XO Communications 2009 Annual Report Download - page 60

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q. Leases
The Company leases facilities for its administrative and sales offices, central switching offices, network nodes
and warehouse space. Leases are evaluated and classified as operating or capital leases for financial reporting
purposes. For operating leases that contain rent escalations and rent holidays, the Company records the total
rent payable during the lease term on a straight-line basis over the term of the lease and records the difference
between rent paid and straight-line rent as deferred rent on its Consolidated Balance Sheets. Tenant
improvement allowances received from the lessor are recorded as a reduction to rent expense on a straight-line
basis over the term of the lease.
r. Transaction Based Taxes and Other Surcharges
The Company collects various taxes from its customers including Universal Service Fund charges and sales,
use, excise, property, utility and franchise taxes, which are remitted to governmental authorities. In transactions
where the Company performs as an agent for governmental authorities, taxes collected are reported on a net
basis. In transactions where the Company is the primary obligor, taxes and surcharges collected are reported in
revenue and cost of service on a gross basis. The amount of taxes collected from customers included in
revenue and expenses totaled $13.3 million, $16.0 million and $17.2 million during 2009, 2008 and 2007,
respectively.
s. Advertising
Advertising costs are expensed as incurred and reported as selling, general and administrative expense on the
Company’s Consolidated Statements of Operations. Advertising expense was $0.4 million, $1.8 million and
$0.8 million for 2009, 2008 and 2007, respectively.
t. New Accounting Pronouncements
In September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13 Revenue Recognition
(Topic) 605) — Multiple Deliverable Revenue Arrangements. The amendment addresses how revenue should be
allocated to separate elements of a multiple deliverable revenue arrangement which could impact the timing of
revenue recognition. The amendment will be effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.
Companies may elect, but are not required, to apply retrospectively to all prior periods. The Company is
currently evaluating the impact this amendment will have on its financial position, results of operations and
cash flows.
In January 2010, the FASB issued ASU 2010-06 Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements. This ASU requires new disclosures and clarifies
certain existing disclosure requirements about fair value measurements. ASU 2010-06 requires a reporting
entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe
the reasons for the transfers and to present separately information about purchases, sales, issuances and
settlements for fair value measurements using significant unobservable inputs. ASU 2010-06 is effective for
interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements,
which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption
is permitted. The Company does not expect that the adoption of ASU 2010-06 will have a material impact on
our financial position, results of operations or cash flows.
3. PRIOR PERIOD ADJUSTMENTS
In the first quarter of 2008, the Company determined that during each year between 2003 and 2006, it had
incorrectly recorded certain payments for taxes due to various state and local jurisdictions. In certain cases
taxes were overpaid and in other cases taxes were recorded as a reduction in liabilities rather than current
expense. The Company concluded that the effects of the errors were not material to any of the affected years
and recorded the correction in operating expenses and current assets and liabilities in March 2008. As a result,
the Company’s loss from operations and net loss was increased by $4.1 million, or $0.02 per basic and diluted
share, for 2008.
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