Severance and Restructuring

6 Months Ended

Jun. 30, 2011

Severance and Restructuring

Severance and Restructuring

(6) Severance and Restructuring

We have announced reductions in our workforce in prior periods and have accrued liabilities for related severance costs. These workforce reductions resulted primarily from progression of merger integration plans, increased competitive pressures and the loss of access lines.

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

During 2004 and previous years, as part of our ongoing efforts to evaluate our operating costs, we established restructuring programs, which included workforce reductions, consolidation of excess facilities, and restructuring of certain business functions. As of the April 1, 2011 acquisition date, we recorded liabilities to reflect our preliminary estimates of the fair values of the existing lease obligations, net of estimated sublease rentals. Our fair value estimates were determined using discounted cash flow techniques. Periodically, we recognize expense to reflect accretion of the discounted liabilities and we adjust the expense when our actual experience differs from our initial estimates. We report the current portion of liabilities for ceased-use real estate leases in accrued expenses and other liabilities and report the noncurrent portion in 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.

As of June 30, 2011, successor and December 31, 2010, predecessor, the current portion of our leased real estate accrual was $28 million and $28 million, respectively, and the long-term portion was $144 million and $195 million, respectively. The remaining lease terms range up to 15 years.

Changes in our accrued liabilities for severance expenses and leased real estate for the three months ended June 30, 2011 and the predecessor three months ended March 31, 2011 were as follows:

	Severance			Real Estate
	(Dollars in millions)
Balance at December 31, 2010 (Predecessor)	$	29			223
Accrued to expense		3			4
Payments, net		(12	)		(12	)
Balance at March 31, 2011 (Predecessor)		20			215
Fair value adjustment		—			(47	)
Balance at April 1, 2011 (Successor)		20			168
Accrued to expense		97			10
Payments, net		(65	)		(6	)
Balance at June 30, 2011 (Successor)	$	52			172

On April 1, 2011 our leased real estate accrual was revalued in conjunction with CenturyLink's acquisition of us.

Our severance expenses for the successor three months ended June 30, 2011 also included $11 million of share-based compensation associated with the accelerated vesting of stock awards that occurred in connection with workforce reductions relating to CenturyLink's acquisition of us.