XCO » Topics » 8. Stock options

This excerpt taken from the XCO 10-K filed Feb 26, 2009.

Stock options

We account for our stock-based compensation in accordance with SFAS No. 123(R), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation,” or SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated fair values.

Our 2005 Long-Term Incentive Plan, as amended, or the 2005 Incentive Plan, provides for the granting of options and other equity incentive awards to purchase up to 20,000,000 shares of our common stock. New shares will be issued for any stock options exercised. Since its adoption, EXCO has issued only stock options under the 2005 Incentive Plan, though the plan allows for other share-based awards.

 

3. Recent accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” or SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS No. 157 was effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years for financial instruments. FASB Financial Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,” or FAS 157-2, deferred implementation for other non-financial assets and liabilities for one year. Examples of non-financial assets and liabilities are asset retirement obligations and non-financial assets and liabilities initially measured at fair value in a business combination. We adopted SFAS No. 157 on January 1, 2008. See “Note 5. Derivative financial instruments and fair value measurements” for a discussion of the impacts of the adoption of SFAS No. 157.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” or SFAS No. 141(R). SFAS No. 141(R) replaces SFAS No. 141, “Accounting for Business Combinations,” or SFAS No. 141. SFAS

 

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Index to Financial Statements

No. 141(R) broadens the scope of business combinations to include bargain purchases and combinations of related companies, provides guidance on measuring goodwill and requires acquisition costs to be separate from the value of assets and liabilities purchased. We adopted SFAS No. 141(R) on January 1, 2009. We do not believe the adoption of SFAS No. 141(R) will have a material impact on our financial statements, other than to expense certain transaction costs, which could be material. Under SFAS No. 141, transaction costs could be capitalized.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” or SFAS No. 160. SFAS No. 160 amends Accounting Research Bulletin 51, or ARB 51. SFAS No. 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS No. 141(R). SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and as such, we adopted SFAS No. 160 on January 1, 2009. We do not believe the adoption will have a material impact on our financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” or SFAS No. 161. SFAS No. 161 requires enhanced disclosure about the fair value of derivative instruments and their gains or losses in tabular format and information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. We adopted SFAS No. 161 on January 1, 2009 and will begin reporting the enhanced disclosures in our Form 10-Q for the quarter ended March 31, 2009. The adoption of SFAS No. 161 did not have a material impact on our financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” or SFAS No. 162. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements. We adopted SFAS No. 162 on November 15, 2008. The adoption of SFAS No. 162 did not have an impact on our financial statements.

On October 10, 2008, the FASB issued FASB Staff Position No. FAS 157-3, or FSP 157-3. FSP 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example which illustrates key considerations in determining fair value of a financial asset when a market for that financial asset is not active. The FSP was effective upon issuance and did not have a material impact on our financial statements.

On December 31, 2008, the SEC issued Release No. 33-8995 amending its oil and natural gas reporting requirements for oil and natural gas producing companies. The effective date of the new accounting and disclosure requirements is for annual reports filed for fiscal years ending on or after December 31, 2009. Companies are not permitted to comply at an earlier date. Among other things, Release No. 33-8995:

 

   

Revises a number of definitions relating to oil and natural gas reserves to make them consistent with the Petroleum Resource Management System, which includes certain non-traditional resources in proved reserves;

 

   

Permits the use of new technologies for determining oil and natural gas reserves;

 

   

Requires the use of average prices for the trailing twelve-month period in the estimation of oil and natural gas reserve quantities and, for companies using the full cost method of accounting, in computing the ceiling limitation test, in place of a single day price as of the end of the fiscal year;

 

   

Permits the disclosure in filings with the SEC of probable and possible reserves and reserves sensitivity to changes in prices;

 

   

Requires additional disclosures (outside of the financial statements) regarding the status of undeveloped reserves and changes in status of these from period to period; and

 

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Index to Financial Statements
   

Requires a discussion of the internal controls in place to assure objectivity in the reserve estimation process and disclosure of the technical qualifications of the technical person having primary responsibility for preparing the reserve estimates.

We are currently evaluating the effect of adopting the final rule on our financial statements and oil and natural gas reserve estimates and disclosures.

 

4. Acquisitions
This excerpt taken from the XCO 10-Q filed Nov 6, 2008.

9.             Stock options

 

We account for stock options in accordance with SFAS No. 123(R), “Share-Based Compensation,” or SFAS No. 123(R). As required by SFAS No. 123(R), the granting of options to our employees under our 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan, are share-based payment transactions and are to be treated as compensation expense by us with a corresponding increase to additional paid-in capital. Volatility is determined based on the combination of the weighted average volatility of our common stock price and the daily closing prices from five comparable public companies during the period when we were privately held. For the three and nine months ended September 30, 2008, total share-based compensation was $5.1 million and $13.1 million, respectively, of which $4.1 million and $10.8 million, respectively, is included in general and administrative and lease operating expense and $1.0 million and $2.3 million, respectively, was capitalized as part of proved developed and undeveloped oil and natural gas properties. For the three and nine months ended September 30, 2007, total share-based compensation was $2.7 million and $8.1 million, respectively, of which $2.3 million and $6.7 million, respectively, is included in general and administrative and lease operating expense and $0.4 million and $1.4 million, respectively, was capitalized as part of proved developed and undeveloped oil and natural gas properties. Total share-based compensation to be recognized on unvested awards as of September 30, 2008 is $21.6 million over a weighted average period of 0.92 years.

