Commitments and Contingencies

9 Months Ended

Dec. 31, 2011

Commitments and Contingencies.

Commitments and Contingencies

(16) Commitments and Contingencies

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

Capital Leases

        We lease certain facilities and equipment under various capital lease arrangements. Depreciation of assets under capital leases is included in depreciation and amortization expense. Payments on capital leases are included in repayments of long-term debt, including current maturities in the consolidated statements of cash flows.

        The table below summarizes our capital lease activity:

	Successor		Predecessor
	Nine Months Ended December 31, 2011		Three Months Ended March 31, 2011		Year Ended December 31, 2010		Year Ended December 31, 2009
	(Dollars in millions)
Assets acquired through capital leases	$	2		16		116		61
Depreciation expense		41		11		28		20
Cash payments towards capital leases		35		11		25		24

	Successor		Predecessor
	December 31, 2011		December 31, 2010
	(Dollars in millions)
Assets included in property, plant and equipment	$	192		223
Accumulated depreciation		41		51

        The future minimum payments under capital leases as of December 31, 2011 are included in our consolidated balance sheet as follows:

	Future Minimum Payments
	(Dollars in millions)
Capital lease obligations:
2012	$	49
2013		45
2014		35
2015		21
2016		2
2017 and thereafter		7
Total minimum payments		159
Less: amount representing interest and executory costs		(20	)
Present value of minimum payments		139
Less: current portion		(41	)
Long-term portion	$	98

Operating Leases

        We lease various equipment, office facilities, retail outlets, switching facilities and other network sites. These leases, with few exceptions, provide for renewal options and escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that are reasonably assured. For the successor nine months ended December 31, 2011, our gross rental expense was $125 million and was $58 million, $200 million and $206 million for the predecessor three months ended March 31, 2011 and the predecessor years ended December 31, 2010 and 2009, respectively. We also received sublease rental income for the same periods of $10 million, $4 million, $15 million, and $18 million, respectively.

        The future minimum payments under operating leases as of December 31, 2011 are as follows:

	Future Minimum Payments
	(Dollars in millions)
Operating leases:
2012	$	50
2013		33
2014		27
2015		22
2016		18
2017 and thereafter		36
Total future minimum payments(1)	$	186

(1)

Minimum payments have not been reduced by minimum sublease rentals of $36 million due in the future under non-cancelable subleases.

Purchase Obligations

        We have several commitments primarily for marketing activities and support services from a variety of vendors to be used in the ordinary course of business totaling $245 million as of the successor date of December 31, 2011. Of this amount, we expect to purchase $70 million in 2012, $80 million in 2013 through 2014, $60 million in 2015 through 2016 and $35 million in 2017 and thereafter. These amounts do not represent our entire anticipated purchases in the future, but represent only those items for which we are contractually committed.