Financial Statements of Guarantors

QCII and our wholly owned subsidiaries, Qwest Capital Funding, Inc ("QCF") and Qwest Service Company ("QSC"), guarantee the payment of certain of each other's registered debt securities. As of September 30, 2013, each series of QCII's outstanding notes totaling $800 million 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 $981 million 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.

Allocations among Affiliates

We allocate the costs of shared services among our affiliates. These services include marketing and advertising, IT, 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 various 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 or settle its tax liabilities through a change in its general intercompany obligation 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, which are subject to valuation allowances to the extent it is not anticipated that the subsidiary will have sufficient future taxable income to utilize 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.

Out-of-Period Adjustment

In conjunction with finalizing our 2012 Annual Report on Form 10-K, we discovered that certain transactions with affiliates had been presented incorrectly in our consolidating statements of cash flows for the period ended September 30, 2012. Specifically, the settlement of certain intercompany obligations by and between our consolidated affiliates were treated as operating cash flows, which had the effect of understating the operating cash flows for the guarantors and overstating the operating cash flows for the non-guarantors by $671 million, with offsetting effects recorded as investing and financing activities for the nine months ended September 30, 2012. We considered both quantitative and qualitative factors in reaching the conclusion that the correction of the error was immaterial to our previously issued financial statements. Correcting this error affected certain entities included in our consolidating statements of cash flows but did not affect our consolidated statement of cash flows.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013

(UNAUDITED)



	QCII⁽¹⁾			QSC⁽²⁾ & QCF⁽³⁾		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		2,680		—		2,680
Operating revenues—affiliates	—			(1	)	169		—		168
Total operating revenues	—			(1	)	2,849		—		2,848
OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)	—			—		1,216		—		1,216
Selling, general and administrative	220			—		408		(2	)	626
Operating expenses—affiliates	—			—		201		2		203
Depreciation and amortization	9			—		678		—		687
Total operating expenses	229			—		2,503		—		2,732
OPERATING (LOSS) INCOME	(229		)	(1	)	346		—		116
OTHER INCOME (EXPENSE)
Interest expense	(12		)	(17	)	(115	)	—		(144	)
Interest expense—affiliates	(34		)	(28	)	(37	)	25		(74	)
Interest income—affiliates	—			26		—		(25	)	1
Income from equity investments in subsidiaries	211			46		—		(257	)	—
Other income	1			—		1		—		2
Total other income (expense)	166			27		(151	)	(257	)	(215	)
(LOSS) INCOME BEFORE INCOME TAX BENEFIT (EXPENSE)	(63		)	26		195		(257	)	(99	)
Income tax benefit (expense)	2			185		(149	)	—		38
NET (LOSS) INCOME	$	(61	)	211		46		(257	)	(61	)
COMPREHENSIVE (LOSS) INCOME	$	(59	)	211		46		(257	)	(59	)

_______________________________________________________________________________


⁽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.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012

(UNAUDITED)



	QCII⁽¹⁾			QSC⁽²⁾ & QCF⁽³⁾		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		2,712		—		2,712
Operating revenues—affiliates	—			—		113		—		113
Total operating revenues	—			—		2,825		—		2,825
OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)	—			—		1,227		—		1,227
Selling, general and administrative	2			—		382		—		384
Operating expenses—affiliates	—			—		165		—		165
Depreciation and amortization	15			—		712		—		727
Total operating expenses	17			—		2,486		—		2,503
OPERATING (LOSS) INCOME	(17		)	—		339		—		322
OTHER INCOME (EXPENSE)
Interest expense	(21		)	(17	)	(109	)	—		(147	)
Interest expense—affiliates	(26		)	(28	)	(11	)	28		(37	)
Interest income—affiliates	—			28		—		(28	)	—
Income from equity investments in subsidiaries	144			75		—		(219	)	—
Net gain (loss) on early retirement of debt	12			—		(13	)	—		(1	)
Other income (expense)	(14		)	—		14		—		—
Total other income (expense)	95			58		(119	)	(219	)	(185	)
INCOME (LOSS) BEFORE INCOME TAX BENEFIT (EXPENSE)	78			58		220		(219	)	137
Income tax benefit (expense)	5			86		(145	)	—		(54	)
NET INCOME (LOSS)	$	83		144		75		(219	)	83
COMPREHENSIVE INCOME (LOSS)	$	83		144		75		(219	)	83

