Financial Statements of Guarantors (Tables)

6 Months Ended

Jun. 30, 2013

Financial Statements of Guarantors

Schedule of condensed consolidating statements of operations

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2013
(UNAUDITED)

	QCII(1)		QSC(2) & QCF(3)		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		(1)		2,684		—		2,683
Operating revenues—affiliates		—		14		157		(14)		157
Total operating revenues		—		13		2,841		(14)		2,840
OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)		—		(1)		1,178		—		1,177
Selling, general and administrative		3		14		392		—		409
Operating expenses—affiliates		—		—		208		(14)		194
Depreciation and amortization		11		—		669		—		680
Total operating expenses		14		13		2,447		(14)		2,460
OPERATING (LOSS) INCOME		(14)		—		394		—		380
OTHER INCOME (EXPENSE)
Interest expense		(12)		(18)		(111)		—		(141)
Interest expense—affiliates		(35)		(29)		(26)		27		(63)
Interest income—affiliates		—		27		—		(27)		—
Income from equity investments in subsidiaries		202		91		—		(293)		—
Other income		(1)		—		—		—		(1)
Total other income (expense)		154		71		(137)		(293)		(205)
INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE		140		71		257		(293)		175
Income tax (benefit) expense		2		(131)		166		—		37
NET INCOME	$	138		202		91		(293)		138
COMPREHENSIVE INCOME	$	140		202		91		(293)		140

(1)

QCII is the issuer of the QCII Guaranteed Notes and is a guarantor of the QCF Guaranteed Notes.

(2)

QSC is a guarantor of the QCII Guaranteed Notes.

(3)

QCF is the issuer of the QCF Guaranteed Notes and is a guarantor of the QCII Guaranteed Notes.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2012
(UNAUDITED)

	QCII(1)		QSC(2) & QCF(3)		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		2,736		—		2,736
Operating revenues—affiliates		—		1		100		(1)		100
Total operating revenues		—		1		2,836		(1)		2,836
OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)		—		—		1,213		—		1,213
Selling, general and administrative		1		1		442		—		444
Operating expenses—affiliates		—		—		151		(1)		150
Depreciation and amortization		16		—		722		—		738
Total operating expenses		17		1		2,528		(1)		2,545
OPERATING (LOSS) INCOME		(17)		—		308		—		291
OTHER INCOME (EXPENSE)
Interest expense		(25)		(16)		(113)		—		(154)
Interest expense—affiliates		(21)		(28)		(8)		27		(30)
Interest income—affiliates		—		27		—		(27)		—
Income from equity investments in subsidiaries		91		15		—		(106)		—
Net loss on early retirement of debt		—		—		(45)		—		(45)
Other income (expense)		5		—		(3)		—		2
Total other income (expense)		50		(2)		(169)		(106)		(227)
INCOME (LOSS) BEFORE INCOME TAX (BENEFIT) EXPENSE		33		(2)		139		(106)		64
Income tax (benefit) expense		(4)		(93)		124		—		27
NET INCOME	$	37		91		15		(106)		37
COMPREHENSIVE INCOME	$	37		91		15		(106)		37

(1)

QCII is the issuer of the QCII Guaranteed Notes and is a guarantor of the QCF Guaranteed Notes.

(2)

QSC is a guarantor of the QCII Guaranteed Notes.

(3)

QCF is the issuer of the QCF Guaranteed Notes and is a guarantor of the QCII Guaranteed Notes.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(UNAUDITED)

	QCII(1)		QSC(2) & QCF(3)		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		5,344		—		5,344
Operating revenues—affiliates		—		8		292		(8)		292
Total operating revenues		—		8		5,636		(8)		5,636
OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)		—		4		2,280		—		2,284
Selling, general and administrative		22		10		815		—		847
Operating expenses—affiliates		—		—		376		(8)		368
Depreciation and amortization		23		—		1,339		—		1,362
Total operating expenses		45		14		4,810		(8)		4,861
OPERATING (LOSS) INCOME		(45)		(6)		826		—		775
OTHER INCOME (EXPENSE)
Interest expense		(25)		(35)		(222)		—		(282)
Interest expense—affiliates		(71)		(56)		(54)		53		(128)
Interest income—affiliates		—		53		1		(53)		1
Income from equity investments in subsidiaries		386		207		—		(593)		—
Other income		4		—		—		—		4
Total other income (expense)		294		169		(275)		(593)		(405)
INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE		249		163		551		(593)		370
Income tax (benefit) expense		(6)		(223)		344		—		115
NET INCOME	$	255		386		207		(593)		255
COMPREHENSIVE INCOME	$	258		386		207		(593)		258

(1)

QCII is the issuer of the QCII Guaranteed Notes and is a guarantor of the QCF Guaranteed Notes.

