XO Communications 2010 Annual Report Download - page 63

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XO Holdings, Inc.
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)
o. Allowances for Doubtful Accounts
The Company determines its allowances for doubtful accounts using both specific and general allowance
methods. A specific reserve requirement review is performed on customer accounts with larger balances. An
additional reserve requirement review is performed on accounts not subject to specific review using several
factors, including the length of time individual receivables are past due, historical collection experience, the
economic and competitive environment, and changes in the creditworthiness of our customers. The Company
is not able to predict with certainty the changes in the financial stability of its customers. Allowances for
doubtful accounts are recorded as a selling, general and administrative expense.
p. Stock-Based Compensation
The Company recognizes stock-based compensation cost associated with share-based payments as
expense on a straight-line basis over the requisite service period of a stock option grant. The Company
measures compensation expense related to employee stock options based on the fair value of those awards at
the grant date using the Black-Scholes-Merton option pricing model. Additionally, the Company estimates
forfeitures over the requisite service period. When recognizing compensation expense, these estimates are
adjusted to the extent to which actual forfeitures differ, or are expected to materially differ, from such
estimates.
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 $12.9 million, $13.3 million and $16.0 million during
2010, 2009 and 2008, 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 and $1.8 million
for 2009 and 2008, respectively. Advertising expense for 2010 was immaterial.
59