_______________________________________________________________________________


⁽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.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(UNAUDITED)



	QCII⁽¹⁾			QSC⁽²⁾ & QCF⁽³⁾		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		8,024		—		8,024
Operating revenues—affiliates	—			7		461		(8	)	460
Total operating revenues	—			7		8,485		(8	)	8,484
OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)	—			4		3,496		—		3,500
Selling, general and administrative	242			10		1,223		(2	)	1,473
Operating expenses—affiliates	—			—		577		(6	)	571
Depreciation and amortization	32			—		2,017		—		2,049
Total operating expenses	274			14		7,313		(8	)	7,593
OPERATING (LOSS) INCOME	(274		)	(7	)	1,172		—		891
OTHER INCOME (EXPENSE)
Interest expense	(37		)	(52	)	(337	)	—		(426	)
Interest expense—affiliates	(105		)	(84	)	(91	)	78		(202	)
Interest income—affiliates	—			79		1		(78	)	2
Income from equity investments in subsidiaries	597			253		—		(850	)	—
Other income	5			—		1		—		6
Total other income (expense)	460			196		(426	)	(850	)	(620	)
INCOME BEFORE INCOME TAX BENEFIT (EXPENSE)	186			189		746		(850	)	271
Income tax benefit (expense)	8			408		(493	)	—		(77	)
NET INCOME (LOSS)	$	194		597		253		(850	)	194
COMPREHENSIVE INCOME (LOSS)	$	199		597		253		(850	)	199

_______________________________________________________________________________


⁽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.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(UNAUDITED)



	QCII⁽¹⁾			QSC⁽²⁾ & QCF⁽³⁾		Subsidiary Non- Guarantors		Eliminations		QCII Consolidated
	(Dollars in millions)
OPERATING REVENUES:
Operating revenues	$	—		—		8,173		—		8,173
Operating revenues—affiliates	—			3		327		(3	)	327
Total operating revenues	—			3		8,500		(3	)	8,500
OPERATING EXPENSES:
Cost of services and products (exclusive of depreciation and amortization)	—			—		3,615		—		3,615
Selling, general and administrative	5			3		1,304		—		1,312
Operating expenses—affiliates	—			—		467		(3	)	464
Depreciation and amortization	49			—		2,157		—		2,206
Total operating expenses	54			3		7,543		(3	)	7,597
OPERATING (LOSS) INCOME	(54		)	—		957		—		903
OTHER INCOME (EXPENSE)
Interest expense	(85		)	(51	)	(335	)	—		(471	)
Interest expense—affiliates	(48		)	(82	)	(22	)	81		(71	)
Interest income—affiliates	—			81		—		(81	)	—
Income from equity investments in subsidiaries	361			135		—		(496	)	—
Net gain (loss) on early retirement of debt	12			—		(50	)	—		(38	)
Other income (expense)	(1		)	—		4		—		3
Total other income (expense)	239			83		(403	)	(496	)	(577	)
INCOME BEFORE INCOME TAX BENEFIT (EXPENSE)	185			83		554		(496	)	326
Income tax benefit (expense)	12			278		(419	)	—		(129	)
NET INCOME	$	197		361		135		(496	)	197
COMPREHENSIVE INCOME	$	197		361		135		(496	)	197

_______________________________________________________________________________


⁽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.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATING BALANCE SHEETS

