XO Communications 2009 Annual Report Download - page 71

exercise prices for stock options outstanding as of December 31, 2009, 2008 and 2007 was between $4.80 and
$7.05 per share for each respective period.
The weighted average grant-date fair value of options granted during 2008 and 2007 was $0.42 and $2.76,
respectively. There were no options granted in 2009. The cash received and the related income tax benefits
from the exercise of share options for 2008 and 2007 were not significant for each respective year. Stock
compensation expense related to stock option awards was $0.7 million, $1.4 million and $1.9 million for 2009,
2008 and 2007, respectively.
Fair Value Determination
There were no option grants during 2009. The Black-Scholes-Merton model uses the assumptions noted in the
table below to compute a fair value of each option grant.
2008 2007
Weighted average grant date price per share of Company stock ..... $ 1.32 $ 4.55
Weighted average exercise price ............................ $ 5.00 $ 5.00
Range of expected volatility ............................... 61.98-69.74% 60.00-63.09%
Range of risk free interest rate ............................. 2.57-3.30% 4.42-5.06%
Dividend yield ......................................... — —
Expected term (in years) ................................. 6.25 6.25
The expected volatility of the Company’s shares was estimated based upon the historical volatility of the
Company’s share price since emergence from Chapter 11 Bankruptcy in January 2003. The Company is still in
the process of gathering enough historical data to prepare an estimate of the expected term of its option grants.
Therefore, the expected term was calculated based upon the simplified method for estimating expected terms.
The Company bases the risk-free interest rate used in the Black-Scholes-Merton valuation method on the
implied yield available on a United States Treasury note with a term equal to the expected term of the
underlying grants. The Black-Scholes-Merton valuation model calls for a single expected dividend yield as an
input. The Company has not paid dividends in the past nor does it expect to pay dividends in the future.
Unrecognized Compensation
As of December 31, 2009, there was approximately $0.4 million of total unrecognized compensation cost
related to non-vested stock options. This cost is expected to be recognized in 2010.
15. EMPLOYEE SAVINGS AND RETIREMENT PLAN
At December 31, 2009, the Company has a defined contribution plan, generally covering all full time
employees in the United States. The Company provides a match to all eligible employees based on certain
plan provisions and the discretion of the Board of Directors. The Company matches 50 percent of employee
contributions up to five percent of the participant’s compensation. Company contributions, net of forfeitures,
were $6.3 million, $6.0 million and $4.7 million during 2009, 2008 and 2007, respectively.
16. INCOME TAXES
The Company maintained a valuation allowance against its deferred tax assets of $1,137 million and
$1,149 million as of December 31, 2009 and 2008, respectively, to reduce its deferred tax assets to the
amounts likely to be realized. The decrease in the valuation allowance of $12.7 million from December 31,
2008 to December 31, 2009 was due to a decrease in deferred tax assets resulting from a $55.4 million
increase to net operating loss offset by a $70.6 million decrease in property and equipment and a $2.5 million
increase in the provisions not currently deductible asset.
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