Financial Statements of Guarantors (Tables)

9 Months Ended

Sep. 30, 2013

Financial Statements of Guarantors

Schedule of condensed consolidating statements of operations

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.

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.

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.

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.

Schedule of condensed consolidating balance sheets

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.

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.

Schedule of condensed consolidating statements of cash flows

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.

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.