levels.
The annual LTI award value approved and granted by the HRCC, or under delegated authority, has declined by
approximately $38 million from 2019 to 2021. As described elsewhere, our LTI awards have graded vesting and are
expensed over a three-year period. The stock-based compensation expense reported in our 10-K (see Appendix B) reflects
expense for outstanding awards during that period, generally covering three different annual LTI awards and, to lesser
degree, other awards for our LTI participants that were granted upon hire or promotion throughout the year.
On a quarterly basis, the HRCC reviews our share usage and burn rate projections. For the last three years, our burn rate,
dilution and overhang levels have been within or below industry benchmark levels.
68
COMPENSATION DISCUSSION & ANALYSIS
Other Benefits
As a final component of executive compensation, we provide certain benefits designed to be competitive, in the
aggregate, with similar benefits provided by our peers. We summarize these additional benefits below.
RETIREMENT PLANS
We maintain traditional broad-based qualified defined benefit and defined contribution retirement plans for our
employees who meet certain eligibility requirements. In addition to these qualified plans, we maintain nonqualified plans
that permit our officers to receive or defer supplemental amounts in excess of contribution caps under the Code that limit
the amount of benefits highly compensated employees are entitled to receive or contribute under qualified plans.
Additional information regarding our retirement plans is provided in the tables and accompanying discussion included
below under the heading “Compensation Tables.”
CHANGE OF CONTROL ARRANGEMENTS
We have agreed to provide cash and other severance benefits to each of our executive officers who is terminated under
certain specified circumstances following a change of control of Lumen. If triggered, benefits under these change of
control agreements include payment of (i) a lump sum cash severance payment equal to a multiple of the officer’s annual
cash compensation, (ii) the officer’s STI bonus, based on actual performance and the portion of the year served, (iii) certain
welfare benefits for a limited period and (iv) the value or benefit of any LTI compensation, if and to the extent that the
exercisability, vesting or payment thereof is accelerated or otherwise enhanced upon a change of control pursuant to the
terms of any applicable long-term equity incentive compensation plan or agreement.
Under these agreements, change of control benefits are payable to our executive officers if within a certain specified
period following a change in control (referred to as the “protected period”), the officer is terminated without cause or
resigns with “good reason,” which is defined to include a diminution of responsibilities, an assignment of inappropriate
duties and a transfer of the officer exceeding 50 miles.
The table below shows (i) the length of the “protected period” afforded to officers following a change of control and (ii) the
multiple of salary and bonus payment and years of welfare benefits to which officers will be entitled if change of control
benefits become payable under our agreements and related policies:
CEO
Other Executives
Other Officers
Protected
Period
Multiple of
Annual Cash
Compensation
2 years
1.5 years
1 year
3 times
2 times
1 time
Years of
Welfare
Benefits
3 years
2 years
1 year
For more information on change of control arrangements applicable to our executives, including our rationale for
providing these benefits, see “Compensation Tables — Potential Termination Payments — Payments Made Upon a
Change of Control.” For information on change of control severance benefits payable to our junior officers and managers,
see “— Severance Benefits” in the next subsection below.
SEVERANCE BENEFITS
Our executive severance plan provides cash severance payments equal to two years of total targeted cash compensation
(defined as salary plus the targeted amount of annual incentive bonus) for our CEO or one year of total targeted cash
compensation for any other senior officer in the event that the senior officer is involuntarily terminated by us without
cause in the absence of a change of control.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
69
COMPENSATION DISCUSSION & ANALYSIS
The table below shows (i) the multiple of salary and bonus payment and (ii) years of welfare benefits to which officers will
be entitled if a senior officer is involuntarily terminated by us without cause in the absence of a change of control:
CEO
Other Executives and Senior Officers
Multiple of
Annual Cash
Compensation
2 times
1 time
Years of
Welfare
Benefits
2 years
1 year
Under our executive severance plan, subject to certain conditions and exclusions, more junior officers or managers receive
certain specified cash payments and other benefits if they are either (i) involuntarily terminated without cause in the
absence of a change of control or (ii) involuntarily terminated without cause or resign with good reason in connection with
a change of control. Our full-time non-represented employees not covered by our executive severance plan may, subject
to certain conditions, be entitled to certain specified cash severance payments in connection with certain qualifying
terminations.
Under a policy that we adopted in 2012, we have committed to seek shareholder approval of any future senior executive
severance agreements providing for cash payments, perquisites and accelerated health or welfare benefits with a value
greater than 2.99 times the sum of the executive’s base salary plus target bonus.
LIFE INSURANCE BENEFITS
We sponsor a long-standing supplemental life insurance premium reimbursement plan that has been closed to new
participants for nearly a decade. Only one of our current senior officers (Mr. Goff) holds supplemental life insurance policies
for which we are obligated to pay the premiums. For 2021, we reimbursed Mr. Goff a total of $10,957 for these premiums.
PERQUISITES
Officers are entitled to be reimbursed for the cost of an annual physical examination, plus related travel expenses.
Our aircraft usage policy permits the CEO to use our aircraft for personal travel up to $250,000 per year without
reimbursing us and permits each other executive officer to use our aircraft for personal travel only if he or she pays for the
cost of a flight in accordance with the terms of an Aircraft Timesharing Agreement. In all such cases, personal travel is
permitted only if aircraft is available and not needed for superseding business purposes. Periodically, the HRCC reviews the
cost associated with the personal use of aircraft by senior management and determines whether or not to alter our aircraft
usage policy. In connection with electing to retain this policy, the HRCC has determined that the policy (i) provides
valuable and cost-effective benefits to our executives that reside or frequently travel into our corporate headquarters that
is located in a small city with limited commercial airline service, (ii) enables our executives to travel in a manner that we
believe is more expeditious than commercial airline service and (iii) is being used responsibly by the executives.
For purposes of valuing and reporting the use of our aircraft, we determine the incremental cost of aircraft usage on an
hourly basis, calculated in accordance with applicable guidelines of the SEC. The incremental cost of this usage, which
may be substantially different than the cost as determined under alternative calculation methodologies, is reported in the
Summary Compensation Table appearing below.
For more information on the items under this heading, see the Summary Compensation Table appearing below.
OTHER EMPLOYEE BENEFITS
We maintain certain broad-based employee welfare benefit plans in which the executive officers are generally permitted
to participate on terms that are either substantially similar to those provided to all other participants or which provide our
executives with enhanced benefits upon their death or disability.
70
Section five - HRCC Engagement and
Compensation Governance
HRCC Human Capital Priorities
Our board recognized that a healthy culture, robust talent strategy, diverse workforce and engaged employee base are
essential elements to our long-term success. As such, the HRCC has incorporated regular review and discussion of these
topics into its charter. HRCC human capital resources priorities include:
TALENT MANAGEMENT AND DEVELOPMENT
The HRCC is focused on growing and developing talent that is well positioned to meet the business’ strategic priorities by
supporting our success enablers to (i) be inclusive, (ii) own commitments and (iii) grow themselves, others and Lumen. Our
success enablers are embedded in robust processes in the areas of goal setting, quarterly performance discussions,
differentiated talent assessments, individual development and growth planning, and skills transformation. These
processes are supported by a wide array of technical, sales, product and leadership training programs.
CULTURE SHAPING AND ENGAGEMENT
The HRCC reviews management efforts and metrics to ensure that our culture fosters ethical behavior, promotes high
levels of employee engagement and supports a high performance work environment. Our strategy strives to inspire
employees with purpose as we demonstrate our many connections to furthering human progress through technology. At
least twice a year a detailed engagement survey is completed to measure engagement and is reviewed with the HRCC.
Our most recent engagement survey, completed in October 2021, yielded a substantial overall engagement score (67%
positive) with a strong level of employee participation (80%).
TALENT ACQUISITION
A new talent selection process was launched mid-year 2021 to support our diversity, inclusion and belonging initiative and
effort to continuously improve our culture of inclusion, and increase diverse representation across our U.S. workforce
through effective talent selection and hiring processes. As a result of implementing these new processes the
representation of diverse new hires increased by 3.4%, and our overall applicant traffic for diverse talent increased by 17.6%
from the first to second half of the year despite a severe labor shortage throughout the nation.
The Lumen internship program is a critical diverse talent attraction effort and pipeline for our organization. For the third
consecutive year, our Internship program was recognized amongst the Top 100 internship programs and for 2021 we were
awarded the coveted top spot – the #1 Internship Program in the country. We also hired a record cohort for diversity with
47% female and more than 50% people of color. Over 60% of the university events we sponsored were minority servicing
institutions inclusive of historically black, Asian, Hispanic and female Institutions.
LABOR RELATIONS
With 21% of our U.S. workforce unionized, it is important that proactive efforts are deployed to manage this strategic
relationship. In 2021, we were able to negotiate 11 expiring collective bargaining agreements. Lumen constructively
partners with union representatives where representation exists and aims to remain union-free where representation does
not currently exist.
DIVERSITY, INCLUSION AND BELONGING
In 2021, we were proud to receive positive recognition for our efforts in the area of diversity and inclusion by being included
in Forbes Americas Best Employers for Diversity for the second year in a row and for once again receiving a 100% perfect
score on the prominent Human Right Campaign Index, which evaluates the LGBTQ climate in an organization. We were
also named as a World’s Best Employer by Forbes and received several recognitions from diversity focused publications for
our efforts in fostering a diverse and inclusive culture and environment. The HRCC continued its oversight on the
expanded resource groups and listening circles that we added in 2020 and ensuring that all management practices are
positively impacting diversity, inclusion and belonging in the Lumen culture.
HEALTH AND WELLNESS
We have expanded our wellness programs and implemented strategic design changes to our benefit programs that have
enabled Lumen to keep employee premiums flat for the last four years. In 2021, we added diabetes management and
virtual physical therapy programs to the full suite of wellness and benefit offerings available to our employees.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
71
COMPENSATION DISCUSSION & ANALYSIS
Role of Human Resources and Compensation Committee
Our highly competitive business requires attracting, developing and retaining a motivated team inspired by leadership,
engaged in meaningful work, motivated by growth opportunities and thriving in a culture that embraces diversity,
inclusion and belonging. Understanding and anticipating the priorities of our current and future employees is important
to realizing our purpose to further human progress through technology. As described above, the HRCC is responsible for
overseeing Lumen’s human resources strategies, prioritizing Lumen’s efforts to attract and retain employees and leaders
with the skills and experience needed to achieve our strategic objectives in dynamic market conditions and creating an
environment promoting equity and diversity. During 2021, the HRCC engaged with management on several issues
impacting Lumen’s human capital strategy, including: effective employee engagement; diversity, inclusion and belonging;
positive corporate culture, pay equity, executive and employee succession and recruiting and retention.
Year-round engagement informs compensation design
and awards
The HRCC’s processes to review and approve our executive compensation programs are both cyclical and ongoing.
1st quarter
2nd quarter
3rd quarter
4th quarter
• At-least quarterly engagement with independent compensation consultant, discussing compensation trends, our
performance against peers and market influences;
• Quarterly review of year-to-date results and projected performance for the various eligible outstanding incentive
programs; and
• Quarterly review of anticipated individual eligible award values, including individual NEO tally sheets.
• Discussion of recent
•
feedback from Annual
Shareholders’ Meeting and
overall market trends
Fall shareholder
engagement
discussing executive
compensation (or more
often if the opportunity
arises)
• Discussions
about possible
program design
changes for the
following fiscal
year in light of
compensation
trends,
performance
against peers,
market
influences and
shareholder
feedback,
independent
compensation
consultant
observations
and current
value of prior
awards
•
•
Spring shareholder
engagement
discussing executive
compensation (or more
often if the opportunity
arises)
Implement any program
design changes in light of
compensation trends,
performance against
peers, market influences
and shareholder
feedback, independent
compensation
consultant observations
and current value of prior
awards
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COMPENSATION DISCUSSION & ANALYSIS
HRCC Executive Compensation Review Process
The HRCC’s annual process for compensation oversight, design and decisions includes
Performance objectives align with strategy
HRCC selects STI and LTI plan performance objectives
designed to drive execution of our overall business strategy.
This includes engaging an independent compensation
consultant, discussing compensation trends, our performance
against peers and market influences throughout the year as
well as feedback from shareholder engagement regarding
executive compensation and incentive design.
Application of guidelines to administer incentive
awards
After the end of the performance period, initial payout
projections, as adjusted under the HRCC’s long- standing
Guidelines, are compared against Company performance for
the entirety of the performance period. The HRCC may make
further adjustments in accordance with the Guidelines, as
discussed above in Section three. The HRCC reviews award
values in light of the Guidelines and determines if positive or
negative adjustments are necessary to mitigate the impact of
extraordinary events.
Rigorous design and target setting process
The HRCC establishes rigorous threshold, target and maximum
performance levels for the selected objectives that are rooted
in our annual budget, public guidance and long-range
strategic plan. The HRCC takes into consideration various
factors influencing our business, including but not limited to,
the decline in our wireline revenues and the pace at which
revenues are growing for digital services and new products
and the continuous need to adjust our cost structure.
Performance results and calculated payouts
Upon completion of each fiscal year, after our actual financial
performance results are determined, including any
adjustments or discretion applied under our Guidelines, the
incentive payouts are calculated and reviewed by Internal
Audit. Then, individual bonus and equity payouts are
determined for our officers based on our LTI and STI programs
and the related performance and relevant individual
performance considerations.
Monitor interim performance
Throughout the performance period, the HRCC monitors
actual performance and real-time projected payouts of our
selected metrics through quarterly updates.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
73
COMPENSATION DISCUSSION & ANALYSIS
Role of CEO and management
The HRCC regularly reviews the compensation programs for our senior leadership team including our NEOs and the
broader range of participating employees to ensure they achieve our compensation objectives, including aligning
executive compensation with our long-term strategy and shareholder interests. This includes using our incentive
compensation awards to support our strategic and operating plans. The HRCC closely monitors the compensation
programs and pay levels of executives from companies of similar size and complexity, to gauge our compensation
programs against market practices and trends to support our efforts to retain and incentivize our executive talent.
The HRCC discusses directly with our CEO in executive session, as appropriate, his performance reviews and assessments
for our senior leadership team as well as his recommendations regarding their compensation (including adjustments to
base salary, target STI and LTI levels).
Role of Compensation Consultants
The HRCC engages an independent compensation consultant to assist in the design and review of executive
compensation programs, to determine whether the HRCC’s philosophy and practices are reasonable and compatible with
prevailing practices and to provide guidance on specific compensation levels based on industry trends and practices.
During the first half of 2021, Meridian served as the HRCC’s independent compensation consultant and actively
participated in the design and development of our 2021 executive compensation programs. Meridian, which served as
independent consultant to the HRCC for six years, attended all of the HRCC’s meetings through May 2021.
As noted above, following a nationwide search, the HRCC appointed Semler Brossy as its new independent compensation
consultant in July 2021.
Neither Meridian nor Semler Brossy provides any other services to the Company and neither had a prior relationship with
any of our NEOs. As required by SEC rules and NYSE listing standards, the HRCC assessed the independence of both
Meridian and Semler Brossy and concluded that their work has not raised any conflicts of interest.
Role of Peer Companies
Each year, with assistance from its independent consultant, the HRCC reviews “peer groups” of other companies
comparable to Lumen for purposes of assessing the compensation for our NEOs and other members of senior leadership
team (Compensation Benchmarking Peer Group) and our total shareholder return performance (TSR Peer Group).
In making decisions regarding our 2021 executive pay programs, the HRCC engaged in extensive discussions with
shareholders and, with the guidance of its compensation consultant, conducted a comprehensive review of peer practices.
The HRCC’s deliberate approach to setting pay, as described under “Role of Peer Companies,” is intended to ensure that
our executive compensation program is appropriately calibrated to achieving the complementary goals of delivering value
to shareholders and attracting, rewarding and retaining the talent necessary to lead us through our ongoing corporate
evolution.
COMPENSATION BENCHMARKING PEER GROUP
Annually, with the assistance of its compensation consultant and management, the HRCC reviews and approves the
Compensation Benchmarking Peer Group – a list of peer companies we use in the competitive market analyses of
compensation for our NEOs and senior officers.
We believe that our Compensation Benchmarking Peer Group should reflect Lumen’s industry, organizational complexity
and market for executive talent. However, because we do not believe many companies compete directly with us and are
also similarly sized, the list of direct peers is limited.
Further, as we continue to evolve into a technology-focused company, our employee base, peer group, and compensation
programs are also evolving. Although in the past we had considerable success in attracting and retaining talent with
fiscally prudent market-based pay packages, we now compete with software and other technology-focused companies for
a more limited pool of executive talent. As a result, the individuals in that limited candidate pool, who frequently have
unique talents and expertise, are able to command much higher levels of compensation than what we have paid
historically, making executive recruitment and retention more challenging.
74
COMPENSATION DISCUSSION & ANALYSIS
To address these challenges, the HRCC reviews and approves the list of companies that compose our Compensation
Benchmarking Peer Group during a two-step process.
In the first step, we identify public companies within our Global Industry Classification Standards (GICS) industry and sub-
industry, diversified telecommunications services, cable and satellite and various high technology industries. The following
attributes were reviewed and screened in order of importance:
Screening Process
Analysis of Screening Process
Outcomes from Screening Process
• Revenues (target between
one-half and two times our
revenue);
• Reasonably comparable
enterprise value;
• Reasonably comparable asset
base;
• Market capitalization (target
between one-fourth and three
and one-half times our market
cap);
• Disclosed peer of peers and
reverse peers; and
• Peer group disclosed by proxy
advisors.
•
•
•
There are a limited number of
potential peer companies with
comparable revenues, so the
annual revenue for some of our
peers are more or less than our
targeted multiple. The HRCC
believes that we are well
positioned at the 53rd
percentile of peer company
revenue. Additionally, all of
these companies are direct
industry comparisons and
included in the peer of peers
and proxy advisor peer screens,
which further supports their
inclusion in our Compensation
Benchmarking Peer Group.
There are very few peers with
market capitalization similar to
ours. The HRCC, in agreement
from its independent
consultant, believe revenue is a
more appropriate, stable and
the most common metric for
sizing and selecting peer
groups.
The HRCC believes the use of
the median and not the
average, for competitive
market data mitigates the
inclusion of both larger and
smaller peer companies.
• As a result of the screening
process and based on input
from HRCC’s independent
consultant, the HRCC reviewed
the 2020 Compensation
Benchmarking Peer Group of
19 companies
• Removed 2 companies:
◦
Sprint Corporation due to
its acquisition
◦ Frontier Communications
due to its bankruptcy
• Determined that there were
no companies to be added
• Considered eliminating the
two smallest and two largest of
the 17 companies, to enable
the peer group to better
match our screening criteria,
but ultimately concluded it
was more important to attain
our overarching goal of a peer
group between 15 and 20
companies.
•
Therefore, the HRCC deemed it
was appropriate to continue
and include all 17 peer
companies in our 2021
Compensation Benchmarking
Peer Group listed below.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
75
COMPENSATION DISCUSSION & ANALYSIS
Compared to the 2021 Compensation Benchmarking Peer Group, Lumen is ranked at the 53rd percentile of revenue, the
65th percentile of assets, the 49th percentile of enterprise value and the 5th percentile of market capitalization, each as
illustrated below.
In the second step, the HRCC’s compensation consultant prepares competitive market analyses using compensation data
publicly disclosed by the 2021 Compensation Benchmarking Peer Group and, for executive positions with no publicly
disclosed compensation data, the HRCC reviews compensation survey data for companies in the telecommunications
industry and general industry that are generally similar to us in size. Based on the median, the HRCC compares our current
NEO and senior leadership team compensation to the Compensation Benchmarking Peer Group to determine the relative
market value for each position.
Once established, we believe that a well-selected peer group for compensation benchmarking should remain fairly stable
for several years to help inform reliable and consistent market positioning, longer-term pay trends and market practices.
Our Compensation Benchmarking Peer Group is summarized in the table following discussion of our TSR Peer Group
below.
TSR PEER GROUP
We separately maintain a TSR Peer Group for purposes of measuring our relative stock price performance, which impacts
payouts under our most recent LTI grants. As discussed above, our Compensation Benchmarking Peer Group is somewhat
constrained by the number of companies based on revenue, enterprise value and market cap size. However, our TSR Peer
Group is composed of a broader universe of companies we believe investors are considering when evaluating whether to
invest in Lumen or our industry because risk profile is likely to be more important to an investor than company size.
76
During the second half of 2020, in preparation for the 2021 annual LTI grant, the HRCC’s independent consultant led an
evaluation process to identify and screen relevant public companies to determine our TSR Peer Group, with the desired
result of at least 15 to 20 peer companies, as follows:
Screening Process
Analysis of Screening Process
Outcomes from Screening Process
COMPENSATION DISCUSSION & ANALYSIS
•
•
The primary consideration
when selecting our TSR Peer
Group for 2021 was the need to
have peers with similar
industry, business and risk
profiles as ours.
Start with a universe of
potential similar industry peers
with technology,
telecommunications, cable
and satellite services and
various technology industries
within our GICS industry and
sub-industry;
• Conduct a historical stock
price correlation between
Lumen and a potential peer
universe based on the industry
sectors identified; and
• Perform back-testing on
historical stock performance
(including TSR and Beta and
impacts of macroeconomic
factors that would impact all
companies similarly).
•
The HRCC believes that we are
well positioned at:
◦
◦
the 49th percentile of peer
company historical TSR
correlation; and
the 69th percentile of peer
company 3-year leveraged
Beta.
• Our TSR Peer Group is
comprised of:
◦
◦
12 TSR peers from U.S.
technology and telecom
industry; and
3 large international
integrated telco companies
based outside the U.S. (BT
Group plc, Orange S.A. and
Telefonica S.A.).
•
The three non-U.S. companies
were selected to maintain a
robust sample of peers (of at
least 15 to 20 peer companies)
and because the companies
are large, complex and provide
services similar to ours.
• As a result of the screening
process and based on input
from HRCC’s independent
consultant, the HRCC reviewed
the 17 company TSR Peer
Group used for our 2020
annual LTI grants.
• Removed 2 companies:
◦ Zayo Group due to its
acquisition
◦ Frontier Communications
due to its bankruptcy
• Determined that there were
no companies to be added
•
Therefore, the HRCC deemed it
was appropriate to continue to
include all 15 remaining peer
companies in our 2021 TSR
Peer Group listed below.
The 2021 Compensation Benchmarking and TSR Peer Groups are summarized in the table below.
Our Compensation Benchmarking
Peer Group
Common to both groups
Our TSR Peer Group
BCE Inc.
CISCO Systems Inc
Charter Communications
Comcast Corporation
Cognizant Technology Solutions
Corp
DXC Technology Corp
DISH Network Corp.
Liberty Global plc
Motorola Solutions, Inc.
AT&T, Inc.
BT Group, plc
EchoStar Corporation
Orange, S.A.
Telefonica S.A.
HP Inc
Oracle Corp
QUALCOMM Inc.
Seagate Technology plc
T-Mobile
Western Digital Corp
Telus Corporation
Telephone & Data Systems Inc.
Verizon
United States Cellular Corporation
Viasat, Inc.
17 Compensation Benchmarking
peers
15 TSR peers
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
77
COMPENSATION DISCUSSION & ANALYSIS
Our Governance of Executive Compensation
The HRCC and management stay abreast of market trends and best practices through regular consultation with the
HRCC’s independent consultant and by attending various training programs and forums. In addition to other practices
described elsewhere in this proxy, below are a summary and brief descriptions of certain compensation policies
and practices.
What We Do
What We Don’t Do
Focus on performance-based compensation
weighted heavily towards long-term incentive awards
Maintain a supplemental executive retirement plan
Benchmark generally against 50th percentile peer
compensation levels
Maintain robust stock ownership guidelines
applicable to our executive officers and outside
directors
Permit our directors or employees to hedge our
stock, or our directors or senior officers to pledge our
stock
Pay dividends on unvested restricted stock or RSUs
Annually review our compensation programs to avoid
encouraging excessive risk taking
Permit the HRCC’s compensation consultant to
provide other services to Lumen
Conduct an annual succession planning process for
our CEO
Pay, provide or permit:
Conduct an annual “say-on-pay” vote
(i) excessive perquisites,
Discuss our executive compensation program during
shareholder engagement
(ii) excise tax “gross-up” payments, or
Maintain a compensation “clawback” policy
(iii) single-trigger change of control equity
acceleration benefits.
Impose compensation forfeiture covenants broader
than those mandated by law
Review the composition of our peer groups at least
annually
Conduct independent and intensive performance
reviews of our senior officers
Cap the number of relative TSR performance-based
shares that may vest if our own TSR is negative
Review realizable pay of our senior officers and total
compensation “tally” sheets
Require shareholders to approve any future
severance agreements valued at more than 2.99
times the executive’s target cash compensation
78
COMPENSATION DISCUSSION & ANALYSIS
FORFEITURE AND CLAWBACK OF INCENTIVE COMPENSATION
All incentive compensation earned by our executive officers and other incentive compensation plan participants are
subject to certain forfeiture and clawback provisions. The HRCC is authorized to waive these forfeiture and clawback
provisions if it determines in its sole discretion that such action is in our best interests.
Equity Compensation. For approximately 20 years, all recipients of our LTI grants have been required to contractually
agree to forfeit certain of their awards if at any time during their employment with us or within 18 months after
termination of employment they engage in activity contrary or harmful to our interests, as described further below. For
unvested equity compensation, the recipient would forfeit any rights to future vestings of certain equity awards. We can
clawback previously vested equity by requiring the recipient to return to us any cash, securities or other assets received by
them upon the sale of Common Shares they acquired through certain prior equity awards.
Short-Term Incentive Compensation. Our STI plan contains substantially similar forfeiture provisions, under which the
recipient would forfeit any rights to future payments of certain STI awards if at any time during their employment with us
(or after termination of employment and prior to STI bonus payment) they engage in activity contrary or harmful to our
interests, as described further below.
Additional Clawback Provisions for Executive Officers. Our Corporate Governance Guidelines authorize the Board to
recover, or “clawback,” compensation from an executive officer if the Board determines that any bonus, incentive
payment, equity award or other compensation received by the executive was based on any financial or operating result
that was impacted by the executive’s knowing or intentional fraudulent or illegal conduct. Certain provisions of the
Sarbanes-Oxley Act of 2002 would require our CEO and CFO to reimburse us for incentive compensation paid or trading
profits earned following the release of financial statements that are subsequently restated due to material noncompliance
with SEC reporting requirements caused by misconduct.
USE OF EMPLOYMENT AGREEMENTS
We have a long-standing practice of not providing traditional employment agreements to our officers and none of our
executives has an employment agreement. However, we do from time to time enter into initial employment offer letters
with prospective new employees, including executive officers, some of which include future commitments on our part. Mr.
Storey’s offer letter, as amended and restated in 2018, does contain future commitments by the Company, as described in
greater detail under “Potential Termination Payments.”
ANTI-HEDGING AND ANTI-PLEDGING POLICIES
Under our insider trading policy, our employees and directors may not:
• purchase or sell short-term options with respect to Lumen shares,
•
•
engage in “short sales” of Lumen shares; or
engage in hedging transactions involving Lumen shares which allow employees to fix the value of their Lumen
shareholdings without all the risks of ownership or cause them to no longer have the same interests or objectives as
our other shareholders (including, but not limited to, financial instruments such as prepaid variable forward contracts,
equity swaps, collars and exchange funds).
In addition, under our insider trading policy, our senior officers and directors are prohibited from holding our securities in a
margin account or otherwise pledging our securities as collateral.
To our knowledge, all of our senior officers and directors are currently in compliance with our anti-hedging and anti-
pledging policies.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
79
COMPENSATION DISCUSSION & ANALYSIS
Deductibility of executive compensation
Section 162(m) of the Code disallows a deduction to public companies for annual compensation over $1 million paid to a
chief executive officer and certain other executive officers (covered employees). Prior to 2018, compensation paid to our
covered employees that met the Section 162(m) requirements of “qualified performance-based compensation” was not
subject to this deduction limitation. Effective for our taxable year beginning January 1, 2018, Section 162(m) was amended
to eliminate the exception for qualified performance-based compensation, subject to transition relief for certain
grandfathered arrangements in effect as of November 2, 2017. Although the deductibility of compensation is a
consideration evaluated by the HRCC, the HRCC believes it is important to preserve flexibility in designing compensation
programs and that the lost deduction on compensation payable in excess of the $1-million limitation for the NEOs who are
covered employees does not outweigh the benefit of being able to attract and retain talented management. Accordingly,
the HRCC will continue to retain the discretion to approve compensation that is subject to the $1-million deductibility limit.
80
Human Resources and Compensation
Committee Report
The HRCC has reviewed and discussed with management the report included above under the heading “Compensation
Discussion and Analysis.” Based on this review and discussion, the HRCC recommended to the Board that the
Compensation Discussion and Analysis report be included in this proxy statement and incorporated into our Annual
Report on Form 10-K for the year ended December 31, 2021.
Submitted by the Human Resources and Compensation Committee of the Board of Directors.
Laurie A. Siegel (Chair)
Martha H. Bejar
Steven T. Clontz
T. Michael Glenn
Michael J. Roberts
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
81
COMPENSATION
TABLES
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to each of our NEOs in all capacities in which they served for fiscal
years 2019, 2020 and 2021.
Summary Compensation Table
Name and Principal Position
Jeffrey K. Storey
President and CEO
Indraneel Dev
Former EVP and CFO(5)
Stacey W. Goff
EVP, General Counsel and
Secretary
Shaun C. Andrews
EVP, Chief Marketing Officer
Scott A. Trezise
EVP, Human Resources
Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Salary
Stock
Awards(1)
Non-equity
Incentive Plan
Compensation(2)
$1,800,011
$17,120,198 $
3,600,022
1,800,011
11,435,870
3,600,022
1,800,011
11,834,226
3,492,021
$ 750,000
$ 5,194,548
$937,500
734,700
3,630,435
650,000
2,535,909
872,756
832,260
Change in
Pension Value(3)
All Other
Compensation(4)
Total
—
—
—
—
—
—
$134,550
$22,654,781
123,330
16,959,233
108,850
$53,073
11,400
11,200
17,235,108
$6,935,121
5,249,291
4,029,369
$ 600,018
$ 2,444,501
$ 720,021
$ −
$22,557
$3,787,097
600,018
1,815,218
600,018
1,878,454
674,876
698,420
138,543
251,876
$ 546,301
$ 1,955,599
$ 518,986
525,000
1,270,652
461,442
704,412
492,083
492,359
$ 503,091
$ 1,466,698
$495,694
500,011
907,609
429,985
496,312
751,382
469,111
—
—
—
—
—
—
22,657
17,189
3,251,312
3,445,957
$11,600
$ 3,032,486
11,400
19,095
2,299,135
1,677,308
$11,600
$2,477,083
11,400
14,350
1,849,005
1,731,155
1 For 2021, the amounts shown in this column reflect the fair value of annual grants of restricted stock or restricted stock unit awards made to our named
executives under our LTI program.
For additional information about these equity grants, see the section entitled, “Long-Term Incentive Compensation” in our CD&A. The fair value of the time-
vested and performance-based awards presented in the table above has been determined in accordance with FASB ASC Topic 718, based on the closing
trading price of our Common Shares on the day of grant. See Note 12 titled “Stock-based Compensation” of the notes to our audited financial statements
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for an explanation of material assumptions that we used to calculate
the fair value of these stock awards. The aggregate value of the LTI awards granted to each named executive in 2021, assuming maximum payout of his
performance-based award, would be as follows: Mr. Storey, $28,932,443, Mr. Dev, $8,583,979, Mr. Goff, $4,039,529, Mr. Andrews, $3,231,628, and Mr. Trezise,
$2,423,715.
2 The amounts shown in this column reflect cash payments made under our short-term incentive program for actual performance in the respective years. For
additional information, see the section entitled, “2021 STI Program” in our CD&A.”
3 Reflects the net change during each of the years reflected in the present value of Mr. Goff’s accumulated benefits under the defined benefit plans discussed
below under the heading “—Pension Benefits.”
4 For fiscal 2021, the amounts shown in this column are comprised of (i) personal use of our aircraft; (ii) Company contributions or other allocations to our
defined contribution plans; (iii) payments of life insurance premiums under a legacy reimbursement plan, and (iv) personal identity theft protection service, in
each case for and on behalf of the named executives as follows:
All Other Compensation - 2021
NEO
Mr. Storey
Mr. Dev
Mr. Goff
Mr. Andrews
Mr. Trezise
Aircraft Use Contributions to Plans
Insurance Premiums
$114,450
—
—
—
—
$11,600
53,073
11,600
11,600
11,600
$
—
—
10,957
—
—
Identity Theft
Protection
Total 2021 All Other
Compensation
$ 8,500
$134,550
—
—
—
—
53,073
22,557
11,600
11,600
For additional information regarding perquisites, see “Compensation Discussion and Analysis.”
5 Mr. Dev’s employment with Lumen ended effective April 1, 2022.
82
GRANT OF PLAN BASED AWARDS
The following table presents additional information regarding all equity and non-equity incentive plan awards granted to
our NEOs in fiscal 2021.
COMPENSATION TABLES
Grants of Plan-Based Awards
Range of Payouts Under Non-Equity
Incentive Plan Awards(1)
Estimated Future Share Payouts
Under Equity Incentive Plan Awards(2)
Type of Award and
Grant Date(3)
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Bonus
$1,800,011 $3,600,022
$7,200,044
NEO
Mr. Storey
TBRS
PBRS - EBITDA
PBRS - Relative TSR
186,490
372,979
745,958
186,490
372,979
745,958
Mr. Dev
Bonus
$ 468,750 $ 937,500
$1,875,000
All other
Stock
Awards:
Unvested
Shares(4)
(#)
Grant
Date
Fair Value
Awards(5)
419,601 $5,307,953
4,718,184
7,094,061
142,697
$1,805,117
TBRS
PBRS - EBITDA
PBRS - Relative TSR
Mr. Goff
Bonus
$ 360,011
$ 720,021
$1,440,042
TBRS
PBRS - EBITDA
PBRS - Relative TSR
Mr. Andrews
Bonus
$ 273,151
$ 546,301
$1,092,602
TBRS
PBRS - EBITDA
PBRS - Relative TSR
Mr. Trezise
Bonus
$ 247,847 $ 495,694
$ 991,388
TBRS
PBRS - EBITDA
PBRS - Relative TSR
53,512
107,024
214,048
53,512
107,023
214,046
1,353,854
2,035,577
25,182
50,364
25,182
50,364
100,728
100,728
20,146
40,292
20,146
40,291
80,584
80,582
15,110
30,219
15,109
30,218
60,438
60,436
67,152
$849,473
637,105
957,923
53,721
$679,571
509,694
766,335
40,291
$509,681
382,270
574,746
1 Represents potential payouts under the annual STI bonus program for 2021 for our named executives. The actual amounts paid for 2021 performance are
reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Failure to meet the “threshold” level of
performance would result in no payout to the executive.
2 Represents the performance-based portion of our annual LTI grants, which were issued to Mr. Storey on February 26, 2021 and all other NEOs on February 24,
2021. Payout under these awards (restricted stock or RSUs) may range between 0-200%. For information regarding the performance metrics on which
vesting is contingent, please see note 6 to the “Outstanding Equity Awards” table.
3 Definitions of these terms and information on the grant dates appear elsewhere herein.
4 Represents the time-based portion of our annual LTI grants, which were issued to Mr. Storey on February 26, 2021 and all other NEOs on February 24, 2021.
These awards (restricted stock or RSUs) will vest one-third per year on March 1 of 2022, 2023, and 2024, subject to the executive’s continued employment
through the vesting date or as otherwise provided in the award agreement.
5 Calculated in accordance with FASB ASC Topic 718 in the manner described in Note 1 to the Summary Compensation Table above.
SHORT-TERM INCENTIVE COMPENSATION. All of our named executives participated in the Lumen Short-Term Incentive
(“STI”) program for 2021. For more information regarding this program, including the specific performance metrics, see
“Compensation Discussion and Analysis— Section four – Compensation Design, Awards and Payouts for 2021.”
ANNUAL GRANTS OF LONG-TERM INCENTIVE COMPENSATION. We make annual grants of LTI awards to our executive
officers, typically at the HRCC’s February meeting. For the past several years, these awards have been 60% performance-
based and 40% time-vested, granted in the form of RSUs to Mr. Storey and restricted stock to each other named executive.
However, for 2020 and 2021, the performance-based portion of the LTI grant to Mr. Storey was increased to 64% of his total
target grant value. For our 2021 program, the time-vested awards will vest one-third per year on March 1 of 2022, 2023, and
2024. The performance-based awards will vest on March 1, 2024, depending upon our achievement of a three-year
Cumulative Adjusted EBITDA target and our Relative TSR performance against a peer group. For more information, see
Compensation Discussion and Analysis - Section four – Compensation Design, Awards and Payouts for 2021.”
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
83
COMPENSATION TABLES
For information regarding LTI grants made in prior years, see the disclosure in our proxy statement for the year following
the date of grant.
ACCELERATION OF VESTING OF EQUITY AWARDS. All of the equity awards granted in 2021 will vest upon the death or
disability of the named executive. In addition, the HRCC may, in its discretion, vest or waive the continued service
requirement for a named executive’s outstanding equity awards upon his or her retirement (at early or normal retirement
age), in whole or in part. Mr. Storey’s equity awards may accelerate under certain additional scenarios, as memorialized in
his amended and restated offer letter. For more information on these vesting acceleration triggers, see “—Potential
Termination Payments—Equity Acceleration Provisions of Mr. Storey’s Amended and Restated Offer Letter.” In addition, we
have entered into change of control agreements with each named executive, which provide that, upon certain
terminations of employment following a change of control of the Company, any continued employment requirements to
the officer’s outstanding LTI awards will be waived, all as described in greater detail below under “—Potential Termination
Payments—Payments Made Upon a Change of Control.”
DIVIDENDS AND VOTING RIGHTS. All dividends or dividend equivalents related to our LTI awards will be paid to the
holder only upon the vesting or issuance of such shares or units. Unless and until forfeited, any shares of restricted stock
may be voted by the NEOs. However, holders of RSUs have no voting rights unless and until they are issued shares in
settlement of those awards.
FORFEITURE. All of these above-described equity awards are subject to forfeiture if the officer competes with us or
engages in certain other activities harmful to us, all as specified further in the forms of incentive agreements that we have
filed with the SEC. For more information, see “—Potential Termination Payments.”
OUTSTANDING EQUITY AWARDS
The following table summarizes information about all outstanding unvested equity awards held by our named executives
as of December 31, 2021.
Outstanding Awards at December 31, 2021(1)
Name
Grant
Date
Number of Unvested
Shares or Units (#)(3)
Market Value of Shares
that Have Not Vested ($)
Number of Unvested
Shares or Units (#)
Market Value of Unvested
Shares or Units ($)
Stock Awards
Equity Incentive Awards(2)
Mr. Storey
2/28/2019
Mr. Dev
Mr. Goff
Mr.
Andrews
2/26/2020
2/26/2021
2/28/2019
2/26/2020
2/24/2021
2/28/2019
2/26/2020
2/24/2021
2/28/2019
2/26/2020
2/24/2021
Mr. Trezise
2/28/2019
2/26/2020
2/24/2021
119,628
239,182
419,601
25,635
75,931
142,697
18,989
37,966
67,152
7,121
26,576
53,721
7,596
18,983
40,291
$ 1,501,331
3,001,734
5,265,993
$ 321,719
952,934
1,790,847
$ 238,312
476,473
842,758
$ 89,369
333,529
674,199
$ 95,330
238,237
505,652
403,476 (4)
538,159 (5)
745,958 (6)
86,459 (4)
170,844 (5)
214,047 (6)
64,044 (4)
85,422 (5)
100,728 (6)
24,016 (4)
59,796 (5)
80,583 (6)
25,617 (4)
42,711 (5)
60,437 (6)
$5,063,624
6,753,895
9,361,773
$1,085,060
2,144,092
2,686,290
$ 803,752
1,072,046
1,264,136
$ 301,401
750,440
1,011,317
$ 321,493
536,023
758,484
1 All information presented in this table is as of December 31, 2021 and does not reflect vesting of outstanding equity awards or issuance of additional awards
since such date.
2 Represents performance-based equity awards, payouts of which may range between 0-200%. The table above assumes that, as of December 31, 2021, we
would perform at “target” levels for our annual 2020 and 2021 awards, such that all performance-based shares granted to each named executive would vest at
100%. With respect to our 2019 performance-based equity awards, the number of shares reported represents the number of shares earned based on actual
performance that remained unvested at December 31, 2021 (one-half of total), but which vested on March 1, 2022 (see note 4 below).
3 Represents an annual grant of time-vested restricted stock (for Messrs. Dev, Goff, Andrews and Trezise) or restricted stock units (for Mr. Storey) that will vest in
three equal installments on March 1 of each of the first three years following the grant date, subject to the executive’s continued employment through the
applicable vesting date.
84
Vesting Dates
Grant Date
February 28, 2019
February 26, 2020
COMPENSATION TABLES
Vesting Date
March 1, 2022
Two equal installments on March 1 of 2022 & 2023
February 24, 2021 for all NEOs except Mr. Storey and February 26, 2021 for Mr. Storey
Three equal installments on March 1 of 2022, 2023, & 2024
4 Represents the performance-based portion of our 2019 annual restricted stock or restricted stock unit awards that had not yet vested. The performance
period for these awards ended on December 31, 2020. and, based on our two-year Adjusted EBITDA Run Rate performance, we achieved 149.9% of target.
One-half of the earned shares vested on March 1, 2021, while the second half (the amounts reported in the table above) vested on March 1, 2022, given that
each executive remained employed with us through that date.
5 Represents the performance-based portion of our 2020 annual restricted stock or restricted stock unit awards. The number of shares earned will range
between 0 to 200% of the number granted, with the number earned determined using a two-step process: (1) between 0 to 200% of target will be earned
depending on the Company’s cumulative Adjusted EBITDA results for the three-year period from 2020 to 2022 and (2) provided that threshold performance is
met or exceeded under step (1), the executives may earn a positive or negative adjustment (+/-20%) based on the Company’s relative total shareholder return
over the same period against the performance of a peer group of companies in the telecommunications industry. There will be no positive adjustment if our
TSR is negative over the three-year period, nor can the total payout exceed 200%. These awards will vest on March 1, 2023, subject to continued employment
through the vesting date.
