Fair Value Disclosure

12 Months Ended

Dec. 31, 2011

Fair Value Disclosure

Fair Value Disclosure

(13) Fair Value Disclosure

        Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts receivable—affiliates, short-term affiliate loans, accounts payable, accounts payable—affiliates and long-term debt, excluding capital lease obligations. The carrying amounts of our cash and cash equivalents, accounts receivable, accounts receivable—affiliates, short-term affiliate loans, accounts payable and accounts payable—affiliates 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.

        The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:

Input Level	Description of Input
Level 1	Observable inputs such as quoted market prices in active markets.
Level 2	Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3	Unobservable inputs in which little or no market data exists.

        The following table presents the carrying amounts and estimated fair values of our investment securities, which are reported in noncurrent other assets, and long-term debt, excluding capital lease obligations, as well as the input levels used to determine the fair values:

			Successor				Predecessor
			December 31, 2011				December 31, 2010
	Input Level		Carrying Amount		Fair Value		Carrying Amount		Fair Value
			(Dollars in millions)
Assets—Investment securities		3	$	—		—		92		92
Liabilities—Long-term debt excluding capital lease obligations		2		11,925		12,052		11,569		12,480

        During the second quarter of 2011, the rights to our auction rate securities were assigned to CenturyLink. Upon assignment, the fair value of those securities was $79 million. We did not recognize a gain or loss on this assignment.

        The table below presents a rollforward of our auction rate securities valued using Level 3 inputs:

	Auction Rate Securities
	(Dollars in millions)
Balance at January 1, 2010	$	95
Dispositions and settlements		—
Included in other comprehensive income (expense)		(3	)
Balance at December 31, 2010 (Predecessor)		92
Dispositions and settlements		—
Included in other comprehensive income (expense)		1
Balance at March 31, 2011 (Predecessor)	$	93
Fair value adjustment		(14	)
Balance at April 1, 2011 (Successor)		79
Assignments to CenturyLink		(79	)
Balance at December 31, 2011 (Successor)	$	—

        For the assets and liabilities measured at fair value on our acquisition date, we employed a variety of methods to determine these fair values, including quoted market price, observable market values of comparable assets, current replacement costs and discounted cash flow analysis. The factors that most significantly impact our estimate of fair value included forecasted cash flows and a market participant discount rate. The applicable market participant discount rate is impacted by the market risk free rate of return and risk premium associated with a group of peer telecommunication companies which have been deemed to be market participants for determining the fair value. The discount rates used in our valuations ranged from 7.5% of 9.5% depending upon the asset or liability valued and relative risk associated with the cash flows.