XO Communications 2010 Annual Report Download - page 47

estimated liability related to expected technical site decommissioning costs. Offsetting these 2009 decreases in
SG&A expense, legal expenses in 2008 were reduced by $9.8 million due to favorable developments in
ongoing litigation.
SG&A as a percentage of revenue decreased to 32.2% for 2009 from 33.7% for 2008. This improvement
was principally driven by our continued execution on our initiatives to increase revenue growth, while
improving our internal cost structure.
Depreciation and Amortization
Depreciation and amortization expense for 2009 included adjustments of $4.2 million related to changes
in depreciable lives of certain fixed assets. No significant adjustments related to changes in depreciable lives
were recorded during 2010 or 2008. Excluding these changes in estimate, depreciation and amortization
expense for 2010, 2009 and 2008 was $183.1 million, $175.9 million and $189.2 million, respectively. The
year over year changes in depreciation and amortization expense were primarily due to the retirement of
assets, for which depreciation expense was accelerated, such that the assets were fully depreciated at the time
of their retirement. Additional expense relating to the retirement of these assets was approximately
$5.2 million, $0.8 million and $15.4 million for 2010, 2009 and 2008, respectively.
We expect depreciation and amortization expense to increase slightly in 2011 as we continue to acquire
fixed assets in support of network enhancement and revenue growth opportunities.
Impairment of LMDS Licenses
The Company performed its annual impairment evaluation of goodwill and indefinite-lived intangible
assets as of October 1, 2010 and determined that the fair value of the LMDS licenses was less than the
carrying value. Accordingly, LMDS licenses with a carrying amount of $27.5 million were written down to
their fair value of $7.5 million, resulting in an impairment charge of $20.0 million.
As a result of our integration of the Nextlink segment into our existing product offerings, we performed
an impairment evaluation of our LMDS licenses as of May 31, 2009. We determined that the fair value of the
LMDS licenses were less than their carrying value. Accordingly, LMDS licenses with a carrying amount of
$35.8 million were written down to their fair value of $27.5 million, resulting in an impairment charge of
$8.3 million during 2009. We performed our annual impairment evaluation as of October 1, 2009. Based on
the results of this evaluation, no additional impairment charges were recorded in 2009. There was no
impairment of long-lived assets recognized during 2008.
Investment Gain, Net
The net investment gain for 2010 was primarily comprised of a $5.4 million distribution related to a legal
matter regarding our holding of Global Crossing debt securities. The net investment gain for 2009 was
comprised of a $41.2 million gain from the sale of debt securities, a $12.1 million gain from the sale of
equity securities, a $5.8 million gain related to the settlement agreement associated with the Company’s
holding of Global Crossing debt securities and a $0.9 million gain from the settlement of claims with ATLT
related to the Company’s holdings of Allegiance debt securities. The marketable securities balance at
December 31, 2010 was $0.2 million.
Interest Expense, Net
Net interest expense was $0.3 million, $1.6 million and $21.3 million, for 2010, 2009 and 2008,
respectively. The decrease in net interest expense over these periods is primarily due to the retirement of all
outstanding debt in July 2008. We retired our long term debt with the issuance of preferred stock and
therefore incurred no related interest expense subsequent to the retirement in 2008.
Interest costs related to internally constructed assets, including our telecommunications networks, are
capitalized. Total interest expense was offset by capitalized interest of $2.1 million, $1.7 million and
$2.4 million, respectively for 2010, 2009 and 2008.
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