6 Represents the performance-based portion of our 2021 annual restricted stock or restricted stock unit awards. The number of shares earned will range
between 0 to 200% of the number granted, with the number earned determined depending on the Company’s achievement of two separate performance
targets for the three-year period from 2021 to 2023: (1) 50% of the total target shares granted will be earned depending on the Company’s cumulative
Adjusted EBITDA results and (2) 50% of the total target shares granted will be based on the Company’s relative total shareholder return against the
performance of a peer group of companies in the telecommunications industry. These awards will vest on March 1, 2024, subject to continued employment
through the vesting date.
STOCK VESTING TABLE
The following table provides details regarding the equity awards held by our named executives that vested during 2021.
Restricted stock or restricted stock units were the only equity awards held by our named executives during 2021.
Stock Vested During 2021
Name
Mr. Storey
Mr. Dev
Mr. Goff
Mr. Andrews
Mr. Trezise
Number of Shares Acquired on Vesting(1)
Value Realized on Vesting(2)
1,401,337
205,962
171,949
61,907
67,180
$18,168,166
2,538,303
2,111,219
764,491
826,470
1 Represents both time-vested and performance-based equity awards that vested during 2021.
2 Based on the closing trading price of the Common Shares on the applicable vesting date.
PENSION BENEFITS
The following table and discussion summarize pension benefits payable to one of our named executives under (i) the
Lumen Combined Pension Plan, a qualified retirement plan under Code Section 401(a), which permits eligible participants
(including officers) who have completed at least five years of service to receive a pension benefit upon attaining early or
normal retirement age and (ii) our non-qualified supplemental defined benefit plan, which is designed to pay
supplemental retirement benefits to certain officers in amounts equal to the benefits such officers would otherwise forego
due to Code limitations on compensation and benefits under qualified plans. We refer to these particular defined benefit
plans below as our “Qualified Plan” and our “Supplemental Plan,” respectively and as our “Pension Plans,” collectively.
Pension Benefits
NEOs(1)
Mr. Goff
Plan Name
Qualified Plan
Supplemental Plan
Number of Years of
Credited Service
Present Value of Accumulated
Benefit as of 12/31/21
Payments During
Last Fiscal Year
23
23
$803,440
682,578
$—
—
1 None of Messrs. Storey, Dev, Andrews or Trezise are eligible to participate in these plans since they joined us after both of our Pension Plans were closed to
new participants.
2 These figures represent accumulated benefits as of December 31, 2021 based on several assumptions, including the assumption that the executive remains
employed by us and begins receiving retirement benefits at the normal retirement age of 65, with such accumulated benefits being discounted from the
normal retirement age to December 31, 2021 using discount rates ranging between 2.85% and 3.0%. See Note 11 titled “Employee Benefits” of the notes to our
audited financial statements included in Appendix B for additional information.
PENSION PLANS. With limited exceptions specified in the Pension Plans, we “froze” our Qualified Plan and Supplemental
Plan as of December 31, 2010, which means that no additional monthly pension benefits have accrued under such plans
since that date (although service after that date continues to count towards vesting and benefit eligibility and a limited
transitional benefit for eligible participants continued to accrue through 2015).
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
85
COMPENSATION TABLES
Prior to this freezing of benefit accruals, the aggregate amount of each senior officer’s total monthly pension benefit under
the Qualified Plan and Supplemental Plan was equal to his years of service since 1999 (up to a maximum of 30 years)
multiplied by the sum of (i) 0.5% of his final average pay plus (ii) 0.5% of his final average pay in excess of his Social Security
covered compensation, where “final average pay” was defined as his average monthly compensation during the 60
consecutive month period within his last ten years of employment in which he received his highest compensation.
Effective December 31, 2010, the Pension Plans were amended to cease all future benefit accruals under the above formula
(except where a collective bargaining agreement provides otherwise). In lieu of additional accruals under the above-
described formula, each affected participant’s accrued benefit as of December 31, 2010 were increased 4% per year,
compounded annually through the earlier of December 31, 2015 or the termination of the participant’s employment.
Under both Pension Plans, “average monthly compensation” is determined based on the participant’s salary plus annual
cash incentive bonus. Although the retirement benefits described above are provided through separate plans, we have in
the past transferred benefits from the Supplemental Plan to the Qualified Plan and reserve the right to make further
similar transfers to the extent allowed under applicable law. The value of benefits transferred to the Qualified Plan, which
directly offset the value of benefits in the Supplemental Plan, will be payable to the recipients in the form of enhanced
annuities or supplemental benefits and are reflected in the table above under the “Present Value of Accumulated
Benefits” column.
The normal form of benefit payment under both of our Pension Plans is (i) in the case of unmarried participants, a monthly
annuity payable for the life of the participant and (ii) in the case of married participants, an actuarially equivalent monthly
annuity payable for the lifetime of the participant and a survivor annuity payable for the lifetime of the spouse upon the
participant’s death. Participants may elect optional forms of annuity benefits under each Pension Plan and, in the case of
the Qualified Plan, an annuity that guarantees ten years of benefits, all of which are actuarially equivalent in value to the
normal form of benefit. The enhanced annuities described in the prior paragraph may be paid in the form of a lump sum,
at the participant’s election.
The normal retirement age is 65 under both of the Pension Plans. Participants may receive benefits under both of these
plans upon “early retirement,” which is defined as attaining age 55 with five years of service. Under both of these plans, the
benefit payable upon early termination is calculated under formulas that pay between 60% to 100% of the base plan
benefit and 48% to 92% of the excess plan benefit, in each case with the lowest percentage applying to early retirement at
age 55 and proportionately higher percentages applying to early retirement after age 55. For additional information on
early retirement benefits, please see the applicable early retirement provisions of the Pension Plans, copies of which are
filed with the SEC.
DEFERRED COMPENSATION
The following table and discussion provide information on our Supplemental Savings Plan, under which certain named
officers may elect to defer a portion of their salary in excess of the amounts that may be deferred under our qualified 401(k)
plans. Only three of our named executives (Messrs. Dev, Goff and Andrews) have elected to participate in the
Supplemental Savings Plan, and of these three, only Mr. Dev made contributions to the plan during 2021.
Deferred Compensation
Executive
Mr. Dev
Mr. Goff
Mr. Andrews
Aggregate Balance
at December 31,
2020(1)
Executive
Contributions in
2021(2)
Company
Contributions in
2021(3)
Aggregate
Earnings in 2021(4)
Aggregate
Withdrawals/
Distributions(5)
Aggregate Balance
at December 31,
2021(1)
$
65,382 $
73,965 $
41,473 $
2,977,249
23,834
—
—
—
—
15,354
445,577
4,043
— $
—
—
196,174
3,422,827
27,877
1
This figure represents the aggregate balance of each NEO’s Supplemental Savings Plan account.
2 The amounts in this column reflect contributions under the Supplemental Savings Plan by the officer of salary paid in 2021 and reported as 2021 salary
compensation in the Summary Compensation Table.
3 This column includes our partial match of the officer’s contribution under the terms of the Supplemental Savings Plan, all of which were included as 2021
compensation in the column of the Summary Compensation Table labeled “All Other Compensation.”
4 This column represents aggregate earnings in 2021 including interest, dividends and distributions earned with respect to deferred compensation invested by
the officers in the manner described in the text below.
86
COMPENSATION TABLES
Under our Supplemental Savings Plan, certain of our senior officers may defer up to 50% of their salary in excess of the
Code limit on annual contributions to a qualified 401(k) plan. For every dollar that an eligible participant contributes to this
plan up to 6% of his or her excess salary, we add an amount equal to the total matching percentage then in effect for
matching contributions made by us under our qualified 401(k) plan (which for 2021 equaled the sum of all of the initial 1%
contributed and half of the next 5% contributed). All amounts contributed under this supplemental plan by the
participants or us are allocated among deemed investments that follow the performance of the same broad array of funds
offered under our qualified 401(k) plan. This is reflected in the market value of each participant’s account. Participants may
change their deemed investments in these funds at any time. We reserve the right to transfer benefits from the
Supplemental Savings Plan to our qualified 401(k) or retirement plans to the extent allowed under Treasury regulations
and other guidance. The value of benefits transferred to our qualified plans directly offsets the value of benefits in the
Supplemental Savings Plan. Participants in the Supplemental Savings Plan normally receive payment of their account
balances in a lump sum once they cease working full-time for us, subject to any deferrals mandated by federal law.
POTENTIAL TERMINATION PAYMENTS
The materials below discuss payments and benefits that our officers are eligible to receive if they: (i) resign or retire, (ii) are
terminated by us, with or without cause, (iii) die or become disabled, or (iv) become entitled to termination benefits
following a change of control of Lumen.
Notwithstanding the information appearing below, you should be aware that our officers have agreed to forfeit their
equity compensation awards (and profits derived therefrom) if they compete with us or engage in other activity harmful to
our interests while employed with us or within 18 months after termination. Certain other compensation might also be
recoverable by us under certain circumstances after termination of employment. See “Compensation Discussion and
Analysis—Our Governance of Executive Compensation—Forfeiture of Prior Compensation” for more information.
PAYMENTS MADE UPON ALL TERMINATIONS
Regardless of the manner in which our employees’ employment terminates prior to a change of control, they are entitled
to receive amounts earned during their term of employment (subject to the potential forfeitures discussed above). With
respect to each such terminated employee, such amounts include his or her:
•
•
•
salary through the date of termination, payable immediately following termination in cash;
annual incentive bonus, but only if such employee served for the entire bonus period or through the date such bonus is
payable (unless this service requirement is waived, or more favorable treatment is applicable in the case of retirement,
death or disability);
equity awards that have vested;
• benefits accrued and vested under our qualified and supplemental defined benefit pension plans, with payouts
generally occurring at early or normal retirement age;
•
•
vested account balance held in our qualified and supplemental defined contribution plans, which the employee is
generally free to receive at the time of termination; and
rights to continued health care benefits to the extent required by law.
PAYMENTS MADE UPON INVOLUNTARY TERMINATIONS
In addition to benefits described under the heading immediately above, employees involuntarily terminated by us without
cause prior to a change of control are also entitled, subject to certain conditions, to:
• payment of their annual incentive bonus or a pro rata portion thereof, depending on their termination date;
•
•
if approved by the HRCC in its discretion, the terminated employee will (i) receive accelerated vesting of all, or a portion
of, unvested time-vested equity awards, (ii) be permitted to retain all or a portion of his or her unvested performance-
based restricted stock for the remainder of the applicable performance period or (iii) a combination of both; and
a cash severance payment in the amount described under “Compensation Discussion and Analysis—Section 4—
Compensation Design, Awards and Payouts for 2021—Other Benefits—Severance Benefits” plus the receipt of any
short-term incentive bonus payable under their applicable bonus plan and outplacement assistance benefits.
None of the benefits listed immediately above are payable if the employee resigns or is terminated for cause.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
87
COMPENSATION TABLES
PAYMENTS MADE UPON RETIREMENT
Employees who retire in conformity with our retirement plans and policies are entitled, subject to certain conditions, to:
• payment of their annual incentive bonus or a pro rata portion thereof, depending on their retirement date;
• post-retirement life, health and welfare benefits; and
•
all of the benefits described under the heading “—Payments Made Upon All Terminations.”
In addition, the HRCC has discretion to accelerate the vesting of all, or a portion of, unvested time-vested equity awards or
to permit an employee who retires from the Company to retain all or a portion of his or her unvested performance-based
equity awards for the remainder of the applicable performance period.
PAYMENTS MADE UPON DEATH OR DISABILITY
Upon death or disability, officers (or their estates) are generally entitled to (without duplication of benefits):
• payments under our disability or life insurance plans, as applicable;
•
•
keep all of their time-vested equity awards, whether vested or unvested;
vesting of their performance-based equity awards, with performance deemed achieved at target;
• payment of their annual incentive bonus or a pro rata portion thereof, depending on their date of death or disability;
•
•
continued rights to receive (i) life, health and welfare benefits at early or normal retirement age, in the event of
disabilities of employees with ten years of prior service, or (ii) health and welfare benefits payable to surviving eligible
dependents, in the event of death of employees meeting certain age and service requirements; and
all of the benefits described under the heading “—Payments Made Upon All Terminations,” except that (i) death
benefits under our retirement plans are generally available only to surviving spouses and (ii) benefits payable to
mentally disabled employees under our nonqualified defined benefit retirement plans may be paid prior to retirement
age.
EQUITY ACCELERATION PROVISIONS OF MR. STOREY’S AMENDED AND RESTATED OFFER LETTER
In conjunction with appointing Mr. Storey as our CEO, we amended and restated our offer letter with him that provides
that certain outstanding, unvested equity awards will accelerate upon a “qualifying termination” or, subject to certain
conditions, his retirement. A “qualifying termination” is defined in his amended and restated offer letter to include death,
“disability,” termination by us without “cause,” or termination by Mr. Storey with “good reason” (each as further defined in
the offer letter). Upon a qualifying termination, vesting of all unvested time-vested awards is accelerated and, with respect
to performance-based awards, Mr. Storey will be permitted to retain all such awards although they will remain subject to
their original performance conditions and payout schedule (except upon his death, when the awards would pay out at
target). In addition, upon his retirement, provided that he has given us 90 days’ notice of his intent to retire, Mr. Storey is
entitled to receive full-service vesting as well with respect to his annual LTI grants with any performance-based awards
remaining subject to their original performance and vesting conditions.
PAYMENTS MADE UPON A CHANGE OF CONTROL
We have entered into agreements that entitle each of our executive officers who are terminated without cause or resign
under certain specified circumstances within certain specified periods following any change in control of Lumen to receive
(i) a lump sum cash severance payment equal to a multiple of such officer’s annual cash compensation (defined as salary
plus the average annual incentive bonus over the past three years) and (ii) the other benefits described under
“Compensation Discussion and Analysis—Section 4—Compensation Design, Awards and Payouts for 2021—Other Benefits
—Change of Control Arrangements.”
Under Lumen’s above-referenced agreements, a “change in control” of Lumen would be deemed to occur upon: (i) any
person (as defined in the Securities Exchange Act of 1934) becoming the beneficial owner of 30% or more of the
outstanding Common Shares, (ii) a majority of our directors being replaced, (iii) consummation of certain mergers,
substantial asset sales or similar business combinations, or (iv) approval by the shareholders of a liquidation or dissolution
of Lumen.
The above-referenced agreements provide the benefits described above if we terminate the officer’s employment without
cause or the officer resigns with “good reason,” which we describe further under the heading “Compensation Discussion
and Analysis—Our Compensation Program and Components of Pay—Other Benefits–Change of Control Arrangements.”
We have filed copies or forms of these agreements with the SEC.
88
COMPENSATION TABLES
Participants in our supplemental defined benefit plan whose service is terminated within two years of the change in
control of Lumen will receive a cash payment equal to the present value of their plan benefits (after providing age and
service credits of up to three years if the participant is terminated by us without cause or resigns with “good reason”),
determined in accordance with actuarial assumptions specified in the plan. Certain account balances under our qualified
retirement plans will also fully vest upon a change of control of Lumen.
Under the terms of our equity incentive plans, incentives granted under those plans will not vest, accelerate, become
exercisable or be deemed fully paid unless otherwise provided in a separate agreement, plan or instrument. None of our
equity award agreements provide for any such accelerated recognition of benefits solely upon a change of control.
Instead, our award agreements provide that any holder of incentives who is terminated by us or our successor without
cause or resigns with good reason following a change of control will be entitled to receive full vesting of his or her time-
vested restricted shares and continued rights under his or her performance-based restricted shares (on the same terms as
if he or she had not been terminated).
We believe the above-described change of control benefits enhance shareholder value because:
• prior to a takeover, these protections help us to recruit and retain talented officers and to help maintain the
productivity of our workforce by alleviating concerns over economic security and
• during or after a takeover, these protections (i) help our personnel, when evaluating a possible business combination, to
focus on the best interests of Lumen and its shareholders and (ii) reduce the risk that personnel will accept job offers
from competitors during takeover discussions.
ESTIMATED POTENTIAL TERMINATION PAYMENTS
The table below provides estimates of the value of payments and benefits that would become payable if our named
executives were terminated in the manner described below, in each case based on various assumptions, the most
significant of which are described in the table’s notes.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
89
COMPENSATION TABLES
Potential Termination Payments
Name
Type of Termination Payment(2)
Involuntary
Termination
Without Cause(3)
Retirement(4)
Disability
Death
Termination
Upon a Change
of Control(5)
Type of Termination of Employment(1)
Mr. Storey
Mr. Dev
Mr. Goff
Mr.
Andrews
Mr. Trezise
Annual Bonus
Equity Awards(6)
Pension and Welfare(7)
Cash Severance(8)
Annual Bonus
Equity Awards(6)
Pension and Welfare(7)
Cash Severance(8)
Annual Bonus
Equity Awards(6)
Pension and Welfare(7)
Cash Severance(8)
Annual Bonus
Equity Awards(6)
Pension and Welfare(7)
Cash Severance(8)
Annual Bonus
Equity Awards(6)
Pension and Welfare(7)
Cash Severance(8)
$ 3,600,022
$ 3,600,022
$ 3,600,022
$ 3,600,022
$ 3,600,022
30,948,350
30,948,350
30,948,350
30,948,350
30,948,350
57,800
10,800,067
—
—
—
—
—
—
167,400
16,200,101
$45,406,239
$34,548,372
$34,548,372
$34,548,372
$50,915,873
$ 937,500
—
29,700
1,687,500
$2,654,700
$ 720,021
—
31,200
1,320,039
$2,071,260
$518,986
—
29,700
1,100,000
$1,648,686
$ 495,694
—
29,700
1,049,984
$1,575,378
n/a
n/a
n/a
n/a
n/a
$ 720,021
—
n/a
n/a
n/a
n/a
—
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$ 937,500
8,980,943
$ 937,500
8,980,943
—
—
—
—
$ 880,839
8,980,943
56,400
3,375,000
$9,918,443
$9,918,443
$13,293,182
$ 720,021
3,433,341
—
—
$ 720,021
3,433,341
—
—
$ 697,772
3,433,341
59,400
$2,640,077
$4,153,362
$4,153,362
$6,830,591
$518,986
2,148,937
—
—
$518,986
2,148,937
—
—
$ 501,143
2,148,937
56,400
2,200,000
$2,667,923
$2,667,923
$4,906,479
$ 495,694
2,455,219
$ 495,694
2,455,219
—
—
—
—
$2,950,913
$2,950,913
$ 464,930
2,455,219
56,400
2,099,968
$5,076,517
1 All data in the table reflects our estimates of the value of payments and benefits assuming the named officer was terminated on December 31, 2021. The
closing price of the Common Shares on such date was $12.55. The table reflects only estimates of amounts earned or payable through or at such date based
on various assumptions. Actual amounts can be determined only at the time of termination. If a named officer voluntarily resigns or is terminated with cause,
he will not be entitled to any special or accelerated benefits but will be entitled to receive various payments or benefits that vested before the termination
date. The table reflects potential payments based upon a physical disability; additional benefits may be payable in the event of a mental disability.
2 As further described above, upon termination of employment, the named officers may become entitled to receive certain special, accelerated or enhanced
benefits, including, subject to certain exceptions, the right to receive payment of their annual cash incentive bonus, an acceleration under certain
circumstances of the vesting of their outstanding equity awards, current or enhanced pension and welfare benefits, or cash severance payments. The table
excludes (i) payments or benefits made under broad-based plans or arrangements generally available to all salaried full-time employees and (ii) benefits,
awards or amounts that the officer was entitled to receive prior to termination of employment.
3 The amounts listed in this column reflect payments to which the named officer would be entitled to under our executive severance plan if involuntarily
terminated by us without cause (including, for Mr. Storey, by him with good reason, as provided in his amended and restated offer letter) prior to a change of
control. The amounts listed in this column would not be payable if the officer voluntarily resigns (for Mr. Storey, without good reason) or is terminated for
cause.
4 The amounts listed in this column reflect (i) payments to which Mr. Storey and Mr. Goff would be entitled to under the provisions our STI plan and (ii) equity
that would be accelerated for Mr. Storey per his amended and restated offer letter (provided he has given us 90 days’ notice of his intent to retire). Mr. Goff is
eligible to retire early under Lumen’s defined benefit pension plans described above under the heading “Executive Compensation —Pension Benefits.” The
amounts reflected in this column do not reflect the amount of lifetime annuity payments payable upon early retirement, which as of December 31, 2021,
Mr. Goff would have been entitled to monthly annuity payments of approximately $7,061 over his lifetime.
5 The information in this column assumes each named officer became entitled on December 31, 2021 to the benefits under Lumen’s agreements in existence
on such date described above under “—Payments Made Upon a Change of Control” upon an involuntary termination without cause or resignation with good
reason. All amounts are based on several assumptions.
6 The information in this row (i) reflects the benefit to the named officer arising out of the accelerated vesting of some or all of his restricted stock or RSUs
triggered by the termination of employment and (ii) assumes that the HRCC would not approve the acceleration of the restricted stock or RSUs of any named
officer in the event of an involuntary termination.
7 The information in this row reflects only the incremental benefits that accrue upon an event of termination and excludes benefits that were vested on
December 31, 2021. For information on the present value of the named officers’ accumulated benefits under our defined benefit pension plans, see “—Pension
Benefits,” and for information on the aggregate balances of the named officers’ non-qualified deferred compensation, see “—Deferred Compensation.” As
indicated above, the named officer would also be entitled to receive a distribution of his or her 401(k) benefits and various other broad-based benefits.
8 The information in this row excludes, in the case of disability or death, payments made by insurance companies.
90
COMPENSATION TABLES
AMOUNTS PAID TO FORMER EXECUTIVE
As noted previously, Mr. Dev’s employment with us ended effective April 1, 2022. Under the terms of our short-term
incentive bonus program, Mr. Dev will retain the right to earn a prorated annual incentive bonus for 2022 based on actual
performance, payable in 2023. The HRCC determined that Mr. Dev qualified for payments under our executive severance
plan. Under that plan, Mr. Dev received a cash severance payment equal to one year of total target compensation
($1,687,500) and approximately $22,000 to cover COBRA premium payments during the applicable severance period. In
addition to these prior arrangements, and conditioned upon Mr. Dev’s execution of a general release, the HRCC exercised
its discretion to (i) accelerate vesting of Mr. Dev’s time-based restricted stock awards granted in 2020 and 2021 (valued at
approximately $1.5 million on the date of acceleration) and (ii) permit him to continue to hold a portion of his performance-
based restricted stock awards granted in 2020 and 2021, which remain subject to their original performance conditions
and vesting dates as disclosed above in the “Outstanding Equity Awards” table. The remainder of Mr. Dev’s equity awards,
including those granted to him in fiscal 2022, were forfeited upon his termination of employment.
CEO Pay Ratio Disclosure
As mandated by federal law and related SEC rules, we are required to disclose a ratio of the pay of our CEO to that of our
median employee. For 2021, the total compensation of our CEO, Mr. Storey was $22,654,781, while the annual total
compensation for our median employee was $75,984. As a result, the ratio of CEO pay to median employee pay was
approximately 298 to 1.
We calculated our 2021 pay ratio using the following assumptions:
• Median employee determination. The median employee was determined by reviewing the annual total target
compensation (the sum of base salary, target short-term incentive and target long-term incentive awards) as of
December 31, 2021 for approximately 36,000 active employees employed on that date, excluding our CEO and
employees in Venezuela.
• Median employee identification. The median employee was identified as an engineering project manager, located in
the U.S. and with the Company for four years.
• Median employee total compensation calculation. To determine the median pay ratio, we calculated the median
employee’s pay using the same pay elements and calculation methodology as used in determining the CEO’s pay for
purposes of disclosure in the Summary Compensation Table.
The SEC rules permit companies to choose between different methodologies for median pay calculations. Other public
companies may calculate their pay ratio using a different methodology than ours, and you should not assume our ratio
data is comparable to that of other companies.
STOCK OWNERSHIP GUIDELINES
Under our current stock ownership guidelines, our executive officers are required to beneficially own Lumen stock in
market value equal to a multiple of their annual salary, as outlined in the table below and each outside director must
beneficially own Lumen stock equal in market value to five times the annual cash retainer payable to outside directors.
STOCK OWNERSHIP GUIDELINES
Party
CEO
Other Executive Officers
Outside Directors
Guideline
Value(1)(2)
6X Base Salary
$10,800,066
3X Base Salary
$ 1,818,758
5X Annual Cash Retainer
$ 500,000
1 Value for CEO of $10.8M is based on Mr. Storey’s annual salary as of December 31, 2021.
2 Value for our other executive officers is based on the average annual salary for such officers as of December 31, 2021.
Each executive officer and outside director have three and five years, respectively, to attain these targets. For any year
during which an executive or outside director does not meet his or her ownership target, the executive or director is
required to hold 65% of the Lumen stock that he or she acquires through our equity compensation programs, excluding
shares sold to pay related taxes.
Other than as noted below, as of December 31, 2021, all of our executive officers and all of our outside directors were in
compliance with and in most cases significantly exceeded, our stock ownership guidelines. The two exceptions are Mr.
Allen and Mr. Jones. Mr. Allen, who joined our Board on February 25, 2021, has until February 25, 2026 to comply with these
guidelines. Mr. Jones, who joined our Board on January 1, 2020, has until January 1, 2025 to comply with these guidelines.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
91
Other
Matters
STOCK OWNERSHIP
The following table sets forth information regarding ownership of our Common Shares by the persons known to us to have
beneficially owned more than 5% of the outstanding Common Shares on December 31, 2021 (the “investors”), unless
otherwise noted.
STOCK OWNERSHIP
Name and Address
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
Blackrock, Inc.
55 East 52nd Street
New York, NY 10055
Temasek Holdings (Private) Limited
60B Orchard Road
#06-18 Tower 2
Singapore 238891
Southeastern Asset Management, Inc.
6410 Poplar Avenue, Suite 900
Memphis, TN 38119
State Street Corporation
State Street Financial Center
One Lincoln Street
Boston, MA 02111
Amount and
Nature of
Beneficial
Ownership of
Common Shares(1)
Percent of
Outstanding
Common Shares(1)
113,411,515 (2)
95,302,945 (3)
72,659,407 (4)
65,689,808 (5)
11.0%
9.2%
7.0%
6.4%
61,491,951 (6)
6.0%
1
The figures and percentages in the table above have been determined in accordance with Rule 13d-3 of the SEC based upon information furnished by the
investors, except that we have calculated the percentages in the table based on the actual number of Common Shares outstanding as of the record date, as
opposed to the estimated percentages set forth in the reports of such investors referred to below in such notes. In addition to Common Shares, we have
outstanding Preferred Shares that vote together with the Common Shares as a single class on all matters. One or more persons beneficially own more than
5% of the Preferred Shares; however, the percentage of total voting power held by such persons is immaterial. For additional information regarding the
Preferred Shares, see “Frequently Asked Questions — How many votes may I cast?”
2 Based on information contained in a Schedule 13G/A Report dated as of February 9, 2022, that this investor filed with the SEC. In this report, the investor
indicated that, as of December 31, 2021, it (i) held sole voting power with respect to none of these shares, (ii) shared voting power with respect to 1,550,639 of
these shares, (iii) held sole dispositive power with respect to 109,468,125 of these shares and (iv) shared dispositive power with respect to 3,943,390 of these
shares.
3 Based on information contained in a Schedule 13G Report dated as of February 1, 2022, that this investor filed with the SEC. In this report, the investor
indicated that, as of December 31, 2021, it (i) shared voting power with respect to none of these shares, (ii) held sole voting power with respect to 86,842,330 of
these shares and (iii) held sole dispositive power with respect to all of the above-listed shares.
4 Based on information contained in a Schedule 13D/A Report dated as of January 14, 2022, that this investor filed with the SEC. In this report, the investor
indicated that, as of January 12, 2022, it shared with four of its subsidiaries or affiliates investment power and held sole voting power with respect to all of the
above-listed shares.
5 Based on information contained in a Schedule 13D/A Report dated as of November 4, 2021, that this investor filed with the SEC. In this report, the investor
indicated that, as of November 3, 2021, it (i) shared voting power with respect to 42,762,140 of these shares, (ii) held sole voting power with respect to 13,615,459
of these shares, (iii) had no voting power with respect to 9,312,209 of these shares, (iv) shared dispositive power with respect to 37,854,212 of these shares and
(v) held sole dispositive power with respect to 27,835,596 of these shares.
6 Based on information contained in a Schedule 13G/A Report dated as of February 14, 2022, that this investor filed with the SEC. In this report, the investor
indicated that, as of December 31, 2021, it (i) held sole voting power with respect to none of these shares, (ii) shared voting power with respect to 46,348,618 of
these shares, (iii) held sole dispositive power with respect to none of these shares and (iv) shared dispositive power with respect to 61,417,370 of these shares.
92
OWNERSHIP OF EXECUTIVE OFFICERS & DIRECTORS
The following table sets forth information, as of the record date, regarding the beneficial ownership of our common stock
by our executive officers and directors. It also includes any shares subject to restricted stock units that are scheduled to be
issued within sixty days of our record date. Except as otherwise noted, all beneficially owned shares are held with sole
voting and investment power and are not pledged to third parties.
OWNERSHIP OF EXECUTIVE OFFICERS & DIRECTORS
OTHER MATTERS
Named Executive Officers
Mr. Storey(6)
Mr. Dev(7)
Mr. Goff
Mr. Andrews
Mr. Trezise
Outside Directors
Mr. Allen
Ms. Bejar
Mr. Brown(8)
Mr. Chilton
Mr. Clontz
Mr. Glenn(9)
Mr. Hanks
Mr. Jones
Mr. Roberts
Ms. Siegel
Components of Total Shares
Beneficially Owned
Unrestricted
Shares
Beneficially
Owned(1)
Unvested
Restricted
Stock(2)
Total Shares
Beneficially
Owned(3)(4)
Vested
Deferred
Stock Units(5)
3,809,100
0
3,809,100
487,201
347,344
101,922
172,278
0
41,174
70,068
70,799
285,479
129,362
118,611
16,439
65,695
75,797
916,964
1,404,165
461,123
339,683
280,316
0
3,634
14,536
14,536
14,536
0
14,536
14,536
14,536
14,536
808,467
441,605
452,594
0
44,808
84,604
85,335
300,015
129,362
133,147
80,231
80,231
90,333
0
0
0
0
0
14,536
25,608
0
13,152
0
45,681
0
0
14,706
0
All executive officers and directors as a group (15 persons)(10)
Overall Total
5,791,269
2,103,472
7,894,741
113,683
1
This column includes the following number of shares allocated to the individual’s account under one of our qualified 401(k) plans: Mr. Storey — 7,251; Mr. Dev
— 5,414; Mr. Goff — 3,814; and Mr. Andrews — 2,799. Participants in these plans are entitled to direct the voting of their plan shares, as described in greater
detail elsewhere herein.
2 Reflects (i) for all shares listed, unvested shares of restricted stock over which the person holds sole voting power but no investment power and (ii) with
respect to our performance-based restricted stock granted to our executive officers, the number of shares that will vest if we attain target levels of
performance.
3 Excludes (i) restricted stock units that do not vest and settle in shares within 60 days and (ii) “phantom units” held by Mr. Roberts that are payable in cash
upon the termination of his service as a director, as described further under “Item No. 1 – Election of Directors — Director Compensation — Other Benefits.”
4 None of the persons named in the table beneficially owns more than 1% of the outstanding Common Shares. The shares beneficially owned by all directors
and executive officers as a group constituted 0.76% of the outstanding Common Shares as of the record date.
5 This column reflects vested equity awards deferred by outside directors that will settle in shares at a future date according to the directors election, including
the following number of deferred stock units scheduled to vest on May 20, 2022, but will not settle in shares until the director’s elected deferral date: Mr. Allen
– 14,536; Ms. Bejar – 10,902; Mr. Glenn – 14,536.
6 Excludes 2,997,712 unvested restricted stock units held by Mr. Storey.
7 As noted above, Mr. Dev’s employment with Lumen ended effective April 1, 2022.
8
Includes 24,297 shares held by a tax-exempt charitable foundation, as to which Mr. Brown has voting and dispositive powers by virtue of his control of the
foundation.
9
Includes 77,143 shares held indirectly by Mr. Glenn in a trust.
10 As described further in the notes above, includes (i) 24,297 shares held beneficially through a foundation and (ii) 77,143 shares held indirectly by trust.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
93
OTHER MATTERS
TRANSACTIONS WITH RELATED PARTIES
Review Procedures. Early each year, our management distributes to the Audit and NCG Committees a written report
listing payments that exceed a materiality threshold involving parties that have been identified as related parties by our
officers and directors through their completion of an annual questionnaire. These transactions do not include regular
compensation paid to the officers and directors but would include any payments to the officers and directors outside of
regular compensation arrangements. This annual report permits the independent directors to evaluate our material
related party transactions.
Recent Transactions. Lumen employs several personnel related by birth or marriage throughout our organization. During
2021, we paid William Adam Hanks, Manager Strategic Analytics, total gross compensation of approximately $125,572
consisting of approximately $106,726 in salary, $15,918 in annual incentive bonuses and $2,928 in matching contributions to
his qualified 401(k) plan account. He was a Lumen employee from 2009 through March 2022 and is the son of Bruce Hanks,
our Vice Chairman of the Board. He was the only related party whose 2021 compensation was in excess of the $120,000
threshold that would require disclosures under the federal proxy rules.
DELINQUENT SECTION 16(A) REPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires Lumen’s directors, certain officers and greater than 10%
shareholders to file with the SEC certain reports regarding their beneficial ownership of our common stock. To our
knowledge, based solely on a review of SEC filings and written representations from our officers and directors, we believe
that, between January 1, 2021, through the date of this proxy statement, all such reports were filed timely, except for two
gift transactions by Mr. Dev, which were reported late on an amendment to his Form 5 for fiscal 2021.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, our HRCC included Laurie Siegel, Martha H. Bejar, Steven T. “Terry” Clontz, T. Michael Glenn, and
Michael Roberts. No member of the HRCC served as an officer or employee of the Company or any of our subsidiaries prior
to or while serving on the HRCC.
94
LUMEN PERFORMANCE HISTORY
The graph below compares the cumulative total shareholder return on our Common Shares with the cumulative total
return of the S&P 500 Index and the S&P 500 Communication Services Sector Index for the period from December 31, 2016
to December 31, 2021, in each case assuming (i) the investment of $100 on January 1, 2017, at closing prices on December 31,
2016 and (ii) reinvestment of dividends.
OTHER MATTERS
Lumen
S&P 500 Index
S&P 500 Communication Services Sector Index1
December 31,
2016
2017
2018
2019
2020
2021
$ 100.00
$ 80.96
$ 83.38
$ 79.76
$ 70.28
$ 84.93
$ 100.00
$ 121.23
$ 116.29
$ 150.53
$ 176.10
$ 222.94
$ 100.00
$ 98.80
$ 85.23
$ 109.70
$ 132.68
$ 158.55
1 As of December 31, 2021, the S&P 500 Communications Service Sector Index consisted of Omnicom Group, Inc., Twitter Inc., Verizon Communications, Inc.,
The Walt Disney Company, DISH Network Corp., Alphabet Inc., AT&T Inc., Charter Communications Inc., Match Group Inc., Netflix Inc., Lumen Technologies,
Inc., Discovery Inc., Comcast Corp., Activision Blizzard Inc., ViacomCBS Inc., Electronic Arts Inc., Meta Platforms Inc.., Take-Two Interactive Software Inc., News
Corp., Interpublic Group, Live Nation Entertainment, Inc., T-Mobile US, Inc. and Fox Corp.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
95
Frequently Asked Questions about
Voting and the Annual Meeting
Q Why am I receiving these proxy materials?
A Our Board of Directors is soliciting your proxy to vote at our 2022 annual meeting of shareholders because you owned
shares of our stock at the close of business on March 24, 2022, the record date for the meeting and are entitled to vote
those shares at the annual meeting. This proxy statement was first made available to shareholders on or about April 7,
2022. It is furnished in connection with the solicitation of proxies by our Board to be voted during the annual meeting
for the purposes set forth in the accompanying Notice of 2022 Annual Shareholders Meeting.
Q When and how will the meeting be held?
A Date: May 18, 2022
Time: 12:00 noon Central Time
Virtual Meeting Location: virtualshareholdermeeting.com/LUMN2022
Q How may I access these materials?
A We are furnishing proxy materials to our shareholders primarily via the Internet instead of mailing printed copies of
those materials to each shareholder. By doing so, we save costs and reduce the environmental impact of our annual
meeting. On or about April 7, 2022, we commenced mailing a Notice of Internet Availability of Proxy Materials to most
of our shareholders. The Notice contains instructions about how to access our proxy materials and vote online or by
telephone. If you previously chose to receive our proxy materials electronically, you will continue to receive access to
these materials via email unless you elect otherwise. If you would like to receive a paper copy of our proxy materials,
please follow the instructions included in the Notice of Internet Availability of Proxy Materials.
Q What matters will be considered at the meeting?
A The following table summarizes the votes required for passage of each proposal and the effect of abstentions and
uninstructed shares held by brokers.
ITEMS FOR CONSIDERATION
Item
ITEM 1
Election of the 11 director
nominees named herein
ITEM 2
Ratify KPMG LLP as our
independent auditor for 2022
ITEM 3
Non-binding advisory vote to
approve our executive
compensation
Board Voting
Recommendation
Vote Required for
Approval
Effect of
Abstentions
Effect of
Uninstructed
Shares1
Page
Reference
FOR
FOR
FOR
Affirmative vote
of a majority of
the votes cast
Affirmative vote
of a majority of
the votes cast
Affirmative vote
of a majority of
the votes cast
Not cast
Not cast
Not cast
Discretionary
voting
14
27
Not cast
Not cast
34
1
“Uninstructed Shares” refers to shares as to which a broker or custodian receives no voting instructions from the shares’
beneficial owner and which, other than as noted below for Item 2, cannot be voted under applicable NYSE standards. Because
brokers will have discretionary authority to vote with respect to Item 2, there should be no uninstructed shares for this item.
96
FREQUENTLY ASKED QUESTIONS ABOUT VOTING AND THE ANNUAL MEETING
Q What vote is required to approve these matters?
A For each proposal submitted to the shareholders for a vote, approval requires a vote of the majority of the votes cast. A
majority of votes cast means the number of shares cast “for” a proposal exceeds the number of votes cast “against” that
proposal. Abstentions will not be counted as votes cast. Uninstructed shares will not be counted as votes cast except
with respect to Item #2, Ratifying KPMG as our Independent Auditor, for which brokers and custodians have discretion
to vote.
Additionally, unless otherwise directed, all votes attributable to Voting Shares represented by each duly executed and
delivered proxy will be cast for the election of each of the above-named nominees. If you wish to give specific
instructions with respect to voting for directors, you may do so by indicating your instructions on your proxy or voting
instruction card. Under our Bylaws nominating procedures, these nominees are the only individuals who may be
elected at the meeting. If for any reason any such nominee should decline or become unable to stand for election as a
director, which we do not anticipate, the persons named as proxies may vote instead for another candidate designated
by the Board, without re-soliciting proxies.
Q How many votes may I cast?
A You may cast one vote for every share of our Common Stock or Series L Preferred Stock that you owned on the record
date, which vote together as a single class on all matters. In this proxy statement, we refer to these shares as our
“Common Shares” and “Preferred Shares,” respectively and as our “Voting Shares,” collectively. As of the Record Date,
we had 1,032,760,034 Common Shares and 7,018 Preferred Shares issued and outstanding.
Q What is the difference between holding shares as a shareholder of record and as a beneficial owner?
A If shares are registered in your name with our transfer agent, Computershare Investor Services L.L.C., you are the
“shareholder of record” of those shares and you may directly vote these shares, together with any shares credited to
your account if you are a participant in our automatic dividend reinvestment and stock purchase service.
If your shares are held on your behalf in a stock brokerage account or by a bank or other nominee, you are the
“beneficial owner” of shares held in “street name.” We have requested that our proxy materials be made available to
you by your broker, bank or nominee, who is considered the shareholder of record of those shares.
Q If I am a shareholder of record, how do I vote?
A If you are a shareholder of record, you may vote yourself or by proxy in any of the following four ways:
• By Internet: visit proxyvote.com and follow the instructions at that site
• By phone: call 1-800-690-6903 and follow the instructions provided;
• By mail: request a paper copy of our proxy materials and, following receipt thereof, mark, sign and date your proxy or
voting instructions card and return it to Broadridge Financial Solutions, Inc.
• By Live virtual meeting: vote electronically at the virtual annual meeting – virtualshareholdersmeeting.com/
LUMN2022
Prior to the live meeting, if you need additional help with voting, please call proxy support at 866-232-3037 (Toll-free) or
720- 358-3640 (International Toll). If you encounter any difficulties accessing the virtual Meeting webcast, please call the
technical support number that will be posted on the annual meeting website log-in page.
Unless otherwise noted below, you may vote by telephone or the Internet up until 11:59 p.m. Eastern Time on May 17,
2022, but not thereafter.
Q If I am a beneficial owner of shares held in street name, how do I vote?
A As the beneficial owner, you have the right to instruct your broker, bank or nominee how to vote your shares by using
any voting instruction card supplied by them or by following their instructions for voting by telephone, the Internet, or
live during the virtual meeting.
Q If I am a benefit plan participant, how do I vote?
A If you beneficially own any of our Common Shares by virtue of participating in our retirement plan, then you will receive
separate voting instructions that will enable you to direct the voting of these shares. You are entitled, on a confidential
basis, to instruct the trustees how to vote the shares allocated to your plan account. The plans require you to act as a
“named fiduciary,” which requires you to exercise your voting rights prudently and in the interests of all plan
participants. Plan participants who wish to vote should instruct the trustees how to vote the shares allocated to their
plan accounts in accordance with the voting instructions. If you elect not to vote the shares allocated to your accounts,
your shares will be voted in the same proportion as voted shares regarding each of the items submitted to a vote at the
meeting. Plan participants that wish to revoke their voting instructions must contact the trustee and follow its
procedures.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
97
FREQUENTLY ASKED QUESTIONS ABOUT VOTING AND THE ANNUAL MEETING
To be counted, your voting instructions for shares held in our retirement plan must be received by 11:59 p.m. Eastern
Time on May 15, 2022.
