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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-15577

QWEST COMMUNICATIONS INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)	84-1339282 (I.R.S. Employer Identification No.)
100 CenturyLink Drive, Monroe, Louisiana (Address of principal executive offices)	71203 (Zip Code)

(318) 388-9000

(Registrant's telephone number, including area code)

THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF CENTURYLINK, INC., MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer ý (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

On November 13, 2013, there were 1,000 shares of common stock outstanding.

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TABLE OF CONTENTS



Part I.	Financial Information:
Item 1.	Financial Statements
	Consolidated Statements of Operations (Unaudited)	3
	Consolidated Statements of Comprehensive (Loss) Income (Unaudited)	4
	Consolidated Balance Sheets (Unaudited)	5
	Consolidated Statements of Cash Flows (Unaudited)	6
	Consolidated Statements of Stockholder's Equity (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)*	8-23
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24-34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
Part II.	Other Information:
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36-46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 6.	Exhibits	48-50
Signature		51

* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
	(Dollars in millions)
OPERATING REVENUES
Operating revenues	$	2,680		2,712		8,024		8,173
Operating revenues—affiliates	168			113		460		327
Total operating revenues	2,848			2,825		8,484		8,500
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	1,216			1,227		3,500		3,615
Selling, general and administrative	626			384		1,473		1,312
Operating expenses—affiliates	203			165		571		464
Depreciation and amortization	687			727		2,049		2,206
Total operating expenses	2,732			2,503		7,593		7,597
OPERATING INCOME	116			322		891		903
OTHER INCOME (EXPENSE)
Interest expense	(144		)	(147	)	(426	)	(471	)
Interest expense—affiliates	(74		)	(37	)	(202	)	(71	)
Net loss on early retirement of debt	—			(1	)	—		(38	)
Other income (expense)	3			—		8		3
Total other income (expense)	(215		)	(185	)	(620	)	(577	)
(LOSS) INCOME BEFORE INCOME TAX EXPENSE	(99		)	137		271		326
Income tax benefit (expense)	38			(54	)	(77	)	(129	)
NET (LOSS) INCOME	$	(61	)	83		194		197

See accompanying notes to consolidated financial statements.

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QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013			2012	2013	2012
	(Dollars in millions)
NET (LOSS) INCOME	$	(61	)	83	194	197
OTHER COMPREHENSIVE (LOSS) INCOME:
Defined benefit pension and post-retirement plans, net of $(1), $–, $(3), and $– tax	2			—	5	—
COMPREHENSIVE (LOSS) INCOME	$	(59	)	83	199	197

See accompanying notes to consolidated financial statements.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	September 30, 2013			December 31, 2012
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	112		87
Accounts receivable, less allowance of $69 and $76	1,200			1,177
Advances to affiliates	2,207			500
Deferred income taxes, net	587			473
Other	369			320
Total current assets	4,475			2,557
NET PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment	12,852			11,765
Accumulated depreciation	(3,647		)	(2,638	)
Net property, plant and equipment	9,205			9,127
GOODWILL AND OTHER ASSETS
Goodwill	10,123			10,123
Customer relationships, less accumulated amortization of $2,426 and $1,736	5,132			5,822
Other intangible assets, less accumulated amortization of $1,067 and $828	1,095			1,277
Other	369			340
Total goodwill and other assets	16,719			17,562
TOTAL ASSETS	$	30,399		29,246
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	98		856
Accounts payable	678			687
Notes payable—affiliates	2,699			2,023
Accrued expenses and other liabilities
Salaries and benefits	428			450
Income and other taxes	258			260
Interest	174			128
Other	341			86
Advance billings and customer deposits	463			452
Total current liabilities	5,139			4,942
LONG-TERM DEBT	9,456			8,772
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenue	209			192
Benefit plan obligations, net	3,573			3,699
Deferred income taxes, net	706			494
Other	493			523
Total deferred credits and other liabilities	4,981			4,908
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDER'S EQUITY
Common stock—$0.01 par value, 1,000 shares authorized; 1,000 shares issued, owned by CenturyLink, Inc.	—			—
Additional paid-in capital	12,273			12,273
Accumulated other comprehensive loss	(813		)	(818	)
Accumulated deficit	(637		)	(831	)
Total stockholder's equity	10,823			10,624
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	30,399		29,246

See accompanying notes to consolidated financial statements.

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QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Nine Months Ended September 30,
	2013			2012
	(Dollars in millions)
OPERATING ACTIVITIES
Net income	$	194		197
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,049			2,206
Deferred income taxes	96			117
Provision for uncollectible accounts	57			73
Long-term debt premium amortization	(47		)	(67	)
Net loss on early retirement of debt	—			38
Changes in current assets and current liabilities:
Accounts receivable	(80		)	(80	)
Accounts payable	(2		)	(51	)
Accounts receivable and payable—affiliates, net	—			(307	)
Accrued income and other taxes	18			(1	)
Other current assets and other current liabilities, net	249			66
Retirement benefits	(99		)	(96	)
Changes in other noncurrent assets and liabilities, net	(18		)	(80	)
Other, net	8			2
Net cash provided by operating activities	2,425			2,017
INVESTING ACTIVITIES
Payments for property, plant and equipment and capitalized software	(1,266		)	(1,121	)
Changes in advances to affiliates	(1,707		)	(28	)
Proceeds from sale of property	—			133
Net cash used in investing activities	(2,973		)	(1,016	)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt	752			896
Payments of long-term debt	(835		)	(2,761	)
Early retirement of debt costs	—			(178	)
Dividends paid to CenturyLink, Inc.	—			(750	)
Changes in notes payable—affiliates	676			1,985
Changes in advances from affiliates	(20		)	(187	)
Net cash provided by (used in) financing activities	573			(995	)
Net increase in cash and cash equivalents	25			6
Cash and cash equivalents at beginning of period	87			48
Cash and cash equivalents at end of period	$	112		54
Supplemental cash flow information:
Income taxes refunded (paid), net	$	1		(1	)
Interest (paid) (net of capitalized interest of $19 and $19)	$	(501	)	(585	)

See accompanying notes to consolidated financial statements.