SEPTEMBER 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	$	2		80	30	—		112
Accounts receivable, less allowance	11			—	1,189	—		1,200
Notes receivable—affiliates	—			1,413	—	(1,413	)	—
Advances to affiliates	188			2,180	—	(161	)	2,207
Deferred income taxes, net	—			439	148	—		587
Other	—			—	369	—		369
Total current assets	201			4,112	1,736	(1,574	)	4,475
Net property, plant and equipment	—			—	9,205	—		9,205
Goodwill	—			—	10,123	—		10,123
Customer relationships, net	—			—	5,132	—		5,132
Other intangible assets, net	32			—	1,063	—		1,095
Investments in subsidiaries	14,619			12,781	—	(27,400	)	—
Deferred income taxes, net	1,331			473	—	(1,804	)	—
Prepaid pension, post-retirement and other post-employment benefits—affiliate	1,574			—	—	(1,570	)	4
Other	37			7	321	—		365
TOTAL ASSETS	$	17,794		17,373	27,580	(32,348	)	30,399
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—		—	98	—		98
Notes payable—affiliates	1,958			1,413	741	(1,413	)	2,699
Accounts payable	(1		)	—	679	—		678
Accounts payable—affiliates	—			—	161	(161	)	—
Accrued expenses and other liabilities	442			14	745	—		1,201
Advance billings and customers deposits	—			—	463	—		463
Total current liabilities	2,399			1,427	2,887	(1,574	)	5,139
LONG-TERM DEBT	843			1,007	7,606	—		9,456
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenues	—			—	209	—		209
Benefit plan obligations, net	3,573			—	—	—		3,573
Pension, post-retirement and other post-employment benefits obligations and other—affiliates	—			290	1,280	(1,570	)	—
Deferred income taxes	—			—	2,510	(1,804	)	706
Other	156			30	307	—		493
Total deferred credits and other liabilities	3,729			320	4,306	(3,374	)	4,981
Stockholder's equity	10,823			14,619	12,781	(27,400	)	10,823
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	17,794		17,373	27,580	(32,348	)	30,399

_______________________________________________________________________________


⁽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.

QWEST COMMUNICATIONS INTERNATIONAL INC.

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.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 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	$	(106	)	643		1,888		—		2,425
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software	—			—		(1,266	)	—		(1,266	)
Changes in advances to affiliates	(188		)	(1,242	)	223		(500	)	(1,707	)
Other, net	300			950		—		(1,250	)	—
Net cash (used in) provided by investing activities	112			(292	)	(1,043	)	(1,750	)	(2,973	)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	—			—		752		—		752
Payments of long-term debt	—			—		(835	)	—		(835	)
Changes in notes payable—affiliates	636			—		40		—		676
Changes in advances from affiliates	(651		)	(30	)	161		500		(20	)
Dividends paid to parent	—			(300	)	(950	)	1,250		—
Net cash provided by (used in) financing activities	(15		)	(330	)	(832	)	1,750		573
Net (decrease) increase in cash and cash equivalents	(9		)	21		13		—		25
Cash and cash equivalents at beginning of period	11			59		17		—		87
Cash and cash equivalents at end of the period	$	2		80		30		—		112

_______________________________________________________________________________


⁽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.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 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	$	(479	)	502		2,007		(13	)	2,017
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software	—			—		(1,121	)	—		(1,121	)
Changes in advances to affiliates—notes	184			280		278		(770	)	(28	)
Changes in advances to affiliates—accounts	—			(734	)	(1,061	)	1,795		—
Dividends received from subsidiaries	750			700		—		(1,450	)	—
Proceeds from sale of property	—			—		133		—		133
Net cash (used in) provided by investing activities	934			246		(1,771	)	(425	)	(1,016	)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	—			—		896		—		896
Payments of long-term debt	(1,302		)	—		(1,459	)	—		(2,761	)
Early retirement of debt costs	(49		)	—		(129	)	—		(178	)
Dividends paid to parent	(750		)	(750	)	(700	)	1,450		(750	)
Changes in advances from affiliates—notes	1,178			—		685		122		1,985
Changes in advances from affiliates—accounts	468			—		479		(1,134	)	(187	)
Net cash (used in) provided by financing activities	(455		)	(750	)	(228	)	438		(995	)
Net (decrease) increase in cash and cash equivalents	—			(2	)	8		—		6
Cash and cash equivalents at beginning of period	—			40		8		—		48
Cash and cash equivalents at end of the period	$	—		38		16		—		54

_______________________________________________________________________________


⁽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.