(2)

QSC is a guarantor of the QCII Guaranteed Notes.

(3)

QCF is the issuer of the QCF Guaranteed Notes and is a guarantor of the QCII Guaranteed Notes.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)

	QCII(1)		QSC(2) & QCF(3)		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		5,461		—		5,461
Operating revenues—affiliates		—		3		214		(3)		214
Total operating revenues		—		3		5,675		(3)		5,675
OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)		—		—		2,388		—		2,388
Selling, general and administrative		3		3		922		—		928
Operating expenses—affiliates		—		—		302		(3)		299
Depreciation and amortization		34		—		1,445		—		1,479
Total operating expenses		37		3		5,057		(3)		5,094
OPERATING (LOSS) INCOME		(37)		—		618		—		581
OTHER INCOME (EXPENSE)
Interest expense		(64)		(34)		(226)		—		(324)
Interest expense—affiliates		(22)		(54)		(11)		53		(34)
Interest income—affiliates		—		53		—		(53)		—
Income from equity investments in subsidiaries		217		60		—		(277)		—
Net loss on early retirement of debt		—		—		(37)		—		(37)
Other income (expense)		13		—		(10)		—		3
Total other income (expense)		144		25		(284)		(277)		(392)
INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE		107		25		334		(277)		189
Income tax (benefit) expense		(7)		(192)		274		—		75
NET INCOME	$	114		217		60		(277)		114
COMPREHENSIVE INCOME	$	114		217		60		(277)		114

(1)

QCII is the issuer of the QCII Guaranteed Notes and is a guarantor of the QCF Guaranteed Notes.

(2)

QSC is a guarantor of the QCII Guaranteed Notes.

(3)

QCF is the issuer of the QCF Guaranteed Notes and is a guarantor of the QCII Guaranteed Notes.

Schedule of condensed consolidating balance sheets

CONSOLIDATING BALANCE SHEETS
JUNE 30, 2013
(UNAUDITED)

	QCII(1)		QSC(2) & QCF(3)		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	12		28		21		—		61
Accounts receivable, less allowance		14		—		1,186		—		1,200
Notes receivable—affiliates		—		1,413		—		(1,413)		—
Advances to affiliates		174		1,842		—		(193)		1,823
Deferred income taxes, net		—		358		148		—		506
Other		—		—		377		—		377
Total current assets		200		3,641		1,732		(1,606)		3,967
Net property, plant and equipment		—		—		9,147		—		9.147
Goodwill		—		—		10,123		—		10,123
Customer relationships, net		—		—		5,358		—		5,358
Other intangible assets, net		41		—		1,122		—		1,163
Investments in subsidiaries		14,408		12,935		—		(27,343)		—
Deferred income taxes, net		1,332		589		—		(1,921)		—
Prepaid pension, post-retirement and other post-employment benefits—affiliate		1,623		—		—		(1,619)		4
Other		36		8		326		—		370
TOTAL ASSETS	$	17,640		17,173		27,808		(32,489)		30,132
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—		—		100		—		100
Notes payable—affiliates		1,925		1,413		729		(1,413)		2,654
Accounts payable		10		—		696		—		706
Accounts payable—affiliates		—		—		193		(193)		—
Accrued expenses and other liabilities		197		27		641		—		865
Advance billings and customers deposits		—		—		446		—		446
Total current liabilities		2,132		1,440		2,805		(1,606)		4,771
LONG-TERM DEBT		845		1,007		7,634		—		9,486
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenues		—		—		200		—		200
Benefit plan obligations, net		3,625		—		6		—		3,631
Pension, post-retirement and other post-employment benefits obligations and other—affiliates		—		289		1,330		(1,619)		—
Deferred income taxes		—		—		2,581		(1,921)		660
Other		156		29		317		—		502
Total deferred credits and other liabilities		3,781		318		4,434		(3,540)		4,993
Stockholder's equity		10,882		14,408		12,935		(27,343)		10,882
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	17,640		17,173		27,808		(32,489)		30,132

(1)

QCII is the issuer of the QCII Guaranteed Notes and is a guarantor of the QCF Guaranteed Notes.

(2)

QSC is a guarantor of the QCII Guaranteed Notes.

(3)

QCF is the issuer of the QCF Guaranteed Notes and is a guarantor of the QCII Guaranteed Notes.

CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2012
(UNAUDITED)

	QCII(1)		QSC(2) & QCF(3)		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	11		59		17		—		87
Accounts receivable, less allowance		10		—		1,167		—		1,177
Advances to affiliates		—		938		223		(661)		500
Notes receivable—affiliates		—		1,413		—		(1,413)		—
Deferred income taxes, net		—		272		201		—		473
Other		8		—		321		(9)		320
Total current assets		29		2,682		1,929		(2,083)		2,557
Net property, plant and equipment		—		—		9,127		—		9,127
Goodwill		—		—		10,123		—		10,123
Customer relationships, net		—		—		5,822		—		5,822
Other intangible assets, net		64		—		1,213		—		1,277
Investments in subsidiaries		14,322		13,478		—		(27,800)		—
Deferred income taxes, net		1,336		931		—		(2,267)		—
Prepaid pension, post-retirement and other post-employment benefits—affiliate		1,697		—		—		(1,693)		4
Other		37		7		292		—		336
TOTAL ASSETS	$	17,485		17,098		28,506		(33,843)		29,246
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—		—		856		—		856
Notes payable—affiliates		1,322		1,413		701		(1,413)		2,023
Accounts payable		—		1		695		(9)		687
Accounts payable—affiliates		661		—		—		(661)		—
Accrued expenses and other liabilities		178		57		689		—		924
Advance billings and customers deposits		—		—		452		—		452
Total current liabilities		2,161		1,471		3,393		(2,083)		4,942
LONG-TERM DEBT		849		1,008		6,915		—		8,772
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenues		—		—		192		—		192
Benefit plan obligations, net		3,699		—		—		—		3,699
Pension, post-retirement and other post-employment benefits obligations and other—affiliates		—		270		1,423		(1,693)		—
Deferred income taxes		—		—		2,761		(2,267)		494
Other		152		27		344		—		523
Total deferred credits and other liabilities		3,851		297		4,720		(3,960)		4,908
Stockholder's equity		10,624		14,322		13,478		(27,800)		10,624
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	17,485		17,098		28,506		(33,843)		29,246

(1)

QCII is the issuer of the QCII Guaranteed Notes and is a guarantor of the QCF Guaranteed Notes.

(2)

QSC is a guarantor of the QCII Guaranteed Notes.

(3)

QCF is the issuer of the QCF Guaranteed Notes and is a guarantor of the QCII Guaranteed Notes.

Schedule of condensed consolidating statements of cash flows

CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(UNAUDITED)

	QCII(1)		QSC(2) & QCF(3)		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
Net cash provided by (used in) operating activities	$	(77)		453		1,170		—		1,546
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software		—		—		(801)		—		(801)
Changes in advances to affiliates		(174)		(904)		223		(468)		(1,323)
Other, net		300		750		—		(1,050)		—
Net cash (used in) provided by investing activities		126		(154)		(578)		(1,518)		(2,124)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt		—		—		752		—		752
Payments of long-term debt		—		—		(811)		—		(811)
Changes in notes payable—affiliates		603		—		28		—		631
Changes in advances from affiliates		(651)		(30)		193		468		(20)
Dividends paid to parent		—		(300)		(750)		1,050		—
Net cash provided by (used in) financing activities		(48)		(330)		(588)		1,518		552
Net (decrease) increase in cash and cash equivalents		1		(31)		4		—		(26)
Cash and cash equivalents at beginning of period		11		59		17		—		87
Cash and cash equivalents at end of the period	$	12		28		21		—		61

(1)

QCII is the issuer of the QCII Guaranteed Notes and is a guarantor of the QCF Guaranteed Notes.

(2)

QSC is a guarantor of the QCII Guaranteed Notes.

(3)

QCF is the issuer of the QCF Guaranteed Notes and is a guarantor of the QCII Guaranteed Notes.

CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(UNAUDITED)

	QCII(1)		QSC(2) & QCF(3)		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
Net cash provided by (used in) operating activities	$	(415)		339		1,167		(13)		1,078
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software		—		—		(752)		—		(752)
Changes in advances to affiliates—notes		184		280		278		(73)		669
Changes in advances to affiliates—accounts		—		(632)		(1,700)		2,332		—
Proceeds from sale of property		—		—		133		—		133
Net cash provided by (used in) investing activities		184		(352)		(2,041)		2,259		50
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt		—		—		897		—		897
Payments of long-term debt		(1,299)		—		(952)		—		(2,251)
Early retirement of debt costs		(49)		—		(128)		—		(177)
Changes in advances from affiliates—notes		(122)		—		583		122		583
Changes in advances from affiliates—accounts		1,701		—		480		(2,368)		(187)
Net cash (used in) provided by financing activities		231		—		880		(2,246)		(1,135)
Net (decrease) increase in cash and cash equivalents		—		(13)		6		—		(7)
Cash and cash equivalents at beginning of period		—		40		8		—		48
Cash and cash equivalents at end of the period	$	—		27		14		—		41

(1)

QCII is the issuer of the QCII Guaranteed Notes and is a guarantor of the QCF Guaranteed Notes.

(2)

QSC is a guarantor of the QCII Guaranteed Notes.

(3)

QCF is the issuer of the QCF Guaranteed Notes and is a guarantor of the QCII Guaranteed Notes.