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QWEST COMMUNICATIONS INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(UNAUDITED)



	Nine Months Ended September 30,
	2013			2012
	(Dollars in millions)
COMMON STOCK
Balance at beginning of period	$	—		—
Balance at end of period	—			—
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period	12,273			12,273
Balance at end of period	12,273			12,273
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period	(818		)	(446	)
Other comprehensive income	5			—
Balance at end of period	(813		)	(446	)
ACCUMULATED DEFICIT
Balance at beginning of period	(831		)	(551	)
Net income	194			197
Dividends declared to CenturyLink, Inc.	—			(588	)
Balance at end of period	(637		)	(942	)
TOTAL STOCKHOLDER'S EQUITY	$	10,823		10,885

See accompanying notes to consolidated financial statements.

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QWEST COMMUNICATIONS INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Unless the context requires otherwise, references in this report to "QCII" refer to Qwest Communications International Inc. on a stand-alone basis, and references to "Qwest," "we," "us" and "our" refer to Qwest Communications International Inc. and its consolidated subsidiaries.

(1) Basis of Presentation

We are an integrated communications company engaged primarily in providing an array of communications services to our residential, business, governmental and wholesale customers. Our communications services include local and long-distance, network access, private line (including special access), broadband, Ethernet, data, managed hosting, colocation, wireless and video services. In certain local and regional markets, we also provide local access and fiber transport services to competitive local exchange carriers. We are a wholly-owned subsidiary of CenturyLink, Inc., ("CenturyLink") which acquired us on April 1, 2011.

We generate the majority of our revenues from services provided in the 14-state region of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. We refer to this region as our local service area.

Our consolidated balance sheet as of December 31, 2012, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"); however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations for the first nine months of the year are not necessarily indicative of the consolidated results of operations that might be expected for the entire year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries over which we exercise control. All intercompany amounts and transactions with our consolidated subsidiaries have been eliminated.

(2) Goodwill

We test our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. We are required to write down the value of goodwill only when our testing determines the recorded amount of goodwill exceeds the fair value. Our annual measurement date for testing goodwill impairment is September 30, at which date we test our one reporting unit, Qwest.

We compare Qwest’s estimated fair value to the carrying value of equity. If the estimated fair value of Qwest is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the Qwest is less than the carrying value, a second calculation is required in which the implied fair value of goodwill is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than its carrying value of goodwill, goodwill must be written down to its implied fair value.

At September 30, 2013, as a result of changes in our forecasted cash flows since our previous quantitative assessment, we did not have a baseline valuation upon which to perform a qualitative assessment. Therefore, we are in the process of completing our goodwill impairment testing by considering both a market approach and a discounted cash flow method. The market approach method includes the use of comparable multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows beyond the cash flows from the discrete projection period.

Our direct parent, CenturyLink, has not completed its goodwill impairment test as of September 30, 2013, and as a result, we also have not completed our impairment test; however, based on our analysis performed thus far, we do not anticipate an impairment of our goodwill. We expect to complete our impairment analysis prior to reporting our financial results for the fourth quarter of 2013.

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(3) Long-Term Debt and Revolving Promissory Notes

Long-term debt, including unamortized discounts and premiums, is as follows:



	Interest Rates	Maturities	September 30, 2013			December 31, 2012
			(Dollars in millions)
Qwest Communications International Inc.
Senior notes	7.125%	2018	$	800		800
Unamortized premiums			43			49
Qwest Capital Funding
Senior notes	6.500% - 7.750%	2018 - 2031	981			981
Unamortized premiums, net			25			27
Qwest Corporation
Senior notes	6.125% - 8.375%	2014 - 2053	7,411			7,386
Capital lease and other obligations	Various	Various	85			113
Unamortized premiums, net			86			127
Qwest Communications Company, LLC
Capital lease and other obligations	Various	Various	123			145
Total long-term debt			9,554			9,628
Less current maturities			(98		)	(856	)
Long-term debt, excluding current maturities			$	9,456		8,772

New Issuance

On May 23, 2013, Qwest Corporation ("QC") issued $775 million aggregate principal amount of 6.125% Notes due 2053, including $25 million principal amount that was sold pursuant to an over-allotment option granted to the underwriters for the offering, in exchange for net proceeds, after deducting underwriting discounts and expenses, of approximately $752 million. The Notes are unsecured obligations and may be redeemed, in whole or in part, on or after June 1, 2018 at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.

Repayment

On June 17, 2013, QC paid at maturity the $750 million principal amount of its floating rate Notes.

Revolving Promissory Notes

QCII has a revolving promissory note with an affiliate of CenturyLink that provides us with a funding commitment with an aggregate principal amount available of $3.0 billion through June 30, 2022, of which $1.958 billion was outstanding as of September 30, 2013. As of September 30, 2013, the weighted average interest rate under this note was 6.783%. This revolving promissory note and accrued interest thereon is reflected on our consolidated balance sheets as a current liability under notes payable—affiliates.

QC has a revolving promissory note with an affiliate of CenturyLink that provides QC with a funding commitment with an aggregate principal amount available of $1.0 billion through June 30, 2022, of which $741 million was outstanding as of September 30, 2013. As of September 30, 2013, the weighted average interest rate under this note was 6.783%. This revolving promissory note and accrued interest thereon is reflected on our consolidated balance sheets as a current liability under notes payable—affiliates.

Covenants

As of September 30, 2013, we believe we were in compliance with the provisions and covenants of our debt agreements.

(4) Severance and Leased Real Estate

Periodically, we have reductions in our workforce and have accrued liabilities for the related severance costs. These workforce reductions resulted primarily from the progression or completion of our integration plans related to CenturyLink's acquisition of us, increased competitive pressures and reduced workload demands due to the loss of access lines.

