QWEST CORP

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue, and expenses. Certain policies and estimates are considered critical because they involve significant judgments and assumptions and could materially impact our financial statements. These include:

•goodwill and intangible assets;

•affiliate transactions; and

•income taxes.

While we believe our estimates are reasonable based on information available at the time they were made, actual results may differ and could be material.

Goodwill and Intangible Assets

We have a significant amount of goodwill, which was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired. Goodwill is assessed at least annually for impairment. As of December 31, 2025, goodwill and intangible assets totaled $3.7 billion (excluding goodwill and intangible assets classified as held for sale), representing 24% of our total assets. The impairment analyses of these assets are considered critical because of their significance to us, the subjective nature of certain assumptions used to estimate fair value, and because it can materially impact reported results and future expense.

Amortization

Intangible assets acquired in business combinations — such as goodwill and capitalized software — are recorded at estimated fair value at acquisition. Other intangible assets not arising from business combinations are initially recorded at cost and are subsequently amortized over their useful lives.

We amortize finite-lived intangible assets using the straight-line method over the following estimated lives:

•Capitalized software: 3 - 7 years

The amount of future amortization expense may differ materially from current amounts, depending on the results of our annual reviews.

Goodwill

Goodwill is tested annually as of October 31, or more frequently if events or changes in circumstances indicate potential impairment. We first consider qualitative factors. If necessary, we perform a quantitative test comparing the reporting unit’s estimated fair value to its carrying amount. If fair value is lower, we record a non-cash impairment charge for the difference.

Fair Value Estimation

Depending on the facts and circumstances, we typically estimate the fair value of our reporting unit by considering either or both of (i) a discounted cash flow method and (ii) a market approach.

Under the discounted cash flow method, we estimate fair value by calculating the present value of projected cash flows over a discrete period plus a terminal value based on normalized future cash flows.

Discounted Cash Flow Method

•Cash flow projections: Derived from estimates developed from our long-range plan, informed by industry trends — including wireline-specific factors — competitive landscape, product lifecycles, operational initiatives, and capital allocation strategies. These projections consider recent historical results and are consistent with our short-term financial forecasts and long-term business strategies.

•Discount rate: Determined using a weighted average cost of capital, reflecting market participant assumptions for cost of equity and after-tax cost of debt, and incorporating risks inherent in the projections.

•Terminal value: Represents expected normalized cash flows beyond the discrete projection period.

•Uncertainty: Actual cash flows may differ significantly from projections due to inherent uncertainties.

Market Approach

Under the market approach, we estimate fair value of a reporting unit based upon a market multiple applied to the reporting unit's revenue and EBITDA, adjusted for an appropriate control premium based on recent market transactions.

•Market multiples: Derived using publicly traded companies whose services and operating characteristics are comparable to ours.

•Revenue and EBITDA: Derived using actual results and estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of certain strategic initiatives.

•Weighting: Revenue and EBITDA multiples are weighted based on the characteristics of each reporting unit.

•Control premium: Our implied control premium is a factor used to evaluate our fair value assessment and is evaluated for reasonableness, as described in the "Reconciliation" bullet below.

Our development of fair value estimates under both the discounted cash flow method and the market approach method are subject to inherent uncertainties and rely on assumptions about industry trends, competitive conditions, product lifecycles, and capital allocation. Actual results could vary significantly from our estimates.

•Reconciliation: Estimated fair values are reconciled to our market capitalization to ensure reasonableness compared to market transactions.

Sensitivity and Risk Factors

Changes in assumptions used in the discounted cash flow method or market approach — such as asset and liability allocations — can materially affect fair value estimates, and actual results could vary significantly from our estimates and assumptions.

We perform sensitivity analyses using a range of discount rates and EBITDA multiples and believe our methods and assumptions are reasonable. However, any changes to these inputs can significantly impact whether impairment charges are required and the magnitude of those charges.

For additional information on our goodwill balances by segment and results of our impairment analyses, see Note 3—Goodwill and Intangible Assets in Item 8.

Affiliate Transactions

We recognized intercompany charges for the amounts billed to us by our affiliates and we recognized intercompany revenue for services we bill to our affiliates.

Because of the significance of these transactions, our results of operations, financial position, and cash flows are not necessarily indicative of the amounts we would have achieved had we operated as a stand-alone entity. Regarding telecommunications services that we provide to our affiliates, we saw a reduction to affiliate revenue for the year ended December 31, 2025. This was primarily due to the 2024 repricing of certain services provided to our affiliates to align with lower market rates including certain transport services, along with the termination of certain affiliate circuits that we no longer required to provide services to our external customers. See Note 14—Affiliate Transactions in Item 8 for additional information.

Affiliate transactions are considered a critical accounting estimate because they involve significant judgment in determining pricing, allocation of costs, and the nature of services exchanged, all of which can materially impact reported results.

We are included in the consolidated federal income tax return of Lumen Technologies. Lumen Technologies treats our consolidated results as if we were a separate taxpayer. We are required to pay our tax liabilities to Lumen Technologies based upon our separate return taxable income. We are also included in the combined state tax returns filed by Lumen Technologies.

Given the significant judgment, inherent complexity, uncertainty of outcomes, varying internal and external factors, and overall potential to materially impact our financial results, we consider the measurement of deferred taxes to be critical accounting estimates.

Deferred Taxes

Our provision for income taxes includes amounts for current and deferred tax consequences. Deferred tax assets and liabilities reflect future tax effects of:

•tax credit carryforwards, and

•differences between financial statement carrying values of assets and liabilities and tax bases of those assets and liabilities.

Deferred taxes are computed using enacted tax rates expected to apply in the year in which the temporary differences are expected to affect taxable income. Changes in tax rates impacting deferred income tax assets and liabilities are recognized in earnings in the period of enactment.

The measurement of deferred taxes requires significant judgment related to the realization of tax basis. We evaluate whether tax positions taken in filed returns are more likely than not to be sustained upon audit. Determining applicable tax rates and timing of reversals involves judgment about future income apportionment among jurisdictions. Changes in our practices or these judgments could materially affect our financial condition and results of operations.

We evaluate tax matters on a quarterly basis; see Note 13—Income Taxes in Item 8 for additional details.