Q How do I participate in the annual meeting?
A This year’s annual meeting will be held in a virtual format through a live webcast.
You are entitled to participate in the annual meeting if you were a record shareholder as of the close of business on
March 24, 2022, the record date, or hold a valid proxy for the meeting. To be admitted to the annual meeting at
proxyvote.com, you must enter the 16-digit control number found next to the label “Control Number” on your Notice of
Internet Availability, proxy card, or voting instruction form, or in the email sending you the proxy statement. If you are a
beneficial shareholder, you may contact the broker, bank or other institution with whom you hold your account if you
have questions about obtaining your Control Number.
The question and answer session of the meeting will include questions submitted in advance of and questions
submitted live during the annual meeting. You may submit a question in advance of the meeting at proxyvote.com
after logging in with your Control Number. Questions may be submitted during the live virtual annual meeting by
following the instructions on your log-in screen.
We encourage you to access the annual meeting before it begins. Online check-in will start approximately 15 minutes
before the meeting on May 18, 2022.
Q What can I do if I need technical assistance during the annual meeting?
A The virtual meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome and Safari) and
devices (desktops, laptops, tablets and cell phones) running the most updated version of applicable software and
plugins. If you encounter any difficulties accessing the virtual Meeting webcast, please call the technical support
number that will be posted on the annual meeting website log-in page.
Q Who sets the rules regarding conduct at the meeting?
A The Chairman has broad responsibility and legal authority to conduct the meeting in an orderly and timely manner.
This authority includes establishing rules for shareholders who wish to address the meeting. Copies of these rules will
be available prior to the meeting in the “Events & Presentations” section of our website ir.lumen.com and during the
meeting. The Chairman may also exercise broad discretion regarding (i) recognizing shareholders who wish to speak,
(ii) determining the extent of discussion on each item of business and (iii) consolidating the Company’s response to
similar questions. In light of the need to conduct all necessary business and to conclude the meeting within a
reasonable period of time, we cannot assure you that each question submitted will be addressed.
Q What is the quorum requirement for the meeting?
A Our Bylaws provide that the presence at the meeting, including by proxy, of a majority of the outstanding Voting
Shares constitutes a quorum to organize the meeting. For these purposes, abstentions and uninstructed shares are
counted as being present.
Q Can I revoke or change my voting instructions after I deliver them?
A Shareholders of record may revoke their proxy or change their votes at any time before their proxy is voted at the
meeting by giving a written revocation notice to our secretary, by timely delivering a proxy bearing a later date or by
voting during the virtual meeting. Beneficial shareholders may revoke or change their voting instructions by
contacting the broker, bank or nominee that holds their shares.
Q Who pays the cost of soliciting proxies?
A The Board is soliciting the proxy accompanying this proxy statement. Proxies may be solicited by Lumen officers,
directors and employees, none of whom will receive any additional compensation for their services. These solicitations
may be made personally or by mail, telephone, messenger, email, or other electronic transmission. Lumen will pay
persons holding shares of common stock in their names or in the names of nominees, but not owning such shares
beneficially, such as brokerages, banks and other fiduciaries, for the expense of forwarding solicitation materials to their
principals. Lumen will pay all proxy solicitation costs.
98
FREQUENTLY ASKED QUESTIONS ABOUT VOTING AND THE ANNUAL MEETING
Q Could other matters be considered and voted upon at the meeting?
A Our Board does not expect to bring any matter before the meeting other than those listed in this proxy statement.
Further, management has not timely received any notice that a shareholder desires to present any matter for action at
the meeting in accordance with our Bylaws (which are described below under “Frequently Asked Questions — What is
the deadline to propose actions for consideration at the 2023 annual meeting of shareholders or to nominate
individuals to serve as directors?”) and is otherwise unaware of any matter to be considered by shareholders at the
meeting other than those matters specified in the accompanying notice of the meeting. Our proxy and voting
instruction cards, however, will confer discretionary voting authority with respect to any other matter that may properly
come before the meeting. It is the intention of the persons named therein to vote in accordance with their best
judgment on any such matter.
Q What happens if the meeting is postponed or adjourned?
A The Chairman may postpone or adjourn the meeting. Your proxy will still be valid and may be voted at the postponed
or adjourned meeting. You will still be able to change or revoke your proxy until it is voted in the manner noted above.
Q What is the deadline to propose actions for consideration at the 2023 annual meeting of shareholders or to
nominate individuals to serve as directors?
A You may submit proposals, including director nominations, for consideration at future annual meetings of
shareholders.
Proxy Statement Proposals. To be eligible for inclusion in our 2023 proxy materials, any shareholder proposal to elect
shareholder-nominated candidates as directors or to take any other action at such meeting must be received by
December 8, 2022 and must comply with applicable federal proxy rules and our Bylaws. See “Frequently Asked
Questions – What information needs to be included in a shareholder notice nominating a director or proposing other
action?” These shareholder proposals must be in writing and received by the deadline described above at our principal
executive offices at 100 CenturyLink Drive, Monroe, Louisiana 71203, Attention: Stacey W. Goff, Secretary. If we do not
receive a shareholder proposal by the deadline described above, we may exclude the proposal from our proxy materials
for our 2023 annual meeting.
Other Proposals and Nominations. In addition, our Bylaws require shareholders to furnish timely advance written
notice of their intent to nominate a director or bring any other matter before a shareholders’ meeting, whether or not
they wish to include their candidate or proposal in our proxy materials. In general, notice must be received in writing by
our Secretary, addressed in the manner specified in the immediately-preceding paragraph, between November 19,
2022 and February 17, 2023 and must contain various information specified in our Bylaws. (If the date of the 2023 annual
meeting is more than 30 days before or more than 60 days after May 18, 2023, please consult our Bylaws to determine
the applicable deadline.) Notices that are not delivered in accordance with our Bylaws may be disregarded by us. For
additional information on these procedures, see “Frequently Asked Questions – What information needs to be included
in a shareholder notice nominating a director or proposing other action?”
In addition to satisfying the foregoing requirements under our bylaws, to comply with the SEC’s recently-enacted
universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than our
nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later
than March 19, 2023. However, if the date of the 2023 annual meeting is more than 30 days before or after the
anniversary date of the 2022 annual meeting, the notice must be provided by the later of the 60th day prior to the 2023
annual meeting or the 10th day following the day on which public announcement of the date of the 2023 annual
meeting is first made, as provided by Rule 14a-19. These deadlines assume that the shareholder has not previously filed
a proxy statement with the required information.
The above-described advance notice provisions are in addition to and separate from the requirements that a
shareholder must meet in order to have a candidate or proposal included in our proxy materials.
Proxies granted by a shareholder will give discretionary authority to the proxy holders to vote on any matters
introduced pursuant to the above-described advance notice bylaw provisions, subject to applicable rules of the SEC.
General. The summaries above are qualified in their entirety by reference to the full text of our Bylaws and Rule 14a-19.
You may obtain a full copy of our Bylaws by reviewing our reports filed with the SEC, by accessing our website at
lumen.com or by contacting our Secretary in the manner specified below.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
99
FREQUENTLY ASKED QUESTIONS ABOUT VOTING AND THE ANNUAL MEETING
Q What information needs to be included in a shareholder notice nominating a director or proposing other action?
A If timely notice is provided, our Bylaws permit shareholders to nominate a director or bring other matters before a
shareholders’ meeting. The written notice required to be sent by any shareholder nominating a director must include
various information, including, as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination is being made: (i) the name and address of such shareholder, any such beneficial owner and any other
parties affiliated, associated or acting in concert therewith, (ii) their beneficial ownership interests in our Voting Shares,
including disclosure of arrangements that might cause such person’s voting, investment or economic interests in our
Voting Shares to differ from those of our other shareholders, (iii) certain additional information concerning such parties
required under the federal proxy rules, (iv) a description of all agreements with respect to the nomination among the
nominating shareholder, any beneficial owner, any person acting in concert with them, each proposed nominee and
certain other persons and (v) a representation whether any such person intends to solicit proxies or votes in support of
their proposed nominees. With respect to each proposed nominee, the written notice must also, among other things,
(i) set forth biographical and other data required under the federal proxy rules and a description of various
compensation or other arrangements or relationships between each proposed nominee and the nominating
shareholder and its affiliated parties and (ii) furnish both a completed and duly executed questionnaire and a duly
executed agreement designed to disclose various aspects of the proposed nominee’s background, qualifications and
certain specified arrangements with other persons, as well as to receive the proposed nominee’s commitment to abide
by certain specified agreements and undertakings. We may require a proposed nominee to furnish other reasonable
information or certifications. Shareholders interested in bringing before a shareholders’ meeting any matter other than
a director nomination should consult our Bylaws for additional procedures governing such requests. We may disregard
any nomination or submission of any other matter that fails to comply with these Bylaw procedures.
In addition, our Bylaws provide that under certain circumstances a shareholder or group of shareholders may include
director candidates that they have nominated in our annual meeting proxy materials. These proxy access provisions of
our Bylaws provide, among other things, that a shareholder or group of up to ten shareholders seeking to include
director candidates in our annual meeting proxy materials must own 3% or more of our outstanding Common Shares
continuously for at least the previous three years. The number of shareholder-nominated candidates appearing in any
of our annual meeting proxy materials cannot exceed 20% of the number of directors then serving on the Board. If 20%
is not a whole number, the maximum number of shareholder-nominated candidates would be the closest whole
number below 20%. Based on the 11 directors constituting our Board immediately following the meeting, two is the
maximum number of proxy access candidates that we would be required to include in our 2023 proxy materials for the
2023 annual meeting. The nominating shareholder or group of shareholders also must deliver the information required
by our Bylaws and each nominee must meet the qualifications required by our Bylaws.
Shareholder requests to nominate directors or to bring any other matter before our 2023 annual shareholders’ meeting,
whether or not they wish to include their candidate or proposal in our proxy materials, must be received by our
Secretary by the deadlines specified in the response to the preceding question.
The summaries above of the advance notification and proxy access provisions of our Bylaws are qualified in their
entirety by reference to the full text of Section 5 of Article IV of our Bylaws. You may obtain a full copy of our Bylaws by
reviewing our reports filed with the SEC, by accessing our website at lumen.com, or by contacting our Secretary in the
manner specified below under “Other Information.”
100
Other
Information
PROXY MATERIALS
As described further above, shareholders will receive only a written notice of how to access our proxy materials and will not
receive printed copies of the proxy materials unless requested. If you would like to receive a paper copy of our proxy
materials, you should follow the instructions for requesting the materials in the notice.
The full set of our materials include:
•
•
•
the notice and proxy statement for the meeting,
a proxy or voting instruction card, and
our 2021 annual report furnished in the following two parts: (1) our 2021 Annual Financial Report, which constitutes
Appendix B to this proxy statement and (2) our CEO’s letter appearing at the beginning of this document.
ANNUAL FINANCIAL REPORT
Appendix B includes our 2021 Annual Financial Report, which is excerpted from portions of our Annual Report on Form 10-
K for the year ended December 31, 2021, that we filed with the SEC on February 24, 2022. In addition, we have provided you
with a copy of or access to our CEO’s letter, which precedes this proxy statement at the beginning of this document.
Neither of these documents is a part of our proxy soliciting materials.
You may obtain a copy of our Form 10-K report without charge by writing to Stacey W. Goff, Secretary, Lumen
Technologies, Inc., 100 CenturyLink Drive, Monroe, Louisiana 71203, or by visiting our website at lumen.com.
You may view online this proxy statement and related materials at proxyvote.com.
By Order of the Board of Directors
Stacey W. Goff Secretary
April 7, 2022
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
101
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Appendix A
Non-GAAP Reconciliations
DESCRIPTION OF NON-GAAP METRICS
Pursuant to Regulation G, the company is hereby providing (i) definitions of non-GAAP financial metrics that are used in
the sections of the proxy statement under the headings “About Lumen,” “Compensation Discussion & Analysis — Section
one — Executive Summary — Lumen Business Highlights” and “Compensation Discussion & Analysis — Section four —
Compensation Design, Awards and Payouts for 2021” and (ii) reconciliations of these metrics to the most directly
comparable GAAP measures.
The following describes and reconciles those financial measures as reported under accounting principles generally
accepted in the United States (GAAP) with those financial measures as adjusted by the items detailed below. These
calculations are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP.
We use the term Special Items as a non-GAAP measure to describe items that impacted a period’s statement of
operations for which investors may want to give special consideration due to their magnitude, nature or both. We do not
call these items non-recurring because, while some are infrequent, others may recur in future periods.
In connection with setting performance targets for purposes of executive compensation, the company from time to time
uses modified versions of the non-GAAP metrics referred to below. For further information of such modifications, see
“Compensation Discussion & Analysis — Section three — Pay and Performance Alignment — Incentive
program guidelines.”
Adjusted EBITDA ($) is defined as net income (loss) from the Statements of Operations before income tax (expense)
benefit, total other income (expense), depreciation and amortization, stock-based compensation expense and
impairments.
Adjusted EBITDA Margin (%) is defined as Adjusted EBITDA divided by total revenue.
Management believes that Adjusted EBITDA and Adjusted EBITDA Margin are relevant and useful metrics to provide to
investors, as they are an important part of our internal reporting and are key measures used by management to evaluate
profitability and operating performance of Lumen and to make resource allocation decisions. Management believes such
measures are especially important in a capital-intensive industry such as telecommunications. Management also uses
Adjusted EBITDA and Adjusted EBITDA Margin (and similarly uses these terms excluding Special Items) to compare our
performance to that of our competitors and to eliminate certain non-cash and non-operating items in order to
consistently measure from period to period our ability to fund capital expenditures, fund growth, service debt and
determine bonuses. Adjusted EBITDA excludes non-cash stock compensation expense and impairments because of the
non-cash nature of these items. Adjusted EBITDA also excludes interest income, interest expense and income taxes, and in
our view constitutes an accrual-based measure that has the effect of excluding period-to-period changes in working
capital and shows profitability without regard to the effects of capital or tax structure. Adjusted EBITDA also excludes
depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital
investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated
through cash flow measures. Adjusted EBITDA further excludes the gain (or loss) on extinguishment and modification of
debt and net other, income (expense), because these items are not related to the primary business operations of Lumen.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
A-1
APPENDIX A
There are material limitations to using Adjusted EBITDA as a financial measure, including the difficulty associated with
comparing companies that use similar performance measures whose calculations may differ from our calculations.
Additionally, by excluding the above-listed items, Adjusted EBITDA may exclude items that investors believe are important
components of our performance. Adjusted EBITDA and Adjusted EBITDA Margin (either with or without Special Items)
should not be considered a substitute for other measures of financial performance reported in accordance with GAAP.
Free Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures as disclosed in
the Statements of Cash Flows. Management believes that Free Cash Flow is a relevant metric to provide to investors, as it
is an indicator of our ability to generate cash to service our debt. Free Cash Flow excludes cash used for acquisitions,
principal repayments and the impact of exchange rate changes on cash and cash equivalents balances.
There are material limitations to using Free Cash Flow to measure our performance as it excludes certain material items
that investors may believe are important components of our cash flows. Comparisons of our Free Cash Flow to that of
some of its competitors may be of limited usefulness since Lumen does not currently pay a significant amount of income
taxes due to net operating loss carryforwards, and therefore, generates higher cash flow than a comparable business that
does pay income taxes. Additionally, this financial measure is subject to variability quarter over quarter as a result of the
timing of payments related to interest expense, accounts receivable, accounts payable, payroll and capital expenditures.
Free Cash Flow (either with or without Special Items) should not be used as a substitute for net change in cash, cash
equivalents and restricted cash on the Consolidated Statements of Cash Flows.
Net Debt is defined as total long-term debt, excluding unamortized discounts, premiums and other, net and unamortized
debt issuance costs, minus cash and cash equivalents.
Net Debt-to-Adjusted EBITDA Ratio is defined as Net Debt, divided by Adjusted EBITDA.
A-2
NON-GAAP SPECIAL ITEMS(1)
(Unaudited; $ in millions)
Special Items Impacting Adjusted EBITDA
Consumer and other litigation
Severance
Transaction and separation costs(2)
Real estate transactions(3)
Total Special Items impacting Adjusted EBITDA
APPENDIX A
2021
2020
$
$
16
3
37
(40)
16
24
151
—
—
175
1 Our 2020 results have been conformed to current period presentation.
2 Reflects transaction and separation costs associated with the pending sale of our Latin American business for $2.7 billion announced July 26, 2021 and the
pending sale of our ILEC (incumbent local exchange carrier) business in 20 states for $7.5 billion announced August 3, 2021, and the evaluation of other
potential transactions.
3 Reflects the (gain) on sale of real estate, net of other impairment or acceleration of costs associated with our real estate rationalization program.
ADJUSTED EBITDA NON-GAAP RECONCILIATION(1)
(Unaudited; $ in millions)
Net income
Income tax expense
Total other expense, net
Depreciation and amortization expense
Stock-based compensation expense
Goodwill impairment
Adjusted EBITDA
Add back: Severance
Add back: Other Special Items(2)
Add back: Transaction and separation costs(2)
Add back: Real estate transactions(2)
Adjusted EBITDA excluding Special Items
Total revenue
Adjusted EBITDA margin
Adjusted EBITDA margin excluding Special Items
1 Our 2020 results have been conformed to current period presentation.
2 Refer to Non-GAAP Special Items table for details of the Special Items included above.
2021
2020
$ 2,033
(1,232)
668
1,584
4,019
120
—
450
1,744
4,710
175
2,642
$ 8,424
8,489
$
3
16
37
(40)
151
24
—
—
$ 8,440
8,664
$ 19,687
20,712
42.8 %
42.9 %
41.0 %
41.8 %
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
A-3
APPENDIX A
FREE CASH FLOW RECONCILIATION(1)
(Unaudited; $ in millions)
Net cash provided by operating activities
Capital expenditures
Free Cash Flow
Add back: Severance
Add back: Consumer and other litigation(2)
Add back: Transaction and separation costs(2)
Add back: Real estate transactions(2)
Free Cash Flow excluding cash Special Items
1 Our 2020 results have been conformed to current period presentation.
2 Refer to Non-GAAP Special Items table for details of the Special Items impacting cash included above.
NET DEBT-TO-ADJUSTED EBITDA RATIO CALCULATION(1)
(Unaudited; $ in millions)
Total long-term debt
Exclude: unamortized discounts, premiums and other, net and unamortized debt issuance costs
Minus: cash and cash equivalents
Net debt
Adjusted EBITDA excluding Special Items
Net Debt-to-Adjusted EBITDA Ratio
2021
2020
$
6,501
6,524
(2,900)
(3,729)
3,601
2,795
70
47
20
4
137
47
—
—
$
3,742 $
2,979
2021
2020
$ 30,478
31,837
199
315
(394)
(406)
30,283
31,746
8,440
8,664
3.6
3.7
1 Our 2020 results have been conformed to current period presentation. As previously disclosed, 2020 results comprised Adjusted EBITDA excluding
Integration and Transformation Costs and Special Items of $8.888 billion and a Net Debt-to-Adjusted EBITDA ratio of 3.6.
A-4
Appendix B
Lumen Technologies, Inc.
Annual Financial Report
December 31, 2021
INDEX TO ANNUAL FINANCIAL REPORT
DECEMBER 31, 2021
The materials included in this Appendix B are excerpted from Items 5, 7 and 8 of our Annual Report on Form 10-K for the
year ended December 31, 2021. We filed the Form 10-K with the Securities and Exchange Commission on February 24,
2022, and have not updated any of the following excerpted materials for any changes or developments since such date.
Please see the Form 10-K for additional information about our business and operations.
Information on Our Common Stock and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report Of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report Of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B-2
B-3
B-27
B-27
B-29
Consolidated Statements Of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B-30
Consolidated Statements Of Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements Of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements Of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes To Consolidated Financial Statements* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B-31
B-32
B-33
B-35
B-36
* All references to “Notes” in this Appendix B refer to these Notes.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-1
APPENDIX B
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange ("NYSE") and the Berlin Stock Exchange and is traded under
the symbol LUMN and CYTH, respectively.
At February 22, 2022, there were approximately 85,000 stockholders of record, although there were significantly more
beneficial holders of our common stock.
As described in greater detail in "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended
December 31, 2021, the declaration and payment of dividends is at the discretion of our Board of Directors, and will depend
upon our financial results, cash requirements, future prospects and other factors deemed relevant by our Board
of Directors.
Issuer Purchases of Equity Securities
Effective August 3, 2021, our Board of Directors authorized a 24-month program to repurchase up to an aggregate of $1.0
billion of our outstanding common stock. During the three months ended December 31, 2021, we repurchased 7.1 million
shares of our outstanding common stock in the open market. These shares were repurchased for an aggregate market
price of $91 million, or an average purchase price of $12.76 per share. These repurchases exhausted our $1.0 billion
repurchase plan authorized on August 3, 2021. All repurchased common stock has been retired. For additional information,
see Note 20—Repurchases of Lumen Common Stock to our consolidated financial statements included in Item 8 of Part II
of our Annual Report on Form 10-K for the year ended December 31, 2021.
The following table contains information about shares of our previously-issued common stock that were repurchased
under our above-described Stock Repurchase Program:
Period
October 2021
Total Number of
Shares Purchased
Average Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under the Plans or
Programs
7,108,845 $
12.76
7,108,845 $
—
The following table contains information about shares of our previously-issued common stock that we withheld from
employees upon vesting of their stock-based awards during the fourth quarter of 2021 to satisfy the related tax
withholding obligations:
Period
October 2021
November 2021
December 2021
Total
Equity Compensation Plan Information
See Item 12 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Total Number of
Shares Withheld
for Taxes
Average Price Paid
Per Share
39,868 $
25,586
16,204
81,658
12.71
13.02
12.31
B-2
APPENDIX B
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
All references to "Notes" in this Item 7 of Part II refer to the Notes to Consolidated Financial Statements included in Item 8
of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021. Certain statements in our Annual
Report on Form 10-K for the year ended December 31, 2021 constitute forward-looking statements. See "Special Note
Regarding Forward-Looking Statements" immediately prior to Item 1 of Part I of our Annual Report on Form 10-K for the
year ended December 31, 2021 for factors relating to these statements and "Risk Factors" in Item 1A of Part I of our Annual
Report on Form 10-K for the year ended December 31, 2021 for a discussion of certain risk factors applicable to our
business, financial condition, results of operations, liquidity or prospects.
Overview
We are an international facilities-based technology and communications company focused on providing our business and
mass markets customers with a broad array of integrated products and services necessary to fully participate in our rapidly
evolving digital world. We operate one of the world's most interconnected networks. Our platform empowers our
customers to rapidly adjust digital programs to meet immediate demands, create efficiencies, accelerate market access,
and reduce costs – allowing customers to rapidly evolve their IT programs to address dynamic changes. With
approximately 190,000 on-net buildings and 500,000 route miles of fiber optic cable globally, we are among the largest
providers of communications services to domestic and global enterprise customers. Our terrestrial and subsea fiber optic
long-haul network throughout North America, Europe, Latin America and Asia Pacific connects to metropolitan fiber
networks that we operate. We provide services in over 60 countries, with most of our revenue being derived in the
United States.
Planned Divestiture of the Latin American and ILEC Businesses
On July 25, 2021, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen, agreed to divest their Latin
American business in exchange for $2.7 billion cash, subject to certain working capital, other purchase price adjustments
and related transaction expenses (estimated to be approximately $50 million). On August 3, 2021, Lumen and certain of its
subsidiaries agreed to divest a substantial portion of their incumbent local exchange business in exchange for $7.5 billion,
subject to offsets for (i) assumed indebtedness (expected to be approximately $1.4 billion) and (ii) our transaction expenses,
certain of purchaser’s transaction expenses, income taxes and certain working capital and other customary purchase price
adjustments (currently estimated to aggregate to approximately $1.7 billion). The actual amount of our net after-tax
proceeds from these divestitures could vary substantially from the amounts we currently estimate, particularly if we
experience delays in completing the transactions or any of our other assumptions prove to be incorrect. For more
information, see (i) Note 2—Planned Divestiture of the Latin American and ILEC Businesses and (ii) the risk factors included
in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.
Impact of COVID-19 Pandemic
In response to the safety and economic challenges arising out of the COVID-19 pandemic and in a continued attempt to
mitigate the negative impact on our stakeholders, we have taken a variety of steps to ensure the availability of our network
infrastructure, to promote the safety of our employees and customers, to enable us to continue to adapt and provide our
products and services worldwide to our customers, and to strengthen our communities. As vaccination rates increase, we
expect to continue revising our responses to the pandemic or take additional steps necessary to adjust to changed
circumstances. To date, these steps have included:
•
•
taking the Federal Communications Commission's ("FCC") "Keep Americans Connected Pledge," under which we
waived certain late fees and suspended the application of data caps and service terminations for non-payment by
certain mass markets customers through the end of the second quarter of 2020;
establishing new protocols for the safety of our on-site technicians and customers, including our "Safe Connections"
program;
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-3
APPENDIX B
•
•
adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel, each
of which remains in place;
continuously monitoring our network to enhance its ability to respond to changes in usage patterns;
• donating products or services in several of our communities to enhance their abilities to provide necessary support
services; and
•
taking steps to maintain our internal controls and the security of our systems and data in a remote work environment.
Social distancing, business and school closures, travel restrictions, and other actions taken in response to the pandemic
have impacted us, our customers and our business since March 2020. In particular, beginning in the second half of 2020
and continuing into early 2022, we have rationalized our leased footprint and ceased using 39 leased property locations
that were underutilized due to the COVID-19 pandemic. The Company determined that we no longer needed the leased
space and, due to the limited remaining term on the contracts, concluded that the Company had neither the intent nor
ability to sublease the properties. As a result, we incurred accelerated lease costs of approximately $35 million and $41
million for the years ended December 31, 2021 and 2020, respectively. In conjunction with our plans to continue to reduce
costs, we expect to continue our real estate rationalization efforts and incur additional costs during 2022. Additionally, as
discussed further elsewhere herein, the pandemic resulted in (i) increases in certain revenue streams and decreases in
others, (ii) increases in allowances for credit losses through the end of 2020, (iii) increases in overtime expenses, (iv)
operational challenges resulting from shortages of semiconductors and certain other supplies that we use in our business,
and (v) delays in our cost transformation initiatives. We have also experienced delayed decision-making by certain of our
customers. Thus far, these changes have not materially impacted our financial performance or financial position. However,
we continue to monitor global disruptions and work with our vendors to mitigate supply chain risks.
We intend to reopen our offices in 2022 under a "hybrid" working environment, which will permit some of our employees
the flexibility to work remotely at least some of the time for the foreseeable future.
For additional information on the impacts of the pandemic, see (i) the remainder of this item, including "—Liquidity and
Capital Resources—Overview of Sources and Uses of Cash" and (ii) Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 2021.
Reporting Segments
As previously announced, we completed an internal reorganization of our reporting segments in January 2021. Our
reporting segments are currently organized as follows, by customer focus:
• Business Segment: Under our Business segment, we provide our products and services under four sales channels:
◦
◦
International and Global Accounts ("IGAM"): Our IGAM sales channel includes multinational and enterprise
customers. We provide our products and services to approximately 350 of our highest potential enterprise
customers and to enterprise customers and carriers in three operating regions: Europe Middle East and Africa, Latin
America and Asia Pacific.
Large Enterprise: Under our large enterprise sales channel, we provide our products and services to large
enterprises and the public sector, including the U.S. Federal government, state and local governments and research
and education institutions.
◦ Mid-Market Enterprise: Under our mid-market enterprise sales channel, we provide our products and services to
medium-sized enterprises directly and through our indirect channel partners.
B-4
APPENDIX B
◦ Wholesale: Under our wholesale sales channel, we provide our products and services to a wide range of other
communication providers across the wireline, wireless, cable, voice and data center sectors.
• Mass Markets Segment. Under our Mass Markets segment, we provide products and services to consumer and small
business customers. At December 31, 2021, we served 4.5 million broadband subscribers under our Mass Markets
segment.
See Note 17—Segment Information for additional information.
We categorize our Business segment revenue among the following products and services categories:
• Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and
Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;
•
•
IP and Data Services, which include Ethernet, IP, and VPN data networks, including software-defined wide area
networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;
Fiber Infrastructure Services, which include dark fiber, optical services and equipment; and
• Voice and Other, which include Time Division Multiplexing ("TDM") voice, private line, and other legacy services.
Under our Mass Markets segment, we provide the following products and services:
• Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to
residential customers;
•
SBG Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to small
businesses;
• Voice and Other, which includes local and long-distance services, state support and other ancillary services; and
• CAF II, which consists of Connect America Fund Phase II payments through the end of 2021 to support voice and
broadband in FCC-designated high-cost areas.
Trends Impacting Our Operations
In addition to the above-described impact of the pandemic, our consolidated operations have been, and are expected to
continue to be, impacted by the following company-wide trends:
• Customers’ demand for automated products and services and competitive pressures will require that we continue to
invest in new technologies and automated processes to improve the customer experience and reduce our operating
expenses.
•
The increasingly digital environment and the growth in online video and gaming require robust, scalable network
services. We are continuing to enhance our product capabilities and simplify our product portfolio based on demand
and profitability to enable customers to have access to greater bandwidth.
• Businesses continue to adopt distributed, global operating models. We are expanding and enhancing our fiber
network, connecting more buildings to our network to generate revenue opportunities and reducing our reliance upon
other carriers.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-5
APPENDIX B
•
•
Industry consolidation, coupled with changes in regulation, technology and customer preferences, are significantly
reducing demand for our traditional voice services and are pressuring some other revenue streams through volume or
rate reductions, while other advances, such as the need for lower latency provided by Edge computing or the
implementation of 5G networks, are expected to create opportunities.
The operating margins of several of our newer, more technologically advanced services, some of which may connect to
customers through other carriers, are lower than the operating margins on our traditional, on-net wireline services.
• Declines in our traditional wireline services and other more mature offerings have necessitated right-sizing our cost
structures to remain competitive.
The amount of support payments we receive from governmental agencies will decrease substantially after December 31,
2021. This and other developments and trends impacting our operations are discussed elsewhere in this Item 7.
Results of Operations
In this section, we discuss our overall results of operations and highlight special items that are not included in our
segment results. In "Segment Results" we review the performance of our two reporting segments in more detail.
Revenue
The following table summarizes our consolidated operating revenue recorded under each of our two segments and in our
four above-described revenue sales channels within the Business segment:
Years Ended December 31,
Years Ended December 31,
2021
2020
% Change
2020
2019
% Change
(Dollars in millions)
(Dollars in millions)
Business Segment:
International & Global Accounts
$
Large Enterprise
Mid-Market Enterprise
Wholesale
Business Segment Revenue
Mass Markets Segment Revenue
4,053
3,722
2,729
3,615
14,119
5,568
Total operating revenue
$
19,687
4,118
3,915
2,969
3,815
14,817
5,895
20,712
(2) %
(5) %
(8) %
(5) %
(5) %
(6) %
(5) %
4,118
3,915
2,969
3,815
14,817
5,895
20,712
4,172
3,836
3,152
4,079
15,239
6,219
21,458
(1) %
2 %
(6) %
(6) %
(3) %
(5) %
(3) %
Our consolidated revenue decreased by $1.025 billion for the year ended December 31, 2021 as compared to the year ended
December 31, 2020 due to revenue declines in all of our above-listed revenue categories. See our segment results below for
additional information.
Our consolidated revenue decreased by $746 million for the year ended December 31, 2020 compared to the year ended
December 31, 2019 primarily due to revenue declines in most of our above-listed revenue categories. See our segment
results below for additional information.
B-6
Operating Expenses
The following table summarizes our operating expenses for the year ended December 31, 2021 and 2020. For information
regarding expenses for the year ended December 31, 2019, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 of Part II of our Annual Report Form 10-K for the year ended
December 31, 2020:
APPENDIX B
Years Ended December 31,
2021
2020
% Change
(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)
$
8,488
Selling, general and administrative
Depreciation and amortization
Goodwill impairment
Total operating expenses
2,895
4,019
—
8,934
3,464
4,710
2,642
$
15,402
19,750
(5) %
(16) %
(15) %
nm
(22) %
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 by $446 million for the year ended
December 31, 2021 as compared to the year ended December 31, 2020. This decrease was primarily due to reductions in
salaries and wages and other employee-related expense from lower headcount and lower facility and real estate costs.
Selling, General and Administrative
Selling, general and administrative expenses decreased by $569 million for the year ended December 31, 2021 as compared
to the year ended December 31, 2020. The decrease in selling, general and administrative expenses was primarily due to
reductions in salaries and wages and other employee-related expense from lower headcount, lower bad debt expense,
gain on sale of land and lower marketing and advertising costs.
Depreciation and Amortization
The following table provides detail of our depreciation and amortization expense:
Depreciation
Amortization
Total depreciation and amortization
Years Ended December 31,
2021
2020
% Change
(Dollars in millions)
$
$
2,671
1,348
4,019
2,963
1,747
4,710
(10) %
(23) %
(15) %
Depreciation expense decreased by $292 million for the year ended December 31, 2021 as compared to the year ended
December 31, 2020 primarily due to discontinuing the depreciation of the tangible assets reclassified as held for sale of our
Latin American and ILEC businesses upon entering into our divestiture agreements. We estimate we would have recorded
an additional $247 million of depreciation expense during the year ended December 31, 2021 if we had not agreed to sell
these businesses. In addition, depreciation expense decreased due to the impact of annual rate depreciable life changes of
$151 million, which was partially offset by higher depreciation expense of $93 million associated with net growth in
depreciable assets.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-7
APPENDIX B
Amortization expense decreased by $399 million for the year ended December 31, 2021 as compared to the year ended
December 31, 2020. The decrease was primarily due to a decrease of $394 million as a result of certain customer
relationship intangible assets becoming fully amortized at the end of the first quarter 2021, decreases of $29 million
associated with net reductions in amortizable assets and a decrease of $13 million due to discontinuing the amortization of
the intangible assets reclassified as held for sale of our Latin American and ILEC businesses upon entering into our
divestiture agreements. These decreases were partially offset by $21 million of accelerated amortization for
decommissioned applications and $22 million of additional amortization expense recognized as a result of reclassification
of certain right-of-way assets, as discussed in Note 3—Goodwill, Customer Relationships and Other Intangible Assets.
Further analysis of our segment operating expenses by segment is provided below in "Segment Results."
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.
In January 2021, we began reporting under two segments: Business and Mass Markets. See Note 17—Segment Information
for more information on these segments and the underlying sales channels. Since effecting this reorganization, we have
used five reporting units for goodwill impairment testing, which are (i) Mass Markets, (ii) North America ("NA") Business (iii)
Europe, Middle East and Africa region ("EMEA"), (iv) Asia Pacific region ("APAC") and (v) Latin America region ("LATAM").
Our January 2021 reorganization was considered an event or change in circumstance which required an assessment of our
goodwill for impairment. We performed a qualitative impairment assessment in the first quarter of 2021 and concluded it
was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our
reporting units at January 31, 2021. Therefore, we did not have any impairment as of our assessment date.
The reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American and ILEC
Businesses, was considered an event or change in circumstance which required an assessment of our goodwill for
impairment as of July 31, 2021. We performed a pre-reclassification goodwill impairment test using our estimated post-
divestiture cash flows and carrying value of equity to determine whether there was an impairment prior to the
reclassification of these assets to held for sale and to determine the July 31, 2021 fair values to be utilized for goodwill
allocation regarding the Latin American and ILEC businesses to be reclassified as assets held for sale. We concluded it was
more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting
units at July 31, 2021.
We also performed a post-reclassification goodwill impairment test using our estimated post-divestiture cash flows and
carrying value of equity to determine whether the fair value of our reporting units that will remain following the
divestitures exceeded the carrying value of the equity of such reporting units after reclassification of assets held for sale. At
July 31, 2021, we estimated the fair value of our remaining reporting units by considering both a market approach and a
discounted cash flow method. Based on our assessments performed, we concluded it was more likely than not that the
fair value of each of our remaining reporting units exceeded the carrying value of equity of our remaining reporting units
at July 31, 2021. Therefore, we concluded we did not have any impairment as of our assessment date.
B-8
APPENDIX B
When we performed our annual impairment test in the fourth quarter of 2021, we concluded it was more likely than not
that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units. Therefore, we
concluded no impairment existed as of our annual assessment date in the fourth quarter of 2021. When we performed our
impairment tests during the fourth quarter of 2020, we concluded that the estimated fair value of certain of our reporting
units was less than our carrying value of equity as of the date of our impairment test during the fourth quarter of 2020. As
a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $2.6 billion in the fourth
quarter of 2020. Additionally, when we performed impairment tests in January 2019 and March 31, 2019 due to our January
2019 internal reorganization and the decline in our stock price, we concluded that the estimated fair value of our reporting
units was less than our carrying value of equity as of the date of each of our impairment tests during the first quarter of
2019. As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charges aggregating to $6.5 billion in
the quarter ended March 31, 2019.
See Note 3—Goodwill, Customer Relationships and Other Intangible Assets for further details on these tests and
impairment charges.
Other Consolidated Results
The following tables summarize our total other expense, net and income tax expense:
Interest expense
Other expense, net
Total other expense, net
Income tax expense
Years Ended December 31,
2021
2020
% Change
(Dollars in millions)
$
$
$
(1,522)
(62)
(1,584)
668
(1,668)
(76)
(1,744)
450
(9) %
(18) %
(9) %
48 %
Interest Expense
Interest expense decreased by $146 million for the year ended December 31, 2021 as compared to the year ended
December 31, 2020. The decrease was primarily due to the decrease in average long-term debt from $33.3 billion to $30.4
billion and the decrease in the average interest rate of 5.23% to 4.82%.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-9
APPENDIX B
Other Expense, Net
Other expense, net reflects certain items not directly related to our core operations, including (i) gains and losses on
extinguishments of debt, (ii) components of net periodic pension and post-retirement benefit costs, (iii) foreign currency
gains and losses, (iv) our share of income from partnerships we do not control, (v) interest income, (vi) gains and losses
from non-operating asset dispositions and (vii) other non-core items.
Gain (loss) on extinguishment of debt
Pension and post-retirement net periodic expense
Foreign currency (loss) gain
Gain on investment in limited partnership
Other
Total other expense, net
Years Ended December 31,
2021
2020
% Change
(Dollars in millions)
$
$
8
(295)
(28)
138
115
(62)
(105)
(31)
30
—
30
nm
nm
nm
nm
nm
(76)
(18) %
nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.
The increase of $264 million in pension and post-retirement net periodic expense for the year ended December 31, 2021 as
compared to the year ended December 31, 2020 is primarily driven by settlement charges associated with the acceleration
of the recognition of a portion of previously unrecognized actuarial losses in the qualified pension plan. Other expense, net
for the year ended December 31, 2021 also included a gain on investment in a limited partnership as a result of the
underlying investments held by the limited partnership which began trading in active markets, resulting in an increase to
our net asset value of our investment. Other expense, net for the year ended December 31, 2021 also included a distribution
from a previously dissolved captive insurance company and other non-core items. See Note 14—Fair Value of Financial
Instruments for more information regarding the gain recognized on the investment in a limited partnership.
Income Tax Expense
For the years ended December 31, 2021 and 2020, our effective income tax rate was 24.7% and (57.5)%, respectively. The
effective tax rate for the year ended December 31, 2020 includes the $555 million unfavorable impact of a non-deductible
goodwill impairment. See Note 16—Income Taxes and "Critical Accounting Policies and Estimates—Income Taxes" below
for additional information.
B-10
SEGMENT RESULTS
General
Reconciliation of segment revenue to total operating revenue is below:
Operating revenue
Business
Mass Markets
Total operating revenue
Reconciliation of segment EBITDA to total adjusted EBITDA is below:
Adjusted EBITDA
Business
Mass Markets
Total segment EBITDA
Operations and Other EBITDA
Total adjusted EBITDA
APPENDIX B
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
14,119
5,568
19,687
14,817
5,895
20,712
15,239
6,219
21,458
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
$
$
9,446
4,886
14,332
(5,908)
$
8,424
9,899
5,118
15,017
(6,528)
8,489
10,277
5,375
15,652
(6,881)
8,771
For additional information on our reportable segments and product and services categories, see Note 17—Segment
Information.
BUSINESS SEGMENT
Years Ended December 31,
Years Ended December 31,
2021
2020
% Change
2020
2019
% Change
(Dollars in millions)
(Dollars in millions)
Business Segment Product
Categories:
Compute and Application Services
$
IP and Data Services
Fiber Infrastructure Services
Voice and Other
Total Business Segment Revenue
Expenses:
Total expense
Total adjusted EBITDA
$
1,741
6,212
2,248
3,918
14,119
4,673
9,446
1,755
6,413
2,248
4,401
14,817
4,918
9,899
(1) %
(3) %
— %
(11) %
(5) %
(5) %
(5) %
1,755
6,413
2,248
4,401
14,817
4,918
9,899
1,735
6,566
2,157
4,781
15,239
4,962
10,277
1 %
(2) %
4 %
(8) %
(3) %
(1) %
(4) %
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-11
APPENDIX B
Year ended December 31, 2021 compared to the same periods ended December 31, 2020 and December 31, 2019
Business segment revenue decreased $698 million for the year ended December 31, 2021 compared to December 31, 2020
and decreased $422 million for the year ended December 31, 2020 compared to December 31, 2019. These changes are
primarily due to the following factors:
• Compute and Application Services decreased for the year ended December 31, 2021 compared to December 31, 2020
due to a large customer disconnect for IT Solutions and lower rates for content delivery network services within our
IGAM sales channel. Additionally, for the year ended December 31, 2021 compared to December 31, 2020, decreases
were driven by declines in Cloud Services within our Large Enterprise and IGAM sales channels. These decreases were
partially offset by growth in Managed Security and IT Solutions services to Federal Public Sector customers and an
increase in colocation and data center services in our IGAM sales channel.