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We report severance liabilities within accrued expenses and other liabilities-salaries and benefits in our consolidated balance sheets and report severance expenses in cost of services and products and selling, general and administrative expenses in our consolidated statements of operations.

We report the current portion of liabilities for real estate leases that we have ceased using in accrued expenses and other liabilities and report the noncurrent portion in other noncurrent liabilities under deferred credits and other liabilities in our consolidated balance sheets. We report the related expenses in selling, general and administrative expenses in our consolidated statements of operations. At September 30, 2013, the current and noncurrent portions of our leased real estate accrual were $18 million and $99 million, respectively. The remaining lease terms range from 0.3 to 12.3 years, with a weighted average of 8.7 years.

Changes in our accrued liabilities for severance expenses and leased real estate were as follows:



	Severance			Real Estate
	(Dollars in millions)
Balance at December 31, 2012	$	7		131
Accrued to expense	6			—
Payments, net	(9		)	(12	)
Reversals and adjustments	—			(2	)
Balance at September 30, 2013	$	4		117

(5) Employee Benefits

Net periodic pension benefit (income) expense included the following components:



	Pension Plans
	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
	(Dollars in millions)
Service cost	$	13		15		43		44
Interest cost	83			97		250		293
Expected return on plan assets	(149		)	(144	)	(447	)	(432	)
Recognition of actuarial loss	2			—		5		—
Net periodic pension benefit (income) expense	$	(51	)	(32	)	(149	)	(95	)

Net periodic post-retirement benefit expense (income) included the following components:



	Post-Retirement Benefit Plans
	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
	(Dollars in millions)
Service cost	$	3		2		9		6
Interest cost	30			37		88		110
Expected return on plan assets	(9		)	(10	)	(27	)	(31	)
Recognition of actuarial loss	1			—		3		—
Net periodic post-retirement benefit expense (income)	$	25		29		73		85

We report net periodic benefit (income) expense for our qualified pension, non-qualified pension and post-retirement benefit plans in cost of services and products and selling, general and administrative expenses on our consolidated statements of operations.

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(6) Fair Value Disclosure

Our financial instruments consist of cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable, notes payable—affiliates and long-term debt, excluding capital lease obligations. Due to their short-term nature, the carrying amounts of our cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable, and notes 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 Financial Accounting Standards Board ("FASB").

We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on discounted future cash flows using current market interest rates.

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 long-term debt, excluding capital lease obligations, as well as the input level used to determine the fair values:



		September 30, 2013			December 31, 2012
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities—Long-term debt, excluding capital lease obligations	2	$	9,346	9,225	9,370	9,909

(7) Products and Services Revenues

We are an integrated communications company engaged primarily in providing an array of communications services, including local and long-distance, network access, private line (including special access), broadband, Ethernet, data, managed hosting, colocation, wireless and video services. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services. We categorize our products and services revenues into the following four categories:

•

Strategic services, which include primarily private line (including special access), broadband, Multiprotocol Label Switching ("MPLS") (which is a data networking technology that can deliver the quality of service required to support real-time voice and video), Ethernet, hosting, colocation, video (including resold satellite video services), Voice over Internet Protocol ("VoIP") and Verizon Wireless services;


•	Legacy services, which include primarily local, long-distance, Integrated Services Digital Network ("ISDN") (which uses regular telephone lines to support voice, video and data applications), switched access and traditional wide area network ("WAN") services (which allows a local communications network to link to networks in remote locations);


•	Data integration, which includes the sale of telecommunications equipment located on customers' premises and related professional services, such as network management, installation and maintenance of data equipment and building of proprietary fiber-optic broadband networks for our government and business customers; and

•

Affiliates and other services, which consist primarily of Universal Service Fund ("USF") revenues and surcharges and services we provide to our non-consolidated affiliates. We provide to our affiliates telecommunication services that we also provide to external customers. In addition, we provide to our affiliates computer system development and support services as well as network support and technical services.

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Our operating revenues for our products and services consisted of the following categories:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2013		2012	2013	2012
	(Dollars in millions)
Strategic services	$	1,313	1,258	3,886	3,715
Legacy services	1,113		1,197	3,395	3,681
Data integration	138		137	385	393
Affiliates and other services	284		233	818	711
Total operating revenues	$	2,848	2,825	8,484	8,500

We do not have any single external customer that provides more than 10% of our total revenue. Substantially all of our revenue comes from customers located in the United States.

Affiliates and other services revenues include revenues from universal service funds which allow us to recover a portion of our costs under federal and state cost recovery mechanisms and certain surcharges to our customers, including billings for our required contributions to several USF programs.

The table below presents the aggregate USF surcharges recognized on a gross basis:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2013		2012	2013	2012
	(Dollars in millions)
USF and surcharges included in operating revenues and expenses	$	90	95	278	298

Our operations are integrated into and reported as part of the segments of CenturyLink. CenturyLink's chief operating decision maker ("CODM") is our CODM, but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the Securities and Exchange Commission. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we have one reportable segment.

(8) Commitments and Contingencies

In this Note, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in that matter. Until and unless a class has been certified by the court, it has not been established that the named plaintiffs represent the class of plaintiffs they purport to represent.

We have established accrued liabilities for the matters described below where losses are deemed probable and reasonably estimable.

We are vigorously defending against all of the matters described below. As a matter of course, we are prepared both to litigate the matters to judgment, as well as to evaluate and consider all settlement opportunities.

The terms and conditions of applicable bylaws, certificates or articles of incorporation, agreements or applicable law may obligate us to indemnify our former directors, officers or employees with respect to certain of the matters described below, and we have been advancing legal fees and costs to certain former directors, officers or employees in connection with certain matters described below.

