QCII and two of its subsidiaries, QCF and QSC, guarantee the payment of certain of each other's registered debt securities. As of the successor date of December 31, 2011, each series of QCII's outstanding notes totaling approximately $2.7 billion in aggregate principal amount is guaranteed on a senior unsecured basis by QCF and QSC (the "QCII Guaranteed Notes"). These notes are guaranteed through their respective maturity dates, the latest of which is in April 2018. In addition, each series of QCF's outstanding notes totaling approximately $1 billion in aggregate principal amount is guaranteed on a senior unsecured basis by QCII (the "QCF Guaranteed Notes"). These notes are guaranteed through their respective maturity dates, the latest of which is in February 2031. The guarantees described above are full and unconditional and joint and several. A significant amount of QCII's and QSC's income and cash flow are generated by their subsidiaries. As a result, the funds necessary to meet their debt service or guarantee obligations are provided in large part by distributions or advances from their subsidiaries.

The following information sets forth our condensed consolidating statements of operations, balance sheets and statements of cash flows for the periods indicated. The information for QCII is presented on a stand-alone basis, information for QSC and QCF is presented on a combined basis and information for all of our other non-guarantor subsidiaries is presented on a combined basis. Each entity's investments in its subsidiaries, if any, are presented under the equity method. The consolidating statements of operations and balance sheets include the effects of consolidating adjustments to our subsidiaries' tax provisions and the related income tax assets and liabilities in the QSC and QCII results. Both QSC and QCF are 100% owned by QCII and QCF is a finance subsidiary of QCII. Other than as already described in this note, the accounting principles used to determine the amounts reported in this note are the same as those used in our consolidated financial statements.

CenturyLink periodically restructures the internal capital structure of its subsidiaries, including QCII and its subsidiaries, based on the needs of its business.

We allocate the costs of shared services among our affiliates. These services include marketing and advertising, information technology, product and technical services as well as general support services. The allocation of these costs is based on estimated market values or fully distributed cost ("FDC"). Most of our affiliate services are priced by applying an FDC methodology. FDC rates are determined using salary rates, which include payroll taxes, employee benefits, facilities and overhead costs. Whenever possible, costs are directly assigned to the affiliate that uses the service. If costs cannot be directly assigned, they are allocated among all affiliates based on cost usage measures; or if no cost usage measure is available, these costs are allocated based on a general allocator. From time to time, we adjust the basis for allocating the costs of a shared service among our affiliates. Such changes in allocation methodologies are generally billed prospectively.

Under our tax allocation policy, we treat our subsidiaries as if they were separate taxpayers. The policy requires that each subsidiary pay its tax liabilities in cash based on that subsidiary's separate return taxable income. To the extent a subsidiary has taxable losses, the subsidiary does not pay any amount and therefore retains the benefit of the losses. Subsidiaries are also included in the combined state tax returns we file and the same payment and allocation policy applies.

Eligible employees of our subsidiaries participate in the QCII pension and non-qualified pension plan and may become eligible to participate in our post-retirement health care and life insurance, and other post-employment benefit plans. The amounts contributed by our subsidiaries are not segregated or restricted to pay amounts due to their employees and may be used to provide benefits to our other employees or employees of other subsidiaries. We allocate the cost of pension, non-qualified pension, and post-retirement health care and life insurance benefits and the associated obligations and assets to our subsidiaries and determine the subsidiaries' required contributions. The allocation is based upon demographics of each subsidiary's employees compared to all participants. In determining the allocated amounts, we make numerous assumptions. Changes in any of our assumptions could have a material impact on the expense allocated to our subsidiaries.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2011

SUCCESSOR

	QCII(1)

	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		8,276		—		8,276
Operating revenues—affiliates		—		20		76		(45	)	51

Total operating revenues		—		20		8,352		(45	)	8,327

OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)		—		—		3,523		—		3,523
Selling, general and administrative		13		20		1,708		—		1,741
Operating expenses—affiliates		—		—		171		(45	)	126
Depreciation and amortization		61		—		2,333		—		2,394