• Compute and Application Services increased for the year ended December 31, 2020 compared to December 31, 2019
due to growth in Managed Security and IT Solutions services within our Large Enterprise sales channel and growth in
UC&C in our IGAM sales channel. These increases were partially offset by declines in IT Solutions services within our
IGAM sales channel and declines in Cloud Services within our Large Enterprise sales channel.
•
•
IP and Data Services decreased during both periods due to declines in traditional VPN networks and continued
declines in Ethernet sales across all our sales channels, partially offset by an increase in IP services across all our sales
channels.
Fiber Infrastructure Services remained flat for the year ended December 31, 2021 compared to December 31, 2020 and
increased for the year ended December 31, 2020 compared to December 31, 2019. Both periods experienced growth in
dark fiber and wavelengths sales driven by demand primarily from our IGAM sales channel, which was offset by lower
equipment sales in our Large Enterprise sales channel.
• Voice and Other decreased during both periods due to continued decline of legacy voice, private line and other services
to customers across all of our sales channels. Additionally, voice services revenue decreased for the year ended
December 31, 2021 compared to December 31, 2020, which had benefited from higher COVID-related demand.
The decrease in Business segment revenue for the year ended December 31, 2021 was slightly offset by $16 million of
favorable foreign currency as compared to December 31, 2020. The decrease in Business segment revenue for the year
ended December 31, 2020 was also driven by $42 million of unfavorable foreign currency for the year ended December 31,
2020 as compared to December 31, 2019.
Business segment expense decreased by $245 million for the year ended December 31, 2021 compared to December 31,
2020 primarily due to lower cost of sales and lower employee-related costs from lower headcount. Business segment
expenses decreased by $44 million for the year ended December 31, 2020 compared to December 31, 2019, primarily due to
lower employee-related costs from lower headcount.
Business segment adjusted EBITDA as a percentage of revenue was 67% for the years ended December 31, 2021, 2020
and 2019.
B-12
APPENDIX B
MASS MARKETS SEGMENT
Years Ended December 31,
Years Ended December 31,
2021
2020
% Change
2020
2019
% Change
(Dollars in millions)
(Dollars in millions)
Mass Markets Product Categories:
Consumer Broadband
$
SBG Broadband
Voice and Other
CAF II
Total Mass Markets Segment Revenue
Expenses:
Total expense
2,875
156
2,047
490
5,568
682
Total adjusted EBITDA
$
4,886
2,909
153
2,341
492
5,895
777
5,118
(1) %
2 %
(13) %
— %
(6) %
(12) %
(5) %
2,909
153
2,341
492
5,895
777
5,118
2,876
163
2,688
492
6,219
844
5,375
1 %
(6) %
(13) %
— %
(5) %
(8) %
(5) %
Year ended December 31, 2021 compared to the same periods ended December 31, 2020 and December 31, 2019
Mass Markets segment revenue decreased by $327 million for the year ended December 31, 2021 compared to December
31, 2020 and decreased $324 million for the year ended December 31, 2020 compared to December 31, 2019, due to the
following factors:
• Consumer Broadband revenue decreased for the year ended December 31, 2021 compared to December 31, 2020 and
increased for the year ended December 31, 2020 compared to year ended December 31, 2019 driven by continued
pressure on legacy products, which was partially or wholly offset by gains in our fiber-based broadband business.
• Voice and Other declined during both periods primarily due to continued legacy voice customer losses and our exit of
the Prism video product.
Mass Markets segment expenses decreased by $95 million for the year ended December 31, 2021 compared to December
31, 2020 and decreased $67 million for the year ended December 31, 2020 compared to December 31, 2019, primarily due to
lower employee-related costs from lower headcount, lower costs of sales driven by the decrease in Prism content costs
and higher bad debt expense for the year ended December 31, 2020 due to the COVID-19 induced economic slowdown.
These decreases were partially offset by higher network expenses for the year ended December 31, 2021.
Mass Markets segment adjusted EBITDA as a percentage of revenue was 88%, 87% and 86% for the year ended December
31, 2021, 2020 and 2019, respectively.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-13
APPENDIX B
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles that are generally accepted
in the United States. The preparation of these consolidated financial statements requires management to make estimates
and assumptions that affect the reported amounts of our assets, liabilities, revenue and expenses. We have identified
certain policies and estimates as critical to our business operations and the understanding of our past or present results of
operations related to (i) goodwill, customer relationships and other intangible assets; (ii) pension and post-retirement
benefits; (iii) loss contingencies and litigation reserves and (iv) income taxes. These policies and estimates are considered
critical because they had a material impact, or they have the potential to have a material impact, on our consolidated
financial statements and because they require us to make significant judgments, assumptions or estimates. We believe
that the estimates, judgments and assumptions made when accounting for the items described below were reasonable,
based on information available at the time they were made. However, actual results may differ from those estimates, and
these differences may be material.
GOODWILL, CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLE ASSETS
We have a significant amount of goodwill and indefinite-lived intangible assets that are assessed at least annually for
impairment. At December 31, 2021, goodwill and intangible assets totaled $23.0 billion (excluding goodwill and other
intangible assets reclassified as assets held for sale), or 40%, of our total assets. The impairment analyses of these assets are
considered critical because of their significance to us and our segments.
We have assigned our goodwill balance to our segments at December 31, 2021 as follows:
As of December 31, 2021
Business Mass Markets
Total
(Dollars in millions)
$
11,235
4,751
15,986
Intangible assets arising from business combinations, such as goodwill, customer relationships, capitalized software,
trademarks and tradenames, are initially recorded at estimated fair value. We amortize customer relationships primarily
over an estimated life of 7 to 14 years, using the straight-line method, depending on the customer. Certain customer
relationship intangible assets became fully amortized at the end of the first quarter 2021 using the sum-of-years-digits
method, which is no longer used for any of our remaining intangible assets. We amortize capitalized software using the
straight-line method primarily over estimated lives ranging up to 7 years. We amortize our other intangible assets using
the sum-of-years-digits or straight-line method over an estimated life of 4 to 20 years. Other intangible assets not arising
from business combinations are initially recorded at cost. Where there are no legal, regulatory, contractual or other factors
that would reasonably limit the useful life of an intangible asset, we classify the intangible asset as indefinite-lived and
such intangible assets are not amortized.
Our long-lived intangible assets, other than goodwill, with indefinite lives are assessed for impairment annually, or, under
certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be an
impairment. These assets are carried at the estimated fair value at the time of acquisition and assets not acquired in
acquisitions are recorded at historical cost. However, if their estimated fair value is less than the carrying amount, we
recognize an impairment charge for the amount by which the carrying amount of these assets exceeds their estimated
fair value.
Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net
assets acquired.
B-14
APPENDIX B
We are required to reassign goodwill to reporting units whenever reorganizations of our internal reporting structure
changes the composition of our reporting units. Goodwill is reassigned to the reporting units using a relative fair value
approach. When the fair value of a reporting unit is available, we allocate goodwill based on the relative fair value of the
reporting units. When fair value is not available, we utilize an alternative allocation methodology that represents a
reasonable approximation of the fair value of the operations being reorganized. For additional information on our
segments, see Note 17—Segment Information.
We are required to assess goodwill at least annually, or more frequently, if an event occurs or circumstances change that
indicates it is more likely than not the fair values of any of our reporting units were less than their carrying values. In
assessing goodwill for impairment, we may first assess qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carry value.
Our annual impairment assessment date for goodwill is October 31, at which date we assess our reporting units. In January
2021, we began reporting under two segments: Business and Mass Markets. See Note 17—Segment Information for more
information on these segments and the underlying sales channels. Since effecting this reorganization, we have used five
reporting units for goodwill impairment testing, which are (i) Mass Markets (ii) North America ("NA") Business, (iii) Europe,
Middle East and Africa region ("EMEA"), (iv) Asia Pacific region ("APAC") and (v) Latin America region ("LATAM"). Prior to this
reorganization, we used the following eight reporting units for goodwill impairment testing: consumer, small and medium
business, enterprise, wholesale, North America global accounts ("NA GAM"), EMEA, LATAM and APAC.
Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are
employed in and relate to the operations of multiple reporting units and are allocated to individual reporting units based
on their relative revenue or earnings before interest, taxes depreciation and amortization ("EBITDA"). For each reporting
unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit. If the
estimated fair value of the reporting unit is equal or greater than the carrying value, we conclude that no impairment
exists. If the estimated fair value of the reporting unit is less than the carrying value, we record a non-cash impairment
equal to the difference. 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, which is based on the present value of projected
cash flows over a discrete projection period and a terminal value, which is based on the expected normalized cash flows of
the reporting units following the discrete projection period, and (ii) a market approach, which includes the use of multiples
of publicly-traded companies whose services are comparable to ours. With respect to our analysis used in the discounted
cash flow method, the timing and amount of projected cash flows under these forecasts require estimates developed
from our long-range plan, which is informed by wireline industry trends, the competitive landscape, product lifecycles,
operational initiatives, capital allocation plans and other company-specific and external factors that influence our business.
These cash flows consider recent historical results and are consistent with the Company's short-term financial forecasts
and long-term business strategies. The development of these cash flows, and the discount rate applied to the cash flows, is
subject to inherent uncertainties, and actual results could vary significantly from such estimates. Our determination of the
discount rate is based on a weighted average cost of capital approach, which uses a market participant’s cost of equity
and after-tax cost of debt and reflects certain risks inherent in the future cash flows. With respect to a market approach,
the fair value of a reporting unit is estimated based upon a market multiple applied to the reporting unit’s revenue and
EBITDA, adjusted for an appropriate control premium based on recent market transactions. The fair value of reporting
units estimated using revenue and EBITDA market multiples are equally weighted to determine the estimated fair value
under the market approach. We also reconcile the estimated fair values of the reporting units to our market capitalization
to conclude whether the indicated control premium is reasonable in comparison to recent transactions in the
marketplace. A decline in our stock price could potentially cause an impairment of goodwill. Changes in the underlying
assumptions that we use in allocating the assets and liabilities to reporting units under either the discounted cash flow or
market approach method can result in materially different determinations of fair value. We believe the estimates,
judgments, assumptions and allocation methods used by us are reasonable, but changes in any of them can significantly
affect whether we must incur impairment charges, as well as the size of such charges.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-15
APPENDIX B
At October 31, 2021, we estimated the fair value of our five above-mentioned reporting units by considering both a market
approach and a discounted cash flow method. We reconciled the estimated fair values of the reporting units to our
market capitalization as of October 31, 2021 and concluded that the indicated control premium of approximately 42% was
reasonable based on recent market transactions. As of October 31, 2021, based on our assessment performed with respect
to our five reporting units, the estimated fair value of our equity exceeded the carrying value of equity for our Mass
Markets, NA Business, EMEA, LATAM and APAC reporting units by 277%, 8%, 57%, 100% and 125%, respectively. Based on our
assessments performed, we concluded it was more likely than not that the fair value of each of our reporting units
exceeded the carrying value of equity of those reporting units at October 31, 2021. Therefore, we concluded no impairment
existed as of our assessment date.
Our reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American and ILEC
Businesses, was considered an event or change in circumstance which required an assessment of our goodwill for
impairment as of July 31, 2021. At July 31, 2021, we estimated the fair value of our five above-mentioned reporting units by
considering both a market approach and a discounted cash flow method. We reconciled the estimated fair values of the
reporting units to our market capitalization as of July 31, 2021 and concluded that the indicated control premium of
approximately 32% was reasonable based on recent market transactions. As of July 31, 2021, based on our assessment
performed with respect to our five reporting units, the estimated fair value of our equity exceeded the carrying value of
equity for our Mass Markets, NA Business, EMEA, LATAM and APAC reporting units by 150%, 24%, 58%, 100% and 134%,
respectively. Based on our assessments performed, we concluded it was more likely than not that the fair value of each of
our reporting units exceeded the carrying value of equity of those reporting units at July 31, 2021. Therefore, we concluded
no impairment existed as of our assessment date.
At October 31, 2020, we estimated the fair value of our eight above-mentioned reporting units (prior to the January 2021
reorganization) by considering both a market approach and a discounted cash flow method. We reconciled the estimated
fair values of the reporting units to our market capitalization as of October 31, 2020 and concluded that the indicated
control premium of approximately 33% was reasonable based on recent market transactions. Due to the decline in our
stock price at October 31, 2020 and our assessment performed with respect to the reporting units described above, we
concluded that our consumer, wholesale, small and medium business and EMEA reporting units were impaired, resulting
in a non-cash, non-tax-deductible goodwill impairment charge of $2.6 billion. As of October 31, 2020, the estimated fair
value of equity exceeded the carrying value of equity for our enterprise, NA GAM, LATAM, and APAC reporting units by
2%,46%, 74% and 23%, respectively. Based on our assessments performed, we concluded it was more likely than not that
the fair value of our enterprise, NA GAM, LATAM, and APAC reporting units exceeded the carrying value of equity of those
reporting units at October 31, 2020. Therefore, we concluded no impairment existed with respect to those four reporting
units as of our assessment date.
At October 31, 2019, we estimated the fair value of our eight above-mentioned reporting units by considering both a
market approach and a discounted cash flow method. We reconciled the estimated fair values of the reporting units to
our market capitalization as of October 31, 2019 and concluded that the indicated control premium of approximately 45%
was reasonable based on recent market transactions. As of October 31, 2019, the estimated fair value of our equity
exceeded the carrying value of equity for our consumer, small and medium business, enterprise, wholesale, NA GAM,
EMEA, LATAM, and APAC reporting units by 44%, 41%, 53%, 46%, 55%, 5%, 63% and 38%, respectively. Based on our
assessments performed, we concluded it was more likely than not that the fair value of each of our reporting units
exceeded the carrying value of equity of those reporting units at October 31, 2019. Therefore, we concluded no impairment
existed as of our assessment date.
Both our January 2019 internal reorganization and the decline in our stock price indicated the carrying values of our
reporting units were more likely than not in excess of their fair values, requiring an impairment test in the first quarter of
2019. Consequently, we evaluated our goodwill in January 2019 and again as of March 31, 2019. Because our low stock price
was a key trigger for impairment testing in early 2019, we estimated the fair value of our operations using only the market
approach. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications
industry which have historically supported a range of fair values derived from annualized revenue and EBITDA multiples
between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple for each of our reporting
units within this range. We reconciled the estimated fair values of the reporting units to our market capitalization as of the
date of each of our impairment tests during the first quarter and concluded that the indicated control premiums of
approximately 4.5% and 4.1% were reasonable based on recent market transactions. In the quarter ended March 31, 2019,
based on our assessments performed with respect to the reporting units as described above, we concluded that the
estimated fair value of certain of our reporting units was
B-16
APPENDIX B
less than our carrying value of equity as of the date of both of our impairment tests during the first quarter. As a result, we
recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $6.5 billion in the quarter ended
March 31, 2019.
For additional information on our goodwill balances by segment, see Note 3—Goodwill, Customer Relationships and Other
Intangible Assets.
PENSION AND POST-RETIREMENT BENEFITS
We sponsor a noncontributory qualified defined benefit pension plan (referred to as our qualified pension plan) for a
substantial portion of our current and former employees in the United States. In addition to this tax-qualified pension plan,
we also maintain several non-qualified pension plans for certain eligible highly compensated employees. We also maintain
post-retirement benefit plans that provide health care and life insurance benefits for certain eligible retirees. Due to the
insignificant impact of these non-qualified plans on our consolidated financial statements, we have excluded them from
the following pension and post-retirement benefits disclosures for 2021, 2020 and 2019.
As of January 1, 2021, our qualified pension plan had a net actuarial loss balance of approximately $3.0 billion. A portion of
this balance was subject to amortization as a component of net periodic expense over the average remaining service
period for participating employees expected to receive benefits under the plan. During 2021, our lump sum pension
settlement payments exceeded the settlement threshold and as a result we recognized a non-cash settlement charge of
$383 million, accelerating previously unrecognized actuarial losses from our net actuarial loss balance. For our post-
retirement benefit plans, the majority of the beginning net actuarial loss balance of $346 million continued to be deferred
during 2021.
In 2020, approximately 59% of the qualified pension plan's January 1, 2020 net actuarial loss balance of $3.0 billion was
subject to amortization as a component of net periodic expense over the average remaining service period of 9 years for
participating employees expected to receive benefits under the plan. The other 41% of the qualified pension plan's
beginning net actuarial loss balance was treated as indefinitely deferred during 2020. The entire beginning net actuarial
loss of $175 million for the post-retirement benefit plans was treated as indefinitely deferred during 2020.
In 2019, approximately 60% of the qualified pension plan's January 1, 2019 net actuarial loss balance of $3.0 billion was
subject to amortization as a component of net periodic expense over the average remaining service period of 9 years for
participating employees expected to receive benefits under the plan. The other 40% of the qualified pension plan's
beginning net actuarial loss balance was treated as indefinitely deferred during 2019. The entire beginning net actuarial
gain of $7 million for the post-retirement benefit plans was treated as indefinitely deferred during 2019.
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. Plan assets, and thus the expected rate of return on
plan assets, for our post-retirement benefit plans are not significant.
The discount rate for each plan is the rate at which we believe we could effectively settle the plan's benefit obligations as
of the end of the year. We selected each plan's discount rate based on a cash flow matching analysis using hypothetical
yield curves from U.S. corporate bonds rated high quality and projections of the future benefit payments that constitute
the projected benefit obligation for the plans. This process establishes the uniform discount rate that produces the same
present value of the estimated future benefit payments as is generated by discounting each year's benefit payments by a
spot rate applicable to that year. The spot rates used in this process are derived from a yield curve created from yields on
the 60th to 90th percentile of U.S. high quality bonds.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-17
APPENDIX B
Published mortality rates help predict the expected life of plan participants and are based on historical demographic
studies by the Society of Actuaries ("SOA"). The SOA publishes new mortality rates (mortality tables and projection scales)
on a regular basis which reflect updates to projected life expectancies in North America. Historically, we have adopted the
new projection tables immediately after publication. In 2021, we adopted the revised mortality tables and projection scale
released by the SOA, which increased the projected benefit obligation of our benefit plans by approximately $37 million for
the year ended December 31, 2021. The change in the projected benefit obligation of our benefit plans was recognized as
part of the net actuarial loss and is included in accumulated other comprehensive loss, a portion of which is subject to
amortization over the remaining average estimated life of plan participants, which was approximately 8 years as of
December 31, 2021.
The expected rate of return on plan assets is the long-term rate of return we expect to earn on the plans' assets in the
future, net of administrative expenses paid from plan assets. The rate of return is determined by the strategic allocation of
plan assets and the long-term risk and return forecast for each asset class. The forecasts for each asset class are generated
primarily from an analysis of the long-term expectations of various third-party investment management organizations, to
which we then add a factor of 50 basis points to reflect the benefit we expect to result from our active management of the
assets. The expected rate of return on plan assets is reviewed annually and revised, as necessary, to reflect changes in the
financial markets and our investment strategy.
Changes in any of the above factors could significantly impact operating expenses in our consolidated statements of
operations and other comprehensive loss in our consolidated statements of comprehensive income (loss) as well as the
value of the liability and accumulated other comprehensive loss of stockholders' equity on our consolidated
balance sheets.
LOSS CONTINGENCIES AND LITIGATION RESERVES
We are involved in several potentially material legal proceedings, as described in more detail in Note 18—Commitments,
Contingencies and Other Items. On a quarterly basis, we assess potential losses in relation to these and other pending or
threatened tax and legal matters. For matters not related to income taxes, if a loss is considered probable and the amount
can be reasonably estimated, we recognize an expense for the estimated loss. To the extent these estimates are more or
less than the actual liability resulting from the resolution of these matters, our earnings will be increased or decreased
accordingly. If the differences are material, our consolidated financial statements could be materially impacted.
For matters related to income taxes, if we determine in our judgment that the impact of an uncertain tax position is more
likely than not to be sustained upon audit by the relevant taxing authority, then we recognize in our financial statements a
benefit for the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be
recognized if we determine in our judgment that the position has less than a 50% likelihood of being sustained. Though
the validity of any tax position is 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 of the non-U.S. jurisdictions in which we
operate. Because of this, whether a tax position will ultimately be sustained may be uncertain.
INCOME TAXES
Our provision for income taxes includes amounts for tax consequences deferred to future periods. We record deferred
income tax assets and liabilities reflecting future tax consequences attributable to (i) tax credit carryforwards, (ii)
differences between the financial statement carrying value of assets and liabilities and the tax basis of those assets and
liabilities and (iii) tax net operating loss carryforwards, or NOLs. Deferred taxes are computed using enacted tax rates
expected to apply in the year in which the differences are expected to affect taxable income. The effect of a change in tax
rate on deferred income tax assets and liabilities is recognized in earnings in the period that includes the enactment date.
B-18
APPENDIX B
The measurement of deferred taxes often involves the exercise of considerable judgment related to the realization of tax
basis. Our deferred tax assets and liabilities reflect our assessment that tax positions taken in filed tax returns and the
resulting tax basis are more likely than not to be sustained if they are audited by taxing authorities. Assessing tax rates that
we expect to apply and determining the years when the temporary differences are expected to affect taxable income
requires judgment about the future apportionment of our income among the states in which we operate. Any changes in
our practices or judgments involved in the measurement of deferred tax assets and liabilities could materially impact our
financial condition or results of operations.
In connection with recording deferred income tax assets and liabilities, we establish valuation allowances when necessary
to reduce deferred income tax assets to amounts that we believe are more likely than not to be realized. We evaluate our
deferred tax assets quarterly to determine whether adjustments to our valuation allowance are appropriate in light of
changes in facts or circumstances, such as changes in tax law, interactions with taxing authorities and developments in
case law. In making this evaluation, we rely on our recent history of pre-tax earnings. We also rely on our forecasts of future
earnings and the nature and timing of future deductions and benefits represented by the deferred tax assets, all of which
involve the exercise of significant judgment. At December 31, 2021, we established a valuation allowance of $1.6 billion
primarily related to foreign and state NOLs, based on our determination that it was more likely than not that this amount
of these NOLs would expire unused. If forecasts of future earnings and the nature and estimated timing of future
deductions and benefits change in the future, we may determine that existing valuation allowances must be revised or
eliminated or new valuation allowances created, any of which could materially impact our financial condition or results of
operations. See Note 16—Income Taxes.
Liquidity and Capital Resources
OVERVIEW OF SOURCES AND USES OF CASH
We are a holding company that is dependent on the capital resources of our subsidiaries to satisfy our parent company
liquidity requirements. Several of our significant operating subsidiaries have borrowed funds either on a standalone basis
or as part of a separate restricted group with certain of its subsidiaries or affiliates. The terms of the instruments governing
the indebtedness of these borrowers or borrowing groups may restrict our ability to access their accumulated cash. In
addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax, legal and other
considerations.
At December 31, 2021, we held cash and cash equivalents of $394 million, which includes cash and cash equivalents
classified as held for sale, and we also had $2.0 billion of borrowing capacity available under our revolving credit facility. We
typically use our revolving credit facility as a source of liquidity for operating activities and our other cash requirements.
We had approximately $89 million of cash and cash equivalents outside the United States at December 31, 2021. We
currently believe that 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 U.S. taxes. Other than transactions related to our Latin
American divestiture, we do not currently intend to repatriate to the United States any of our foreign cash and cash
equivalents from operating entities.
In response to COVID-19, the U.S. Congress passed the CARES Act on March 27, 2020. Under the CARES Act, we deferred
$134 million of our 2020 payroll taxes, $67 million of which were repaid in 2021, with the remainder to be repaid in
installments over 2022.
Our executive officers and our Board of Directors periodically review our sources and potential uses of cash in connection
with our annual budgeting process. Generally speaking, our principal funding source is cash from operating activities, and
our principal cash requirements include operating expenses, capital expenditures, income taxes, debt repayments,
dividends, periodic securities repurchases, periodic pension contributions and other benefits payments. The impact of the
pending sale of our Latin American and ILEC businesses is further described below.
Based on our current capital allocation objectives, during 2022 we project expending approximately $3.2 billion to
$3.4 billion of capital expenditures and approximately $1.00 per share for cash dividends on our common stock (based on
the assumptions described below under "Dividends").
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-19
APPENDIX B
For the 12 month period ending December 31, 2022, we project that our fixed commitments will include (i) $125 million of
scheduled term loan amortization payments, (ii) $31 million of finance lease and other fixed payments (which includes $2
million of finance lease obligations that have been reclassified as held for sale) and (iii) $1.4 billion of debt maturities.
We will continue to monitor our future sources and uses of cash, and anticipate that we will make adjustments to our
capital allocation strategies when, as and if determined by our Board of Directors. We may also draw on our revolving
credit facility as a source of liquidity for operating activities and to give us additional flexibility to finance our capital
investments, repayments of debt, pension contributions and other cash requirements.
For additional information, see "Risk Factors—Financial Risks" in Item 1A of Part I of our Annual Report on Form 10-K for the
year ended December 31, 2021.
IMPACT OF THE PLANNED DIVESTITURE OF THE LATIN AMERICAN AND ILEC BUSINESSES
As discussed in Note 2—Planned Divestiture of the Latin American and ILEC Businesses, we entered into definitive
agreements to divest our Latin American and ILEC businesses on July 25, 2021 and August 3, 2021, respectively. As further
described elsewhere herein, these transactions are expected to provide us with a substantial amount of cash proceeds
upon closing, but ultimately will reduce our base of income-generating assets that generate our recurring cash from
operating activities that we use to fund our cash requirements.
CAPITAL EXPENDITURES
We incur capital expenditures on an ongoing basis to expand and improve our service offerings, enhance and modernize
our networks and compete effectively in our markets. 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 our expected return on investment. The amount of capital investment is
influenced by, among other things, current and projected demand for our services and products, cash flow generated by
operating activities, cash required for other purposes and regulatory considerations (such as governmentally-mandated
infrastructure buildout requirements).
Our capital expenditures continue to be focused on enhancing network operating efficiencies and supporting new service
developments. For more information on our capital spending, see (i) "—Overview of Sources and Uses of Cash" above, (ii)
"Cash Flow Activities—Investing Activities" below and (iii) Item 1 of Part 1 of our Annual Report on Form 10-K for the year
ended December 31, 2021.
DEBT AND OTHER FINANCING ARRANGEMENTS
Subject to market conditions, we expect to continue to issue debt securities from time to time in the future to refinance a
substantial portion of our maturing debt, including issuing debt securities of certain of our subsidiaries to refinance their
maturing debt to the extent feasible and consistent with our capital allocation strategies. The availability, interest rate and
other terms of any new borrowings will depend on the ratings assigned by credit rating agencies, among other factors.
B-20
As of the date of our Annual Report on Form 10-K for the year ended December 31, 2021, the credit ratings for the senior
secured and unsecured debt of Lumen Technologies, Inc., Level 3 Financing, Inc. and Qwest Corporation were as follows:
APPENDIX B
Borrower
Lumen Technologies, Inc.:
Unsecured
Secured
Level 3 Financing, Inc.:
Unsecured
Secured
Qwest Corporation:
Unsecured
Moody's
Investors
Service, Inc.
Standard &
Poor's
Fitch Ratings
B2
Ba3
Ba3
Ba1
BB-
BBB-
BB
BBB-
BB
BB+
BB
BBB-
Ba2
BBB-
BB
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. See "Risk
Factors—Financial Risks" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 2021, Lumen Technologies had approximately $2.9 billion of federal net operating loss carryforwards
("NOLs"), which for U.S. federal income tax purposes can be used to offset future taxable income. These NOLs are primarily
related to federal NOLs we acquired through the Level 3 acquisition on November 1, 2017 and are subject to limitations
under Section 382 of the Internal Revenue Code and related U.S. Treasury Department regulations. We maintain a Section
382 rights agreement designed to safeguard through late 2023 our ability to use those NOLs. Assuming we can continue
using these NOLs in the amounts projected, we expect to utilize a substantial portion of our NOLs to offset taxable gains
generated by the completion of our pending divestitures. The amounts of our near-term future tax payments will depend
upon many factors, including our future earnings and tax circumstances and the impact of any corporate tax reform or
taxable transactions. Based on current laws and our current assumptions and projections, we estimate our cash income
tax liability related to 2022 will be approximately $100 million. If, as expected, we use a substantial portion of our NOLs in
2022 to offset divestiture-related gains, we anticipate that our cash income tax liabilities will increase substantially in
future periods.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-21
APPENDIX B
We cannot assure you we will be able to use our NOL carryforwards fully. See "Risk Factors—Financial Risks—We may not
be able to fully utilize our NOLs" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended
December 31, 2021.
DIVIDENDS
We currently expect to continue our current practice of paying quarterly cash dividends in respect of our common stock
subject to our Board of Directors' discretion to modify or terminate this practice at any time and for any reason without
prior notice. Our current quarterly common stock dividend rate is $0.25 per share, as approved by our Board of Directors,
which we believe is a payout rate which enables us to balance our multiple objectives of managing and investing in our
business deleveraging our balance sheet and returning a substantial portion of our cash to our shareholders. Assuming
continued authorization by our Board during 2022 at this rate of $0.25 per share, our average total dividend paid each
quarter would be approximately $257 million based on the number of our currently outstanding shares (which figure (i)
assumes no increases or decreases in the number of shares and (ii) includes dividend payments in connection with the
anticipated vesting of currently outstanding equity awards). Dividend payments upon the vesting of equity incentive
awards was $29 million during the year ended December 31, 2021. See "Risk Factors—Business Risks" in Item 1A of Part I of
our Annual Report on Form 10-K for the year ended December 31, 2021.
STOCK REPURCHASES
Effective August 3, 2021, our Board of Directors authorized a 24-month program to repurchase up to an aggregate of $1.0
billion of our outstanding common stock (the "August 2021 stock repurchase program"). During the year ended December
31, 2021, we repurchased 80.9 million shares of our outstanding common stock in the open market for an aggregate
market price of $1.0 billion, or an average purchase price of $12.36 per share, thereby fully exhausting the program
authorized on August 3, 2021. All repurchased common stock has been retired.
REVOLVING FACILITIES AND OTHER DEBT INSTRUMENTS
At December 31, 2021, we had $12.4 billion of outstanding consolidated secured indebtedness, $17.8 billion of outstanding
consolidated unsecured indebtedness (including long-term debt reclassified as liabilities held for sale, but excluding
finance lease obligations, unamortized premiums, net and unamortized debt issuance costs) and $2.0 billion of unused
borrowing capacity under our revolving credit facility, as discussed further below.
Under our amended and restated credit agreement dated as of January 31, 2020 (the “Amended Credit Agreement”), we
maintained at December 31, 2021 (i) a $2.2 billion senior secured revolving credit facility, under which we owed $200 million
as of such date, and (ii) $6.3 billion of senior secured term loan facilities. For additional information, see (i) "—Overview of
Sources and Uses of Cash," and (ii) Note 7—Long-Term Debt and Credit Facilities.
At December 31, 2021, we had $21 million of letters of credit outstanding under our $225 million uncommitted letter of
credit facility. Additionally, under separate facilities maintained by one of our affiliates, we had outstanding letters of credit,
or other similar obligations, of approximately $67 million as of December 31, 2021, of which $5 million was collateralized by
cash that is reflected on our consolidated balance sheets as restricted cash.
B-22
APPENDIX B
In addition to its indebtedness under our Amended Credit Agreement, Lumen Technologies is indebted under its
outstanding senior notes, and several of its subsidiaries are indebted under separate credit facilities or senior notes. For
information on the terms and conditions of other debt instruments of ours and our subsidiaries, including financial and
operating covenants, see (i) Note 7—Long-Term Debt and Credit Facilities and (ii) "—Other Matters" below.
PENSION AND POST-RETIREMENT BENEFIT OBLIGATIONS
We are subject to material obligations under our existing defined benefit pension plans and post-retirement benefit plans.
At December 31, 2021, the accounting unfunded status of our qualified and non-qualified defined benefit pension plans
and our qualified post-retirement benefit plans was $1.2 billion and $2.8 billion, respectively. For additional information
about our pension and post-retirement benefit arrangements, see "Critical Accounting Policies and Estimates—Pension
and Post-retirement Benefits" in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021
and Note 11—Employee Benefits.
Benefits paid by our qualified pension plan are paid through a trust that holds all of the plan's assets. Based on current
laws and circumstances, we do not expect any contributions to be required for our qualified pension plan during 2022. The
amount of required contributions to our qualified pension plan in 2023 and beyond will depend on a variety of factors,
most of which are beyond our control, including earnings on plan investments, prevailing interest rates, demographic
experience, changes in plan benefits and changes in funding laws and regulations. We occasionally make voluntary
contributions to our plans in addition to required contributions and reserve the right to do so in the future. We last made a
voluntary contribution to the trust for our qualified pension plan during 2018. We currently do not expect to make a
voluntary contribution to the trust for our qualified pension plan in 2022.
Substantially all of our post-retirement health care and life insurance benefits plans are unfunded and are paid by us with
available cash. As described further in Note 11—Employee Benefits, aggregate benefits paid by us under these plans (net of
participant contributions and direct subsidy receipts) were $203 million, $211 million and $241 million for the years ended
December 31, 2021, 2020 and 2019, respectively. For additional information on our expected future benefits payments for
our post-retirement benefit plans, see Note 11—Employee Benefits.
For 2021, our expected annual long-term rates of return on the pension plan assets and post-retirement health care and
life insurance benefit plan assets, net of administrative expenses, were 5.5% and 4.0%, respectively. For 2022, our expected
annual long-term rates of return on these assets are 5.5% and 4.0%, respectively. However, actual returns could be
substantially different.
Our pension plan contains provisions that allow us, from time to time, to offer lump sum payment options to certain
former employees in settlement of their future retirement benefits. We record an accounting settlement charge,
consisting of the recognition of certain deferred costs of the pension plan, associated with these lump sum payments only
if, in the aggregate, they exceed the sum of the annual service and interest costs for the plan’s net periodic pension benefit
cost, which represents the settlement accounting threshold. As of December 31, 2021, lump sum pension settlement
payments exceeded the settlement threshold. As a result, for the year ended December 31, 2021 we recognized a non-cash
settlement charge of $383 million to accelerate the recognition of a portion of the previously unrecognized actuarial losses
in the qualified pension plan, which has been allocated and reflected in other expense, net in our consolidated statement
of operations for the year ended December 31, 2021. The amount of any future non-cash settlement charges after 2021 will
be dependent on several factors, including the total amount of our future lump sum benefit payments.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-23
APPENDIX B
On October 19, 2021, we, as sponsor of the Combined Pension Plan, along with the Plan’s independent fiduciary, entered
into an agreement committing the Plan to use a portion of its plan assets to purchase an annuity from an insurance
company (the "Insurer") to transfer $1.4 billion of the Plan’s pension liabilities. This agreement irrevocably transferred to the
Insurer future Plan benefit obligations for approximately 22,600 U.S. Lumen participants ("Transferred Participants")
effective on December 31, 2021. This annuity transaction was funded entirely by existing Plan assets and is intended to
provide equivalent benefits to the Transferred Participants. The Insurer is committed to assume responsibility for
administrative and customer service support, including distribution of payments to the Transferred Participants.
As of January 1, 2022, a new pension plan (the "Lumen Pension Plan") was spun off from the Combined Pension Plan in
anticipation of the pending sale of the ILEC business, as described further in Note 2—Planned Divestiture of the Latin
American and ILEC Businesses. See additional information on this subsequent event in Note 11—Employee Benefits for
more information.
FUTURE CONTRACTUAL OBLIGATIONS
Our estimated future obligations as of December 31, 2021 include both current and long term obligations. These amounts
include liabilities that have been reclassified as liabilities held for sale on our consolidated balance sheet. We have a
current obligation of $1.6 billion and a long-term obligation of $29.0 billion of long-term debt (excluding unamortized
premiums, net and unamortized debt issuance costs). Under our operating leases, we have a current obligation of $464
million and a long-term obligation of $1.5 billion. We have current obligations related to right-of-way agreements and
purchase commitments of $660 million and a long-term obligation of $2.0 billion. Additionally, we have a current
obligation for asset retirement obligation of $22 million and a long-term obligation of $172 million. Finally, our pension and
post-retirement benefit plans have an unfunded benefit obligation, of which $216 million is classified as current and $3.8
billion is classified as long-term.
FEDERAL BROADBAND SUPPORT PROGRAMS
Since 2015, we have been receiving approximately $500 million annually through Phase II of the CAF, a program that
ended on December 31, 2021. In connection with the CAF funding, we were required to meet certain specified
infrastructure buildout requirements in 33 states by the end of 2021, which required substantial capital expenditures.
In early 2020, the FCC created the RDOF, which is a new federal support program designed to replace the CAF Phase II
program. On December 7, 2020, the FCC allocated in its RDOF Phase I auction $9.2 billion in support payments over 10
years to deploy high speed broadband to over 5.2 million unserved locations. We won bids for RDOF Phase I support
payments of $26 million, annually. We expect our support payments under the RDOF Phase I program will begin soon
after our anticipated receipt of the FCC's approval of our pending application. Assuming we timely complete our pending
divestiture of the ILEC business assets on the terms described herein, we expect a portion of these payments will accrue to
the purchaser of that business. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.
For additional information on these programs, see (i) "Business—Regulation of Our Business" in Item 1 of Part I of our
Annual Report on Form 10-K for the year ended December 31, 2021 and (ii) "Risk Factors—Financial Risks" in Item 1A of Part
I of our Annual Report on Form 10-K for the year ended December 31, 2021.
Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed
to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt
"net neutrality" rules similar to those adopted under the Obama Administration. In November 2021, the U.S. Congress
enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through
federally funded state grants. As of the date of our Annual Report on Form 10-K for the year ended December 31, 2021, the
U.S. Department of Commerce is still developing guidance regarding these grants, so it is premature to speculate on the
potential impact of this legislation on us.
B-24
APPENDIX B
CASH FLOW ACTIVITIES
The following tables summarize our consolidated cash flow activities for the year ended December 31, 2021 and 2020. For
information regarding cash flow activities for the year ended December 31, 2019, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of our Annual Report Form 10-K for the year
ended December 31, 2020.
Net cash provided by operating activities
$
Net cash used in investing activities
Net cash used in financing activities
Years Ended December 31,
2021
2020
(Dollars in millions)
6,501
(2,712)
(3,807)
6,524
(3,564)
(4,250)
Increase /
(Decrease)
(23)
(852)
(443)
Operating Activities
Net cash provided by operating activities decreased by $23 million for the year ended December 31, 2021 as compared to
the year ended December 31, 2020 primarily due to decreased collections on accounts receivable, partially offset by
decreased payments on accounts payable. Cash provided by operating activities is subject to variability period over period
as a result of timing differences, including with respect to the collection of receivables and payments of interest expense,
accounts payable and bonuses.
For additional information about our operating results, see "Results of Operations" above.
Investing Activities
Net cash used in investing activities decreased by $852 million for the year ended December 31, 2021 as compared to the
year ended December 31, 2020 primarily due to a decrease in capital expenditures.
Financing Activities
Net cash used in financing activities decreased by $443 million for the year ended December 31, 2021 as compared to the
year ended December 31, 2020 primarily due to lower payments of long-term debt and proceeds from our revolving line of
credit, partially offset by lower net proceeds from issuance of long-term debt and repurchases of common stock.
See Note 7—Long-Term Debt and Credit Facilities for additional information on our outstanding debt securities.
OTHER MATTERS
We have cash management and loan arrangements with a majority of our income-generating subsidiaries, in which a
substantial portion of the aggregate cash of those subsidiaries' is periodically advanced or loaned to us or our service
company affiliate. Although we periodically repay these advances to fund the subsidiaries' cash requirements throughout
the year, at any given point in time we may owe a substantial sum to our subsidiaries under these arrangements. In
accordance with generally accepted accounting principles, these arrangements are reflected in the balance sheets of our
subsidiaries, but are eliminated in consolidation and therefore not recognized on our consolidated balance sheets.
We also are involved in various legal proceedings that could substantially impact our financial position. See Note 18—
Commitments, Contingencies and Other Items for additional information.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-25
APPENDIX B
Market Risk
As of December 31, 2021, we are exposed to market risk from changes in interest rates on our variable rate long-term debt
obligations and fluctuations in certain foreign currencies.
Management periodically reviews our exposure to interest rate fluctuations and periodically implements strategies to
manage the exposure. From time to time, we have used derivative instruments to (i) swap our exposure to variable interest
rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. We have
established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative
instrument activities. As of December 31, 2021, we did not hold or issue derivative financial instruments for trading or
speculative purposes.
In 2019, we executed swap transactions that reduced our exposure to floating rates with respect to $4.0 billion principal
amount of floating rate debt, maturing on March 31, 2022 and June 30, 2022. See Note 15—Derivative Financial Instruments
to our consolidated financial statements in Item 1 of Part I of our Annual Report on Form 10-K for the year ended
December 31, 2021 for additional disclosure regarding our hedging arrangements.
As of December 31, 2021, we had approximately $9.8 billion floating rate debt potentially subject to LIBOR, $4.0 billion of
which was subject to the above-described hedging arrangements. A hypothetical increase of 100 basis points in LIBOR
relating to our $5.8 billion of unhedged floating rate debt would, among other things, decrease our annual pre-tax
earnings by approximately $58 million. Additionally, our credit agreements contain language about a possible change
from LIBOR to an alternative index.
We conduct a portion of our business in currencies other than the U.S. dollar, the currency in which our consolidated
financial statements are reported. Our European subsidiaries and certain Latin American subsidiaries use the local
currency as their functional currency, as the majority of their revenue and purchases are transacted in their local
currencies. Certain Latin American countries previously designated as highly inflationary economies use the U.S. dollar as
their functional currency. Although we continue to evaluate strategies to mitigate risks related to the effect of fluctuations
in currency exchange rates, we will likely recognize gains or losses from international transactions. Accordingly, changes in
foreign currency rates relative to the U.S. dollar could adversely impact our operating results.
Certain shortcomings are inherent in the method of analysis presented in the computation of exposures to market risks.