Litigation Matters Relating to Qwest

On July 16, 2013, Comcast MO Group, Inc. ("Comcast") filed a lawsuit in Colorado state court against Qwest Communications International, Inc. ("Qwest"). Comcast alleges Qwest breached the parties' 1998 tax sharing agreement ("TSA") when it refused to partially indemnify Comcast for a tax liability settlement Comcast reached with the Commonwealth of Massachusetts in a dispute to which we were not a party. Comcast seeks approximately $80 million in damages, excluding interest. Qwest and Comcast are parties to the TSA in their capacities as successors to the TSA's original parties, U S WEST, Inc., a telecommunications company, and MediaOne Group, Inc., a cable television company, respectively. We have not accrued a liability for this matter because we do not believe that liability is probable.

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KPNQwest Litigation/Investigation

On September 29, 2010, the trustees in the Dutch bankruptcy proceeding for KPNQwest, N.V. (of which we were a major shareholder) filed a lawsuit in the District Court of Haarlem, the Netherlands, alleging tort and mismanagement claims under Dutch law. We and Koninklijke KPN N.V. ("KPN") are defendants in this lawsuit along with a number of former KPNQwest supervisory board members and a former officer of KPNQwest, some of whom were formerly affiliated with us. Plaintiffs allege, among other things, that defendants' actions were a cause of the bankruptcy of KPNQwest, and they seek damages for the bankruptcy deficit of KPNQwest, which is claimed to be approximately €4.2 billion (or approximately $5.7 billion based on the exchange rate on September 30, 2013), plus statutory interest. Two lawsuits asserting similar claims were previously filed against Qwest and others in federal courts in New Jersey in 2004 and Colorado in 2009; those courts dismissed the lawsuits without prejudice on the grounds that the claims should not be litigated in the United States.

In October 2013 following a confidential mediation, Qwest, KPN, and the trustees reached a tentative oral agreement on the principal financial terms of a potential settlement. The potential settlement terms include Qwest’s payment of €172 million (or approximately $233 million based on the exchange rate on September 30, 2013) to the KPNQwest bankruptcy estate pursuant to its indemnification obligations, discussed below. The tentative settlement is subject to several conditions, including the negotiation and execution of a definitive settlement agreement acceptable to the plaintiffs and various other defendants and the approval of the Dutch bankruptcy court.

On September 13, 2006, Cargill Financial Markets, Plc and Citibank, N.A. filed a lawsuit in the District Court of Amsterdam, the Netherlands, against us, KPN, KPN Telecom B.V., and other former officers, employees or supervisory board members of KPNQwest, some of whom were formerly affiliated with us. The lawsuit alleges that defendants misrepresented KPNQwest's financial and business condition in connection with the origination of a credit facility and wrongfully allowed KPNQwest to borrow funds under that facility. Plaintiffs allege damages of approximately €219 million (or approximately $296 million based on the exchange rate on September 30, 2013). The value of this claim will be reduced to the degree plaintiffs receive recovery from the tentative trustee settlement described above. While we expect the plaintiffs would receive proceeds from any such trustee settlement, the amounts of such expected recovery are not yet known. On April 25, 2012, the court issued its judgment denying the claims asserted by Cargill and Citibank in their lawsuit. Cargill and Citibank are appealing that decision.

Regarding the 2010 proceeding filed by the trustees, we have accrued a liability in the third quarter of 2013 in the pre-tax amount of €172 millions (or approximately $233 million reflected in other current liabilities in our accompanying consolidated financial statements based on the exchange rate on September 30, 2013), which equals Qwest’s proposed contribution under the terms of the tentative settlement. In the event that a settlement is not finalized, we will continue to defend against the matter vigorously. Regarding the 2006 suit brought by Cargill Financial Markets, Plc and Citibank, N.A, we do not believe that liability is probable and will continue to defend against the matter vigorously.

Other Matters

Several putative class actions relating to the installation of fiber optic cable in certain rights-of-way were filed against Qwest on behalf of landowners on various dates and in courts located in 34 states in which Qwest has such cable (Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, and Wisconsin.) For the most part, the complaints challenge our right to install our fiber optic cable in railroad rights-of-way. The complaints allege that the railroads own the right-of-way as an easement that did not include the right to permit us to install our cable in the right-of-way without the plaintiffs' consent. Most of the currently pending actions purport to be brought on behalf of state-wide classes in the named plaintiffs' respective states, although one action pending before the Illinois Court of Appeals purports to be brought on behalf of landowners in Illinois, Iowa, Kentucky, Michigan, Minnesota, Nebraska, Ohio and Wisconsin. In general, the complaints seek damages on theories of trespass and unjust enrichment, as well as punitive damages. After previous attempts to enter into a single nationwide settlement in a single court proved unsuccessful, the parties proceeded to seek court approval of settlements on a state-by-state basis. To date, the parties have received final approval of such settlements in 29 states (Alabama, California, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia and Wisconsin), have received only preliminary approval of the settlement in one state (Kentucky), and have not yet received either preliminary or final approval in one state where an action is pending (Texas) and three states where actions were at one time, but are not currently, pending (Arizona, Massachusetts and New Mexico). We have accrued an amount that we believe is probable for these matters; however, the amount is not material to our consolidated financial statements.

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From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, administrative hearings of state public utility commissions relating primarily to rate making, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third party tort actions. The outcome of these other proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and insurance coverage, will have a material adverse effect on our financial position, results of operations or cash flows.

CenturyLink is involved in several legal proceedings to which we are not a party that, if resolved against CenturyLink, could have a material adverse effect on its business and financial condition. As a wholly owned subsidiary of CenturyLink, our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in CenturyLink's quarterly and annual reports filed with the SEC. Because we are not a party to any of these matters, we have not accrued any liabilities for these matters.

(9) Other Financial Information

Other Current Assets

Other current assets reflected on our consolidated balance sheets consisted of the following:



	Other Current Assets
	September 30, 2013		December 31, 2012
	(Dollars in millions)
Prepaid expenses	$	197	195
Other	172		125
Total other current assets	$	369	320

(10) Labor Union Contracts

Approximately 12,000 or 48% of our employees are members of various bargaining units represented by the Communications Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW") and are subject to collective bargaining agreements that expired October 6, 2012. Since the expirations, we have been negotiating the terms of new agreements. Recently, we reached conditional agreements with CWA District 7 and IBEW Local 206 for a four-year collective bargaining agreement covering approximately 12,000 of our employees. After rejecting the initial agreements, the CWA and IBEW members approved the second agreements and they became effective on October 25, 2013. The new agreements will expire on October 7, 2017.

