Severance and Leased Real Estate

9 Months Ended

Sep. 30, 2011

Severance And Leased Real Estate

Severance and Leased Real Estate

(6) Severance and Leased Real Estate

We have announced reductions in our workforce and have accrued liabilities for related severance costs. These workforce reductions resulted primarily from the 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.

In periods prior to CenturyLink's acquisition of us, we had ceased using certain real estate that we were leasing under long-term operating leases. 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 methods. 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 September 30, 2011, successor and December 31, 2010, predecessor, the current portion of our leased real estate accrual was $26 million and $28 million, respectively, and the long-term portion was $140 million and $195 million, respectively. The remaining lease terms range from 0.1 to 14.3 years, with a weighted average of 9.1 years.

Changes in our accrued liabilities for severance expenses and leased real estate for the successor six months ended September 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		101			12
Payments, net		(83	)		(14	)
Balance at September 30, 2011 (Successor)	$	38			166

Our severance expenses for the successor three and six months ended September 30, 2011 also included $1 million and $12 million, respectively, 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.