Total operating expenses		74		20		7,735		(45	)	7,784

OPERATING (LOSS) INCOME		(74	)	—		617		—		543
OTHER INCOME (EXPENSE)
Interest expense		(131	)	(53	)	(302	)	—		(486	)
Interest expense—affiliates		(12	)	(68	)	1		79		—
Interest income—affiliates		—		79		—		(79	)	—
Loss on early retirement of debt		—		—		(8	)	—		(8	)
Income (loss) from equity investments in subsidiaries		223		(79	)	—		(144	)	—
Other income (expense)		1		3		(2	)	—		2

Total other income (expense)		81		(118	)	(311	)	(144	)	(492	)

INCOME (LOSS) BEFORE INCOME TAX (BENEFIT) EXPENSE		7		(118	)	306		(144	)	51
Income tax (benefit) expense		(12	)	(335	)	379		—		32

NET INCOME (LOSS)	$	19		217		(73	)	(144	)	19

	QCII(1)

	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		2,846		—		2,846
Operating revenues—affiliates		—		2		9		(11	)	—

Total operating revenues		—		2		2,855		(11	)	2,846

OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)		—		—		1,178		—		1,178
Selling, general and administrative		3		2		551		—		556
Operating expenses—affiliates		—		—		11		(11	)	—
Depreciation and amortization		—		—		533		—		533

Total operating expenses		3		2		2,273		(11	)	2,267

OPERATING INCOME		(3	)	—		582		—		579
OTHER INCOME (EXPENSE)
Interest expense		(56	)	(19	)	(152	)	—		(227	)
Interest expense—affiliates		(1	)	(26	)	(1	)	28		—
Interest income—affiliates		—		28		—		(28	)	—
Income from equity investments in subsidiaries		272		226		—		(498	)	—
Other income (expense)		—		(1	)	6		—		5

Total other income (expense)		215		208		(147	)	(498	)	(222	)

INCOME BEFORE INCOME TAX EXPENSE (BENEFIT)		212		208		435		(498	)	357
Income tax expense (benefit)		1		(64	)	209		—		146

NET INCOME	$	211		272		226		(498	)	211

	QCII(1)

	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		11,730		—		11,730
Operating revenues—affiliates		—		(1	)	24		(23	)	—

Total operating revenues		—		(1	)	11,754		(23	)	11,730

OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)		—		—		5,011		—		5,011
Selling, general and administrative		75		(2	)	2,445		—		2,518
Operating expenses—affiliates		—		—		23		(23	)	—
Depreciation and amortization		—		—		2,200		—		2,200

Total operating expenses		75		(2	)	9,679		(23	)	9,729

OPERATING INCOME		(75	)	1		2,075		—		2,001
OTHER INCOME (EXPENSE)
Interest expense		(318	)	(101	)	(620	)	—		(1,039	)
Interest expense—affiliates		(1	)	(292	)	—		293		—
Interest income—affiliates		—		293		—		(293	)	—
Loss on early retirement of debt		(5	)	(40	)	—		—		(45	)
Loss on embedded option in convertible debt		(475	)	—		—		—		(475	)
Income from equity investments in subsidiaries		755		602		—		(1,357	)	—
Other income (expense)		—		8		—		—		8

Total other income (expense)		(44	)	470		(620	)	(1,357	)	(1,551	)

(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE		(119	)	471		1,455		(1,357	)	450
Income tax (benefit) expense		(64	)	(284	)	853		—		505

NET (LOSS) INCOME	$	(55	)	755		602		(1,357	)	(55	)

	QCII(1)

	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		12,311		—		12,311
Operating revenues—affiliates		—		(3	)	17		(14	)	—

Total operating revenues		—		(3	)	12,328		(14	)	12,311

OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)		—		—		5,423		—		5,423
Selling, general and administrative		43		(3	)	2,562		—		2,602
Operating expenses—affiliates		—		—		14		(14	)	—
Depreciation and amortization		—		—		2,311		—		2,311