(11) 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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

Table of Contents

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.

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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.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references to "Notes" in this Item 2 refer to the Notes to Consolidated Financial Statements included in Item 1 of this report.

Certain statements in this report constitute forward-looking statements. See the last paragraph of this Item 2 and "Risk Factors" in Item 1A of Part II of this report for a discussion of certain factors that could cause our actual results to differ from our anticipated results or otherwise impact our business, financial condition, results of operations, liquidity or prospects.

Overview

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") included herein should be read in conjunction with MD&A and the other information included in our Annual Report on Form 10-K for the year ended December 31, 2012, and with the consolidated financial statements and related notes in Item 1 of Part I of this report. The results of operations for the first nine months of the year are not necessarily indicative of the results of operations that might be expected for the entire year. We are a wholly-owned subsidiary of CenturyLink, Inc. ("CenturyLink"), which acquired us on April 1, 2011.

We are an integrated communications company engaged primarily in providing an array of communications services to our residential, business, governmental and wholesale customers. Our communications services include local and long-distance, network access, private line (including special access), broadband, Ethernet, data, managed hosting, colocation, wireless and video services. In certain local and regional markets, we also provide local access and fiber transport services to competitive local exchange carriers. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services.

Our operations are integrated into and reported as part of the segments of CenturyLink. CenturyLink's chief operating decision maker ("CODM") is our CODM, but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the Securities and Exchange Commission ("SEC"). Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we have one reportable segment.

We currently categorize our products, services and revenues among the following four categories:


•	Strategic services, which include primarily private line (including special access), broadband, Multiprotocol Label Switching ("MPLS") (which is a data networking technology that can deliver the quality of service required to support real-time voice and video), Ethernet, hosting, colocation, video (including DIRECTV), Voice over Internet Protocol ("VoIP") and Verizon Wireless services;


•	Legacy services, which include primarily local, long-distance, Integrated Services Digital Network ("ISDN") (which uses regular telephone lines to support voice, video and data applications), switched access and traditional wide area network ("WAN") services (which allows a local communications network to link to networks in remote locations);


•	Data integration, which includes the sale of telecommunications equipment located on customers' premises and related professional services, such as network management, installation and maintenance of data equipment and building of proprietary fiber-optic broadband networks for our government and business customers; and

•

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As of September 30, 2013, we served approximately 3.4 million broadband subscribers. We also operated approximately 7.7 million access lines, which are telephone lines reaching from the customers' premises to a connection with the public switched telephone network. Our methodology for counting our broadband subscribers and access lines includes only those access lines that we use to provide services to external customers and excludes lines used solely by us and our affiliates. It also excludes unbundled loops and includes stand-alone broadband subscribers. We count access lines when we install the service. Our methodology for counting our broadband subscribers and access lines may not be comparable to those of other companies.

Our analysis presented below is organized to provide the information we believe will be useful for understanding the relevant trends affecting our business.

Business Trends

Our financial results have been impacted by several significant trends, including those described below.

•

Strategic services. We continue to see shifts in the makeup of our total revenues as customers move to strategic services, such as broadband, Ethernet, MPLS, and video services, from legacy services, such as local and access services. Revenues from our strategic services represented 46% and 45%of our total revenues for the three months ended September 30, 2013 and 2012, respectively, and 46% and 44% of our total revenues for the nine months ended September 30, 2013 and 2012, respectively. We expect these percentages to continue to grow. We continue to focus on increasing subscribers of our broadband services, particularly among consumer and small business customers. We believe that continually increasing connection speeds is important to remaining competitive in our industry. As a result, we continue to invest in our broadband network, which allows for the delivery of higher speed broadband services than would otherwise generally be available through a more traditional telecommunications network made up of only copper wires. In addition to our broadband network, we continue to expand our product offerings, including Ethernet and MPLS, and enhance our marketing efforts as we compete in a maturing market in which most consumers already have broadband services. We expect these efforts will improve our ability to compete and increase our broadband revenues. Another trend impacting our strategic services is the deployment of fiber-based special access services provided to wireless carriers, which in many cases replaces existing copper-based special access services. We believe the growth in fiber-based special access services provided to wireless carriers for backhaul will, ultimately, offset the decline in copper-based special access services provided to wireless carriers as they migrate to Ethernet services, although the timing and magnitude of this technological migration is uncertain;

•

Legacy services. Revenues from our legacy services represented 39% and 42% of our total revenues for the three months ended September 30, 2013 and 2012, respectively, and 40% and 43% of our total revenues for the nine months ended September 30, 2013 and 2012, respectively. We expect these percentages to continue to decline at a slower pace than in the past. Our legacy services revenues have been and we expect they will continue to be adversely affected by access line losses. Intense competition and product substitution continue to drive our access line losses. For example, many consumers are replacing traditional voice telecommunications service with substitute services, including (i) cable and wireless voice services and (ii) electronic mail, texting and social networking services. We expect that these factors will continue to negatively impact our business. As a result of the expected loss of revenues associated with access lines, we continue to offer service bundling and other product promotions to help mitigate this trend, as described below;


•	Data integration. We expect both data integration revenue and the related costs will fluctuate from quarter to quarter as this revenue stream tends to be more sensitive than revenues from our other services to changes in the economy and to changes in spending trends of our governmental customers, many of whom have experienced budget cuts;


•	Service bundling and product promotions. We offer our customers the ability to bundle multiple products and services. These customers can bundle local services with other services such as broadband, video, long-distance and wireless. While we believe our bundled service offerings can help retain customers, they also tend to lower our profit margins;


•	Operating efficiencies. We continue to evaluate our operating structure and focus. This involves balancing our workforce in response to our workload requirements, productivity improvements and changes in industry, competitive, technological and regulatory conditions; and

•

Pension and post-retirement benefits expenses. We are required to recognize in our consolidated financial statements certain expenses relating to our pension and post-retirement health care and life insurance benefits plans. These expenses are calculated based on several assumptions, including among other things interest rates and expected rates of return on plan assets that are generally set at December 31 of each year. Changes in these assumptions can cause significant changes in the combined net periodic benefits expenses we recognize. We allocate the expenses of these plans to certain of our other affiliates. The allocation of expenses is based upon the demographics of employees and

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retirees at our affiliates. Changes in our assumptions can cause significant changes in the net periodic pension and post-retirement benefits expenses we recognize.

