Acquisition by CenturyLink

12 Months Ended

Dec. 31, 2011

Acquisition by CenturyLink

Acquisition by CenturyLink

(2) Acquisition by CenturyLink

        On April 1, 2011, we became a wholly owned subsidiary of CenturyLink. Each share of our common stock outstanding immediately prior to the acquisition converted into the right to receive 0.1664 shares of CenturyLink common stock, with cash paid in lieu of fractional shares. The aggregate consideration was $12.273 billion based on:

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  the 294 million shares of CenturyLink common stock issued to consummate the acquisition;

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  the closing stock price of CenturyLink common stock at March 31, 2011 of $41.55;

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  the estimated net value of the pre-combination portion of share-based compensation awards assumed by CenturyLink of $52 million (excluding the value of restricted stock included in the number of issued shares specified above); and

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  cash paid in lieu of the issuance of fractional shares of $5 million.

        Since April 1, 2011, our results of operations have been included in the consolidated results of operations of CenturyLink. CenturyLink has accounted for its acquisition of us under the acquisition method of accounting, which resulted in the assignment of the purchase price to the assets acquired and liabilities assumed based on our preliminary estimates of their acquisition date fair values. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. As such, we have not completed our valuation analysis and calculations in sufficient detail necessary to arrive at the final estimates of the fair value of the assets acquired and liabilities assumed, along with the related allocations to goodwill and intangible assets. The fair values of certain tangible assets, intangible assets, certain contingent liabilities and residual goodwill are the most significant areas not yet finalized and therefore are subject to change. We expect to complete our final fair value determinations no later than the first quarter of 2012. Our final fair value determinations may be significantly different than those reflected in our consolidated financial statements as of the successor date of December 31, 2011.

        Based on our preliminary estimate, the aggregate consideration exceeds the aggregate estimated fair value of the acquired assets and assumed liabilities by $10.106 billion, which amount has been recognized as goodwill. This goodwill is attributable to strategic benefits, including enhanced financial and operational scale, market diversification and leveraged combined networks that we expect to realize. None of the goodwill associated with this acquisition is deductible for income tax purposes.

        The following is our preliminary assignment of the aggregate consideration:

	April 1, 2011
	(Dollars in millions)
Cash, accounts receivable and other current assets	$	2,128
Property, plant and equipment		9,554
Identifiable intangible assets:
Customer relationships		7,625
Capitalized software		1,702
Other		189
Other noncurrent assets		373
Current liabilities, excluding current maturities of long-term debt		(2,428	)
Current maturities of long-term debt		(2,422	)
Long-term debt		(10,253	)
Deferred credits and other liabilities		(4,301	)
Goodwill		10,106
Aggregate consideration	$	12,273

        We have recognized $154 million of expense associated with activities related to CenturyLink's acquisition of us during the successor nine months ended December 31, 2011. These expenses were comprised primarily of severance, retention bonuses, share-based compensation and system integration consulting. During the predecessor three months ended March 31, 2011, we recognized $3 million of expenses associated with our activities related to the acquisition. As of April 1, 2011, as part of acquisition accounting, we also included in our goodwill $35 million for financial advisory fees, $23 million for certain performance awards and $16 million related to retention bonuses, all of which were contingent solely on the completion of the acquisition and had no benefit to CenturyLink after the acquisition.