XO Communications 2010 Annual Report Download - page 73

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XO Holdings, Inc.
Notes to Consolidated Financial Statements
12. SHARE-BASED COMPENSATION − (continued)
exercised during 2010 or 2009. The total intrinsic value of options exercised during 2008 was insignificant.
The range of exercise prices for stock options outstanding as of December 31, 2010, 2009 and 2008 were
between $4.80 and $6.53 per share for each respective period.
There were no options granted during 2010 or 2009. The weighted average grant-date fair value of
options granted during 2008 was $0.42. The cash received and the related income tax benefit from the
exercise of share options for 2008 was not significant. Stock compensation expense related to stock option
awards was $0.3 million, $0.7 million and $1.4 million for 2010, 2009 and 2008, respectively.
Fair Value Determination
There were no option grants during 2009 or 2010. The Black-Scholes-Merton model uses the
assumptions noted in the table below to compute a fair value of each option grant.
2008
Weighted average grant date price per share of Company stock .................. $1.32
Weighted average exercise price ....................................... $5.00
Range of expected volatility ......................................... 61.98 − 69.74%
Range of risk free interest rate ........................................ 2.57 − 3.30%
Dividend yield ................................................... —
Expected term (in years) ............................................ 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, 2010, there was approximately $0.1 million of total unrecognized compensation cost
related to non-vested stock options. This cost is expected to be recognized in 2011.
13. EMPLOYEE SAVINGS AND RETIREMENT PLAN
At December 31, 2010, 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 $6.2 million, $6.3 million and $6.0 million during 2010, 2009 and 2008, respectively.
14. INCOME TAXES
The Company has prepared its income tax provision utilizing a separate return method in accordance
with ASC 740-10-30-27 and SAB Topic 1B. As a result, the components of the income tax provision
presented below may differ from the components had the income tax provision been prepared on a
consolidated return method.
The Company maintained a valuation allowance against its deferred tax assets of $1,538.4 million and
$1,137.3 million as of December 31, 2010 and 2009, respectively, to reduce its deferred tax assets to the
amounts likely to be realized. The increase in the valuation allowance of $401.1 million from December 31,
2009 to December 31, 2010 was due to an increase in deferred tax assets resulting from a $511.6 million
69