Actual values may differ materially from those disclosed by us from time to time if market conditions vary from the
assumptions used in the analyses performed. These analyses only incorporate the risk exposures that existed at
December 31, 2021.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risk"
in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021 is incorporated herein
by reference.
B-26
APPENDIX B
Item 8. Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
Lumen Technologies, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Lumen Technologies, Inc. and subsidiaries (the
Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income
(loss), cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2021, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the
results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated February 24, 2022 expressed an unqualified opinion on the effectiveness
of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates
to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Testing of revenue
As discussed in Note 4 to the consolidated financial statements, the Company recorded $19.7 billion of operating
revenues for the year ended December 31, 2021. The processing and recording of revenue are reliant upon multiple
information technology (IT) systems.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-27
APPENDIX B
We identified the evaluation of the sufficiency of audit evidence over revenue as a critical audit matter. Complex
auditor judgment was required in evaluating the sufficiency of audit evidence over revenue due to the large volume of
data and the number and complexity of the revenue accounting systems. Specialized skills and knowledge were
needed to test the IT systems used for the processing and recording of revenue.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor
judgment to determine the nature and extent of procedures to be performed over the processing and recording of
revenue, including the IT systems tested. We evaluated the design and tested the operating effectiveness of certain
internal controls related to the processing and recording of revenue. This included manual and automated controls
over the IT systems used for the processing and recording of revenue. For a selection of transactions, we compared the
amount of revenue recorded to a combination of Company internal data, executed contracts, and other relevant third-
party data. In addition, we involved IT professionals with specialized skills and knowledge who assisted in the design
and performance of audit procedures related to certain IT systems used by the Company for the processing and
recording of revenue. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures
performed, including the relevance and reliability of evidence obtained.
/s/ KPMG LLP
We have served as the Company’s auditor since 1977.
Denver, Colorado
February 24, 2022
B-28
APPENDIX B
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors Lumen Technologies, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Lumen Technologies, Inc. and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related
consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for each of the
years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial
statements), and our report dated February 24, 2022 expressed an unqualified opinion on those consolidated
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ KPMG LLP
Denver, Colorado
February 24, 2022
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-29
APPENDIX B
Lumen Technologies, Inc.
Consolidated Statements of Operations
OPERATING REVENUE
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)
Selling, general and administrative
Depreciation and amortization
Goodwill impairment
Total operating expenses
OPERATING INCOME (LOSS)
OTHER EXPENSE
Interest expense
Other expense, net
Total other expense, net
INCOME (LOSS) BEFORE INCOME TAXES
Income tax expense
NET INCOME (LOSS)
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
BASIC
DILUTED
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC
DILUTED
See accompanying notes to consolidated financial statements.
Years Ended December 31,
2021
2020
2019
(Dollars in millions, except per share
amounts, and shares in thousands)
$
19,687
20,712
21,458
8,488
2,895
4,019
—
15,402
4,285
(1,522)
(62)
(1,584)
2,701
668
2,033
1.92
1.91
8,934
3,464
4,710
2,642
19,750
962
(1,668)
(76)
(1,744)
(782)
450
(1,232)
(1.14)
(1.14)
9,134
3,715
4,829
6,506
24,184
(2,726)
(2,021)
(19)
(2,040)
(4,766)
503
(5,269)
(4.92)
(4.92)
1,059,541
1,079,130
1,071,441
1,066,778
1,079,130
1,071,441
$
$
$
B-30
Lumen Technologies, Inc.
Consolidated Statements of Comprehensive Income (Loss)
APPENDIX B
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
NET INCOME (LOSS)
$
2,033
(1,232)
(5,269)
OTHER COMPREHENSIVE INCOME (LOSS):
Items related to employee benefit plans:
Change in net actuarial loss, net of $(134), $26, and $60 tax
Settlement charges recognized in net income (loss), net of $(93),
$— and $— tax
Change in net prior service cost, net of $(5), $(12), and $(4) tax
Curtailment loss, net of $—, $(1), and $— tax
Reclassification of realized loss on interest rate swaps to net income
(loss), net of $(20), $(16), and $— tax
Unrealized holding loss on interest rate swaps, net of $—, $29, and
$12 tax
Foreign currency translation adjustment, net of $30, $(43), and $(6)
tax
Other comprehensive income (loss)
424
290
14
—
63
(1)
(135)
655
(92)
(195)
—
33
3
46
(86)
(37)
(133)
—
13
—
2
(41)
2
(219)
COMPREHENSIVE INCOME (LOSS)
$
2,688
(1,365)
(5,488)
See accompanying notes to consolidated financial statements.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-31
APPENDIX B
Lumen Technologies, Inc.
Consolidated Balance Sheets
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, less allowance of $114 and $191
Assets held for sale
Other
Total current assets
As of December 31,
2021
2020
(Dollars in millions
and shares in thousands)
$
354
1,544
8,809
829
11,536
406
1,962
—
808
3,176
Property, plant and equipment, net of accumulated depreciation of $19,271 and $31,596
20,895
26,338
GOODWILL AND OTHER ASSETS
Goodwill
Other intangible assets, net
Other, net
Total goodwill and other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
Accounts payable
Accrued expenses and other liabilities
Salaries and benefits
Income and other taxes
Current operating lease liabilities
Interest
Other
Liabilities held for sale
Current portion of deferred revenue
Total current liabilities
LONG-TERM DEBT
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net
Benefit plan obligations, net
Other
Total deferred credits and other liabilities
COMMITMENTS AND CONTINGENCIES (Note 18)
STOCKHOLDERS' EQUITY
$
$
15,986
6,970
2,606
25,562
57,993
1,554
758
860
228
385
278
232
2,257
617
7,169
27,428
4,049
3,710
3,797
11,556
18,870
8,219
2,791
29,880
59,394
2,427
1,134
1,008
314
379
291
328
—
753
6,634
29,410
3,342
4,556
4,290
12,188
Preferred stock — non-redeemable, $25.00 par value, authorized 2,000 and 2,000 shares, issued
and outstanding 7 and 7 shares
—
—
Common stock, $1.00 par value, authorized 2,200,000 and 2,200,000 shares, issued and
outstanding 1,023,512 and 1,096,921 shares
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
1,024
18,972
(2,158)
(5,998)
11,840
57,993
1,097
20,909
(2,813)
(8,031)
11,162
59,394
See accompanying notes to consolidated financial statements.
B-32
Lumen Technologies, Inc.
Consolidated Statements of Cash Flows
OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Goodwill impairment
Deferred income taxes
Provision for uncollectible accounts
Net (gain) loss on early retirement and modification of debt
Stock-based compensation
Changes in current assets and liabilities:
Accounts receivable
Accounts payable
Accrued income and other taxes
Other current assets and liabilities, net
Retirement benefits
Changes in other noncurrent assets and liabilities, net
Other, net
APPENDIX B
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
2,033
(1,232)
(5,269)
4,019
—
598
105
(8)
120
(8)
(261)
(69)
(353)
163
283
(121)
4,710
2,642
366
189
105
175
115
(543)
27
(262)
(111)
246
97
4,829
6,506
440
145
(72)
162
(5)
(261)
20
(32)
(12)
245
(16)
Net cash provided by operating activities
6,501
6,524
6,680
INVESTING ACTIVITIES
Capital expenditures
Proceeds from sale of property, plant and equipment and other assets
Other, net
Net cash used in investing activities
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt
Payments of long-term debt
Net proceeds from (payments on) revolving line of credit
Dividends paid
Repurchases of common stock
Other, net
Net cash used in financing activities
Net (decrease) 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
(2,900)
(3,729)
(3,628)
135
53
153
12
93
(35)
(2,712)
(3,564)
(3,570)
1,881
4,361
3,707
(3,598)
(7,315)
(4,157)
50
(100)
(300)
(1,087)
(1,109)
(1,100)
(1,000)
(53)
—
(87)
—
(61)
(3,807)
(4,250)
(1,911)
(18)
(1,290)
427
409
$
1,717
427
1,199
518
1,717
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-33
APPENDIX B
Supplemental cash flow information:
Income taxes (paid) refunded, net
Interest paid (net of capitalized interest of $53, $75 and $72)
Supplemental non-cash information regarding investing activities:
Sale of property, plant and equipment in exchange for note receivable
Supplemental non-cash information regarding financing activities:
Purchase of software subscription in exchange for installment debt
Cash, cash equivalents and restricted cash:
Cash and cash equivalents
Cash and cash equivalents included in Assets held for sale
Restricted cash included in Other current assets
Restricted cash included in Other, net noncurrent assets
Total
See accompanying notes to consolidated financial statements.
$
$
(112)
28
34
(1,487)
(1,627)
(2,028)
56
77
—
—
—
—
$
354
406
1,690
40
2
13
—
3
18
—
3
24
$
409
427
1,717
B-34
Lumen Technologies, Inc.
Consolidated Statements of Stockholders' Equity
COMMON STOCK
Balance at beginning of period
Issuance of common stock through dividend reinvestment, incentive and benefit
plans
Repurchases of common stock
Balance at end of period
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period
Repurchases of common stock
Shares withheld to satisfy tax withholdings
Stock-based compensation and other, net
Dividends declared
Balance at end of period
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period
Other comprehensive income (loss)
Balance at end of period
ACCUMULATED DEFICIT
Balance at beginning of period
Net income (loss)
Cumulative effect of adoption of ASU 2016-13, Measurement of Credit Losses,
net of $(2) tax
Cumulative effect of adoption of ASU 2016-02, Leases, net of $(37) tax
Other
Balance at end of period
TOTAL STOCKHOLDERS' EQUITY
DIVIDENDS DECLARED PER COMMON SHARE
See accompanying notes to consolidated financial statements.
APPENDIX B
Years Ended December 31,
2021
2020
2019
(Dollars in millions except
per share amounts)
$
1,097
1,090
1,080
8
(81)
7
—
10
—
1,024
1,097
1,090
20,909
21,874
22,852
(919)
(45)
122
—
(40)
187
—
(37)
163
(1,095)
(1,112)
(1,104)
18,972
20,909
21,874
(2,813)
(2,680)
(2,461)
655
(133)
(219)
(2,158)
(2,813)
(2,680)
(8,031)
2,033
(6,814)
(1,232)
(1,643)
(5,269)
—
—
—
9
—
6
—
96
2
(5,998)
11,840
1.00
$
$
(8,031)
(6,814)
11,162
1.00
13,470
1.00
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-35
APPENDIX B
Lumen Technologies, Inc.
Notes to Consolidated Financial Statements
References in the Notes to "Lumen Technologies" or "Lumen," "we," "us," the "Company," and "our" refer to Lumen
Technologies, Inc. and its consolidated subsidiaries, unless the context otherwise requires. References in the Notes to
"Level 3" refer to Level 3 Parent, LLC and its predecessor, Level 3 Communications, Inc., which we acquired on
November 1, 2017.
(1) BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
We are an international facilities-based technology and communications company engaged primarily in providing a broad
array of integrated products and services to our business and mass markets customers. Our specific products and services
are detailed in Note 4—Revenue Recognition.
Basis of Presentation
The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries in which
we have a controlling interest. Intercompany amounts and transactions with our consolidated subsidiaries have been
eliminated. In connection with our acquisition of Level 3 in 2017, we acquired its deconsolidated Venezuela subsidiary and
due to exchange restrictions and other conditions have assigned no value to this subsidiary's assets. Additionally, we have
excluded this subsidiary from our consolidated financial statements.
To simplify the overall presentation of our consolidated financial statements, we report immaterial amounts attributable to
noncontrolling interests in certain of our subsidiaries as follows: (i) income attributable to noncontrolling interests in other
expense, net, (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable
to noncontrolling interests in other, net financing activities.
We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of
our revenue and expenses in our segment reporting for 2021, 2020 and 2019. See Note 17—Segment Information for
additional information. These changes had no impact on total operating revenue, total operating expenses or net income
(loss) for any period.
Operating Expenses
Our current definitions of operating expenses are as follows:
• Cost of services and products (exclusive of depreciation and amortization) are expenses incurred in providing products
and services to our customers. These expenses include: employee-related expenses directly attributable to operating
and maintaining our network (such as salaries, wages, benefits and professional fees); facilities expenses (which include
third-party telecommunications expenses we incur for using other carriers' networks to provide services to our
customers); rents and utilities expenses; equipment sales expenses (such as data integration and modem expenses);
and other expenses directly related to our operations; and
•
Selling, general and administrative expenses are corporate overhead and other operating expenses. These expenses
include: employee-related expenses (such as salaries, wages, internal commissions, benefits and professional fees)
directly attributable to selling products or services and employee-related expenses for administrative functions;
marketing and advertising; property and other operating taxes and fees; external commissions; litigation expenses
associated with general matters; bad debt expense; and other selling, general and administrative expenses.
These expense classifications may not be comparable to those of other companies.
B-36
APPENDIX B
Summary of Significant Accounting Policies
USE OF ESTIMATES
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.
These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the
estimates, judgments and assumptions we make when accounting for specific items and matters are reasonable, based
on information available at the time they are made. These estimates, judgments and assumptions can materially affect the
reported amounts of assets, liabilities and components of stockholders' equity as of the dates of the consolidated balance
sheets, as well as the reported amounts of revenue, expenses and components of cash flows during the periods presented
in our other consolidated financial statements. We also make estimates in our assessments of potential losses in relation
to threatened or pending tax and legal matters. See Note 16—Income Taxes and Note 18—Commitments, Contingencies
and Other Items for additional information.
For matters not related to income taxes, if a loss contingency is considered probable and the amount can be reasonably
estimated, we recognize an expense for the estimated loss. If we have the potential to recover a portion of the estimated
loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is also
deemed probable.
For matters related to income taxes, if we determine that the impact of an uncertain tax position is more likely than not to
be sustained upon audit by the relevant taxing authority, then we recognize a benefit for the largest amount that is more
likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50%
likelihood of being sustained. Interest is recognized on the amount of unrecognized benefit from uncertain tax positions.
For all of these and other matters, actual results could differ materially from our estimates.
ASSETS HELD FOR SALE
We classify assets and related liabilities as held for sale when: (i) management has committed to a plan to sell the assets,
(ii) the net assets are available for immediate sale, (iii) there is an active program to locate a buyer and (iv) the sale and
transfer of the net assets is probable within one year. Assets and liabilities held for sale are presented separately on our
consolidated balance sheets with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of
cost or fair value, less costs to sell. Depreciation of property, plant and equipment and amortization of finite-lived
intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale. For each period
that assets are classified as being held for sale, they are tested for recoverability. Unless otherwise specified, the amounts
and information presented in the notes do not include assets and liabilities that have been reclassified as held for sale as of
December 31, 2021. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for additional information.
REVENUE RECOGNITION
We earn most of our consolidated revenue from contracts with customers, primarily through the provision of
communications and other services. Revenue from contracts with customers is accounted for under Accounting
Standards Codification ("ASC") 606. We also earn revenue from leasing arrangements (primarily fiber capacity and
colocation agreements) and governmental subsidy payments, which are not accounted for under ASC 606.
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that
reflects the consideration we expect to be entitled to receive in exchange for those goods or services. Revenue is
recognized based on the following five-step model:
•
•
Identification of the contract with a customer;
Identification of the performance obligations in the contract;
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-37
APPENDIX B
• Determination of the transaction price;
• Allocation of the transaction price to the performance obligations in the contract; and
• Recognition of revenue when, or as, we satisfy a performance obligation.
We provide an array of communications services to business and residential customers, including local voice, VPN,
Ethernet, data, broadband, private line (including special access), network access, transport, voice, information technology,
video and other ancillary services. We provide these services to a wide range of businesses, including global, enterprise,
wholesale, government, and small and medium business customers. Certain contracts also include the sale of equipment,
which is not significant to our business.
We recognize revenue for services when we provide the applicable service or when control of a product is transferred.
Recognition of certain payments received in advance of services being provided is deferred. These advance payments may
include certain activation and certain installation charges. If the activation and installation charges are not separate
performance obligations, we recognize them as revenue over the actual or expected contract term using historical
experience, which ranges from one to five years depending on the service. In most cases, termination fees or other fees on
existing contracts that are negotiated in conjunction with new contracts are deferred and recognized over the new
contract term.
For access services, we generally bill fixed monthly charges one month in advance to customers and recognize revenue as
service is provided over the contract term in alignment with the customer's receipt of service. For usage and other
ancillary services, we generally bill in arrears and recognize revenue as usage or delivery occurs. In most cases, the amount
invoiced for our service offerings constitutes the price that would be billed on a standalone basis.
In certain cases, customers may be permitted to modify their contracts. We evaluate the change in scope or price to
identify whether the modification should be treated as a separate contract, whether the modification is a termination of
the existing contract and creation of a new contract, or if it is a change to the existing contract.
Customer contracts are evaluated to determine whether the performance obligations are separable. If the performance
obligations are deemed separable and separate earnings processes exist, the total transaction price that we expect to
receive with the customer is allocated to each performance obligation based on its relative standalone selling price. The
revenue associated with each performance obligation is then recognized as earned.
We periodically sell optical capacity on our network. These transactions are generally structured as indefeasible rights of
use, commonly referred to as IRUs, which are the exclusive right to use a specified amount of capacity or fiber for a
specified term, typically 10 to 20 years. In most cases, we account for the cash consideration received on transfers of optical
capacity as ASC 606 revenue which is adjusted for the time value of money and is recognized ratably over the term of the
agreement. Cash consideration received on transfers of dark fiber is accounted for as non-ASC 606 lease revenue, which
we also recognize ratably over the term of the agreement. We do not recognize revenue on any contemporaneous
exchanges of our optical capacity assets for other non-owned optical capacity assets.
In connection with offering products and services provided to the end user by third-party vendors, we review the
relationship between us, the vendor and the end user to assess whether revenue should be reported on a gross or net
basis. In assessing whether revenue should be reported on a gross or net basis, we consider whether we act as a principal
in the transaction and control the goods and services used to fulfill the performance obligations associated with
the transaction.
We have service level commitments pursuant to contracts with certain of our customers. To the extent that we determine
that such service levels were not achieved or may not have been achieved, we estimate the amount of credits to be issued
and record a corresponding reduction to revenue in the period that the service level commitment was not met.
B-38
APPENDIX B
Customer payments are made based on billing schedules included in our customer contracts, which is typically on a
monthly basis.
We defer (or capitalize) incremental contract acquisition and fulfillment costs and recognize (or amortize) such costs over
the average contract life. Our deferred contract costs for our customers have average amortization periods of
approximately 30 months for mass markets customers and 29 months for business customers. These deferred costs are
periodically monitored to reflect any significant change in assumptions.
See Note 4—Revenue Recognition for additional information.
ADVERTISING COSTS
Costs related to advertising are expensed as incurred and included in selling, general and administrative expenses in our
consolidated statements of operations. Our advertising expense was $56 million, $56 million and $62 million for the years
ended December 31, 2021, 2020 and 2019, respectively.
LEGAL COSTS
In the normal course of our business, we incur costs to hire and retain external legal counsel to advise us on regulatory,
litigation and other matters. Subject to certain exceptions, we expense these costs as the related services are received.
INCOME TAXES
We file a consolidated federal income tax return with our eligible subsidiaries. The provision for income taxes reflects taxes
currently payable, tax consequences deferred to future periods and adjustments to our liabilities for uncertain tax
positions. We record deferred income tax assets and liabilities reflecting future tax consequences attributable to tax net
operating loss carryforwards ("NOLs"), tax credit carryforwards and differences between the financial statement carrying
value of assets and liabilities and the tax basis of those assets and liabilities. Deferred taxes are computed using enacted
tax rates expected to apply in the year in which the differences are expected to affect taxable income. The effect on
deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the
enactment date.
We establish valuation allowances when necessary to reduce deferred income tax assets to the amounts that we believe
are more likely than not to be recovered. Each quarter we evaluate the need to retain or adjust each valuation allowance
on our deferred tax assets. See Note 16—Income Taxes for additional information.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments that are readily convertible into cash and are not subject to
significant risk from fluctuations in interest rates. As a result, the value at which cash and cash equivalents are reported in
our consolidated financial statements approximates their fair value. In evaluating investments for classification as cash
equivalents, we require that individual securities have original maturities of ninety days or less and that individual
investment funds have dollar-weighted average maturities of ninety days or less. To preserve capital and maintain
liquidity, we invest with financial institutions we deem to be of sound financial condition and in high quality and relatively
risk-free investment products. Our cash investment policy limits the concentration of investments with specific financial
institutions or among certain products and includes criteria related to credit worthiness of any particular
financial institution.
Book overdrafts occur when we have issued checks but they have not yet been presented to our controlled disbursement
bank accounts for payment. Disbursement bank accounts allow us to delay funding of issued checks until the checks are
presented for payment. Until the issued checks are presented for payment, the book overdrafts are included in accounts
payable on our consolidated balance sheets. This activity is included in the operating activities section in our consolidated
statements of cash flows. There were no book overdrafts included in accounts payable at December 31, 2021 or 2020.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-39
APPENDIX B
RESTRICTED CASH
Restricted cash consists primarily of cash and investments that collateralize our outstanding letters of credit and certain
performance and operating obligations. Restricted cash and securities are recorded as current or non-current assets in the
consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists.
Restricted securities are stated at cost which approximated their fair value as of December 31, 2021 and 2020.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Accounts receivable are recognized based upon the amount due from customers for the services provided or at cost for
purchased and other receivables, less an allowance for credit losses. We use a loss rate method to estimate our allowance
for credit losses. For more information on our methodology for estimating our allowance for credit losses, see Note 6—
Credit Losses on Financial Instruments.
We generally consider our accounts past due if they are outstanding over 30 days. Our past due accounts are written off
against our allowance for credit losses when collection is considered to be not probable. Any recoveries of accounts
previously written off are generally recognized as a reduction in bad debt expense in the period received. The carrying
value of accounts receivable net of the allowance for credit losses approximates fair value. Accounts receivable balances
acquired in a business combination are recorded at fair value for all balances receivable at the acquisition date and at the
invoiced amount for those amounts invoiced after the acquisition date.
PROPERTY, PLANT AND EQUIPMENT
We record property, plant and equipment acquired in connection with our acquisitions based on its estimated fair value as
of its acquisition date plus the estimated value of any associated legally or contractually required retirement obligations.
We record purchased and constructed property, plant and equipment at cost, plus the estimated value of any associated
legally or contractually required retirement obligations. We depreciate the majority of our property, plant and equipment
using the straight-line group method over the estimated useful lives of groups of assets, but depreciate certain of our
assets using the straight-line method over the estimated useful lives of the specific asset. Under the straight-line group
method, assets dedicated to providing telecommunications services (which comprise the majority of our property, plant
and equipment) that have similar physical characteristics, use and expected useful lives are pooled for purposes of
depreciation and tracking. The equal life group procedure is used to establish each pool's average remaining useful life.
Generally, under the straight-line group method, when an asset is sold or retired in the course of normal business
activities, the cost is deducted from property, plant and equipment and charged to accumulated depreciation without
recognition of a gain or loss. A gain or loss is recognized in our consolidated statements of operations only if a disposal is
unusual. Leasehold improvements are amortized over the shorter of the useful lives of the assets or the expected lease
term. Expenditures for maintenance and repairs are expensed as incurred. Interest is capitalized during the construction
phase of network and other internal-use capital projects. Employee-related costs for construction of network and other
internal use assets are also capitalized during the construction phase. Property, plant and equipment supplies used
internally are carried at average cost, except for significant individual items which are carried at actual cost.
We perform annual internal reviews to evaluate the reasonableness of the depreciable lives for our property, plant and
equipment. Our reviews utilize models that take into account actual usage, physical wear and tear, replacement history,
assumptions about technology evolution and, in certain instances, actuarially determined probabilities to estimate the
remaining useful life of our asset base. Our remaining useful life assessments evaluate the possible loss in service value of
assets that may precede the physical retirement. Assets shared among many customers may lose service value as those
customers reduce their use of the asset. However, the asset is not retired until all customers no longer utilize the asset and
we determine there is no alternative use for the asset.
B-40
APPENDIX B
We have asset retirement obligations associated with the legally or contractually required removal of a limited group of
property, plant and equipment assets from leased properties and the disposal of certain hazardous materials present in
our owned properties. When an asset retirement obligation is identified, usually in association with the acquisition of the
asset, we record the fair value of the obligation as a liability. The fair value of the obligation is also capitalized as property,
plant and equipment and then amortized over the estimated remaining useful life of the associated asset. Where the
removal obligation is not legally binding, the net cost to remove assets is expensed in the period in which the costs are
actually incurred.
We review long-lived tangible assets for impairment whenever facts and circumstances indicate that the carrying
amounts of the assets may not be recoverable. For assessment purposes, long-lived assets are grouped with other assets
and liabilities at the lowest identifiable level for which we generate cash flows independently of other groups of assets and
liabilities, absent a material change in operations. An impairment loss is recognized only if the carrying amount of the
asset group is not recoverable and exceeds its estimated fair value. Recoverability of the asset group to be held and used is
assessed by comparing the carrying amount of the asset group to the estimated undiscounted future net cash flows
expected to be generated by the asset group. If the asset group's carrying value is not recoverable, we recognize an
impairment charge for the amount by which the carrying amount of the asset group exceeds its estimated fair value.
GOODWILL, CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLE ASSETS
Intangible assets arising from business combinations, such as goodwill, customer relationships, capitalized software,
trademarks and trade names, are initially recorded at estimated fair value. We amortize customer relationships primarily
over an estimated life of 7 to 14 years, using the straight-line method, depending on the type of customer. Certain
customer relationship intangible assets became fully amortized at the end of the first quarter 2021 using the sum-of-years-
digits method, which is no longer used. We amortize capitalized software using the straight-line method primarily over
estimated lives ranging up to 7 years. We amortize our other intangible assets using the straight-line method over an
estimated life of 4 to 20 years. Other intangible assets not arising from business combinations are initially recorded at cost.
Where there are no legal, regulatory, contractual or other factors that would reasonably limit the useful life of an intangible
asset, we classify the intangible asset as indefinite-lived and such intangible assets are not amortized.
Internally used software, whether purchased or developed by us, is capitalized and amortized using the straight-line
method over its estimated useful life. We have capitalized certain costs associated with software such as costs of
employees devoted to software development and external direct costs for materials and services. Costs associated with
software to be used for internal purposes are expensed until the point at which the project has reached the development
stage. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that
they allow the software to perform a task it previously did not perform. Software maintenance, data conversion and
training costs are expensed in the period in which they are incurred. We review the remaining economic lives of our
capitalized software annually. Capitalized software is included in other intangible assets, net, in our consolidated
balance sheets.
Our long-lived intangible assets, other than goodwill, with indefinite lives are assessed for impairment annually, or, under
certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be an
impairment. These assets are carried at the estimated fair value at the time of acquisition and assets not acquired in
acquisitions are recorded at historical cost. However, if their estimated fair value is less than the carrying amount, we
recognize an impairment charge for the amount by which the carrying amount of these assets exceeds their estimated
fair value.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-41
APPENDIX B
We are required to assess goodwill for impairment at least annually, or more frequently, if an event occurs or
circumstances change that indicates it is more likely than not that the fair values of any of our reporting units were less
than their carrying values. We are required to write-down the value of goodwill in periods in which the recorded carrying
value of equity exceeds the fair value of equity. Our reporting units are not discrete legal entities with discrete full financial
statements. Therefore, the equity carrying value and future cash flows are assessed each time a goodwill impairment
assessment is performed on a reporting unit. To do so, we assign our assets, liabilities and cash flows to reporting units
using reasonable and consistent allocation methodologies, which entail various estimates, judgments and assumptions.
We are required to reassign goodwill to reporting units whenever reorganizations of our internal reporting structure
changes the composition of our reporting units. Goodwill is reassigned to the reporting units using a relative fair value
approach. When the fair value of a reporting unit is available, we allocate goodwill based on the relative fair value of the
reporting units. When fair value is not available, we utilize an alternative allocation methodology that represents a
reasonable approximation of the fair value of the operations being reorganized.
For more information, see Note 3—Goodwill, Customer Relationships and Other Intangible Assets.
DERIVATIVES AND HEDGING
From time to time we have used derivative instruments to hedge exposure to interest rate risks arising from fluctuation in
interest rates. We account for derivative instruments in accordance with ASC 815, Derivatives and Hedging, which
establishes accounting and reporting standards for derivative instruments. We do not use derivative financial instruments
for speculative purposes.
Derivatives are recognized in the consolidated balance sheets at their fair values. When we become a party to a derivative
instrument and intend to apply hedge accounting, we formally document the hedge relationship and the risk
management objective for undertaking the hedge which includes designating the instrument for financial reporting
purposes as a fair value hedge, a cash flow hedge, or a net investment hedge.
We evaluate the effectiveness of our variable-to-fixed interest rate swap agreements described in Note 15—Derivative
Financial Instruments (designated as cash-flow hedges) qualitatively on a quarterly basis. The change in the fair value of
the interest rate swaps is reflected in Accumulated Other Comprehensive Loss (“AOCI”) and is subsequently reclassified
into earnings in the period the hedged transaction affects earnings, by virtue of qualifying as effective cash flow hedges.
For more information see Note 15—Derivative Financial Instruments.
PENSION AND POST-RETIREMENT BENEFITS
We recognize the funded status of our defined benefit and post-retirement plans as an asset or a liability on our
consolidated balance sheets. Each year's actuarial gains or losses are a component of our other comprehensive loss, which
is then included in our accumulated other comprehensive loss. Pension and post-retirement benefit expenses are
recognized over the period in which the employee renders service and becomes eligible to receive benefits. We make
significant assumptions (including the discount rate, expected rate of return on plan assets, mortality and health care
trend rates) in computing the pension and post-retirement benefits expense and obligations. See Note 11—Employee
Benefits for additional information.
B-42
APPENDIX B
FOREIGN CURRENCY
Local currencies of our foreign subsidiaries are the functional currencies for financial reporting purposes except for certain
foreign subsidiaries, primarily in Latin America. For operations outside the United States that have functional currencies
other than the U.S. dollar, assets and liabilities are translated to U.S. dollars at period-end exchange rates, and revenue,
expenses and cash flows are translated using average monthly exchange rates. A significant portion of our non-United
States subsidiaries use either the British pound, the Euro or the Brazilian Real as their functional currency, each of which
experienced significant fluctuations against the U.S. dollar during the years ended December 31, 2021, 2020 and 2019. We
recognize foreign currency translation gains and losses as a component of accumulated other comprehensive loss in
stockholders' equity and in our consolidated statements of comprehensive income (loss) in accordance with accounting
guidance for foreign currency translation. Prior to the announcement of our divestitures as discussed in Note 2—Planned
Divestiture of the Latin American and ILEC Businesses, we considered the majority of our investments in our foreign
subsidiaries to be long-term in nature. Our foreign currency transaction gains (losses), including where transactions with
our non-United States subsidiaries are not considered to be long-term in nature, are included within other expense, net on
our consolidated statements of operations. See the description of our Assets Held for Sale policy above for more
information on assets in foreign subsidiaries to be divested.
COMMON STOCK
As of December 31, 2021, we had 36 million shares authorized for future issuance under our equity incentive plans.
PREFERRED STOCK
Holders of outstanding Lumen Technologies preferred stock are entitled to receive cumulative dividends, receive
preferential distributions equal to $25 per share plus unpaid dividends upon Lumen's liquidation and vote as a single class
with the holders of common stock.
SECTION 382 RIGHTS PLAN
We maintain a Section 382 Rights Plan to protect our U.S. federal net operating loss carryforwards from certain Internal
Revenue Code Section 382 limitations. Under the plan, one preferred stock purchase right was distributed for each share
of our outstanding common stock as of the close of business on February 25, 2019, and those rights currently trade in
tandem with the common stock until they expire or detach under the plan. This plan was designed to deter trading that
would result in a change of control (as defined in Code Section 382), and therefore protect our ability to use our historical
federal net operating losses in the future.
DIVIDENDS
The declaration and payment of dividends is at the discretion of our Board of Directors.
Recently Adopted Accounting Pronouncements
During 2021, we adopted Accounting Standards Update ("ASU") 2020-09, "Debt (Topic 470) Amendments to SEC
Paragraphs Pursuant to SEC Release No. 33-10762" ("ASU 2020-09"), ASU 2020-01, "Investments - Equity Securities (Topic
321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the
Interactions between Topic 321, Topic 323, and Topic 815)" ("ASU 2020-01"), and ASU 2019-12, "Simplifying the Accounting for
Income Taxes (Topic 740)" ("ASU 2019-12"). During 2020, we adopted ASU 2016-13, "Measurement of Credit Losses on
Financial Instruments" ("ASU 2016-13"). During 2019, we adopted ASU 2016-02, "Leases (ASC 842)" ("ASU 2016-02").
Each of these is described further below.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-43
APPENDIX B
DEBT
On January 1, 2021, we adopted ASU 2020-09. This ASU amends and supersedes various SEC guidance to reflect SEC
Release No. 33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt
offerings that include credit enhancements, such as subsidiary guarantees. The adoption of ASU 2020-09 did not have a
material impact to our consolidated financial statements.
INVESTMENTS
On January 1, 2021, we adopted ASU 2020-01. This ASU, among other things, clarifies that a company should consider
observable transactions that require a company to either apply or discontinue the equity method of accounting under
Topic 323, Investments - Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in
accordance with Topic 321 immediately before applying or upon discontinuing the equity method. As of December 31,
2021, we determined there was no application or discontinuation of the equity method during the reporting periods
covered in our Annual Report on Form 10-K for the year ended December 31, 2021. The adoption of ASU 2020-01 did not
have a material impact to our consolidated financial statements.
INCOME TAXES
On January 1, 2021, we adopted ASU 2019-12. This ASU removes certain exceptions for investments, intra-period allocations
and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU
2019-12 did not have a material impact to our consolidated financial statements.
MEASUREMENT OF CREDIT LOSSES ON FINANCIAL INSTRUMENTS
We adopted ASU 2016-13 on January 1, 2020, and recognized a cumulative adjustment to our accumulated deficit as of the
date of adoption of $9 million, net of tax effect of $2 million. Please refer to Note 6—Credit Losses on Financial Instruments
for more information.
LEASES
We adopted ASU 2016-02 on January 1, 2019, using the non-comparative transition option pursuant to ASU 2018-11 and
recognized ASC 842's cumulative effect transition adjustment (discussed below) as of January 1, 2019. In addition, we
elected to apply the practical expedients permitted under the transition guidance within the new standard, which among
other things (i) allowed us to carry forward the historical lease classification; (ii) did not require us to reassess whether any
expired or existing contracts are or contain leases under the new definition of a lease; and (iii) did not require us to reassess
whether previously capitalized initial direct costs for any existing leases would qualify for capitalization under ASC 842. We
also elected to apply the practical expedient related to land easements, allowing us to carry forward our accounting
treatment for land easements on existing agreements. We did not elect to apply the hindsight practical expedient
regarding the likelihood of exercising a lessee purchase option or assessing any impairment of right-of-use assets for
existing leases.
On March 5, 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-01, "Leases (ASC 842): Codification
Improvements", ("ASU 2019-01") effective for public companies for fiscal years beginning after December 15, 2019. The new
ASU aligns the guidance in ASC 842 for determining fair value of the underlying asset by lessors that are not
manufacturers or dealers, with that of existing guidance. As a result, the fair value of the underlying asset at lease
commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a
significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition
of fair value (in ASC 820, "Fair Value Measurement") should be applied. We adopted ASU 2019-01 as of January 1, 2019.
We recorded a $96 million cumulative adjustment (net of tax of $37 million) to accumulated deficit as of January 1, 2019, for
the impact of the new accounting standards.
B-44
APPENDIX B
Recently Issued Accounting Pronouncement
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities
about Government Assistance” (“ASU 2021-10”). These amendments are expected to increase transparency in financial
reporting by requiring business entities to disclose information about certain types of government assistance they receive.
ASU 2021-10 will become effective for us in the first quarter of fiscal 2022 and early adoption is permitted. As of December
31, 2021, we do not expect the cumulative effect of initially applying ASU 2021-10 in the first quarter of fiscal 2022 will have a
material impact to our consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires entities to apply Topic 606 to
recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 will become
effective for us in the first quarter of fiscal 2023 and early adoption is permitted. As of December 31, 2021, we do not expect
the cumulative effect of initially applying ASU 2021-08 on January 1, 2023 will have a material impact to our consolidated
financial statements.
In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842): Lessors—Certain Leases with Variable Lease
Payments” (“ASU 2021-05”), which amends the lease classification requirements for lessors to align them with practice
under ASC Topic 840. Under this ASU, lessors should classify and account for a lease with variable lease payments that do
not depend on a reference index or a rate as an operating lease if certain criteria are met; and when a lease is classified as
operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and,
therefore, does not recognize a selling profit or loss. ASU 2021-05 will become effective for us in the first quarter of fiscal
2022 and early adoption is permitted. As of December 31, 2021, we do not expect the cumulative effect of initially applying
ASU 2021-05 on January 1, 2022 will have a material impact to our consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope" ("ASU 2021-01"), which clarifies
that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to
derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in
Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to
derivative instruments affected by the discounting transition. These amendments are effective immediately and may be
applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before
December 31, 2022. ASU 2021-01 provides option guidance for a limited time to ease the potential burden in accounting for
reference rate reform. Based on our review of our key material contracts through December 31, 2021, we do not expect ASU
2021-01 will have a material impact to our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity”, which simplifies accounting for convertible instruments by removing major
separation models required under the current ASC. Consequently, more convertible debt instruments will be reported as a
single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting
for embedded conversion features. ASU 2020-06 will become effective for us in the first quarter of fiscal 2022 and early
adoption is permitted. As of December 31, 2021, we do not expect the cumulative effect of initially applying ASU 2020-06 on
January 1, 2022 will have a material impact to our consolidated financial statements.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-45
APPENDIX B
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting" ("ASU 2020-04" or "Reference Rate Reform"), designed to ease the burden of
accounting for contract modifications related to the global market-wide reference rate transition period. Subject to certain
criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications
and hedging accounting relationships made until December 31, 2022. These amendments are effective immediately and
may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or
before December 31, 2022. ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in
accounting for reference rate reform. Based on our review of our key material contracts through December 31, 2021, we do
not expect ASU 2020-04 will have a material impact to our consolidated financial statements.
(2) PLANNED DIVESTITURE OF THE LATIN AMERICAN AND ILEC BUSINESSES
On July 25, 2021, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen Technologies, Inc., entered
into a definitive agreement to divest Lumen’s Latin American business to an affiliate of a fund advised by Stonepeak
Partners LP in exchange for $2.7 billion cash, subject to certain working capital, other purchase price adjustments and
related transaction expenses (estimated to be approximately $50 million). Level 3 Parent, LLC anticipates closing the
transaction mid-year 2022, upon receipt of all requisite regulatory approvals in the U.S. and certain countries where the
Latin American business operates, as well as the satisfaction of other customary conditions.
On August 3, 2021, we and certain of our affiliates entered into a definitive agreement to divest our incumbent local
exchange ("ILEC") business conducted within 20 Midwestern and Southern states to an affiliate of funds advised by Apollo
Global Management, Inc. In exchange, we would receive $7.5 billion, subject to offsets for (i) assumed indebtedness
(expected to be approximately $1.4 billion) and (ii) certain purchaser’s transaction expenses along with working capital, tax,
other customary purchase price adjustments and related transaction expenses (estimated to be approximately $1.7
billion). We anticipate closing the transaction mid-year 2022 upon receipt of all regulatory approvals and the satisfaction of
other customary closing conditions.
The actual amount of our net after-tax proceeds from these divestitures could vary substantially from the amounts we
currently estimate, particularly if we experience delays in completing the transactions or if any of our other assumptions
prove to be incorrect.
We do not believe these divestiture transactions represent a strategic shift for Lumen. Therefore, neither divested business
meets the criteria to be classified as a discontinued operation. As a result, we will continue to report our operating results
for the Latin American and ILEC businesses (the "disposal groups") in our consolidated operating results until the
transactions are closed. The pre-tax net income of the disposal groups is estimated to be and reported as follows in the
tables below:
Latin American business pre-tax net income
ILEC business pre-tax net income
Total disposal groups pre-tax net income
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
214
851
$
1,065
160
649
809
30
655
685
B-46
APPENDIX B
As of December 31, 2021 in the accompanying consolidated balance sheet, the assets and liabilities of our Latin American
and ILEC businesses are classified as held for sale and are measured at the lower of (i) the carrying value when we
classified the disposal groups as held for sale and (ii) the fair value of the disposal groups, less costs to sell. Effective with
the designation of both disposal groups as held for sale on July 25, 2021 and August 3, 2021, respectively, we suspended
recording depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use
assets while these assets are classified as held for sale. We estimate that we would have recorded an additional $272
million of depreciation, intangible amortization, and amortization of right-of-use assets for the year ended December 31,
2021 if the Latin American and ILEC businesses did not meet the held for sale criteria.
As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the
agreed upon sales price, adjusted for costs to sell, we did not record any estimated loss on disposal during the year ended
December 31, 2021. The recoverability of each disposal group will be re-evaluated each reporting period until the closing of
each transaction.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-47
APPENDIX B
The principal components of the held for sale assets and liabilities are as follows:
December 31, 2021
Latin American
Business
ILEC Business
Total
(Dollars in millions)
Assets held for sale
Cash and cash equivalents
Accounts receivable, less allowance of $3, $21 and $24
Other current assets
Property, plant and equipment, net accumulated
depreciation of $434, $8,303 and $8,737
Goodwill(1)
Other intangible assets, net
Other non-current assets
Total assets held for sale
Liabilities held for sale
Accounts payable
Salaries and benefits
Income and other taxes
Interest
Current portion of deferred revenue
Other current liabilities
Long-term debt, net of discounts(2)
Deferred income taxes, net
Pension and other post-retirement benefits(3)
Other non-current liabilities
Total liabilities held for sale
$
$
$
$
39
83
81
1,591
239
126
75
2,234
101
23
27
—
26
7
—
129
2
120
435
1
227
45
3,491
2,615
158
38
6,575
64
25
24
10
90
35
1,377
—
56
141
1,822
40
310
126
5,082
2,854
284
113
8,809
165
48
51
10
116
42
1,377
129
58
261
2,257
1
The assignment of goodwill was based on the relative fair values of the applicable reporting units prior to being reclassified as held for sale.