Total operating expenses		43		(3	)	10,310		(14	)	10,336

OPERATING INCOME		(43	)	—		2,018		—		1,975
OTHER INCOME (EXPENSE)
Interest expense		(269	)	(185	)	(635	)	—		(1,089	)
Interest expense—affiliates		(14	)	(363	)	(296	)	673		—
Interest income—affiliates		—		672		1		(673	)	—
Income from equity investments in subsidiaries		910		327		—		(1,237	)	—
Other income (expense)		3		15		(1	)	—		17

Total other income (expense)		630		466		(931	)	(1,237	)	(1,072	)

INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE		587		466		1,087		(1,237	)	903
Income tax (benefit) expense		(75	)	(454	)	770		—		241

NET INCOME	$	662		920		317		(1,237	)	662

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATING BALANCE SHEETS

DECEMBER 31, 2011

SUCCESSOR

	QCII(1)

	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—	40	8	—		48
Accounts receivable, less allowance		15	2	1,187	—		1,204
Accounts receivable—affiliates, net		211	336	36	(583	)	—
Short-term affiliate loans		184	1,694	400	(1,536	)	742
Deferred income taxes, net		—	439	127	—		566
Other		—	19	256	(13	)	262

Total current assets		410	2,530	2,014	(2,132	)	2,822
Net property, plant and equipment		—	—	9,486	—		9,486
Goodwill		—	—	10,106	—		10,106
Customer relationships, net		—	—	6,855	—		6,855
Other intangible assets, net		127	—	1,460	—		1,587
Investments in subsidiaries		14,856	13,729	—	(28,585	)	—
Deferred income taxes, net		1,102	1,390	10	(2,502	)	—
Prepaid pension, post-retirement and other post-employment benefits—affiliate		2,851	76	955	(3,882	)	—
Other		36	7	321	—		364

TOTAL ASSETS	$	19,382	17,732	31,207	(37,101	)	31,220

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—	—	117	—		117
Current debt—affiliates		122	1,413	—	(1,535	)	—
Accounts payable		4	19	949	—		972
Accounts payable—affiliates		360	5	23	(31	)	357
Dividends payable—affiliates		200	—	310	(310	)	200
Accrued expenses and other liabilities		272	31	705	(1	)	1,007
Accrued expenses and other—affiliates		1	62	192	(255	)	—
Advance billings and customers deposits		—	—	407	—		407

Total current liabilities		959	1,530	2,703	(2,132	)	3,060

LONG-TERM DEBT		2,767	1,009	8,403	—		12,179

DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenues		—	—	110	—		110
Benefit plan obligations, net		3,198	—	—	—		3,198
Pension, post-retirement and other post-employment benefits obligations and other—affiliates		1,031	344	2,507	(3,882	)	—
Deferred income taxes		—	—	3,165	(2,502	)	663
Other		150	31	553	—		734

Total deferred credits and other liabilities		4,379	375	6,335	(6,384	)	4,705
Stockholder's equity		11,276	14,818	13,767	(28,585	)	11,276

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	19,381	17,732	31,208	(37,101	)	31,220

	QCII(1)

	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—		148	224	—		372
Accounts receivable, less allowance		16		22	1,226	—		1,264
Accounts receivable—affiliates, net		296		277	154	(727	)	—
Short-term affiliate loans		—		1,568	110	(1,678	)	—
Deferred income taxes, net		—		36	208	(10	)	234
Other		9		26	353	(28	)	360

Total current assets		321		2,077	2,275	(2,443	)	2,230
Net property, plant and equipment		—		—	11,857	—		11,857
Other intangible assets, net		50		—	888	—		938
Investments in subsidiaries		1,355		429	—	(1,784	)	—
Deferred income taxes, net		840		2,045	139	(1,338	)	1,686
Prepaid pension, post-retirement and other post-employment benefits—affiliate		2,848		71	914	(3,833	)	—
Other		75		45	389	—		509