While these trends are important to understanding and evaluating our financial results, the other transactions, additional events, uncertainties and trends discussed in "Risk Factors" in Item 1A of Part II of this report may also materially impact our business operations and financial results.

Results of Operations

The following table summarizes the results of our consolidated operations for the three and nine months ended September 30, 2013 and 2012:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
	(Dollars in millions)
Operating revenues	$	2,848		2,825		8,484		8,500
Operating expenses	2,732			2,503		7,593		7,597
Operating income	116			322		891		903
Other income (expense)	(215		)	(185	)	(620	)	(577	)
Income tax benefit (expense)	38			(54	)	(77	)	(129	)
Net (loss) income	$	(61	)	83		194		197

The following table summarizes certain of our selected operational metrics:



	As of September 30,
	As of September 30,		Increase/ (Decrease)		% Change
	2013	2012⁽¹⁾	Increase/ (Decrease)		% Change
	(in thousands)
Broadband subscribers⁽¹⁾	3,395	3,287	108		3	%
Access lines⁽¹⁾	7,720	8,171	(451	)	(6	)%
Employees	24.9	24.9	—		—	%

_______________________________________________________________________________


⁽¹⁾	The prior year numbers have been adjusted to include the operational metrics of our indirectly owned subsidiary, El Paso County Telephone Company, which had been previously excluded. The increase (in thousands) related to Broadband subscribers and Access lines attributable to El Paso County Telephone Company's inclusion is approximately 3 and 4, respectively.

Operating Revenues

The following tables summarize our operating revenues under our current revenue categorization:



	Three Months Ended September 30,
	Three Months Ended September 30,			Increase/ (Decrease)		% Change
	2013		2012	Increase/ (Decrease)		% Change
	(Dollars in millions)
Strategic services	$	1,313	1,258	55		4	%
Legacy services	1,113		1,197	(84	)	(7	)%
Data integration	138		137	1		1	%
Affiliates and other services	284		233	51		22	%
Total operating revenues	$	2,848	2,825	23		1	%

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	Nine Months Ended September 30,
	Nine Months Ended September 30,			Increase/ (Decrease)		% Change
	2013		2012	Increase/ (Decrease)		% Change
	(Dollars in millions)
Strategic services	$	3,886	3,715	171		5	%
Legacy services	3,395		3,681	(286	)	(8	)%
Data integration	385		393	(8	)	(2	)%
Affiliates and other services	818		711	107		15	%
Total operating revenues	$	8,484	8,500	(16	)	—	%

Strategic Services

Strategic services revenues increased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 primarily due to volume increases in the number of broadband subscribers as well as volume increases in our Ethernet and MPLS services. These increases were partially offset by declines in our private line services revenues.

Legacy Services

Legacy services revenues decreased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 as a result of lower local and long-distance services revenues due to access line loss and reduced access services usage related to competitive pressures and product substitution. Legacy services revenues also decreased due to lower traditional WAN services caused by customer migration to our strategic services, product substitution and increased competition.

Data Integration

Data integration revenues remained relatively unchanged for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012. Data integration revenues decreased for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 primarily due to decreased equipment sales, including network management, security and integration of customer premises equipment.

Affiliates and Other Services

Affiliates and other services revenues increased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 primarily due to an increase in the rates we charge for support services we provided to affiliates.

Operating Expenses

The following tables summarize our operating expenses:



	Three Months Ended September 30,
	Three Months Ended September 30,			Increase/ (Decrease)		% Change
	2013		2012	Increase/ (Decrease)		% Change
	(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	$	1,216	1,227	(11	)	(1	)%
Selling, general and administrative	626		384	242		63	%
Operating expenses—affiliates	203		165	38		23	%
Depreciation and amortization	687		727	(40	)	(6	)%
Total operating expenses	$	2,732	2,503	229		9	%

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	Nine Months Ended September 30,
	Nine Months Ended September 30,			Increase/ (Decrease)		% Change
	2013		2012	Increase/ (Decrease)		% Change
	(Dollars in millions)
Cost of services and products (exclusive of depreciation and amortization)	$	3,500	3,615	(115	)	(3	)%
Selling, general and administrative	1,473		1,312	161		12	%
Operating expenses—affiliates	571		464	107		23	%
Depreciation and amortization	2,049		2,206	(157	)	(7	)%
Total operating expenses	$	7,593	7,597	(4	)	—	%

Cost of Services and Products (exclusive of depreciation and amortization)

Cost of services and products (exclusive of depreciation and amortization) are expenses incurred in providing products and services to our customers. These expenses include: employee-related expenses directly attributable to operating and maintaining our network (such as salaries, wages, benefits and professional fees); facilities expenses (which include third-party telecommunications expenses we incur for using other carriers' networks to provide services to our customers); rents and utilities expenses; equipment sales expenses (such as data integration and modem expenses); costs for USF (which reflect our contributions to certain federal and state funds that are established to promote the availability of telecommunications services to all consumers at reasonable and affordable rates, among other things); and other expenses directly related to our network and hosting operations.