2 Long-term debt, net of discounts, includes $1.4 billion of Embarq Senior notes, $117 million of related unamortized discounts and $57 million of long-term
finance lease obligations.
3 Excludes pension obligation of approximately $2.5 billion for the ILEC business as of December 31, 2021, which will be transferred to the purchaser of the ILEC
business upon closing. As of December 31, 2021, approximately $2.2 billion, or 88%, of this pension obligation is expected to be funded through the transfer of
Lumen pension plan assets to the purchaser. The remaining portion of the obligation is expected to be separately funded with cash paid by Lumen at the
time of closing. See Note 11—Employee Benefits for additional information.
B-48
(3) GOODWILL, CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLE ASSETS
Goodwill, customer relationships and other intangible assets consisted of the following:
Goodwill
Indefinite-lived intangible assets
Other intangible assets subject to amortization:
Customer relationships, less accumulated amortization of $11,740 and $11,060
Capitalized software, less accumulated amortization of $3,624 and $3,279
Trade names, patents and other, less accumulated amortization of $160 and $120
Total other intangible assets, net
APPENDIX B
As of December 31,
2021
2020
(Dollars in millions)
$
$
15,986
18,870
9
278
5,365
1,459
137
$
6,970
6,344
1,520
77
8,219
As of December 31, 2021, the gross carrying amount of goodwill, customer relationships, indefinite-lived and other
intangible assets was $38.5 billion.
When we acquired Embarq Corporation ("Embarq") in 2009, we acquired certain right-of-way assets and, because there
were no legal, regulatory, contractual or other factors that would reasonably limit the useful life of these assets, we
classified them as indefinite-lived and, as such, initially did not amortize these assets. Our recent digital transformation
efforts and continued focus on our fiber-based infrastructure assets have prompted management to reassess and
ultimately change the accounting treatment of these indefinite-lived assets to align with our focus on growth products
versus our declining copper-based products. As a result, during the first quarter of 2021, we reclassified an indefinite-lived
intangible asset to finite-lived intangible asset. As of January 1, 2021 we began amortizing the $268 million asset over its
estimated nine-year remaining life. On August 3, 2021, upon entering into a definitive agreement to divest our ILEC
business, we reclassified $169 million of the $268 million asset as held for sale. At this time, we discontinued recording
amortization on the portion of the finite-lived intangible assets that had been reclassified as held for sale (see Note 2—
Planned Divestiture of the Latin American and ILEC Businesses for more information). The above-described change in the
estimated remaining economic life of these assets, as modified by the subsequent reclassification of a portion thereof,
resulted in an increase in amortization expense of approximately $22 million for the year ending December 31, 2021. The
increase in amortization expense, net of tax, reduced consolidated net income (loss) by approximately $17 million, or $0.02
per basic and diluted common share, for the year ended December 31, 2021.
Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net
assets acquired.
We assess our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain
circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. Our
annual impairment assessment date for indefinite-lived intangible assets other than goodwill is December 31. We
completed our qualitative assessment of our indefinite-lived intangible assets other than goodwill as of December 31, 2021
and 2020 and concluded it is more likely than not that our indefinite-lived intangible assets are not impaired; thus, no
impairment charge for these assets was recorded in 2021 or 2020. We are required to write down the value of goodwill only
when our assessment determines the carrying value of equity of any of our reporting units exceeds its fair value. Our
annual impairment assessment date for goodwill is October 31, at which date we assess our reporting units.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-49
APPENDIX B
Since our internal reorganization described in Note 17—Segment Information we have used five reporting units for
goodwill impairment testing, which are (i) Mass Markets, (ii) North America ("NA") Business (iii) Europe, Middle East and
Africa region ("EMEA"), (iv) Asia Pacific region ("APAC") and (v) Latin America region ("LATAM"). At October 31, 2020 and
2019, we used eight reporting units for goodwill impairment testing, which were consumer, small and medium business,
enterprise, wholesale, North American global accounts ("NA GAM"), EMEA, LATAM and APAC.
Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are
employed in and relate to the operations of multiple reporting units. For each reporting unit, we compare its estimated
fair value of equity to its carrying value of equity that we assign to the reporting unit. If the estimated fair value of the
reporting unit is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the
reporting unit is less than the carrying value, we record a non-cash impairment equal to the excess amount. 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, which is based on the present value of projected cash flows over a discrete projection
period and a terminal value, which is based on the expected normalized cash flows of the reporting units following the
discrete projection period, and (ii) a market approach, which includes the use of market multiples of publicly-traded
companies whose services are comparable to ours.
At October 31, 2021, we estimated the fair value of our five above-mentioned reporting units by considering both a market
approach and a discounted cash flow method. As of October 31, 2021, we determined that the estimated fair value of
equity exceeded the carrying value of equity for our Mass Markets, NA Business, EMEA, LATAM and APAC reporting units
by 277%, 8%, 57%, 100% and 125%, respectively. Based on our assessments performed, we concluded it was more likely than
not that the fair value of each of our reporting units exceeded the carrying value of equity of those reporting units at
October 31, 2021. Therefore, we concluded no impairment existed as of our assessment date.
Our reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American and ILEC
Businesses, was considered an event or change in circumstance which required an assessment of our goodwill for
impairment as of July 31, 2021. We performed a pre-reclassification goodwill impairment test to determine whether there
was an impairment prior to the reclassification of these assets and to determine the July 31, 2021 fair values to be utilized
for goodwill allocation regarding the Latin American and ILEC businesses to be reclassified as assets held for sale. We
concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of
equity of those reporting units at July 31, 2021. We also performed a post-reclassification goodwill impairment test using
our estimated post-divestiture cash flows and carrying value of equity to evaluate whether the fair value of our reporting
units that will remain following the divestitures exceeds the carrying value of the equity of such reporting units after
reclassification of assets held for sale. At July 31, 2021, we estimated the fair value of our five above-mentioned reporting
units by considering both a market approach and a discounted cash flow method. As of July 31, 2021, we determined that
the estimated fair value of equity exceeded the carrying value of equity for our Mass Markets, NA Business, EMEA, LATAM
and APAC reporting units by 150%, 24%, 58%,100% and 134%, respectively. Based on our assessments performed, we
concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of
equity of our reporting units at July 31, 2021. Therefore, we concluded no impairment existed as of our assessment date.
Our January 2021 reorganization was considered an event or change in circumstance which required an assessment of our
goodwill for impairment. We performed a qualitative impairment assessment in the first quarter of 2021 and concluded it
is more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of those
reporting units at January 31, 2021. Therefore, we concluded no impairment existed as of our assessment date.
B-50
APPENDIX B
At October 31, 2020, we estimated the fair value of our eight above-mentioned reporting units (prior to the January 2021
reorganization) by considering both a market approach and a discounted cash flow method. We discounted the projected
cash flows for our consumer, enterprise, wholesale, small and medium business and NA GAM reporting units using a rate
that represented their weighted average cost of capital, which we determined to be approximately 7.6% as of the
assessment date (which comprised an after-tax cost of debt of 2.5% and a cost of equity of 10.7%). We discounted the
projected cash flows of our EMEA, LATAM and APAC reporting units using a rate that represents their estimated weighted
average cost of capital, which we determined to be approximately 8.0%, 14.3% and 10.1%, respectively, as of the
measurement date (which was comprised of an after-tax cost of debt of 2.9%, 6.9% and 3.9% and a cost of equity of 11.2%,
18.8% and 14.0%, respectively). We utilized company comparisons and analyst reports within the telecommunications
industry which have historically supported a range of fair values derived from annualized revenue and earnings before
interest, taxes, depreciation and amortization ("EBITDA") multiples between 2.0x and 5.5x and 4.8x and 12.5x, respectively.
We selected a revenue and EBITDA multiple for each of our reporting units, resulting in an overall company revenue and
EBITDA multiple of 2.3x and 5.7x, respectively. We also reconciled the estimated fair values of the reporting units to our
market capitalization as of October 31, 2020 and concluded that the indicated control premium of approximately 33% was
reasonable based on recent market transactions. Due to the decline in our stock price at October 31, 2020 and our
assessment performed with respect to the reporting units described above, we concluded that the estimated fair value of
our consumer, wholesale, small and medium business and EMEA reporting units was less than our carrying value of equity
for those reporting units. As a result, these reporting units were impaired, resulting in a non-cash, non-tax-deductible
goodwill impairment charge of $2.6 billion. See the table below for the impairment charges by segment. As of October 31,
2020, the estimated fair value of equity exceeded the carrying value of equity for our enterprise, NA GAM, LATAM and
APAC reporting units by 2%, 46%, 74% and 23%, respectively. Based on our assessments performed, we concluded that the
goodwill assigned to our enterprise, NA GAM, LATAM and APAC reporting units was not impaired at October 31, 2020.
At October 31, 2019, we estimated the fair value of our eight above-mentioned reporting units (prior to the January 2021
reorganization) by considering both a market approach and a discounted cash flow method. As of October 31, 2019, based
on our assessment performed with respect to our eight reporting units, the estimated fair value of equity exceeded the
carrying value of equity for our consumer, small and medium business, enterprise, wholesale, NA GAM, EMEA, LATAM, and
APAC reporting units by 44%, 41%, 53%, 46%, 55%, 5%, 63% and 38%, respectively. Based on our assessments performed, we
concluded that the goodwill for our eight reporting units was not impaired as of October 31, 2019.
Both our January 2019 internal reorganization and the decline in our stock price indicated the carrying values of our
reporting units were more likely than not in excess of their fair values, requiring an impairment test in the first quarter of
2019. Because our low stock price was a key trigger for impairment testing during the first quarter of 2019, we estimated
the fair value of our operations in such quarter using only the market approach. Applying this approach, we utilized
company comparisons and analyst reports within the telecommunications industry which have historically supported a
range of fair values derived from annualized revenue and EBITDA (earnings before interest, taxes, depreciation and
amortization) multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple
for each of our reporting units within this range. We reconciled the estimated fair values of the reporting units to our
market capitalization as of the date of each of our impairment tests during the first quarter of 2019 and concluded that the
indicated control premium of approximately 4.5% and 4.1% was reasonable based on recent market transactions. In the
quarter ended March 31, 2019, based on our assessments performed with respect to the reporting units as described
above, we concluded that the estimated fair value of certain of our reporting units was less than our carrying value of
equity as of the date of both of our impairment tests during the first quarter. As a result, we recorded non-cash, non-tax-
deductible goodwill impairment charges aggregating to $6.5 billion in the quarter ended March 31, 2019. See the table
below for the impairment charges by segment.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-51
APPENDIX B
The following table shows the rollforward of goodwill assigned to our reportable segments (including the January 2021
reorganization discussed above) from December 31, 2019 through December 31, 2021.
International
and Global
Accounts Enterprise
Small and
Medium
Business Wholesale Consumer
Business
Mass
Markets
Total
(Dollars in millions)
As of December 31, 2019(1)
$
2,670
4,738
3,259
3,813
7,054
—
—
21,534
Effect of foreign currency
exchange rate change and
other
Impairment
As of December 31, 2020(1)
January 2021 reorganization
Reclassified as held for sale(2)
Effect of foreign currency
exchange rate change and
other
As of December 31, 2021(1)
$
(15)
(100)
—
—
(7)
—
—
(444)
(699)
(1,399)
2,555
4,738
2,808
3,114
5,655
—
—
—
—
—
—
(22)
(2,642)
18,870
(2,555)
(4,738)
(2,808)
(3,114)
(5,655)
12,173
6,697
—
—
—
—
—
—
(913)
(1,946)
(2,859)
—
—
—
—
—
—
—
—
—
—
(25)
—
(25)
11,235
4,751
15,986
1 Goodwill at December 31, 2021, December 31, 2020 and December 31, 2019 is net of accumulated impairment losses of $7.7 billion, $12.9 billion and $10.3 billion,
respectively. The change in accumulated impairment losses at December 31, 2021 is a result of amounts reclassified as held for sale related to our planned
divestitures.
2
Includes $2.9 billion of goodwill, net of accumulated impairment loss reclassified as held for sale related to our pending divestitures. See Note 2—Planned
Divestiture of the Latin American and ILEC Businesses.
For additional information on our segments, see Note 17—Segment Information.
As of December 31, 2021, the weighted average remaining useful lives of our finite-lived intangible assets were
approximately 7 years in total, approximately 8 years for customer relationships, 4 years for capitalized software and 1 year
for trade names.
Total amortization expense for finite-lived intangible assets for the years ended December 31, 2021, 2020 and 2019 was $1.3
billion, $1.7 billion and $1.7 billion, respectively.
B-52
We estimate that total amortization expense for finite-lived intangible assets for the years ending December 31, 2022
through 2026 will be as provided in the table below. As a result of reclassifying our Latin American and ILEC businesses as
being held for sale on our December 31, 2021 consolidated balance sheet, the amounts presented below do not include
future amortization expense for intangible assets of the businesses to be divested. See Note 2—Planned Divestiture of the
Latin American and ILEC Businesses for more information.
APPENDIX B
2022
2023
2024
2025
2026
(Dollars in millions)
$
1,034
940
849
798
721
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-53
APPENDIX B
(4) REVENUE RECOGNITION
Product and Service Categories
Since the first quarter of 2021, we have categorized our products and services revenue among the following categories for
the Business segment:
• Compute and Application Services, which include our Edge Cloud services, IT solutions, Unified Communications and
Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;
•
•
IP and Data Services, which include Ethernet, IP, and VPN data networks, including software-defined wide area
networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;
Fiber Infrastructure Services, which include dark fiber, optical services and equipment; and
• Voice and Other, which include Time Division Multiplexing ("TDM") voice, private line and other legacy services.
Since the first quarter of 2021, we have categorized our products and services revenue among the following categories for
the Mass Markets segment:
• Consumer Broadband, which includes high speed fiber-based and lower speed DSL-based broadband services to
residential customers;
•
Small Business Group ("SBG") Broadband, which includes high speed fiber-based and lower speed DSL-based
broadband services to small businesses;
• Voice and Other, which include primarily local and long-distance services, professional services and other ancillary
services; and
• Connect America Fund ("CAF") II, which consists of CAF Phase II payments through the end of 2021 to support voice
and broadband in FCC-designated high-cost areas.
Reconciliation of Total Revenue to Revenue from Contracts with Customers
The following tables provide total revenue by segment, sales channel and product category. They also provide the amount
of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed
by other accounting standards:
B-54
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services
$
IP and Data Services
Fiber Infrastructure
Voice and Other
Total IGAM Revenue
Large Enterprise
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Large Enterprise Revenue
Mid-Market Enterprise
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Mid-Market Enterprise Revenue
Wholesale
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Wholesale Revenue
Business Segment by Product Category
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Business Segment Revenue
Mass Markets Segment by Product Category
Consumer Broadband
SBG Broadband
Voice and Other
CAF II
Total Mass Markets Revenue
Total Revenue
Timing of revenue
Goods and services transferred at a point in time
Services performed over time
Total revenue from contracts with customers
APPENDIX B
Year Ended December 31, 2021
Total Revenue
Adjustments for
Non-ASC 606
Revenue(1)
Total Revenue from
Contracts with
Customers
(Dollars in millions)
715
1,708
886
744
4,053
698
1,554
521
949
3,722
139
1,754
218
618
2,729
189
1,196
623
1,607
3,615
1,741
6,212
2,248
3,918
14,119
2,875
156
2,047
490
5,568
$
19,687
(280)
—
(129)
—
(409)
(63)
—
(50)
—
(113)
(31)
(5)
(8)
—
(44)
(159)
—
(118)
(252)
(529)
(533)
(5)
(305)
(252)
(1,095)
(211)
(16)
(80)
(490)
(797)
(1,892)
$
$
435
1,708
757
744
3,644
635
1,554
471
949
3,609
108
1,749
210
618
2,685
30
1,196
505
1,355
3,086
1,208
6,207
1,943
3,666
13,024
2,664
140
1,967
—
4,771
17,795
138
17,657
17,795
B-55
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
APPENDIX B
Year Ended December 31, 2020
Total Revenue
Adjustments for
Non-ASC 606
Revenue(1)
Total Revenue from
Contracts with
Customers
(Dollars in millions)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services
$
IP and Data Services
Fiber Infrastructure
Voice and Other
Total IGAM Revenue
Large Enterprise
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Large Enterprise Revenue
Mid-Market Enterprise
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Mid-Market Enterprise Revenue
Wholesale
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Wholesale Revenue
Business Segment by Product Category
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Business Segment Revenue
Mass Markets Segment by Product Category
Consumer Broadband
SBG Broadband
Voice and Other
CAF II
Total Mass Markets Revenue
Total Revenue
Timing of revenue
Goods and services transferred at a point in time
Services performed over time
Total revenue from contracts with customers
B-56
772
1,731
822
793
4,118
663
1,588
590
1,074
3,915
137
1,845
218
769
2,969
183
1,249
618
1,765
3,815
1,755
6,413
2,248
4,401
14,817
2,909
153
2,341
492
5,895
$
20,712
(265)
—
(110)
—
(375)
(82)
(2)
(46)
(2)
(132)
(16)
(6)
(9)
—
(31)
(161)
—
(121)
(258)
(540)
(524)
(8)
(286)
(260)
(1,078)
(221)
(15)
(109)
(492)
(837)
(1,915)
$
$
507
1,731
712
793
3,743
581
1,586
544
1,072
3,783
121
1,839
209
769
2,938
22
1,249
497
1,507
3,275
1,231
6,405
1,962
4,141
13,739
2,688
138
2,232
—
5,058
18,797
250
18,547
18,797
APPENDIX B
Year Ended December 31, 2019
Total Revenue
Adjustments for
Non-ASC 606
Revenue(1)
Total Revenue from
Contracts with
Customers
(Dollars in millions)
Business Segment by Sales Channel and Product Category
International and Global Accounts ("IGAM")
Compute and Application Services
$
IP and Data Services
Fiber Infrastructure
Voice and Other
Total IGAM Revenue
Large Enterprise
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Large Enterprise Revenue
Mid-Market Enterprise
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Mid-Market Enterprise Revenue
Wholesale
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Wholesale Revenue
Business Segment by Product Category
Compute and Application Services
IP and Data Services
Fiber Infrastructure
Voice and Other
Total Business Segment Revenue
Mass Markets Segment by Product Category
Consumer Broadband
SBG Broadband
Voice and Other
CAF II
Total Mass Markets Revenue
Total Revenue
Timing of revenue
Goods and services transferred at a point in time
Services performed over time
Total revenue from contracts with customers
1
Includes regulatory revenue and lease revenue not within the scope of ASC 606.
790
1,764
785
833
4,172
610
1,589
524
1,113
3,836
147
1,894
219
892
3,152
188
1,319
629
1,943
4,079
1,735
6,566
2,157
4,781
15,239
2,876
163
2,688
492
6,219
(265)
—
(99)
—
(364)
(89)
—
(44)
(1)
(134)
(11)
—
(20)
(1)
(32)
(168)
—
(122)
(279)
(569)
(533)
—
(285)
(281)
(1,099)
(215)
(4)
(143)
(492)
(854)
525
1,764
686
833
3,808
521
1,589
480
1,112
3,702
136
1,894
199
891
3,120
20
1,319
507
1,664
3,510
1,202
6,566
1,872
4,500
14,140
2,661
159
2,545
—
5,365
19,505
221
19,284
19,505
$
21,458
(1,953)
$
$
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-57
APPENDIX B
Customer Receivables and Contract Balances
The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts
reclassified as held for sale, as of December 31, 2021 and December 31, 2020:
Customer receivables(1)(2)
Contract assets(3)
Contract liabilities(4)
December 31,
2021
December 31,
2020
(Dollars in millions)
$
1,493
73
680
1,889
108
950
1 Reflects gross customer receivables of $1.6 billion and $2.1 billion, net of allowance for credit losses of $102 million and $174 million, at December 31, 2021 and
December 31, 2020, respectively.
2 As of December 31, 2021, amount excludes customer receivables, net reclassified as held for sale of $288 million.
3 As of December 31, 2021, amount excludes contract assets reclassified as held for sale of $9 million.
4 As of December 31, 2021, amount excludes contract liabilities reclassified as held for sale of $161 million.
Contract liabilities are 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
typically ranges from one to five years depending on the service. Contract liabilities are included within deferred revenue
in our consolidated balance sheets. During the years ended December 31, 2021 and December 31, 2020, we recognized
$605 million and $672 million, respectively, of revenue that was included in contract liabilities of $950 million and $1.0
billion as of January 1, 2021 and 2020, respectively.
Performance Obligations
As of December 31, 2021, our estimated revenue expected to be recognized in the future related to performance
obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $6.2 billion.
We expect to recognize approximately 77% of this revenue through 2024, with the balance recognized thereafter.
These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue
at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-
recurring charges associated with professional or technical services to be completed), (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 our planned divestiture.
B-58
Contract Costs
The following tables provide changes in our contract acquisition costs and fulfillment costs:
APPENDIX B
Beginning of period balance
Costs incurred
Amortization
Reclassified as held for sale(1)
End of period balance
Beginning of period balance
Costs incurred
Amortization
End of period balance
December 31, 2021
Acquisition Costs
Fulfillment Costs
(Dollars in millions)
$
$
289
176
(209)
(34)
222
216
151
(149)
(32)
186
December 31, 2020
Acquisition Costs
Fulfillment Costs
(Dollars in millions)
$
$
326
181
(218)
289
221
141
(146)
216
1 Represents the amounts reclassified as held for sale as of December 31, 2021 related to our planned divestitures. See Note 2—Planned Divestiture of the Latin
American and ILEC Businesses.
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 telecommunications services to
customers, including labor and materials consumed for these activities.
Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the
average contract life of approximately 30 months for mass markets customers and 29 months for business customers.
Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in
selling, general and administrative expenses in our consolidated statements of operations. The amount of these deferred
costs that are anticipated to be amortized in the next 12 months are included in other current assets on our consolidated
balance sheets. The amount of deferred costs expected to be amortized beyond the next twelve months is included in
other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for
impairment on an annual basis.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-59
APPENDIX B
(5) LEASES
We primarily lease to or from third parties various office facilities and colocation facilities, equipment and dark fiber. Leases
with an initial term of 12 months or less are not recorded on our consolidated balance sheets; we recognize lease expense
for these leases on a straight-line basis over the lease term.
We determine if an arrangement is a lease at inception and whether that lease meets the classification criteria of a finance
or operating lease. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at
amounts equal to the respective lease liabilities. Lease-related liabilities are recognized at the present value of the
remaining contractual fixed lease payments, discounted using our incremental borrowing rates. As part of the present
value calculation for the lease liabilities, we use an incremental borrowing rate as the rates implicit in the leases are not
readily determinable. The incremental borrowing rates used for lease accounting are based on our unsecured rates,
adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized
lease term. We apply the incremental borrowing rates to lease components using a portfolio approach based upon the
length of the lease term and the reporting entity in which the lease resides. Operating lease expense is recognized on a
straight-line basis over the lease term, while variable lease payments are expensed as incurred. Operating lease assets are
included in other, net under goodwill and other assets on our consolidated balance sheets. Noncurrent operating lease
liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.
Some of our lease arrangements contain lease components, non-lease components (including common-area
maintenance costs) and executory costs (including real estate taxes and insurance costs). We generally account for each
component separately based on the estimated standalone price of each component. For colocation leases, we account for
the lease and non-lease components as a single lease component.
Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities
for renewal periods unless we determine that we are reasonably certain of renewing the lease. Certain leases also include
options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the
expected lease term, unless there is a transfer of title or purchase option reasonably certain to be exercised. Our lease
agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease expense consisted of the following:
Operating and short-term lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liability
Total finance lease cost
Total lease cost
Years Ended December 31,
2021
2020
(Dollars in millions)
$
535
729
37
16
53
$
588
36
12
48
777
We primarily lease various equipment, office facilities, retail outlets, switching facilities and other network sites. These
leases, with few exceptions, provide for renewal options and escalations that are either fixed or based on the consumer
price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated
on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus
any term under renewal options that we believe are reasonably assured.
B-60
APPENDIX B
During the years ended December 31, 2021 and 2020, we rationalized our lease footprint and ceased using 23 and 16
underutilized leased property locations, respectively. We determined that we no longer needed the leased space and, due
to the limited remaining term on the contracts, concluded that we had neither the intent nor ability to sublease the
properties. For the years ended December 31, 2021 and 2020, we incurred accelerated lease costs of approximately $35
million and $41 million, respectively. In conjunction with our plans to continue to reduce costs, we expect to continue our
real estate rationalization efforts and may incur additional accelerated lease costs in future periods.
For the years ended December 31, 2021, 2020 and 2019, our gross rental expense, including the accelerated lease costs
discussed above, was $588 million, $777 million and $733 million, respectively. We also received sublease rental income for
the years ended December 31, 2021, 2020 and 2019 of $25 million, $25 million and $24 million, respectively.
Supplemental consolidated balance sheet information and other information related to leases is included below:
Leases (Dollars in millions)
Classification on the Balance Sheet
2021
2020
As of December 31,
Assets
Operating lease assets
Other, net
$
1,451
1,699
Finance lease assets
Total leased assets
Liabilities
Current
Operating
Finance
Noncurrent
Operating
Finance
Total lease liabilities
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
Property, plant and equipment, net of
accumulated depreciation
314
$
1,765
329
2,028
Current operating lease liabilities
$
Current maturities of long-term debt
Other
Long-term debt
385
19
1,171
251
$
1,826
379
26
1,405
267
2,077
6.8
13.1
6.7
12.1
5.54%
4.89%
6.01%
4.94%
At December 31, 2021, we classified certain operating and finance lease assets and liabilities as held for sale and
discontinued recording amortization on the related right-of-use assets on the Latin American and ILEC businesses. See
Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-61
APPENDIX B
Supplemental consolidated cash flow statement information related to leases is included below:
Years Ended December 31,
2021
2020
(Dollars in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
Supplemental lease cash flow disclosures:
$
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
$
Right-of-use assets obtained in exchange for new finance lease liabilities
525
15
52
165
94
566
14
40
375
124
As of December 31, 2021, maturities of lease liabilities were as follows:
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: interest
Total
Less: current portion
Long-term portion
Operating Leases
Finance Leases
(Dollars in millions)
$
$
457
355
253
198
149
490
1,902
(346)
1,556
(385)
1,171
33
28
28
28
28
223
368
(98)
270
(19)
251
As of December 31, 2021, we had entered into a $15 million finance lease with a deferred commencement date.
Operating Lease Income
Lumen Technologies leases various dark fiber, office facilities, colocation facilities, switching facilities, other network sites
and service equipment to third parties under operating leases. Lease and sublease income are included in operating
revenue in the consolidated statements of operations.
For the years ended December 31, 2021, 2020 and 2019, our gross rental income was $1.2 billion, $1.3 billion and $1.4 billion,
respectively, which represents 6%, 6% and 7% respectively, of our operating revenue for the years ended December 31, 2021,
2020 and 2019.
B-62
APPENDIX B
(6) CREDIT LOSSES ON FINANCIAL INSTRUMENTS
In accordance with ASC 326, "Financial Instruments - Credit Losses", we aggregate financial assets with similar risk
characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets. We
periodically monitor certain risk characteristics within our aggregated financial assets and revise their composition
accordingly, to the extent internal and external risk factors change. Financial assets that do not share risk characteristics
with other financial assets are evaluated separately. Our financial assets measured at amortized cost primarily consist of
accounts receivable.
We use a loss rate method to estimate our allowance for credit losses. Our determination of the current expected credit
loss rate begins with our review of historical loss experience as a percentage of accounts receivable. We measure our
historical loss period based on the average days to recognize accounts receivable as credit losses. When asset specific
characteristics and current conditions change from those in the historical period, due to changes in our credit and
collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and
quantitative assessment to adjust our historical loss rate. We use regression analysis to develop an expected loss rate
using historical experience and economic data over a forecast period. We measure our forecast period based on the
average days to collect payment on billed accounts receivable. To determine our current allowance for credit losses, we
combine the historical and expected credit loss rates and apply them to our period end accounts receivable.
If there is an unexpected deterioration of a customer's financial condition or an unexpected change in economic
conditions (including changes caused by COVID-19 or other macroeconomic events), we assess the need to adjust the
allowance for credit losses. Any such resulting adjustments would affect earnings in the period that adjustments
are made.
The assessment of the correlation between historical observed default rates, current conditions and forecasted economic
conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions
regarding the allowance for credit losses. The amount of credit loss is sensitive to changes in circumstances and
forecasted economic conditions. Our historical credit loss experience, current conditions and forecast of economic
conditions may also not be representative of the customers' actual default experience in the future, and we may use
methodologies that differ from those used by other companies.
In conjunction with our January 2021 internal reorganization, as referenced in Note 17—Segment Information, we pooled
certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to
grant credit terms and their historical and expected credit loss patterns. Additionally, we reassessed our historical loss
period for the segment portfolio reorganization.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-63
APPENDIX B
The following tables present the activity of our allowance for credit losses by accounts receivable portfolio for the years
ended December 31, 2021 and December 31, 2020:
Beginning balance at January 1, 2021(1)
Provision for expected losses
Write-offs charged against the allowance
Recoveries collected
Reclassified as held for sale(2)
Ending balance at December 31, 2021
Beginning balance at January 1, 2020(3)
Provision for expected losses
Write-offs charged against the allowance
Recoveries collected
Foreign currency exchange rate changes adjustment
Balance at December 31, 2020
Business
Mass Markets
Total
(Dollars in millions)
109
50
(76)
13
(8)
88
82
55
(101)
6
(16)
26
191
105
(177)
19
(24)
114
Business
Consumer
Total
(Dollars in millions)
58
115
(74)
24
(2)
121
37
74
(59)
18
—
70
95
189
(133)
42
(2)
191
$
$
$
$
1 As described in Note 17—Segment Information, we completed an internal reorganization in January 2021. As a result of this change, allowance for credit losses
previously included in the Consumer and Business portfolio of $70 million related to consumer and $12 million related to our small business group,
respectively, were reclassified to the Mass Markets allowance for credit losses on January 1, 2021.
2 Represents the amounts reclassified as held for sale related to our pending divestitures. See Note 2—Planned Divestiture of the Latin American and
ILEC Businesses.
3 The beginning balance for the year ended December 31, 2020 includes the cumulative effect of $11 million for the adoption of the new credit loss standard.
For the year ended December 31, 2021, we decreased our allowance for credit losses for our business and mass markets
accounts receivable portfolios primarily due to higher write-off activity during 2021, along with the easing of prior delays
due to COVID-19 related restrictions from 2020 and lower receivable balances.
For the year ended December 31, 2020, we increased our allowance for credit losses for our business and consumer
accounts receivable portfolios due to an increase during the period in historical and expected loss experience in certain
classes of aged balances, which were predominantly attributable to the COVID-19 induced economic slowdown.
Decreased write-offs (net of recoveries) were driven by COVID-19 regulations and programs, which further contributed to
the increase in our allowance for credit losses for the year ended December 31, 2020.
B-64
(7) LONG-TERM DEBT AND CREDIT FACILITIES
The following chart reflects the consolidated long-term debt of Lumen Technologies, Inc. and its subsidiaries as of the
dates indicated below, including unamortized discounts and premiums and unamortized debt issuance costs, but
excluding intercompany debt:
APPENDIX B
Senior Secured Debt: (2)
Lumen Technologies, Inc.
Revolving Credit Facility
Term Loan A(3)
Term Loan A-1(3)
Term Loan B(4)
Senior notes
Subsidiaries:
Level 3 Financing, Inc.
Tranche B 2027 Term Loan(5)
Senior notes
Embarq Corporation subsidiaries
Interest Rates(1)
Maturities(1)
2021
2020
As of December 31,
(Dollars in millions)
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.00%
LIBOR + 2.25%
4%
2025 $
2025
2025
2027
2027
LIBOR + 1.75%
2027
3.400% - 3.875%
2027 - 2029
200
1,050
300
4,900
1,250
3,111
1,500
150
1,108
316
4,950
1,250
3,111
1,500
First mortgage bonds
7.125% - 8.375%
2023 - 2025
138
138
Senior Notes and Other Debt:
Lumen Technologies, Inc.
Senior notes
Subsidiaries:
Level 3 Financing, Inc.
Senior notes
Qwest Corporation
Senior notes
Term loan(6)
Qwest Capital Funding, Inc.
Senior notes
Embarq Corporation and subsidiary
Senior notes(7)
Finance lease and other obligations
Unamortized premiums (discounts), net
Unamortized debt issuance costs
Total long-term debt
Less current maturities
4.500% - 7.650%
2022 - 2042
8,414
8,645
3.625% - 5.375%
2025 - 2029
5,515
5,515
6.500% - 7.750%
2025 - 2057
LIBOR + 2.00%
2027
6.875% - 7.750%
2028 - 2031
7.995%
Various
2036
Various
1,986
215
255
—
347
21
(220)
28,982
(1,554)
3,170
215
352
1,437
295
(78)
(237)
31,837
(2,427)
29,410
Long-term debt, excluding current maturities
$
27,428
1 As of December 31, 2021.
2 See the remainder of this Note for a description of certain parent or subsidiary guarantees and liens securing this debt.
3 Term Loans A and A-1 had interest rates of 2.104% and 2.147% as of December 31, 2021 and December 31, 2020, respectively.
4 Term Loan B had interest rates of 2.354% and 2.397% as of December 31, 2021 and December 31, 2020, respectively.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-65
APPENDIX B
5 The Level 3 Tranche B 2027 Term Loan had interest rates of 1.854% and 1.897% as of December 31, 2021 and December 31, 2020, respectively.
6 The Qwest Corporation Term Loan had interest rates of 2.110% and 2.150% as of December 31, 2021 and December 31, 2020, respectively.
7 As of December 31, 2021, the Embarq Senior notes have been reclassified as held for sale. See Note 2—Planned Divestiture of the Latin American and ILEC
Businesses for more information.
Long-Term Debt Maturities
Set forth below is the aggregate principal amount of our long-term debt as of December 31, 2021 (excluding unamortized
premiums (discounts), net, unamortized debt issuance costs and intercompany debt) maturing during the following years.
As a result of reclassifying our Latin American and ILEC businesses as being held for sale on our December 31, 2021
consolidated balance sheet, the amounts presented below do not include maturities of the debt obligations of those
businesses. See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
2022
2023
2024
2025
2026
2027 and thereafter
Total long-term debt
(Dollars in millions)(1)
$
$
1,554
977
1,158
3,127
2,062
20,303
29,181
1 As of December 31, 2021, these amounts exclude $1.5 billion of debt and finance lease obligations that have been reclassified as held for sale. See Note 2—
Planned Divestiture of the Latin American and ILEC Businesses for more information.
Debt of Lumen Technologies, Inc. and its Subsidiaries
At December 31, 2021, most of our outstanding consolidated debt had been incurred by Lumen Technologies, Inc. or one of
the following four other primary borrowers or “borrowing groups,” each of which has borrowed funds either on a
standalone basis or as part of a separate restricted group with certain of its subsidiaries:
•
Level 3 Financing, Inc., including its parent guarantor Level 3 Parent, LLC, and one or more subsidiary guarantors;
• Qwest Corporation;
• Qwest Capital Funding, Inc., including its parent guarantor, Qwest Communications International Inc.; and
• Embarq Corporation.
Each of these borrowers or borrowing groups has entered into one or more credit agreements with certain financial
institutions or other institutional lenders, or issued senior notes. Certain of these debt instruments are described
further below.
B-66
APPENDIX B
Amended and Restated Credit Agreement
On January 31, 2020, we amended and restated our credit agreement dated June 19, 2017 (as so amended and restated,
the "Amended Credit Agreement"). At December 31, 2021, the Amended Credit Agreement consisted of the
following facilities:
•
•
•
•
a $2.2 billion senior secured revolving credit facility (“the Revolving Credit Facility”);
a $1.05 billion senior secured Term Loan A credit facility;
a $300 million senior secured Term Loan A-1 credit facility with CoBank, ACB; and
a $4.9 billion senior secured Term Loan “B” credit facility (the term loan facilities and the Revolving Credit Facility being
referred to collectively as the "Amended Secured Credit Facilities").
Loans under the Term Loan A and A-1 facilities and the Revolving Credit Facility bear interest at a rate equal to, at our
option, the Eurodollar rate or the alternative base rate (each as defined in the Amended Credit Agreement) plus an
applicable margin between 1.50% to 2.25% per annum for Eurodollar loans and 0.50% to 1.25% per annum for alternative
base rate loans, depending on our then current total leverage ratio. Loans under the Term Loan B facility bear interest at
the Eurodollar rate plus 2.25% per annum or the alternative base rate plus 1.25% per annum. Loans under each of the term
loan facilities require certain specified quarterly amortization payments and certain specified mandatory prepayments in
connection with certain asset sales and debt issuances and out of excess cash flow, among other things, subject in each
case to certain significant exceptions.
Borrowings under the Revolving Credit Facility and the Term Loan A and A-1 facilities mature on January 31, 2025.
Borrowings under the Term Loan B facility mature on March 15, 2027.
All of Lumen's obligations under the Amended Secured Credit Facilities are guaranteed by certain of its subsidiaries. The
guarantees by certain of those guarantors are secured by a first priority security interest in substantially all assets
(including certain subsidiaries stock) directly owned by them, subject to certain exceptions and limitations.
A portion of the Revolving Credit Facility in an amount not to exceed $250 million is available for swingline loans, and a
portion in an amount not to exceed $800 million is available for the issuance of letters of credit.
Lumen Technologies is permitted under the Amended Credit Agreement to request certain incremental borrowings
subject to the satisfaction of various conditions and to certain other limitations. Any incremental borrowings would be
subject to the same terms and conditions under the Amended Credit Agreement.
The above described January 2020 amendments and related refinancing transactions discussed under "—Repayments"
below resulted in an aggregate net loss of $67 million from modification and extinguishment of the debt.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-67
APPENDIX B
Term Loans and Certain Other Debt of Subsidiaries
QWEST CORPORATION
On October 23, 2020, Qwest Corporation borrowed $215 million under a variable-rate term loan with CoBank ACB and used
the resulting net proceeds to pay off its previous $100 million term loan with CoBank ACB. Additionally, on October 26,
2020, Qwest Corporation used the remaining net proceeds to partially facilitate the redemption of the remaining $160
million aggregate principal amount of its outstanding 6.625% Notes due 2055. The outstanding unpaid principal amount of
this new term loan plus any accrued and unpaid interest is due on October 23, 2027. Interest is paid at least quarterly
based upon either the London Interbank Offered Rate ("LIBOR") or the base rate (as defined in the credit agreement) plus
an applicable margin between 1.50% to 2.50% per annum for LIBOR loans and 0.50% to 1.50% per annum for base rate loans
depending on Qwest Corporation's then current senior unsecured long-term debt rating.
LEVEL 3 FINANCING, INC.
At December 31, 2021, Level 3 Financing, Inc. owed $3.111 billion under a senior secured Tranche B 2027 Term Loan, which
matures on March 1, 2027. The Tranche B 2027 Term Loan carries an interest rate, in the case of base rate borrowings, equal
to (i) the greater of the Prime Rate, the Federal Funds Effective Rate plus 50 basis points, or LIBOR plus 100 basis points
(with all such terms and calculations as defined or further specified in the credit agreement) plus (ii) 0.75% per annum. Any
Eurodollar borrowings under the Tranche B 2027 Term Loan bear interest at LIBOR plus 1.75% per annum.
The Tranche B 2027 Term Loan requires certain specified mandatory prepayments in connection with certain asset sales
and other transactions, subject to certain significant exceptions. The obligations of Level 3 Financing, Inc. under the
Tranche B 2027 Term Loan are, subject to certain exceptions, secured by certain assets of Level 3 Parent, LLC and certain of
its material domestic telecommunication subsidiaries. Also, Level 3 Parent, LLC and certain of its subsidiaries have
guaranteed the obligations of Level 3 Financing, Inc. under the Tranche B 2027 Term Loan.
EMBARQ SUBSIDIARIES
At December 31, 2021 and 2020, one of our Embarq subsidiaries had outstanding first mortgage bonds. These first
mortgage bonds are secured by substantially all of the property, plant and equipment of the issuing subsidiary.
Revolving Letters of Credit
We use various financial instruments in the normal course of business. These instruments include letters of credit, which
are conditional commitments issued on our behalf in accordance with specified terms and conditions. Lumen
Technologies maintains an uncommitted $225 million revolving letter of credit facility separate from the letter of credit
facility included in the Revolving Credit Facility noted above. Letters of credit issued under this uncommitted facility are
backed by credit enhancements in the form of secured guarantees issued by certain of our subsidiaries. As of December
31, 2021 and 2020, our outstanding letters of credit totaled $88 million and $97 million, respectively, and we had no letters
of credit outstanding under our Revolving Credit Facility.
As of December 31, 2021, Level 3 Parent, LLC had outstanding letters of credit or other similar obligations of approximately
$9 million, of which $5 million was collateralized by cash that is reflected on the consolidated balance sheet as restricted
cash. As of December 31, 2020, Level 3 Parent, LLC had outstanding letters of credit or other similar obligations of
approximately $18 million of which $11 million was collateralized by cash that is reflected on the consolidated balance
sheet as restricted cash. None of our conditional commitments under our outstanding letters of credit are reflected as
debt on our balance sheets.