TOTAL ASSETS	$	5,489		4,667	16,462	(9,398	)	17,220

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—		179	910	—		1,089
Current debt—affiliates		118		1,560	—	(1,678	)	—
Accounts payable		8		4	1,021	—		1,033
Accounts payable—affiliates		26		20	186	(232	)	—
Accrued expenses and other liabilities		296		58	842	(7	)	1,189
Accrued expenses and other—affiliates		—		175	320	(495	)	—
Deferred income taxes, net		10		—	—	(10	)	—
Advance billings and customers deposits		—		—	572	(21	)	551

Total current liabilities		458		1,996	3,851	(2,443	)	3,862

LONG-TERM DEBT		2,598		978	7,282	—		10,858

DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenues		—		—	459	—		459
Benefit plan obligations, net		2,979		—	—	—		2,979
Pension, post-retirement and other post-employment benefits obligations and other—affiliates		985		356	2,492	(3,833	)	—
Deferred income taxes		—		11	1,327	(1,338	)	—
Other		124		2	591	—		717

Total deferred credits and other liabilities		4,088		369	4,869	(5,171	)	4,155
Stockholder's (deficit) equity		(1,655	)	1,324	460	(1,784	)	(1,655	)

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	5,489		4,667	16,462	(9,398	)	17,220

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATING STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED DECEMBER 31, 2011

SUCCESSOR

	QCII(1)

	(Dollars in millions)
Net cash (used in) provided by operating activities	$	(171	)	316		2,007		—		2,152
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software		—		—		(1,207	)	—		(1,207	)
Cash infusion to subsidiaries		—		(555	)	—		555		—
Changes in short-term affiliate loans		(184	)	(277	)	(240	)	38		(663	)
Dividends received from subsidiaries		770		990		—		(1,760	)	—
Other, net		—		—		2		—		2

Net cash provided by (used in) investing activities		586		158		(1,445	)	(1,167	)	(1,868	)

FINANCING ACTIVITIES
Payments of long-term debt		—		—		(2,402	)	—		(2,402	)
Net (repayments of) proceeds from short-term affiliate debt		(115	)	153		—		(38	)	—
Net proceeds from issuance of long-term debt		—		—		2,126		—		2,126
Cash infusion from parent		—		—		555		(555	)	—
Dividends paid to parent		(300	)	(770	)	(990	)	1,760		(300	)
Early retirement of debt costs		—		—		(66	)	—		(66	)
Other		—		—		(18	)	—		(18	)

Net cash used in financing activities		(415	)	(617	)	(795	)	1,167		(660	)

Net (decrease) increase in cash and cash equivalents		—		(143	)	(233	)	—		(376	)
Cash and cash equivalents at beginning of period		—		183		241		—		424

Cash and cash equivalents at end of the period	$	—		40		8		—		48

	QCII(1)

	(Dollars in millions)
Net cash provided by (used in) operating activities	$	7		(62	)	828		4		777
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software		—		—		(410	)	—		(410	)
Changes in interest in investments managed by QSC		—		(3	)	3		—		—
Cash infusion to subsidiaries		—		(191	)	—		191		—
Changes in short-term affiliates loans		—		180		1		(181	)	—
Dividends received from subsidiaries		—		590		—		(590	)	—
Other, net		—		—		2		—		2

Net cash provided by (used in) investing activities		—		576		(404	)	(580	)	(408	)

FINANCING ACTIVITIES
Payments of long-term debt		—		(179	)	(24	)	—		(203	)
Net proceeds from (repayments of) short-term affiliate debt		119		(300	)	—		181		—
Dividends paid		(141	)	—		—		—		(141	)
Net proceeds from issuance of common stock		14		—		—		—		14
Cash infusion from parent		—		—		191		(191	)	—
Dividends paid to parent		—		—		(590	)	590		—
Other, net		1		—		16		(4	)	13

Net cash used in financing activities		(7	)	(479	)	(407	)	576		(317	)