Cost of services and products (exclusive of depreciation and amortization) decreased for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012 primarily due to decreases in salaries, wages and employee benefits costs associated with the reductions in headcount in the third quarter of 2012, reductions in severance costs, real estate and power and equipment and maintenance costs, which were partially offset by increases in facility cost, professional fees and network expense. Cost of services and products (exclusive of depreciation and amortization) decreased for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 primarily due to decreases in salaries, wages and employee benefits costs associated with the reductions in headcount in the first nine months of 2012, reductions in severance costs, customer premise equipment costs, access expense, and real estate and power costs, partially offset by increases in facility cost and network expense.

Selling, General and Administrative

Selling, general and administrative expenses are expenses incurred in selling products and services to our customers, corporate overhead and other operating expenses. These expenses include: employee-related expenses (such as salaries, wages, internal commissions, benefits and professional fees) directly attributable to selling products or services and employee-related expenses for administrative functions; marketing and advertising; taxes (such as property and other taxes) and fees; external commissions; bad debt expense; and other expenses.

Selling, general and administrative expenses increased for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012 primarily due to a charge of $233 million in connection with a tentative settlement in a litigation matter. The increase was also attributable to increases in consulting fees, external commissions, bad debt expense and property taxes. The increases were partially offset by decreases in professional fees and insurance costs. Selling, general and administrative expenses increased for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 primarily due to the $233 million charge for the above-referenced tentative litigation settlement. The increase was also attributable to consulting fees, external commissions and property taxes. These increases were partially offset by decreases in salaries, wages and employee benefits costs associated with the reductions in headcount during the first half of 2013, decreases in bad debt expense and marketing and advertising costs.

Operating Expenses—Affiliates

Since CenturyLink's acquisition of us, we have incurred affiliates expenses related to our use of telecommunication services, marketing and employee related support services provided by CenturyLink and its subsidiaries.

Operating expenses—affiliates increased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 primarily due to an increase in the rates we are charged for support services and higher levels of services provided to us by affiliates as a result of the continuing integration with CenturyLink.

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Depreciation and Amortization

The following tables provide detail regarding depreciation and amortization expense:



	Three Months Ended September 30,
	Three Months Ended September 30,			Increase/ (Decrease)		% Change
	2013		2012	Increase/ (Decrease)		% Change
	(Dollars in millions)
Depreciation	$	366	380	(14	)	(4	)%
Amortization	321		347	(26	)	(7	)%
Total depreciation and amortization	$	687	727	(40	)	(6	)%



	Nine Months Ended September 30,
	Nine Months Ended September 30,			Increase/ (Decrease)		% Change
	2013		2012	Increase/ (Decrease)		% Change
	(Dollars in millions)
Depreciation	$	1,074	1,132	(58	)	(5	)%
Amortization	975		1,074	(99	)	(9	)%
Total depreciation and amortization	$	2,049	2,206	(157	)	(7	)%

Depreciation expense decreased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 primarily due to depreciation rate changes of certain telecommunications equipment. The rate changes were the result of our aged investment in plant becoming fully depreciated or retired at a faster rate than the acquisition of new plant. Amortization expense decreased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 partially due to the use of accelerated amortization for a portion of the customer relationship assets. In addition, amortization of capitalized software was lower due to our software investments becoming fully amortized faster than new software was acquired.

Other Consolidated Results

The following tables summarize our total other income (expense) and income tax expense:



	Three Months Ended September 30,
	Three Months Ended September 30,					Increase/ (Decrease)		% Change
	2013			2012		Increase/ (Decrease)		% Change
	(Dollars in millions)
Interest expense	$	(144	)	(147	)	(3	)	(2	)%
Interest expense—affiliate	(74		)	(37	)	37		100	%
Net loss on early retirement of debt	—			(1	)	(1	)	(100	)%
Other income (expense)	3			—		3		—	%
Total other income (expense)	$	(215	)	(185	)	30		16	%
Income tax benefit (expense)	$	38		(54	)	92		170	%



	Nine Months Ended September 30,
	Nine Months Ended September 30,					Increase/ (Decrease)		% Change
	2013			2012		Increase/ (Decrease)		% Change
	(Dollars in millions)
Interest expense	$	(426	)	(471	)	(45	)	(10	)%
Interest expense—affiliate	(202		)	(71	)	131		185	%
Net loss on early retirement of debt	—			(38	)	(38	)	(100	)%
Other income (expense)	8			3		5		167	%
Total other income (expense)	$	(620	)	(577	)	43		7	%
Income tax benefit (expense)	$	(77	)	(129	)	(52	)	(40	)%

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Interest Expense

Interest expense decreased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 primarily due to a lower amount of debt outstanding along with lower interest rates which were partially offset by a reduction in the amortization of debt premiums. See Note 3—Long-Term Debt and Revolving Promissory Notes to our consolidated financial statements in Item 1 of Part I of this report and "Liquidity and Capital Resources" below for additional information about our debt.

Interest Expense—Affiliates

Affiliate interest expense increased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 primarily due to increased loan balances that we owe to our affiliates under the revolving promissory notes.

Income Tax Expense

The effective tax rate for the nine months ended September 30, 2013 was 28.4% compared to 39.6% for the comparative prior year period. The decrease in the effective tax rate is primarily due to the impact of a favorable settlement with the Internal Revenue Service of $33 million.

Liquidity and Capital Resources

Overview

We are a wholly owned subsidiary of CenturyLink. As such, factors relating to, or affecting, CenturyLink's liquidity and capital resources could have material impacts on us, including impacts on our credit ratings, our access to capital markets and changes in the financial market's perception of us.

CenturyLink has cash management arrangements between certain of its subsidiaries that include lines of credit, affiliate promissory notes, capital contributions and dividends. As part of these cash management arrangements, affiliates provide lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and intercompany promissory notes vary from time to time. Under these arrangements, the majority of our cash balance is transferred on a daily basis to CenturyLink as advances to affiliates. From time to time we may declare and pay dividends to CenturyLink, using cash repaid to us under these advances, which has the net effect of reducing the amount of these advances. Given our cash management arrangement with CenturyLink and the resulting amounts due to us from CenturyLink, a significant component of our liquidity is dependent upon CenturyLink's ability to repay its obligation to us.