B-68
APPENDIX B
Senior Notes
Lumen's consolidated indebtedness at December 31, 2021 included (i) senior secured notes issued by Lumen Technologies,
Inc. and Level 3 Financing, Inc. and (ii) senior unsecured notes issued by Lumen Technologies, Inc., Level 3 Financing, Inc.,
Qwest Corporation, Qwest Capital Funding, Inc. and Embarq Corporation. All of these notes carry fixed interest rates and
all principal is due on the notes’ respective maturity dates, which rates and maturity dates are summarized in the table
above. The Lumen Technologies, Inc. secured senior notes are guaranteed by the same domestic subsidiaries that
guarantee the Amended Credit Agreement. The senior notes issued by Level 3 Financing, Inc. are guaranteed by its
parent, Level 3 Parent, LLC and one or more of its affiliates. The senior notes issued by Qwest Capital Funding, Inc. are
guaranteed by its parent, Qwest Communications International Inc. Except for a limited number of senior notes issued by
Qwest Corporation, the issuer generally can redeem the notes, at its option, in whole or in part, (i) pursuant to a fixed
schedule of pre-established redemption prices, (ii) pursuant to a “make whole” redemption price or (iii) under certain other
specified limited conditions. Under certain circumstances in connection with a “change of control” of Lumen Technologies,
it will be required to make an offer to repurchase each series of these senior notes (other than two of its older series of
notes) at a price of 101% of the principal amount redeemed, plus accrued and unpaid interest. Also, under certain
circumstances in connection with a "change of control" of Level 3 Parent, LLC or Level 3 Financing, Inc., Level 3 Financing
will be required to make an offer to repurchase each series of its outstanding senior notes at a price of 101% of the principal
amount redeemed, plus accrued and unpaid interest.
Repayments
2021
During 2021, Lumen Technologies and its affiliates redeemed approximately $1.1 billion of their respective debt obligations,
which primarily included a $900 million redemption of Level 3 Financing, Inc. senior notes and a $235 million redemption
of Qwest Corporation senior notes. These transactions resulted in a net gain of $8 million.
Additionally, during 2021, Lumen Technologies (i) repaid at maturity approximately $2.8 billion of its consolidated debt
obligations, which primarily included a $1.2 billion repayment at maturity of Lumen senior unsecured notes, a $97 million
repayment at maturity of Qwest Capital Funding, Inc. senior notes and a $950 million repayment at maturity of Qwest
Corporation senior notes, (ii) made $125 million of scheduled amortization payments under our term loans and (iii) made
payments on its Revolving Credit Facility.
2020
During 2020, Lumen Technologies and its affiliates redeemed approximately $6.2 billion of their respective debt
obligations, which primarily included $1.3 billion of Lumen Technologies credit agreement debt, $2.8 billion of Qwest
Corporation senior notes, $78 million of Lumen Technologies senior notes and $2.0 billion of Level 3 Financing, Inc. senior
notes. These transactions resulted in a net loss of $109 million, including the $67 million loss resulting from the
modification of the Amended Credit Agreement discussed above.
Additionally, during 2020, Lumen Technologies (i) repaid at maturity $973 million aggregate principal amount of its
outstanding senior notes and (ii) made $125 million of scheduled amortization payments under our term loans.
New Issuances
2021
On June 15, 2021, Lumen Technologies, Inc. issued $1.0 billion aggregate principal amount of 5.375% Senior Notes due 2029
(the "2029 Notes"). The net proceeds were used, together with cash on hand, to repay at maturity our outstanding $1.2
billion 6.450% Senior Notes, Series S, due 2021.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-69
APPENDIX B
On January 13, 2021, Level 3 Financing, Inc. issued $900 million aggregate principal amount of 3.750% Sustainability-Linked
Senior Notes due 2029 (the "Sustainability-Linked Notes"). The net proceeds were used, together with cash on hand, to
redeem $900 million of our outstanding senior note indebtedness. The Sustainability-Linked Notes are guaranteed by
Level 3 Parent, LLC and Level 3 Communications, LLC.
2020
On November 27, 2020, Lumen Technologies, Inc. issued $1.0 billion of 4.500% Senior Notes due 2029. The proceeds from
this offering were used to redeem outstanding senior notes of Qwest Corporation and reduce borrowings under the
Revolving Credit Facility.
On August 12, 2020, Level 3 Financing, Inc., issued $840 million aggregate principal amount of its 3.625% Senior Notes due
2029 (the "2029 Notes"). Level 3 Financing, Inc. used the net proceeds from this offering to redeem certain of its
outstanding senior note indebtedness. The 2029 Notes are guaranteed by Level 3 Parent, LLC and Level 3
Communications, LLC.
On June 15, 2020, Level 3 Financing, Inc., issued $1.2 billion aggregate principal amount of its 4.250% Senior Notes due 2028
(the "2028 Notes"). Level 3 Financing, Inc. used the net proceeds from this offering to redeem certain of its outstanding
senior note indebtedness. The 2028 Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.
On January 24, 2020, Lumen Technologies, Inc. issued $1.25 billion aggregate principal amount of its 4.000% Senior
Secured Notes due 2027 (the “2027 Notes”). Lumen Technologies, Inc. used the net proceeds from this offering to repay a
portion of the outstanding indebtedness under its Term Loan B facility. The 2027 Notes are guaranteed by each of
Lumen’s domestic subsidiaries that guarantees Lumen's Amended Credit Agreement, subject to various exceptions and
limitations. While the 2027 Notes are not secured by any of the assets of Lumen Technologies, Inc., certain of the note
guarantees are secured by a first priority security interest in substantially all of the assets of such guarantors (including the
stock of certain of their respective subsidiaries), which assets also secure obligations under the Amended Credit
Agreement on a pari passu basis.
Interest Expense
Interest expense includes interest on total long-term debt. The following table presents the amount of gross interest
expense, net of capitalized interest:
Interest expense:
Gross interest expense
Capitalized interest
Total interest expense
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
$
1,575
(53)
1,522
1,743
(75)
1,668
2,093
(72)
2,021
Covenants
LUMEN TECHNOLOGIES, INC.
With respect to the Term Loan A and A-1 facilities and the Revolving Credit Facility, the Amended Credit Agreement
requires us to maintain (i) a maximum total leverage ratio of not more than 4.75 to 1.00 and (ii) a minimum consolidated
interest coverage ratio of at least 2.00 to 1.00, with such ratios being determined and calculated in the manner described
in the Amended Credit Agreement.
B-70
APPENDIX B
The Amended Secured Credit Facilities contain various representations and warranties and extensive affirmative and
negative covenants. Such covenants include, among other things and subject to certain significant exceptions, restrictions
on our ability to declare or pay dividends, repurchase stock, repay certain other indebtedness, create liens, incur additional
indebtedness, make investments, engage in transactions with our affiliates, dispose of assets and merge or consolidate
with any other person.
The senior unsecured notes of Lumen Technologies, Inc. were issued under four separate indentures. These indentures
restrict our ability to (i) incur, issue or create liens upon the property of Lumen Technologies, Inc. and (ii) consolidate with
or merge into, or transfer or lease all or substantially all of our assets to any other party. These indentures do not contain
any provisions that restrict the issuance of new securities in the event of a material adverse change to us. The senior
secured notes of Lumen Technologies, Inc. were issued under a separate indenture that contains a more restrictive set of
covenants. As indicated above under "Senior Notes", Lumen Technologies, Inc. will be required to offer to purchase certain
of its long-term debt securities issued under its indentures under certain circumstances in connection with a "change of
control" of Lumen Technologies, Inc.
LEVEL 3 COMPANIES
The term loan, senior secured notes and senior unsecured notes of Level 3 Financing, Inc. contain various representations
and extensive affirmative and negative covenants. Such covenants include, among other things and subject to certain
significant exceptions, restrictions on their ability to declare or pay dividends, repay certain other indebtedness, create
liens, incur additional indebtedness, make investments, engage in transactions with their affiliates, dispose of assets and
merge or consolidate with any other person. Also, as indicated above under "Senior Notes", Level 3 Financing, Inc. will be
required to offer to repurchase or repay certain of its long-term debt under certain circumstances in connection with a
"change of control" of Level 3 Financing or Level 3 Parent, LLC.
QWEST COMPANIES
Under its term loan, Qwest Corporation must maintain a debt to EBITDA (earnings before interest, taxes, depreciation and
amortization) ratio of not more than 2.85 to 1.00, as determined and calculated in the manner described in the applicable
term loan documentation. The term loan also contains a negative pledge covenant, which generally requires Qwest
Corporation to secure equally and ratably any advances under the term loan if it pledges assets or permits liens on its
property for the benefit of other debtholders.
The senior notes of Qwest Corporation were issued under indentures dated April 15, 1990 and October 15, 1999. These
indentures contain restrictions on the incurrence of liens and the consummation of certain transactions substantially
similar to the above-described covenants in Lumen's indentures (but contain no mandatory repurchase provisions). The
senior notes of Qwest Capital Funding, Inc. were issued under an indenture dated June 29, 1998 containing terms
substantially similar to those set forth in Qwest Corporation's indentures.
EMBARQ
Embarq's senior notes (which, as indicated above, were classified as held for sale at December 31, 2021) were issued
pursuant to an indenture dated as of May 17, 2006. While Embarq is generally prohibited from creating liens on its
property unless its senior notes are secured equally and ratably, Embarq can create liens on its property without equally
and ratably securing its senior notes so long as the sum of all indebtedness so secured does not exceed 15% of Embarq's
consolidated net tangible assets. The indenture also contains restrictions on the consummation of certain transactions
substantially similar to Lumen’s above-described covenants (but without mandatory repurchase provision), as well as
certain customary covenants to maintain properties and pay all taxes and lawful claims.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-71
APPENDIX B
IMPACT OF COVENANTS
The debt covenants applicable to Lumen Technologies, Inc. and its subsidiaries could have a material adverse impact on
their ability to operate or expand their respective businesses, to pursue strategic transactions, or to otherwise pursue their
plans and strategies. The covenants of the Level 3 companies may significantly restrict the ability of Lumen Technologies,
Inc. to receive cash from the Level 3 companies, to distribute cash from the Level 3 companies to other of Lumen’s
affiliated entities, or to enter into other transactions among Lumen’s wholly-owned entities.
Certain of the debt instruments of Lumen Technologies, Inc. and its subsidiaries contain cross payment default or cross
acceleration provisions. When present, these provisions could have a wider impact on liquidity than might otherwise arise
from a default or acceleration of a single debt instrument.
The ability of Lumen Technologies, Inc. and its subsidiaries to comply with the financial covenants in their respective debt
instruments could be adversely impacted by a wide variety of events, including unforeseen contingencies, many of which
are beyond their control.
Compliance
As of December 31, 2021, Lumen Technologies, Inc. believes it and its subsidiaries were in compliance with the provisions
and financial covenants in their respective material debt agreements in all material respects.
Guarantees
Lumen Technologies does not guarantee the debt of any unaffiliated parties, but, as noted above, as of December 31, 2021
certain of its largest subsidiaries guaranteed (i) its debt outstanding under its Amended Secured Credit Facilities, its senior
secured notes and its $225 million letter of credit facility and (ii) the outstanding term loans or senior notes issued by
certain other subsidiaries. As further noted above, several of the subsidiaries guaranteeing these obligations have pledged
substantially all of their assets to secure their respective guarantees.
(8) ACCOUNTS RECEIVABLE
The following table presents details of our accounts receivable balances:
Trade and purchased receivables
Earned and unbilled receivables
Other
Total accounts receivable
Less: allowance for credit losses
Accounts receivable, less allowance
As of December 31,
2021
2020
(Dollars in millions)
$
1,281
315
62
1,658
(114)
1,544
$
1,717
345
91
2,153
(191)
1,962
We are exposed to concentrations of credit risk from our customers. We generally do not require collateral to secure our
receivable balances. We have agreements with other communications service providers whereby we agree to bill and
collect on their behalf for services rendered by those providers to our customers within our local service area. We purchase
accounts receivable from other communications service providers primarily on a recourse basis and include these
amounts in our accounts receivable balance. We have not experienced any significant loss associated with these
purchased receivables.
B-72
APPENDIX B
The following table presents details of our allowance for credit losses accounts:
2021
2020(1)
2019
$
Beginning
Balance
191
106
142
Additions
Deductions
(Dollars in millions)
105
189
145
(182)
(104)
(181)
Ending
Balance
114
191
106
1 On January 1, 2020, we adopted ASU 2016-13 "Measurement of Credit Losses on Financial Instruments" and recognized a cumulative adjustment to our
accumulated deficit as of the date of adoption of $9 million, net of $2 million tax effect. This adjustment is included within "Deductions." See Note 6—Credit
Losses on Financial Instruments for more information.
(9) PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment is composed of the following:
Land
Fiber, conduit and other outside plant(1)
Central office and other network electronics(2)
Support assets(3)
Construction in progress(4)
Gross property, plant and equipment
Accumulated depreciation
Net property, plant and equipment
Depreciable
Lives
N/A $
15-45 years
3-10 years
3-30 years
N/A
As of December 31,
2021
2020
(Dollars in millions)
751
15,366
15,394
7,181
1,474
40,166
(19,271)
848
26,522
20,692
8,261
1,611
57,934
(31,596)
26,338
$
20,895
1 Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures. Fiber, conduit and other outside
plant decreased as of December 31, 2021 compared to December 31, 2020 due to the retirement of a portion of our copper-based infrastructure being
replaced with our Quantum Fiber infrastructure.
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, cable landing stations, data centers, 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.
At December 31, 2021, we classified $5.1 billion of certain property, plant and equipment, net as held for sale and
discontinued recording depreciation on these disposal groups. See Note 2—Planned Divestiture of the Latin American and
ILEC Businesses for more information.
We recorded depreciation expense of $2.7 billion, $3.0 billion and $3.1 billion for the years ended December 31, 2021, 2020
and 2019, respectively.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-73
APPENDIX B
Asset Retirement Obligations
As of December 31, 2021 and 2020, our asset retirement obligations balance was primarily related to estimated future costs
of removing equipment from leased properties and estimated future costs of properly disposing of asbestos and other
hazardous materials upon remodeling or demolishing buildings. Asset retirement obligations are included in other long-
term liabilities on our consolidated balance sheets.
Our fair value estimates were determined using the discounted cash flow method.
The following table provides asset retirement obligation activity:
Balance at beginning of year
Accretion expense
Liabilities settled
Change in estimate
Reclassified as held for sale(1)
Balance at end of year
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
$
199
10
(13)
(2)
(12)
182
197
10
(8)
—
—
199
190
11
(14)
10
—
197
1 Represents the amounts reclassified as held for sale related to our planned divestitures. See Note 2—Planned Divestiture of the Latin American and ILEC
Businesses.
The 2019 and 2021 changes in estimates referred to in the table above were offset against gross property, plant
and equipment.
B-74
APPENDIX B
(10) SEVERANCE
Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions
result primarily from the progression or completion of our post-acquisition integration plans, increased competitive
pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to
reduced demand for certain services.
We report severance liabilities within accrued expenses and other liabilities - salaries and benefits in our consolidated
balance sheets and report severance expenses in selling, general and administrative expenses in our consolidated
statements of operations. As described in Note 17—Segment Information, we do not allocate these severance expenses to
our segments.
Changes in our accrued liabilities for severance expenses were as follows:
Balance at December 31, 2019
Accrued to expense
Payments, net
Balance at December 31, 2020
Accrued to expense
Payments, net
Balance at December 31, 2021
Severance
(Dollars in millions)
$
$
89
151
(137)
103
3
(70)
36
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-75
APPENDIX B
(11) EMPLOYEE BENEFITS
Pension, Post-Retirement and Other Post-Employment Benefits
We sponsor various defined benefit pension plans (qualified and non-qualified) which, in the aggregate, cover a
substantial portion of our employees including legacy CenturyLink, legacy Level 3, legacy Qwest Communications
International Inc. ("Qwest") and legacy Embarq employees. Pension benefits for participants of the Lumen Combined
Pension Plan ("Combined Pension Plan") who are represented by a collective bargaining agreement are based on
negotiated schedules. All other participants' pension benefits are based on each individual participant's years of service
and compensation. We also maintain non-qualified pension plans for certain current and former highly compensated
employees. We maintain post-retirement benefit plans that provide health care and life insurance benefits for certain
eligible retirees. We also provide other post-employment benefits for certain eligible former employees. We use a
December 31 measurement date for all our plans.
PENSION BENEFITS
United States funding laws require a company with a pension shortfall to fund the annual cost of benefits earned in
addition to a seven-year amortization of the shortfall. Our funding policy for our Combined Pension Plan is to make
contributions with the objective of accumulating ample assets to pay all qualified pension benefits when due under the
terms of the plan. The accounting unfunded status of the Combined Pension Plan was $1.1 billion and $1.7 billion as of
December 31, 2021 and 2020, respectively.
We made no voluntary cash contributions to the Combined Pension Plan in 2021 and 2020, respectively, and paid $5
million of benefits directly to participants of our non-qualified pension plans in 2021 and 2020, respectively.
Benefits paid by the Combined Pension Plan are paid through a trust that holds all of the Plan's assets. The amount of
required contributions to the Combined Pension Plan in 2022 and beyond will depend on a variety of factors, most of
which are beyond our control, including earnings on plan investments, prevailing interest rates, demographic experience,
changes in plan benefits and changes in funding laws and regulations. Based on current laws and circumstances, we do
not believe we are required to make any contributions to the Combined Pension Plan in 2022. We do not expect to make
voluntary contributions to the trust for the Combined Pension Plan in 2022. We estimate that in 2022 we will pay $4
million of benefits directly to participants of our non-qualified pension plans.
We recognize in our consolidated balance sheets the funded status of the legacy Level 3 defined benefit post-retirement
plans. The net unfunded status of these plans was $17 million and $33 million, as of December 31, 2021 and 2020,
respectively. Additionally, as previously mentioned, we sponsor unfunded non-qualified pension plans for certain current
and former highly-compensated employees. The net unfunded status of our non-qualified pension plans was $46 million
and $51 million for the years ended December 31, 2021 and 2020, respectively. Due to the insignificant impact of these
pension plans on our consolidated financial statements, we have predominantly excluded them from the remaining
employee benefit disclosures in this Note, unless specifically stated.
POST-RETIREMENT BENEFITS
Our post-retirement benefit plans provide post-retirement benefits to qualified retirees and allow (i) eligible employees
retiring before certain dates to receive benefits at no or reduced cost and (ii) eligible employees retiring after certain dates
to receive benefits on a shared cost basis. The post-retirement benefits not paid by the trusts are funded by us and we
expect to continue funding these post-retirement obligations as benefits are paid. The accounting unfunded status of our
qualified post-retirement benefit plan was $2.8 billion and $3.0 billion as of December 31, 2021 and 2020, respectively.
B-76
APPENDIX B
Assets in the post-retirement trusts were substantially depleted as of December 31, 2016; as of December 31, 2019 the
Company ceased to pay certain post-retirement benefits through the trusts. No contributions were made to the post-
retirement trusts in 2021 nor 2020. Starting in 2020, benefits were paid directly by us with available cash. In 2021, we paid
$203 million of post-retirement benefits, net of participant contributions and direct subsidies. In 2022, we currently expect
to pay directly $217 million of post-retirement benefits, net of participant contributions and direct subsidies.
We expect our expected health care cost trend to range from 5.00% to 5.75% in 2022 and grading to 4.50% by 2025. Our
post-retirement benefit cost, for certain eligible legacy Qwest retirees and certain eligible legacy CenturyLink retirees, is
capped at a set dollar amount. Therefore, those health care benefit obligations are not subject to increasing health care
trends after the effective date of the caps.
Expected Cash Flows
The Combined Pension Plan payments, post-retirement health care benefit payments and premiums, and life insurance
premium payments are either distributed from plan assets or paid by us. The estimated benefit payments provided below
are based on actuarial assumptions using the demographics of the employee and retiree populations and have been
reduced by estimated participant contributions.
Estimated future benefit payments:
2022
2023
2024
2025
2026
2027 - 2031
Combined Pension
Plan
Post-Retirement
Benefit Plans
Medicare Part D
Subsidy Receipts
(Dollars in millions)
$
850
729
706
686
664
2,978
220
216
211
206
200
899
(3)
(3)
(3)
(3)
(3)
(10)
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-77
APPENDIX B
Net Periodic Benefit Expense (Income)
We utilize a full yield curve approach in connection with estimating the service and interest components of net periodic
benefit expense by applying the specific spot rates along the yield curve used in the determination of the benefit
obligation to the relevant projected cash flow.
The actuarial assumptions used to compute the net periodic benefit expense for our Combined Pension Plan and post-
retirement benefit plans are based upon information available as of the beginning of the year, as presented in the
following table.
Combined Pension Plan
Post-Retirement Benefit Plans
2021
2020
2019
2021
2020
2019
Actuarial assumptions at
beginning of year:
Discount rate
1.70% - 2.88% 2.79% - 3.55% 3.94% - 4.44% 1.58% - 2.60% 1.69% - 3.35% 3.84% - 4.38%
Rate of compensation increase
3.25%
3.25%
3.25%
N/A
N/A
N/A
Expected long-term rate of return
on plan assets(1)
Initial health care cost trend rate
Ultimate health care cost trend
rate
Year ultimate trend rate is
reached
5.50%
6.50%
6.50%
4.00%
4.00%
4.00%
N/A
N/A
N/A
N/A
N/A
N/A
N/A 6.25% / 5.00% 6.50% / 5.00% 6.50% / 5.00%
N/A
N/A
4.50%
4.50%
4.50%
2025
2025
2025
N/A - Not applicable
1 Rates are presented net of projected fees and administrative costs.
Net periodic benefit expense (income) for our Combined Pension Plan includes the following components:
Combined Pension Plan
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
$
56
201
(535)
383
6
(9)
184
286
59
324
(593)
—
13
(9)
202
(4)
56
436
(618)
—
6
(8)
223
95
Service cost
Interest cost
Expected return on plan assets
Settlement charges
Special termination benefits charge
Recognition of prior service credit
Recognition of actuarial loss
Net periodic pension expense (income)
B-78
Net periodic benefit expense for our post-retirement benefit plans includes the following components:
APPENDIX B
Service cost
Interest cost
Expected return on plan assets
Recognition of prior service cost
Recognition of actuarial loss
Curtailment loss
Post-Retirement Plans
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
14
47
—
15
4
—
14
69
(1)
16
—
8
15
110
(1)
16
—
—
Net periodic post-retirement benefit expense
$
80
106
140
Service costs for our Combined Pension Plan and post-retirement benefit plans are included in the cost of services and
products and selling, general and administrative line items on our consolidated statements of operations and all other
costs listed above are included in other expense, net on our consolidated statements of operations for the years ended
December 31, 2021, 2020 and 2019. Additionally, a portion of the service cost is also allocated to certain assets under
construction, which are capitalized and reflected as part of property, plant and equipment in our consolidated balance
sheets. As a result of ongoing efforts to reduce our workforce, we recognized one-time charges in 2021 of $6 million, in
2020 of $21 million and in 2019 of $6 million for curtailment and special termination benefit enhancements paid to certain
eligible employees upon voluntary retirement.
Our pension plan contains provisions that allow us, from time to time, to offer lump sum payment options to certain
former employees in settlement of their future retirement benefits. We record an accounting settlement charge,
consisting of the recognition of certain deferred costs of the pension plan associated with these lump sum payments only
if, in the aggregate, they exceed or are probable to exceed the sum of the annual service and interest costs for the plan’s
net periodic pension benefit cost, which represents the settlement accounting threshold. The lump sum pension
settlement payments for 2021 exceeded the settlement threshold. In addition, during the fourth quarter of 2021, we
executed an annuity purchase contract with a third party insurer that triggered additional settlement activity (see
“Pension Annuitization” section below for further information). As a result, we recognized a non-cash settlement charge of
$383 million as of December 31, 2021 to accelerate the recognition of a portion of the previously unrecognized actuarial
losses in the qualified pension plan, which is reflected in other expense, net in our consolidated statement of operations
for the year ended December 31, 2021. This non-cash charge reduced our recorded net income and increased our recorded
accumulated deficit, with an offset to accumulated other comprehensive loss in shareholders' equity for the year ended
December 31, 2021. The amount of any future non-cash settlement charges after 2021 will be dependent on several factors,
including the total amount of our future lump sum benefit payments.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-79
APPENDIX B
Benefit Obligations
The actuarial assumptions used to compute the funded status for the plans are based upon information available as of
December 31, 2021 and 2020 and are as follows:
Actuarial assumptions at end of year:
Discount rate
Rate of compensation increase
Initial health care cost trend rate
Ultimate health care cost trend rate
Year ultimate trend rate is reached
N/A - Not applicable
Combined Pension Plan
December 31,
Post-Retirement Benefit Plans
December 31,
2021
2020
2021
2020
2.85%
3.25%
N/A
N/A
N/A
2.43%
3.25%
N/A
N/A
N/A
2.84%
N/A
2.40%
N/A
5.75% / 5.00%
6.25% / 5.00%
4.50%
2025
4.50%
2025
In 2021, 2020 and 2019, we adopted the revised mortality tables and projection scales released by the Society of Actuaries,
which increased the projected benefit obligation of our benefit plans by $37 million for 2021 and decreased the projected
benefit obligation of our benefit plans by $3 million and $4 million for 2020 and 2019, respectively. The change in the
projected benefit obligation of our benefit plans was recognized as part of the net actuarial loss and is included in
accumulated other comprehensive loss, a portion of which is subject to amortization over the remaining estimated life of
plan participants, which was approximately 8 years as of December 31, 2021.
The short-term and long-term interest crediting rates during 2021 for cash balance components of the Combined Pension
Plan were 1.5% and 3.5%, respectively.
The following tables summarize the change in the benefit obligations for the Combined Pension Plan and post-retirement
benefit plans:
Combined Pension Plan
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
Change in benefit obligation
Benefit obligation at beginning of year
$
12,202
Service cost
Interest cost
Plan amendments
Special termination benefits charge
Actuarial (gain) loss
Benefits paid from plan assets
Settlement payments and annuity purchase
Benefit obligation at end of year
$
56
201
(13)
6
(337)
(766)
(1,671)
9,678
12,217
59
324
(3)
13
749
(1,157)
—
12,202
11,594
56
436
(9)
6
1,249
(1,115)
—
12,217
B-80
APPENDIX B
Post-Retirement Benefit Plans
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
Change in benefit obligation
Benefit obligation at beginning of year
$
3,048
3,037
2,977
Service cost
Interest cost
Participant contributions
Direct subsidy receipts
Actuarial (gain) loss
Curtailment loss
Benefits paid by company
Benefits paid from plan assets
Benefit obligation at end of year
$
14
47
41
3
(125)
—
(247)
—
2,781
14
69
46
6
134
4
(255)
(7)
3,048
15
110
52
7
180
—
(300)
(4)
3,037
Pension Annuitization
On October 19, 2021, we, as sponsor of the Combined Pension Plan, along with the Plan’s independent fiduciary, entered
into an agreement committing the Plan to use a portion of its plan assets to purchase an annuity from an insurance
company (the "Insurer") to transfer approximately $1.4 billion of the Plan’s pension liabilities. This agreement irrevocably
transferred to the Insurer future Plan benefit obligations for approximately 22,600 U.S. Lumen participants (“Transferred
Participants”) effective on December 31, 2021. This annuity transaction was funded entirely by existing Plan assets.
The Insurer assumed responsibility for administrative and customer service support, including distribution of payments to
the Transferred Participants. Transferred Participants’ benefits were not reduced as a result of this transaction.
Plan Assets
We maintain plan assets for our Combined Pension Plan and certain post-retirement benefit plans. As previously noted,
assets in the post-retirement benefit plan trusts were substantially depleted as of December 31, 2016. Fair value of post-
retirement benefit plan assets of December 31, 2021, 2020 and 2019 was $5 million, $5 million and $13 million, respectively.
Due to the insignificance of these assets on our consolidated financial statements, we have predominantly excluded them
from the disclosures of plan assets in this Note, unless otherwise indicated.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-81
APPENDIX B
The following table summarizes the change in the fair value of plan assets for the Combined Pension Plan:
Combined Pension Plan
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
Change in plan assets
Fair value of plan assets at beginning of year
$
10,546
10,493
10,033
Return on plan assets
Benefits paid from plan assets
Settlement payments and annuity purchase
Fair value of plan assets at end of year
$
422
(766)
(1,671)
8,531
1,210
(1,157)
—
1,575
(1,115)
—
10,546
10,493
The expected rate of return on plan assets is the long-term rate of return we expect to earn on the plan's assets, net of
administrative expenses paid from plan assets. It is determined annually based on the strategic asset allocation and the
long-term risk and return forecast for each asset class.
Our investment objective for the Combined Pension Plan assets is to achieve an attractive risk-adjusted return over time
that will provide for the payment of benefits and minimize the risk of large losses. We employ a liability-aware investment
strategy designed to reduce the volatility of pension assets relative to pension liabilities. This strategy is evaluated
frequently and is expected to evolve over time with changes in the funded status and other factors. Approximately 55% of
plan assets is targeted to long-duration investment grade bonds and interest rate sensitive derivatives and 45% is targeted
to diversified equity, fixed income and private market investments that are expected to outperform the liability with
moderate funded status risk. At the beginning of 2022, our expected annual long-term rate of return on pension assets
before consideration of administrative expenses is assumed to be 6.0%. Administrative expenses, including projected
PBGC (Pension Benefit Guaranty Corporation) premiums reduce the annual long-term expected return net of
administrative expenses to 5.5%.
Permitted investments: Plan assets are managed consistent with the restrictions set forth by the Employee Retirement
Income Security Act of 1974, as amended.
Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for
an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based
on the reliability of the inputs used following the fair value hierarchy set forth by the FASB. For additional information on
the fair value hierarchy, see Note 14—Fair Value of Financial Instruments.
At December 31, 2021, we used the following valuation techniques to measure fair value for assets. There were no changes
to these methodologies during 2021:
•
Level 1—Assets were valued using the closing price reported in the active market in which the individual security was
traded. U.S. Treasury securities are valued at the bid price reported in an active market in which the security is traded.
Variation margin due from/(to) brokers is valued at the expected next day cash settlement amount.
B-82
APPENDIX B
•
•
Level 2—Assets were valued using quoted prices in markets that are not active, broker dealer quotations, and other
methods by which all significant inputs were observable at the measurement date. Fixed income securities primarily
utilize observable market information and are based on a spread to U.S. Treasury securities and consider yields available
on comparable securities of issuers with similar credit ratings, the new issue market for similar securities, secondary
trading markets and dealer quotes. Option adjusted spread models are utilized to evaluate fixed income securities that
have early redemption features. Derivative securities traded over the counter are valued based on gains or losses due to
fluctuations in indices, interest rates, foreign currency exchange rates, security prices or other underlying factors.
Repurchase agreements are valued based on expected settlement per the contract terms.
Level 3—Assets were valued using unobservable inputs in which little or no market data exists as reported by the
respective institutions at the measurement date. Valuation methods may consider a range of factors, including
estimates based on the assumptions of the investment entity or actuarial assumptions of insurers for valuing Group
Annuity Contracts.
The plan's assets are invested in various asset categories utilizing multiple strategies and investment managers. Interests
in commingled funds are fair valued using a practical expedient to the net asset value ("NAV") per unit (or its equivalent) of
each fund. The NAV reported by the fund manager is based on the market value of the underlying investments owned by
each fund, minus its liabilities, divided by the number of shares outstanding. Commingled funds can be redeemed at NAV,
with a frequency that includes, daily, monthly, quarterly, semi-annually and annually. These commingled funds include
redemption notice periods between same day and 180 days. Investments in private funds, primarily limited partnerships,
represent long-term commitments with a fixed maturity date and are also valued at NAV. The plan has unfunded
commitments related to certain private fund investments, which in aggregate are not material to the plan. Valuation
inputs for these private fund interests are generally based on assumptions and other information not observable in the
market. Underlying investments held in funds are aggregated and are classified based on the fund mandate. Investments
held in separate accounts are individually classified.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-83
APPENDIX B
The table below present the fair value of plan assets by category and the input levels used to determine those fair values at
December 31, 2021. It is important to note that the asset allocations do not include market exposures that are gained with
derivatives. Investments include dividend and interest receivables, pending trades and accrued expenses.
Fair Value of Combined Pension Plan Assets at
December 31, 2021
Level 1
Level 2
Level 3
Total
(Dollars in millions)
Assets
Investment grade bonds(a)
High yield bonds(b)
Emerging market bonds(c)
U.S. stocks(d)
Non-U.S. stocks(e)
Multi-asset strategies(l)
Derivatives(m)
Cash equivalents and short-term investments(o)
Total investments, excluding investments valued at NAV
Liabilities
Repurchase agreements(n)
Investments valued at NAV
Total pension plan assets
$
$
$
862
—
64
330
256
41
—
2
1,555
3,744
172
169
3
—
—
1
379
4,468
—
(193)
—
6
—
5
—
—
—
—
11
—
$
4,606
178
233
338
256
41
1
381
6,034
(193)
2,690
8,531
The table below present the fair value of plan assets by category and the input levels used to determine those fair values at
December 31, 2020. It is important to note that the asset allocations do not include market exposures that are gained with
derivatives. Investments include dividend and interest receivable, pending trades and accrued expenses.
Fair Value of Combined Pension Plan Assets at
December 31, 2020
Level 1
Level 2
Level 3
Total
(Dollars in millions)
Assets
Investment grade bonds(a)
High yield bonds(b)
Emerging market bonds(c)
U.S. stocks(d)
Non-U.S. stocks(e)
Multi-asset strategies(l)
Cash equivalents and short-term investments(o)
Total investments, excluding investments valued at NAV
Liabilities
Derivatives(m)
Investments valued at NAV
Total pension plan assets
$
$
$
726
—
218
653
593
199
—
2,389
4,066
262
172
—
1
—
281
4,782
—
(1)
—
6
—
2
—
—
—
8
—
4,792
268
390
655
594
199
281
7,179
(1)
3,368
$
10,546
B-84
The table below presents the fair value of plan assets valued at NAV by category for our Combined Pension Plan at
December 31, 2021 and 2020.
APPENDIX B
Investment grade bonds(a)
High yield bonds(b)
U.S. stocks(d)
Non-U.S. stocks(e)
Emerging market stocks(f)
Private equity(g)
Private debt(h)
Market neutral hedge funds(i)
Directional hedge funds(j)
Real estate(k)
Multi-asset strategies(l)
Cash equivalents and short-term investments(o)
Total investments valued at NAV
Fair Value of Plan Assets Valued at NAV
Combined Pension Plan at
December 31,
2021
2020
(Dollars in millions)
$
127
70
71
398
11
348
495
141
241
420
38
330
352
25
192
308
81
283
505
222
254
543
375
228
$
2,690
3,368
Below is an overview of the asset categories and the underlying strategies used in the preceding tables:
(a)
Investment grade bonds represent investments in fixed income securities as well as commingled bond funds comprised of U.S.
Treasury securities, agencies, corporate bonds, mortgage-backed securities, asset-backed securities and commercial mortgage-backed
securities.
(b) High yield bonds represent investments in below investment grade fixed income securities as well as commingled high yield bond
funds.
(c) Emerging market bonds represent investments in securities issued by governments and other entities located in emerging countries as
well as registered mutual funds and commingled emerging market bond funds.
(d) U.S. stocks represent investments in stocks of U.S. based companies as well as commingled U.S. stock funds.
(e) Non-U.S. stocks represent investments in stocks of companies based in developed countries outside the U.S. as well as commingled
funds.
(f) Emerging market stocks represent investments in commingled funds comprised of stocks of companies located in emerging markets.
(g) Private equity represents non-public investments in domestic and foreign buy out and venture capital funds. Private equity funds are
primarily structured as limited partnerships and are valued according to the valuation policy of each partnership, subject to prevailing
accounting and other regulatory guidelines.
(h) Private debt represents non-public investments in distressed or mezzanine debt funds and pension group insurance contracts.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-85
APPENDIX B
(i) Market neutral hedge funds hold investments in a diversified mix of instruments that are intended in combination to exhibit low
correlations to market fluctuations. These investments are typically combined with futures to achieve uncorrelated excess returns over
various markets.
(j) Directional hedge funds—This asset category represents investments that may exhibit somewhat higher correlations to market
fluctuations than the market neutral hedge funds. Investments in hedge funds include both direct investments and investments in
diversified funds of funds.
(k) Real estate represents investments in commingled funds and limited partnerships that invest in a diversified portfolio of real estate
properties.
(l) Multi-asset strategies represent broadly diversified strategies that have the flexibility to tactically adjust exposures to different asset
classes through time.
(m) Derivatives include exchange traded futures contracts as well as privately negotiated over the counter contracts. The market values
represent gains or losses that occur due to differences between stated contract terms and fluctuations in underlying market
instruments.
(n) Repurchase Agreements includes contracts where the security owner sells a security with the agreement to buy it back at a future date
and price.
(o) Cash equivalents and short-term investments represent investments that are used in conjunction with derivatives positions or are used
to provide liquidity for the payment of benefits or other purposes.
Derivative instruments: Derivative instruments are used to reduce risk as well as provide return. The gross notional
exposure of the derivative instruments directly held by the Combined Pension Plan is shown below. The notional amount
of the derivatives corresponds to market exposure but does not represent an actual cash investment.
Derivative instruments:
Exchange-traded U.S. equity futures
Exchange-traded Treasury and other interest rate futures
Exchange-traded Foreign currency futures
Exchange-traded EURO futures
Interest rate swaps
Credit default swaps
Index swaps
Foreign exchange forwards
Options
Gross Notional Exposure
Combined Pension Plan
Years Ended December 31,
2021
2020
(Dollars in millions)
$
108
1,688
11
5
127
132
1,036
93
654
84
1,033
12
6
124
43
1,297
769
222
B-86
APPENDIX B
Concentrations of Risk: Investments, in general, are exposed to various risks, such as significant world events, interest rate,
credit, foreign currency and overall market volatility risk. These risks are managed by broadly diversifying assets across
numerous asset classes and strategies with differing expected returns, volatilities and correlations. Risk is also broadly
diversified across numerous market sectors and individual companies. Financial instruments that potentially subject the
plans to concentrations of counterparty risk consist principally of investment contracts with high quality financial
institutions. These investment contracts are typically collateralized obligations and/or are actively managed, limiting the
amount of counterparty exposure to any one financial institution. Although the investments are well diversified, the value
of plan assets could change materially depending upon the overall market volatility, which could affect the funded status
of the plan.
The table below presents a rollforward of the Combined Pension Plan assets valued using Level 3 inputs:
Balance at December 31, 2019
Acquisitions (dispositions)
Actual return on plan assets
Balance at December 31, 2020
Actual return on plan assets
Balance at December 31, 2021
Combined Pension Plan Assets Valued
Using Level 3 Inputs
High
Yield
Bonds
U.S. Stocks
Private
Debt
Total
(Dollars in millions)
$
$
5
1
—
6
—
6
1
—
1
2
3
5
16
(17)
1
—
—
—
22
(16)
2
8
3
11
Certain gains and losses are allocated between assets sold during the year and assets still held at year-end based on
transactions and changes in valuations that occurred during the year. These allocations also impact our calculation of net
acquisitions and dispositions.
For the year ended December 31, 2021, the investment program produced actual gains on Combined Pension Plan assets
of $422 million as compared to expected returns of $535 million, for a difference of $113 million. For the year ended
December 31, 2020, the investment program produced actual gains on Combined Pension Plan assets of $1.2 billion as
compared to the expected returns of $593 million, for a difference of $618 million. The short-term annual returns on plan
assets will almost always be different from the expected long-term returns and the plans could experience net gains or
losses, due primarily to the volatility occurring in the financial markets during any given year.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-87
APPENDIX B
Unfunded Status
The following table presents the unfunded status of the Combined Pension Plan and post-retirement benefit plans:
Combined Pension Plan
Post-Retirement
Benefit Plans
Years Ended December 31,
Years Ended December 31,
2021
2020
2021
2020
Benefit obligation
Fair value of plan assets
Unfunded status
Current portion of unfunded status
$
(9,678)
8,531
(1,147)
—
Non-current portion of unfunded status
$
(1,147)
(Dollars in millions)
(12,202)
10,546
(1,656)
—
(1,656)
(2,781)
(3,048)
5
(2,776)
(212)
(2,564)
5
(3,043)
(228)
(2,815)
The current portion of our post-retirement benefit obligations is recorded on our consolidated balance sheets in accrued
expenses and other current liabilities-salaries and benefits.
B-88
Accumulated Other Comprehensive Loss-Recognition and Deferrals
The following table presents cumulative items not recognized as a component of net periodic benefits expense as of
December 31, 2020, items recognized as a component of net periodic benefits expense in 2021, additional items deferred
during 2021 and cumulative items not recognized as a component of net periodic benefits expense as of December 31,
2021. The items not recognized as a component of net periodic benefits expense have been recorded on our consolidated
balance sheets in accumulated other comprehensive loss:
APPENDIX B
As of and for the Years Ended December 31,
Recognition
of Net
Periodic
Benefits
Expense
2020
Net
Change in
AOCL
Deferrals
2021
(Dollars in millions)
Accumulated other comprehensive (loss) income
Pension plans:
Net actuarial (loss) gain
Settlement charge
Prior service benefit (cost)
Deferred income tax benefit (expense)
Total pension plans
Post-retirement benefit plans:
Net actuarial (loss) gain
Prior service (cost) benefit
Curtailment loss
Deferred income tax benefit (expense)
Total post-retirement benefit plans
$
(2,993)
—
41
755
(2,197)
(346)
(20)
4
90
(272)
186
383
(9)
(137)
423
4
15
—
(5)
14
Total accumulated other comprehensive (loss) income
$
(2,469)
437
243
—
13
(59)
197
125
—
—
(31)
94
291
429
383
4
(196)
620
129
15
—
(36)
108
728
(2,564)
383
45
559
(1,577)
(217)
(5)
4
54
(164)
(1,741)
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-89
APPENDIX B
The following table presents cumulative items not recognized as a component of net periodic benefits expense as of
December 31, 2019, items recognized as a component of net periodic benefits expense in 2020, additional items deferred
during 2020 and cumulative items not recognized as a component of net periodic benefits expense as of December 31,
2019. The items not recognized as a component of net periodic benefits expense have been recorded on our consolidated
balance sheets in accumulated other comprehensive loss:
As of and for the Years Ended December 31,
Recognition
of Net
Periodic
Benefits
Expense
2019
Net
Change in
AOCL
Deferrals
2020
(Dollars in millions)
Accumulated other comprehensive (loss) income
Pension plans:
Net actuarial (loss) gain
Prior service benefit (cost)
Deferred income tax benefit (expense)
Total pension plans
Post-retirement benefit plans:
Net actuarial (loss) gain
Prior service (cost) benefit
Curtailment loss
Deferred income tax benefit (expense)
Total post-retirement benefit plans
$
(3,046)
47
770
(2,229)
(175)
(71)
—
62
(184)
203
(9)
(47)
147
—
16
4
(5)
15
Total accumulated other comprehensive (loss) income
$
(2,413)
162
(150)
3
32
(115)
53
(6)
(15)
32
(171)
(171)
35
—
33
(103)
(218)
51
4
28
(88)
(56)
(2,993)
41
755
(2,197)
(346)
(20)
4
90
(272)
(2,469)
Medicare Prescription Drug, Improvement and Modernization Act of 2003
We sponsor post-retirement health care plans with several benefit options that provide prescription drug benefits that we
deem actuarially equivalent to or exceeding Medicare Part D. We recognize the impact of the federal subsidy received
under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 in the calculation of our post-
retirement benefit obligation and net periodic post-retirement benefit expense.