Net increase in cash and cash equivalents		—		35		17		—		52
Cash and cash equivalents at beginning of period		—		148		224		—		372

Cash and cash equivalents at end of the period	$	—		183		241		—		424

	QCII(1)

	(Dollars in millions)
Net cash (used in) provided by operating activities	$	(358	)	514		3,106		105		3,367
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software		—		—		(1,488	)	—		(1,488	)
Proceeds from sales or maturities of investment securities		—		943		—		—		943
Purchase of investment securities		—		(944	)	—		—		(944	)
Changes in interest in investments managed by QSC		10		7		(17	)	—		—
Cash infusion to subsidiaries		—		(577	)	—		577		—
Changes in short-term affiliate loans		—		3,254		3		(3,257	)	—
Dividends received from subsidiaries		2,320		2,611		—		(4,931	)	—
Other, net		—		—		1		—		1

Net cash provided by (used in) investing activities		2,330		5,294		(1,501	)	(7,611	)	(1,488	)

FINANCING ACTIVITIES
Payments of long-term debt		(1,790	)	(1,025	)	(564	)	—		(3,379	)
Net proceeds from issuance of long-term debt		775		—		—		—		775
Net proceeds from (repayments of) short-term affiliate debt		5		(3,262	)	—		3,257		—
Dividends Paid		(555	)	—		—		—		(555	)
Net proceeds from issuance of common stock		67		—		—		—		67
Purchase of treasury stock		(136	)	—		—		—		(136	)
Cash infusion from parent		—		—		577		(577	)	—
Dividends paid to parent		—		(2,320	)	(2,611	)	4,931		—
Settlement of embedded option in convertible debt		(640	)	—		—		—		(640	)
Early retirement of debt costs		(1	)	(40	)	—		—		(41	)
Other, net		109		—		(8	)	(105	)	(4	)

Net cash used in financing activities		(2,166	)	(6,647	)	(2,606	)	7,506		(3,913	)

Net (decrease) increase in cash and cash equivalents		(194	)	(839	)	(1,001	)	—		(2,034	)
Cash and cash equivalents at beginning of period		194		987		1,225		—		2,406

Cash and cash equivalents at end of period	$	—		148		224		—		372

	QCII(1)

	(Dollars in millions)
Net cash (used in) provided by operating activities	$	(242	)	1,024		2,479		46		3,307
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software		—		—		(1,409	)	—		(1,409	)
Proceeds from sales or maturities of investment securities		—		18		—		—		18
Purchase of investment securities		—		—		—		—		—
Changes in interest in investments managed by QSC		(10	)	1		9		—		—
Cash infusion to subsidiaries		—		(1,076	)	—		1,076		—
Changes in short-term affiliate loans		—		101		4		(105	)	—
Dividends received from subsidiaries		640		2,000		—		(2,640	)	—
Other, net		—		—		(15	)	—		(15	)

Net cash provided by (used in) investing activities		630		1,044		(1,411	)	(1,669	)	(1,406	)

FINANCING ACTIVITIES
Payments of long-term debt		(230	)	(562	)	(35	)	—		(827	)
Net proceeds from issuance of long-term debt		532		—		738		—		1,270
Net repayments of short-term affiliate debt		(32	)	(185	)	112		105		—
Dividends Paid		(551	)	—		—		—		(551	)
Net proceeds from issuance of common stock		57		—		—		—		57
Purchase of treasury stock		(3	)	—		—		—		(3	)
Cash infusion from parent		—		—		1,076		(1,076	)	—
Dividends paid to parent		—		(640	)	(2,000	)	2,640		—
Other, net		33		(1	)	8		(46	)	(6	)

Net cash used in financing activities		(194	)	(1,388	)	(101	)	1,623		(60	)

Net increase in cash and cash equivalents		194		680		967		—		1,841
Cash and cash equivalents at beginning of period		—		307		258		—		565

Cash and cash equivalents at end of period	$	194		987		1,225		—		2,406