At September 30, 2013, we had a working capital deficit of $664 million, reflecting current liabilities of $5.1 billion and current assets of $4.5 billion, compared to a working capital deficit of $2.4 billion as of December 31, 2012. The favorable change in our working capital position is primarily due to a $1.7 billion increase in the amount owed to us by our affiliates.

Capital Expenditures

We incur capital expenditures on an ongoing basis in order to enhance and modernize our networks, compete effectively in our markets and expand our service offerings. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted revenue growth, operating, productivity, expense or service impacts) and our expected return on investment. The amount of capital investment is influenced by, among other things, demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.

Our capital expenditures continue to be focused on our strategic services such as video and broadband services.

In 2012 and early 2013 CenturyLink accepted approximately $35 million from Round 1 of Phase 1 of the Federal Communications Commission's ("FCC") Connect America Fund ("CAF") established by Congress to help telecommunications carriers defray the cost of providing broadband access to remote customers. Of the $35 million, QC received approximately $30 million and intends to use the funds to deploy broadband service for up to 39,000 homes in unserved rural areas principally in Colorado, Minnesota, New Mexico and Washington. In 2013, the FCC announced another round of CAF funding and CenturyLink is eligible to receive up to $90 million of additional funding under Round 2 of Phase I of CAF. In August 2013, CenturyLink agreed to accept $54 million from Round 2 of Phase 1 of the FCC's CAF to bring broadband to more than 92,000 rural homes and businesses in unserved high-cost areas. Of the $54 million, we will receive approximately $23 million to bring broadband services to more than 38,000 homes and businesses in unserved rural and high-cost areas .

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Litigation Matter

In October 2013, we reached a tentative oral agreement on the principal financial terms of a potential settlement of a litigation matter. The potential settlement terms include us paying €172 million (or approximately $233 million based on the exchange rate on September 30, 2013). It is currently uncertain if and when we might complete negotiation and signing of a definitive settlement agreement, if any, and when any payments under any such agreement would be due and payable.

Revolving Promissory Notes

QCII has a revolving promissory note with an affiliate of CenturyLink that provides us with a funding commitment with an aggregate principle amount available of $3.0 billion through June 30, 2022, of which $1.958 billion was outstanding as of September 30, 2013. As of September 30, 2013, the weighted average interest rate under this note was 6.783%. This revolving promissory note and accrued interest thereon is reflected on our consolidated balance sheets under notes payable—affiliates.

Qwest Corporation ("QC") has a revolving promissory note with an affiliate of CenturyLink that provides QC with a funding commitment with an aggregate principle amount available of $1.0 billion through June 30, 2022, of which $741 million was outstanding as of September 30, 2013. As of September 30, 2013, the weighted average interest rate under this note was 6.783%. This revolving promissory note and accrued interest thereon is reflected on our consolidated balance sheets under notes payable—affiliates.

Debt and Other Financing Arrangements

Subject to market conditions, we expect to continue to issue debt securities, from time to time through our QC subsidiary to refinance its maturing debt. The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned to QC by credit rating agencies, among other factors.

Following CenturyLink's announcement on February 13, 2013 of changes in its capital allocation plans, two credit agencies downgraded CenturyLink's debt credit ratings. As of the date of this report, the credit ratings for the senior unsecured debt of QCII and QC were as follows:



Agency	QCII	QC
Standard & Poor's	BB	BBB-
Moody's Investors Service, Inc.	Ba1	Baa3
Fitch Ratings	BB+	BBB-

Downgrades of our or QC's senior unsecured debt credit ratings would likely raise our borrowing costs and could, under certain circumstances, limit our access to the capital markets. Similarly, the recent downgrades of CenturyLink's senior unsecured debt ratings and additional downgrades of CenturyLink's ratings could, under certain circumstances, increase the cost of CenturyLink's borrowing under the Credit Facility, and could limit its access to the capital markets, which could indirectly impact us. See "Risk Factors—Risks Affecting our Liquidity and Capital Resources" in Item 1A of Part II of this report.

Future Contractual Obligations

For information regarding our estimated future contractual obligations, see the MD&A discussion included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Pension and Post-retirement Benefit Obligations

We are subject to material obligations under our existing defined benefit pension plans and other post-retirement benefit plans. The accounting unfunded status of our plans is measured annually at December 31. See Note 8—Employee Benefits to our consolidated financial statements in Item 8 of our Annual Report Form 10-K for the year ended December 31, 2012 for additional information about our pension and other post-retirement benefit arrangements.

Benefits paid by our qualified pension plan are paid through a trust that holds all plan assets. Based on current laws and circumstances, we do not expect to be required to make a cash contribution to this plan in 2013 or 2014. The actual amount of required contribution to our plan in 2015 and beyond will depend on a variety of factors, most of which are beyond our control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations.

Certain of our post-retirement health care and life insurance benefits plans are unfunded. A trust holds assets that are used to help cover the health care costs of certain retirees. As of December 31, 2012, the fair value of the trust assets was $572 million; however, a portion of these assets is comprised of investments with restricted liquidity. We estimate that the more

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liquid assets in the trust will be adequate to provide continuing reimbursements for covered post-retirement health care costs for approximately four years. Thereafter, covered benefits will be paid either directly by us or from the trust as the remaining assets become liquid. The actual number of years that our more liquid assets will fund covered benefits could be substantially shorter or longer than projected depending on multiple factors, including changes in projected health care costs, returns on plan assets, total volume of claims, the timing of maturities of illiquid plan assets and future changes in benefits.

Our estimated annual long-term rate of return on the pension and post-retirement plans trust assets is 7.5% based on the assets currently held; however, actual returns could vary widely in any given year.

Historical Information

The following table summarizes our cash flow activities:



	Nine Months Ended September 30,							<

QWEST COMMUNICATIONS INTERNATIONAL INC 10-Q