Other Benefit Plans
HEALTH CARE AND LIFE INSURANCE
We provide health care and life insurance benefits to essentially all of our active employees. We are largely self-funded for
the cost of the health care plan. Our health care benefit expense for current employees was $309 million, $307 million and
$381 million for the years ended December 31, 2021, 2020 and 2019, respectively. Union-represented employee benefits are
based on negotiated collective bargaining agreements. Employees contributed $120 million, $133 million, $148 million for
the years ended December 31, 2021, 2020 and 2019, respectively. Our group basic life insurance plans are fully insured and
the premiums are paid by us.
B-90
APPENDIX B
401(K) PLANS
We sponsor a qualified defined contribution plan covering substantially all of our U.S. employees. Under this plan,
employees may contribute a percentage of their annual compensation up to certain maximums, as defined by the plan
and by the Internal Revenue Service. Currently, we match a percentage of employee contributions in cash. At
December 31, 2021 and 2020, the assets of the plan included approximately 10 million and 11 million shares of our common
stock, respectively, all of which were the result of the combination of previous employer match and participant directed
contributions. We recognized expenses related to this plan of $96 million, $101 million and $113 million for the years ended
December 31, 2021, 2020 and 2019, respectively.
DEFERRED COMPENSATION PLANS
We sponsored non-qualified deferred compensation plans for various groups that included certain of our current and
former highly compensated employees. The value of liabilities related to these plans was not significant.
SUBSEQUENT EVENT
As of January 1, 2022, a new pension plan (the "Lumen Pension Plan") was spun off from the Lumen Combined Pension
Plan in anticipation of the sale of the ILEC business, as described further in Note 2—Planned Divestiture of the Latin
American and ILEC Businesses. The Lumen Pension Plan covers approximately 2,500 active plan participants along with
19,000 other participants, resulting in a pension benefit obligation of $2.5 billion and assets of $2.2 billion allocated to the
Lumen Pension Plan. In addition, the December 31, 2021 actuarial (loss) gain and prior service cost included in
accumulated other comprehensive loss was allocated to the Lumen Pension Plan or the Lumen Combined Pension Plan.
The amounts allocated to the Lumen Pension Plan are subject to adjustment up to the closing of the sale of the ILEC
business. We will recognize pension costs related to both plans during 2022 until the sale of the ILEC business, at which
time balances related to the Lumen Pension Plan will be included in the calculation of our gain on the sale of the business.
(12) STOCK-BASED COMPENSATION
We maintain an equity incentive program that allows our Board of Directors (through its Compensation Committee or a
senior officer acting under delegated authority) to grant incentives to certain employees and outside directors in one or
more forms, including: incentive and non-qualified stock options, stock appreciation rights, restricted stock awards,
restricted stock units and market and performance shares. Stock options generally expire ten years from the date of grant.
There was an insignificant amount of outstanding stock options as of December 31, 2020 and none as of
December 31, 2021.
Restricted Stock Awards and Restricted Stock Unit Awards
For equity based restricted stock and restricted stock unit awards that contain only service conditions for vesting (time-
based awards), we calculate the award fair value based on the closing price of Lumen Technologies common stock on the
accounting grant date. We also grant equity-based awards that contain service conditions as well as additional market or
performance conditions. For awards having both service and market conditions, the award fair value is calculated using
Monte-Carlo simulations. Awards with service as well as market or performance conditions specify a target number of
shares for the award, although each recipient ultimately has the opportunity to receive between 0% and 200% of the
target number of shares. For awards with service and market conditions, the percentage received is based on our total
shareholder return over the three-year service period versus that of selected peer companies. For awards with service and
performance conditions, the percentage received depends upon the attainment of one or more financial performance
targets during the two- or three-year service period.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-91
APPENDIX B
The following table summarizes activity involving restricted stock and restricted stock unit awards for the year ended
December 31, 2021:
Non-vested at December 31, 2020
Granted
Vested
Forfeited
Non-vested at December 31, 2021
Number of
Shares
(in thousands)
21,508 $
13,908
(11,161)
(1,828)
22,427
Weighted-
Average
Grant Date
Fair Value
12.37
13.95
13.56
12.58
12.74
During 2021, we granted 13.9 million shares of restricted stock and restricted stock unit awards at a weighted-average price
of $13.95. During 2020, we granted 17.8 million shares of restricted stock and restricted stock unit awards at a weighted-
average price of $12.08. During 2019, we granted 9.8 million shares of restricted stock and restricted stock unit awards at a
weighted-average price of $12.41. The total fair value of restricted stock that vested during 2021, 2020 and 2019, was $139
million, $126 million and $118 million, respectively. We do not estimate forfeitures, but recognize them as they occur.
Compensation Expense and Tax Benefit
We recognize compensation expense related to our market and performance stock-based awards with graded vesting
that only have a service condition on a straight-line basis over the requisite service period for the entire award. Total
compensation expense for all stock-based payment arrangements for the years ended December 31, 2021, 2020 and 2019,
was $120 million, $175 million and $162 million, respectively. Our tax benefit recognized in the consolidated statements of
operations for our stock-based payment arrangements for the years ended December 31, 2021, 2020 and 2019, was
$29 million, $43 million and $39 million, respectively. At December 31, 2021, there was $147 million of total unrecognized
compensation expense related to our stock-based payment arrangements, which we expect to recognize over a
weighted-average period of 1.5 years.
B-92
(13) EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted earnings (loss) per common share for the years ended December 31, 2021, 2020 and 2019 were calculated
as follows:
APPENDIX B
Income (Loss) (Numerator)
Net Income (Loss)
Net income (loss) applicable to common stock for computing basic
earnings (loss) per common share
Net income (loss) as adjusted for purposes of computing diluted
earnings (loss) per common share
Shares (Denominator):
Weighted average number of shares:
Outstanding during period
Non-vested restricted stock
Weighted average shares outstanding for computing basic earnings (loss)
per common share
Incremental common shares attributable to dilutive securities:
Shares issuable under convertible securities
Shares issuable under incentive compensation plans
Number of shares as adjusted for purposes of computing diluted
earnings (loss) per common share
Basic earnings (loss) per common share
Diluted earnings (loss) per common share(1)
Years Ended December 31,
2021
2020
2019
(Dollars in millions, except per share
amounts, shares in thousands)
$
2,033
(1,232)
(5,269)
2,033
(1,232)
(5,269)
$
2,033
(1,232)
(5,269)
1,077,393
1,096,284
1,088,730
(17,852)
(17,154)
(17,289)
1,059,541
1,079,130
1,071,441
10
7,227
—
—
—
—
1,066,778
1,079,130
1,071,441
$
$
1.92
1.91
(1.14)
(1.14)
(4.92)
(4.92)
1 For the years ended December 31, 2020 and December 31, 2019, we excluded from the calculation of diluted loss per share 5.3 million shares and 3.0 million
shares, respectively, potentially issuable under incentive compensation plans or convertible securities, as their effect, if included, would have been
anti-dilutive.
Our calculation of diluted earnings (loss) per common share excludes shares of common stock that are issuable upon
exercise of stock options when the exercise price is greater than the average market price of our common stock. We also
exclude unvested restricted stock awards that are antidilutive as a result of unrecognized compensation cost. Such shares
were 3.2 million, 3.2 million and 6.8 million for 2021, 2020 and 2019, respectively.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments consist of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, long-
term debt, excluding finance lease and other obligations, interest rate swap contracts and certain investments. Due
primarily to their short-term nature, the carrying amounts of our cash, cash equivalents, restricted cash, accounts
receivable and accounts payable approximate their fair values.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability
at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use
of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the
inputs used following the fair value hierarchy set forth by the FASB.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-93
APPENDIX B
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
Level 2
Level 3
Observable inputs such as quoted market prices in active markets.
Inputs other than quoted prices in active markets that are either directly or indirectly observable.
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
December 31, 2021:
Long-term debt, excluding finance lease and other
obligations(1)
Interest rate swap contracts (see Note 15)
As of December 31, 2021
As of December 31, 2020
Input
Level
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(Dollars in millions)
2 $
28,635
29,221
2
25
25
31,542
107
33,217
107
1 As of December 31, 2021, these amounts exclude $1.4 billion of carrying amount and $1.6 billion of fair value of debt that has been reclassified as held for sale.
See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.
Investment Held at Net Asset Value
We hold an investment in a limited partnership that functions as holding company for a portion of the colocation and data
center business that we divested in 2017. The limited partnership solely holds investments in those entities and has sole
discretion as to the amount and timing of distributions of the underlying assets. Our investment did not have a readily
determinable fair value as of December 31, 2020. As such, our investment in the limited partnership was previously
accounted for under the cost method of accounting. As of December 31, 2021, the underlying investments held by the
limited partnership began trading in active markets and as such, we elected to account for our investment in the limited
partnership using net asset value ("NAV") as a practical expedient. As of December 31, 2021 the limited partnership is
subject to a lock-up agreement that restricts the sale of certain underlying assets. The restriction is set to terminate
in 2022.
As of December 31, 2021
As of December 31, 2020
Investment in limited partnership(1)
$
299
NAV
(Dollars in millions)
Cost
161
1 For the year ended December 31, 2021, we recognized $138 million of gain on investment, reflected in other expense, net in our consolidated statement of
operations for the year ended December 31, 2021.
B-94
APPENDIX B
(15) DERIVATIVE FINANCIAL INSTRUMENTS
From time to time, we use derivative financial instruments, primarily interest rate swaps, to manage our exposure to
fluctuations in interest rates. Our primary objective in managing interest rate risk is to decrease the volatility of our
earnings and cash flows affected by changes in the underlying rates. We have floating rate long-term debt (see Note 7—
Long-Term Debt and Credit Facilities). These obligations expose us to variability in interest payments due to changes in
interest rates. If interest rates increase, our interest expense increases. Conversely, if interest rates decrease, our interest
expense also decreases. We have designated our currently outstanding interest rate swap agreements as cash flow
hedges. As described further below, under these hedges, we receive variable-rate amounts from a counterparty in
exchange for us making fixed-rate payments over the lives of the agreements without exchange of the underlying
notional amount. The change in the fair value of the interest rate swap agreements is reflected in accumulated other
comprehensive income ("AOCI") and, as described below, is subsequently reclassified into earnings in the period that the
hedged transaction affects earnings by virtue of qualifying as effective cash flow hedges. We do not use derivative
financial instruments for speculative purposes.
In February 2019, we entered into five variable-to-fixed interest rate swap agreements to hedge the interest payments on
$2.5 billion notional amount of floating rate debt. The five interest rate swap agreements are with different counterparties;
one for $700 million and the other four for $450 million each. The transactions were effective beginning March 31, 2019 and
mature March 31, 2022. Under the terms of these interest rate swap transactions, we receive interest payments based on
one month floating LIBOR terms and pay interest at the fixed rate of 2.48%.
In June 2019, we entered into six variable-to-fixed interest rate swap agreements to hedge the interest payments on $1.5
billion notional amount of floating rate debt. The six interest rate swap agreements are with different counterparties for
$250 million each. The transactions were effective beginning June 30, 2019 and mature June 30, 2022. Under the terms of
these interest rate swap transactions, we receive interest payments based on one month floating LIBOR terms and pay
interest at the fixed rate of 1.58%.
As of December 31, 2021, 2020 and 2019, we evaluated the effectiveness of our hedges quantitatively and determined that
hedges in effect on such dates qualified as effective hedge relationships.
We may be exposed to credit-related losses in the event of non-performance by counterparties. The counterparties to any
of the financial derivatives we enter into are major institutions with investment grade credit ratings. We evaluate
counterparty credit risk before entering into any hedge transaction and continue to closely monitor the financial market
and the risk that our counterparties will default on their obligations as part of our quarterly qualitative
effectiveness evaluation.
Amounts accumulated in AOCI related to derivatives are indirectly recognized in earnings as periodic settlement
payments are made throughout the term of the swaps.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-95
APPENDIX B
The table below presents the fair value of our derivative financial instruments as well as their classification on the
consolidated balance sheets at December 31, 2021 and December 31, 2020 as follows (in millions):
Derivatives designated as
Balance Sheet Location
Fair Value
Cash flow hedging contracts
Other current and noncurrent liabilities
$
25
107
December 31,
2021
December 31,
2020
The amount of unrealized losses recognized in AOCI consists of the following (in millions):
Derivatives designated as hedging instruments
2021
2020
2019
Cash flow hedging contracts
Years Ended December 31,
$
1
115
53
The amount of realized losses reclassified from AOCI to the statement of operations consists of the following (in millions):
Derivatives designated as hedging instruments
2021
2020
2019
Cash flow hedging contracts
Years Ended December 31,
$
83
62
2
Amounts currently included in AOCI will be reclassified into earnings prior to the ongoing settlements of these cash flow
hedging contracts on March 31, 2022 or June 30, 2022. We estimate that $25 million of net losses on the interest rate swaps
(based on the estimated LIBOR curve as of December 31, 2021) will be reflected in our consolidated statements of
operations within the next 12 months.
(16) INCOME TAXES
The components of the income tax expense are as follows:
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
$
5
514
42
72
23
12
668
5
338
50
55
29
(27)
450
7
376
15
81
35
(11)
503
Income tax expense:
Federal
Current
Deferred
State
Current
Deferred
Foreign
Current
Deferred
Total income tax expense
B-96
APPENDIX B
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
Income tax expense was allocated as follows:
Income tax expense in the consolidated statements of operations:
Attributable to income
Stockholders' equity:
Tax effect of the change in accumulated other comprehensive loss
$
$
668
222
450
17
503
(62)
The following is a reconciliation from the statutory federal income tax rate to our effective income tax rate:
Statutory federal income tax rate
State income taxes, net of federal income tax benefit
Goodwill impairment
Change in liability for unrecognized tax position
Legislative changes to GILTI
Nondeductible executive stock compensation
Change in valuation allowance
Net foreign income taxes
Research and development credits
Other, net
Effective income tax rate
Years Ended December 31,
2021
2020
2019
(Percentage of pre-tax income (loss))
21.0 %
3.3 %
— %
0.1 %
— %
0.2 %
— %
0.6 %
(0.5) %
— %
24.7 %
21.0 %
(10.8) %
(71.0) %
(0.6) %
1.8 %
(1.6) %
2.6 %
(0.6) %
1.6 %
0.1 %
21.0 %
(1.6) %
(28.6) %
(0.2) %
— %
(0.1) %
— %
(0.5) %
0.1 %
(0.7) %
(57.5) %
(10.6) %
The effective tax rate for the year ended December 31, 2020 includes a $555 million unfavorable impact of non-deductible
goodwill impairments, a $14 million favorable impact in tax regulations passed in 2020 allowing a high tax exception
related to our tax exposure of Global Intangible Low-Taxed Income ("GILTI"), as well as a $20 million benefit related to the
release of previously established valuation allowances against capital losses. The effective tax rate for the year ended
December 31, 2019 reflects a $1.4 billion unfavorable impact of non-deductible goodwill impairments.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-97
APPENDIX B
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax
liabilities were as follows:
Deferred tax assets
Post-retirement and pension benefit costs
Net operating loss carryforwards
Other employee benefits
Other
Gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities
Property, plant and equipment, primarily due to depreciation differences
Goodwill and other intangible assets
Gross deferred tax liabilities
Net deferred tax liability
As of December 31,
2021
2020
(Dollars in millions)
$
$
978
2,463
96
554
4,091
(1,566)
2,525
(3,941)
(2,473)
(6,414)
(3,889)
1,164
3,138
119
604
5,025
(1,538)
3,487
(3,882)
(2,755)
(6,637)
(3,150)
Of the $3.9 billion and $3.2 billion net deferred tax liability at December 31, 2021 and 2020, respectively, $4.0 billion and
$3.3 billion is reflected as a long-term liability and $160 million and $191 million is reflected as a net noncurrent deferred tax
asset, in other, net on our consolidated balance sheets at December 31, 2021 and 2020, respectively.
At December 31, 2021, we had federal NOLs of $2.9 billion, net of limitations of Section 382 of the Internal Revenue Code
("Section 382") and uncertain tax positions, for U.S. federal income tax purposes. If unused, the NOLs will expire between
2026 and 2037. The U.S. federal net operating loss carryforwards expire as follows:
Expiring
December 31,
2026
2027
2028
2029
2030
2031
2032
2033
2037
NOLs per return
Uncertain tax positions
Financial NOLs
Amount
(Dollars in millions)
$
$
741
375
637
645
668
733
348
238
2,976
7,361
(4,457)
2,904
We expect to use substantially all of these tax attributes to reduce our future federal tax liabilities, although the timing of
that use will depend upon our future earnings and future tax circumstances.
B-98
APPENDIX B
At December 31, 2021 we had state net operating loss carryforwards of $16 billion (net of uncertain tax positions). We also
had foreign NOL carryforwards of $6 billion. Our acquisitions of Level 3, Qwest and SAVVIS, Inc. caused "ownership
changes" within the meaning of Section 382 for the acquired companies. As a result, our ability to use these NOLs and tax
credits are subject to annual limits imposed by Section 382.
We establish valuation allowances when necessary to reduce the deferred tax assets to amounts we expect to realize. As of
December 31, 2021, a valuation allowance of $1.6 billion was established as it is more likely than not that this amount of net
operating loss, capital loss and tax credit carryforwards will not be utilized prior to expiration. Our valuation allowance at
December 31, 2021 and 2020 is primarily related to foreign and state NOL carryforwards. This valuation allowance increased
by $28 million during 2021, primarily due to the impact of adjustments related to the planned divestiture of our Latin
American business.
A reconciliation of the change in our gross unrecognized tax benefits (excluding both interest and any related federal
benefit) from January 1 to December 31 for 2021 and 2020 is as follows:
2021
2020
(Dollars in millions)
Unrecognized tax benefits at beginning of year
$
1,474
1,538
Increase in tax positions of the current year netted against deferred tax assets
Increase in tax positions of prior periods netted against deferred tax assets
Decrease in tax positions of the current year netted against deferred tax assets
Decrease in tax positions of prior periods netted against deferred tax assets
Increase in tax positions taken in the current year
Increase in tax positions taken in the prior year
Decrease due to payments/settlements
Decrease from the lapse of statute of limitations
Unrecognized tax benefits at end of year
1
—
(101)
(1)
4
2
(3)
(1)
18
5
(86)
(5)
4
1
(1)
—
$
1,375
1,474
The total amount (including both interest and any related federal benefit) of unrecognized tax benefits that, if recognized,
would impact the effective income tax rate was $273 million and $267 million at December 31, 2021 and 2020, respectively.
Our policy is to reflect interest expense associated with unrecognized tax benefits in income tax expense. We had accrued
interest (presented before related tax benefits) of approximately $24 million and $23 million at December 31, 2021 and
2020, respectively.
We, or at least one of our subsidiaries, file income tax returns in the U.S. federal jurisdiction and various states and foreign
jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 2002. The Internal Revenue Service and state and local taxing authorities
reserve the right to audit any period where net operating loss carryforwards are available.
Based on our current assessment of various factors, including (i) the potential outcomes of these ongoing examinations,
(ii) the expiration of statute of limitations for specific jurisdictions, (iii) the negotiated settlement of certain disputed issues,
and (iv) the administrative practices of applicable taxing jurisdictions, it is reasonably possible that the related
unrecognized tax benefits for uncertain tax positions previously taken may decrease by up to $3 million within the next
12 months. The actual amount of such decrease, if any, will depend on several future developments and events, many of
which are outside our control.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT
B-99
APPENDIX B
(17) SEGMENT INFORMATION
In early 2021, Jeff Storey, our chief executive officer, who serves as chief operating decision maker ("CODM"), made changes
to our segment and customer-facing sales channel reporting categories to align with operational changes designed to
better support our customers. Since these changes, we have reported two segments: Business and Mass Markets. The
Business segment includes four sales channels: International and Global Accounts, Large Enterprise, Mid-Market
Enterprise and Wholesale. These changes also include both the creation of new product categories and the realignment of
products and services within previously reported product categories to better reflect product life cycles and our go-to-
market approach. For Business segment revenue, we report the following product categories: Compute and Application
Services, IP and Data Services, Fiber Infrastructure Services and Voice and Other, in each case through the sales channels
outlined above. For Mass Markets segment revenue, we report the following product categories: Consumer Broadband,
SBG Broadband, Voice and Other and CAF II. See detailed descriptions of these product and service categories in Note 4—
Revenue Recognition.
As described in more detail below, our segments are managed based on the direct costs of providing services to their
customers and directly associated selling, general and administrative costs (primarily salaries and commissions). Shared
costs are managed separately and included in "Operations and Other" in the tables below. As referenced above, we
reclassified certain prior period amounts to conform to the current period presentation. See Note 1—Background and
Summary of Significant Accounting Policies for additional detail on these changes.
At December 31, 2021, we had the following two reportable segments:
• Business Segment: Under our Business segment, we provide our products and services under four distinct sales
channels to meet the needs of our enterprise and commercial customers; and
• Mass Markets Segment: Under our Mass Markets segment, we provide products and services to consumer and small
business customers.
The following tables summarize our segment results for 2021, 2020 and 2019 based on the segment categorization we
were operating under at December 31, 2021.
Year Ended December 31, 2021
Business
Mass
Markets
Total
Segments
Operations
and Other
Total
(Dollars in millions)
$
14,119
5,568
19,687
—
19,687
Revenue:
Expenses:
Cost of services and products
Selling, general and administrative
Less: stock-based compensation
Total expense
Total adjusted EBITDA
$
3,484
1,189
—
4,673
9,446
152
530
—
682
4,886
3,636
1,719
—
5,355
14,332
4,852
1,176
(120)
5,908
(5,908)
8,488
2,895
(120)
11,263
8,424
B-100
APPENDIX B
Year Ended December 31, 2020
Business
Mass
Markets
Total
Segments
Operations and
Other
Total
(Dollars in millions)
$
14,817
5,895
20,712
—
20,712
Revenue:
Expenses:
Cost of services and products
Selling, general and administrative
Less: stock-based compensation
Total expense
Total adjusted EBITDA
$
3,649
1,269
—
4,918
9,899
203
574
—
777
5,118
3,852
1,843
—
5,695
15,017
5,082
1,621
(175)
6,528
(6,528)
8,934
3,464
(175)
12,223
8,489
Year Ended December 31, 2019
Business
Mass
Markets
Total
Segments
Operations and
Other
Total
(Dollars in millions)
$
15,239
6,219
21,458
—
21,458
Revenue:
Expenses:
Cost of services and products
Selling, general and administrative
Less: stock-based compensation
Total expense
Total adjusted EBITDA
$
3,598
1,364
—
4,962
10,277
214
630
—
844
5,375
3,812
1,994
—
5,806
15,652
5,322
1,721
(162)
6,881
(6,881)
9,134
3,715
(162)
12,687
8,771
Revenue and Expenses
Our segment revenue includes all revenue from our two segments as described in more detail above. Our segment
revenue is based upon each customer's classification. We report our segment revenue based upon all services provided
to that segment's customers. Our segment expenses include specific cost of service expenses incurred as a direct result of
providing services and products to segment customers, along with selling, general and administrative expenses that are
directly associated with specific segment customers or activities. We have not allocated assets or debt to
specific segments.
The following items are excluded from our segment results, because they are centrally managed and not monitored by or
reported to our CODM by segment:
• network expenses not incurred as a direct result of providing services and products to segment customers;
•
centrally managed expenses such as Finance, Human Resources, Legal, Marketing, Product Management and IT, which
are reported as "Other operating expenses" in the table below;
• depreciation and amortization expense;
• goodwill or other impairments;
•
•
•
interest expense;
stock-based compensation; and
other income and expense items are not monitored as a part of our segment operations.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT B-101
APPENDIX B
The following table reconciles total segment adjusted EBITDA to net income (loss) for the years ended December 31, 2021,
2020 and 2019:
Total segment adjusted EBITDA
Depreciation and amortization
Goodwill impairment
Operations and other expenses
Stock-based compensation
Operating income (loss)
Total other expense, net
Income (loss) before income taxes
Income tax expense
Net income (loss)
Years Ended December 31,
2021
2020
2019
(Dollars in millions)
$
$
14,332
(4,019)
—
(5,908)
(120)
4,285
(1,584)
2,701
668
2,033
15,017
(4,710)
(2,642)
(6,528)
(175)
962
(1,744)
(782)
450
(1,232)
15,652
(4,829)
(6,506)
(6,881)
(162)
(2,726)
(2,040)
(4,766)
503
(5,269)
We do not have any single customer that comprises more than 10% of our consolidated total operating revenue.
The assets we hold outside of the U.S. represent less than 10% of our total assets. Revenue from sources outside of the U.S.
comprises less than 10% of our total operating revenue.
(18) COMMITMENTS, CONTINGENCIES AND OTHER ITEMS
We are subject to various claims, legal proceedings and other contingent liabilities, including the matters described below,
which individually or in the aggregate could materially affect our financial condition, future results of operations or cash
flows. As a matter of course, we are prepared to both litigate these matters to judgment as needed, as well as to evaluate
and consider reasonable settlement opportunities.
Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant
expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in
accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and
reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in
circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to
losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate.
Amounts accrued for our litigation and non-income tax contingencies at December 31, 2021 and December 31, 2020
aggregated to approximately $103 million and $141 million, respectively, and are included in other current liabilities, other
liabilities, or liabilities held for sale in our consolidated balance sheets as of such dates. 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, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in
that matter.
B-102
APPENDIX B
Principal Proceedings
SHAREHOLDER CLASS ACTION SUIT
Lumen and certain Lumen Board of Directors members and officers were named as defendants in a putative shareholder
class action lawsuit filed on June 12, 2018 in the Boulder County District Court of the state of Colorado, captioned Houser et
al. v. CenturyLink, et al. The complaint asserts claims on behalf of a putative class of former Level 3 shareholders who
became CenturyLink, Inc. shareholders as a result of our acquisition of Level 3. It alleges that the proxy statement provided
to the Level 3 shareholders failed to disclose various material information of several kinds, including information about
strategic revenue, customer loss rates, and customer account issues, among other items. The complaint seeks damages,
costs and fees, rescission, rescissory damages, and other equitable relief. In May 2020, the court dismissed the complaint.
Plaintiffs appealed that decision, and the appeal is pending.
STATE TAX SUITS
Since 2012, a number of Missouri municipalities have asserted claims in the Circuit Court of St. Louis County, Missouri,
alleging that we and several of our subsidiaries have underpaid taxes. These municipalities are seeking, among other
things, declaratory relief regarding the application of business license and gross receipts taxes and back taxes from 2007
to the present, plus penalties and interest. In a February 2017 ruling in connection with one of these pending cases, the
court entered an order awarding plaintiffs $4 million and broadening the tax base on a going-forward basis. We appealed
that decision to the Missouri Supreme Court. In December 2019, it affirmed the circuit court's order in some respects and
reversed it in others, remanding the case to the circuit court for further proceedings. The Missouri Supreme Court's
decision reduced our exposure in the case. In a June 2021 ruling in one of the pending cases, another trial court awarded
the cities of Columbia and Joplin approximately $55 million, plus statutory interest. We have appealed that decision to the
Missouri Court of Appeals. That appeal is pending. If the trial court's decision is not overturned or modified in light of the
Missouri Supreme Court's decision, it will result in a tax liability to us in excess of our reserved accruals established for
these matters. We continue to vigorously defend against these claims.
BILLING PRACTICES SUITS
In June 2017, a former employee filed an employment lawsuit against us claiming that she was wrongfully terminated for
alleging that we charged some of our retail customers for products and services they did not authorize. Thereafter, based
in part on the allegations made by the former employee, several legal proceedings were filed, including consumer class
actions in federal and state courts, a series of securities investor class actions in federal courts and several shareholder
derivative actions in federal and Louisiana state courts. The derivative cases were brought on behalf of CenturyLink, Inc.
against certain current and former officers and directors of the Company and seek damages for alleged breaches of
fiduciary duties.
The consumer class actions, the securities investor class actions, and the federal derivative actions were transferred to the
U.S. District Court for the District of Minnesota for coordinated and consolidated pretrial proceedings as In Re: CenturyLink
Sales Practices and Securities Litigation. We have settled the consumer and securities investor class actions. Those
settlements are final. The derivative actions remain pending.
We have engaged in discussions regarding related claims with a number of state attorneys general, and have entered into
agreements settling certain of the consumer practices claims asserted by state attorneys general. While we do not agree
with allegations raised in these matters, we have been willing to consider reasonable settlements where appropriate.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT B-103
APPENDIX B
DECEMBER 2018 OUTAGE PROCEEDINGS
We experienced an outage on one of our transport networks that impacted voice, IP, 911, and transport services for some of
our customers between the 27th and 29th of December 2018. We believe that the outage was caused by a faulty network
management card from a third-party equipment vendor.
The FCC and four states (both Washington Utilities and Transportation Commission ("WUTC") and the Washington
Attorney General; the Montana Public Service Commission; the Nebraska Public Service Commission; and the Wyoming
Public Service Commission) initiated formal investigations. In November 2020, following the FCC's release of a public
report on the outage, we negotiated a settlement which was released by the FCC in December 2020. The amount of the
settlement was not material to our financial statements.
In December 2020, the Staff of the WUTC filed a complaint against us based on the December 2018 outage, seeking
penalties owed for alleged violations of Washington regulations and laws. We have denied the allegations and will defend
the claims asserted.
PERUVIAN TAX LITIGATION
In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of our Peruvian subsidiaries asserting
$26 million, of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years
2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations. In May 2021, the
Company paid the remaining amount on the fractioning regimes entered into by the Company to pay the amount
assessed while it was appealed.
We challenged the assessments via administrative and then judicial review processes. In October 2011, the highest
administrative review tribunal (the Tribunal) decided the central issue underlying the 2002 assessments in SUNAT's favor.
We appealed the Tribunal's decision to the first judicial level, which decided the central issue in favor of Level 3. SUNAT and
we filed cross-appeals with the court of appeal. In May 2017, the court of appeal issued a decision reversing the first judicial
level. In June 2017, we filed an appeal of the decision to the Supreme Court of Justice, the final judicial level. Oral argument
was held before the Supreme Court of Justice in October 2018. A decision on this case is pending.
In October 2013, the Tribunal decided the central issue underlying the 2001 assessments in SUNAT’s favor. We appealed
that decision to the first judicial level in Peru, which decided the central issue in favor of SUNAT. In June 2017, we filed an
appeal with the court of appeal. In November 2017, the court of appeals issued a decision affirming the first judicial level
and we filed an appeal of the decision to the Supreme Court of Justice. Oral argument was held before the Supreme Court
of Justice in June 2019. In May 2021, the Company was served with a favorable and final decision from the Supreme Court
of Justice. The Company is working with SUNAT to provide additional information before SUNAT submits its plan for
complying with the Supreme Court of Justice's decision.
BRAZILIAN TAX CLAIMS
The São Paulo and Rio de Janeiro state tax authorities have issued tax assessments against our Brazilian subsidiaries for
the Tax on Distribution of Goods and Services (“ICMS”), mainly with respect to revenue from leasing certain assets and
revenue from the provision of Internet access services by treating such activities as the provision of communications
services, to which the ICMS tax applies. We filed objections to these assessments in both states, arguing among other
things that neither the lease of assets nor the provision of Internet access qualifies as communication services subject
to ICMS.
B-104
APPENDIX B
We have appealed to the respective state judicial courts the decisions by the respective state administrative courts that
rejected our objections to these assessments. In cases in which state lower courts ruled partially in our favor finding that
the lease assets are not subject to ICMS, and in connection, the State appealed those rulings. In other cases, the
assessment was affirmed at the first administrative level and our appeal to the second administrative level is pending.
Other assessments are still pending state judicial decisions.
We are vigorously contesting all such assessments in both states and view the assessment of ICMS on revenue from
equipment leasing and Internet access to be without merit. These assessments, if upheld, could result in a loss of up to
$46 million as of December 31, 2021, in excess of the reserved accruals established for these matters.
QUI TAM ACTION
Level 3 was notified in late 2017 of a qui tam action pending against Level 3 Communications, Inc. and others in the U.S.
District Court for the Eastern District of Virginia, captioned United States of America ex rel., Stephen Bishop v. Level 3
Communications, Inc. et al. The amended complaint alleged that Level 3, principally through two former employees,
submitted false claims and made false statements to the government in connection with two government contracts. The
relator sought damages in this lawsuit of approximately $50 million. The case was settled in the second quarter of 2021 for
an immaterial amount. This matter is now fully resolved.
Other Proceedings, Disputes and Contingencies
From time to time, we are involved in other proceedings incidental to our business, including patent infringement
allegations, regulatory hearings relating primarily to our rates or services, actions relating to employee claims, various tax
issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third-party tort
actions or commercial disputes.
We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of
which are seeking substantial recoveries. These cases have progressed to various stages and one or more may go to trial
within the next 12 months if they are not otherwise resolved. Where applicable, we are seeking full or partial
indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a
matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable
settlement opportunities.
We are subject to various foreign, federal, state and local environmental protection and health and safety laws. From time
to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under
these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $300,000 in fines
and penalties.
The outcome of these other proceedings described under this heading is not predictable. However, based on current
circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available
defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.
The matters listed in this Note do not reflect all of our contingencies. The ultimate outcome of the above-described
matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our
statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially
impact us.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT B-105
APPENDIX B
Right-of-Way
At December 31, 2021, our future rental commitments and Right-of-Way agreements were as follows:
2022
2023
2024
2025
2026
2027 and thereafter
Total future minimum payments
Right-of-Way Agreements
(Dollars in millions)
$
$
246
99
84
74
71
962
1,536
Purchase Commitments
We have several commitments primarily for marketing activities and support services from a variety of vendors to be used
in the ordinary course of business totaling $1.1 billion at December 31, 2021. Of this amount, we expect to purchase $414
million in 2022, $386 million in 2023 through 2024, $91 million in 2025 through 2026 and $188 million in 2027 and
thereafter. These amounts do not represent our entire anticipated purchases in the future, but represent only those items
for which we were contractually committed as of December 31, 2021.
Amounts included in the Right-of-Way table and in the purchase commitments disclosed above are inclusive of
contractual obligations related to our Latin American and ILEC businesses to be divested.
(19) OTHER FINANCIAL INFORMATION
Other Current Assets
The following table presents details of other current assets in our consolidated balance sheets:
Prepaid expenses
Income tax receivable
Materials, supplies and inventory
Contract assets
Contract acquisition costs
Contract fulfillment costs
Note receivable
Receivable for sale of land
Other
Total other current assets(1)
As of December 31,
2021
2020
(Dollars in millions)
$
295
290
22
96
45
142
106
56
56
11
7
105
66
173
114
—
—
53
$
829
808
1 As of December 31, 2021, other current assets exclude $126 million that have been reclassified as held for sale.
Included in accounts payable at December 31, 2021 and 2020 were $248 million and $329 million, respectively, associated
with capital expenditures.
B-106
APPENDIX B
(20) REPURCHASES OF LUMEN COMMON STOCK
Effective August 3, 2021, our Board of Directors authorized a 24-month program to repurchase up to an aggregate of $1.0
billion of our outstanding common stock. During the year ended December 31, 2021, we repurchased under this program
80.9 million shares of our outstanding common stock in the open market for an aggregate market price of $1.0 billion, or
an average purchase price of $12.36 per share, thereby fully exhausting the program. All repurchased common stock has
been retired. As a result, common stock and additional paid-in capital were reduced as of December 31, 2021 by $81 million
and $919 million, respectively.
(21) ACCUMULATED OTHER COMPREHENSIVE LOSS
Information Relating to 2021
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance
sheet by component for the year ended December 31, 2021:
Pension Plans
Post-
Retirement
Benefit Plans
Foreign
Currency
Translation
Adjustment
and Other
(Dollars in millions)
Interest
Rate Swap
Total
Balance at December 31, 2020
$
(2,197)
(272)
(265)
(79)
(2,813)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive income (loss)
197
423
620
Balance at December 31, 2021
$
(1,577)
94
(135)
14
108
(164)
—
(135)
(400)
(1)
63
62
(17)
155
500
655
(2,158)
The table below presents further information about our reclassifications out of accumulated other comprehensive loss by
component for the year ended December 31, 2021:
Year Ended December 31, 2021
(Dollars in millions)
Decrease (Increase)
in Net Income
Affected Line Item in Consolidated
Statement of Operations
Interest rate swaps
Income tax benefit
Net of tax
Amortization of pension & post-retirement plans(1)
Net actuarial loss
Settlement charge
Prior service cost
Total before tax
Income tax benefit
Net of tax
$
$
$
83
Interest expense
(20)
Income tax expense
63
190 Other expense, net
383 Other expense, net
6 Other expense, net
579
(142)
Income tax expense
$
437
1 See Note 11—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT B-107
APPENDIX B
Information Relating to 2020
The table below summarizes changes in accumulated other comprehensive loss recorded on our consolidated balance
sheet by component for the year ended December 31, 2020:
Pension Plans
Post-
Retirement
Benefit Plans
Foreign
Currency
Translation
Adjustment
and Other
Interest
Rate Swap
(Dollars in millions)
Balance at December 31, 2019
$
(2,229)
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive income (loss)
(115)
147
32
Balance at December 31, 2020
$
(2,197)
(184)
(103)
15
(88)
(272)
(228)
(37)
—
(37)
(265)
(39)
(86)
46
(40)
(79)
Total
(2,680)
(341)
208
(133)
(2,813)
The table below presents further information about our reclassifications out of accumulated other comprehensive loss by
component for the year ended December 31, 2020:
Year Ended December 31, 2020
Interest rate swap
Income tax benefit
Net of tax
Amortization of pension & post-retirement plans(1)
Net actuarial loss
Prior service cost
Curtailment loss
Total before tax
Income tax benefit
Net of tax
(Decrease) Increase
in Net Loss
(Dollars in millions)
Affected Line Item in Consolidated
Statement of Operations
$
$
$
62
Interest expense
(16)
Income tax expense
46
203 Other expense, net
7 Other expense, net
4 Other expense, net
214
(52)
Income tax expense
$
162
1
See Note 11—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.
(22) LABOR UNION CONTRACTS
As of December 31, 2021, approximately 21% of our employees were represented by the Communication Workers of
America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). Approximately 9% of our represented
employees are subject to collective bargaining agreements that are scheduled to expire over the 12 month period ending
December 31, 2022.
B-108
(23) DIVIDENDS
Our Board of Directors declared the following dividends payable in 2021 and 2020:
APPENDIX B
Date Declared
November 18, 2021
August 19, 2021
May 20, 2021
February 25, 2021
November 19, 2020
August 20, 2020
May 20, 2020
February 27, 2020
Record Date
Dividend
Per Share
Total Amount Payment Date
(in millions)
11/29/2021
$
0.25 $
8/30/2021
6/1/2021
3/8/2021
11/30/2020
8/31/2020
6/1/2020
3/9/2020
0.25
0.25
0.25
0.25
0.25
0.25
0.25
251
264
272
276
274
274
274
274
12/10/2021
9/10/2021
6/11/2021
3/19/2021
12/11/2020
9/11/2020
6/12/2020
3/20/2020
The declaration of dividends is solely at the discretion of our Board of Directors, which may change or terminate our
dividend practice at any time for any reason without prior notice. On February 24, 2022, our Board of Directors declared a
quarterly cash dividend of $0.25 per share.
2021 ANNUAL REPORT | 2022 PROXY STATEMENT B-109
Corporate Headquarters
100 CenturyLink Drive
Monroe, Louisiana 71203
General Information: 318-388-9000
Transfer Agent
For address changes, stock transfers, name changes, registration changes, lost stock certificates and stock holdings,
please contact:
Computershare Investor Services L.L.C.
Post Office Box 505000
Louisville, Kentucky 40233
1-800-969-6718
www.computershare.com/lumen
Auditors
KPMG LLP
1225 17th Street, Suite 800
Denver, Colorado 80202
Investor Relations
Inquiries by securities analysts, investment professionals and shareholders about Lumen Technologies, Inc. common
stock, including requests for any SEC or other shareholder reports should be directed to:
investor.relations@lumen.com
ir.lumen.com
Annual Report
After the close of each fiscal year, Lumen Technologies, Inc. submits an Annual Report on Form 10-K to the SEC
containing certain additional information about its business. A copy of the 10-K report may be obtained without charge
by addressing your request to Stacey W. Goff, Secretary, Lumen Technologies, Inc., 100 CenturyLink Drive, Monroe,
Louisiana 71203, or by visiting our website at www.lumen.com.
Common Stock
Lumen common stock is traded on the New York Stock Exchange under the symbol LUMN.
As of the Record Date, we had 1,032,760,034 shares of common stock and 7,018 shares of Series L preferred stock issued
and outstanding. There were 84,801 shareholders of record.
Lumen, Lumen Technologies, Inc. and the Lumen logos are either registered service marks or service marks of Lumen
Technologies, Inc. and/or one of its affiliates in the United States and/or other countries. Any other service names,
product names, company names or logos included herein are the trademarks or service marks of their respective owners.
Communications to the Board
Communication with shareholders and other interested parties is an important part of the governance process. Any
shareholder or other stakeholder who wishes to contact the Board, Chairman or any Director can send correspondence
to:
Write: P.O. Box 5061 ; Monroe, Louisiana 71211
Email: boardinquiries@lumen.com