 

During the nine months ended September 30, 2008, options to purchase 1,360,600 shares were granted under the 2005 Incentive Plan at prices ranging from $15.15 to $38.01 per share with fair values ranging from $5.39 to $14.27 per share. The options expire ten years following the date of grant. Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant. As of September 30, 2008 and December 31, 2007, there were 5,927,675 and 7,022,375 shares available to be granted under the 2005 Incentive Plan, respectively.

 

This excerpt taken from the XCO 10-K filed Feb 29, 2008.

Stock options

        On December 16, 2004, FASB issued SFAS No. 123(R), which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation," or SFAS No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated fair values. Pro forma disclosure is no longer an alternative.

        EXCO adopted the 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan, which provides for the granting of options to purchase up to 20,000,000 shares of our common stock. New shares will be issued for any stock options exercised. As a result of the new basis in accounting due to the Equity Buyout, we adopted the provisions of SFAS No. 123(R) as of October 3, 2005 in connection with the Equity Buyout. See "Note 14. Stock transactions" for additional information related to the 2005 Incentive Plan. The adoption of SFAS No. 123(R) did not have a cumulative affect on our financial statements as no options were outstanding prior to October 5, 2005.

This excerpt taken from the XCO 10-Q filed Nov 6, 2007.

8.             Stock options

 

We adopted SFAS No. 123(R), “Share-Based Compensation,” or SFAS No. 123(R), on October 3, 2005. As required by SFAS No. 123(R), the granting of options to our employees under the 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan, are share-based payment transactions and are to be treated as compensation expense by us with a corresponding increase to additional paid-in capital. Volatility was determined based on the combination of the weighted average volatility of our common stock and the daily closing prices from five comparable public companies during the period when we were privately held. For the three and nine months ended September 30, 2007, total share-based compensation was $2.7 million and $8.1 million, respectively, of which $2.3 million and $6.7 million is included in general administrative and lease operating expense and $0.4 million and 1.4 million was capitalized as part of proved developed and undeveloped oil and natural gas properties. Total share-based compensation to be recognized on unvested awards as of September 30, 2007 is $15.2 million over a weighted average period of 1.6 years.

 

During the nine months ended September 30, 2007, options to purchase 1,576,700 shares were granted under the 2005 Incentive Plan at prices ranging from $16.00 to $18.44 per share with fair values ranging from $5.57 to $6.53 per share. The options expire ten years following the date of grant. Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant. On August 30, 2007, shareholder approval was obtained to increase the number of shares authorized to be issued under the 2005 Long-Term Incentive Plan by an additional 10,000,000 shares to a total of 20,000,000 shares. Therefore, as of December 31, 2006 and September 30, 2007, there were 1,574,475 and 10,276,150 shares available to be granted under the 2005 Incentive Plan, respectively.

 

This excerpt taken from the XCO 10-Q filed Aug 9, 2007.

8.             Stock options

We adopted SFAS No. 123(R), “Share-Based Compensation,” or SFAS No. 123(R), on October 3, 2005. As required by SFAS 123(R), the granting of options to our employees under the 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan, are share-based payment transactions and are to be treated as compensation expense by us with a corresponding increase to additional paid-in capital. Volatility was determined based on the combination of the weighted average volatility of our common stock and the daily closing prices from five comparable public companies during the period when we were privately held. For the three and six months ended June 30, 2007, total share-based compensation was $3.1 million and $5.3 million, respectively, of which $2.6 million and $4.5 million is included in general administrative and lease operating expense and $0.5 million and $0.8 million was capitalized as part of proved developed and undeveloped oil and natural gas properties. Total share-based compensation to be recognized on unvested awards as of June 30, 2007 is $15.8 million over a weighted average period of 1.8 years.

During the six months ended June 30, 2007, options to purchase 1,189,700 shares were granted under the 2005 Incentive Plan at prices ranging from $16.00 to $18.44 per share with fair values ranging from $5.60 to $6.53 per share. The options expire ten years following the date of grant. Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant. As of December 31, 2006 and June 30, 2007, there were 1,574,475 and 531,900 shares available to be granted under the 2005 Incentive Plan, respectively.

This excerpt taken from the XCO 10-Q filed May 14, 2007.

8.             Stock options

We adopted SFAS No. 123(R), “Share-Based Compensation” on October 3, 2005. As required by SFAS 123(R), the granting of options to our employees under the 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan, are share-based payment transactions and are to be treated as compensation expense by us with a corresponding increase to additional paid-in capital. Volatility was determined based on the weighted average of volatility of our common stock from October 1, 2001 to December 31, 2002 and the daily closing prices from five comparable public companies. For the three months ended March 31, 2007, total share-based compensation was $2.3 million, of which $1.9 million is included in general and administrative expense and $0.4 million was capitalized as part of proved developed and undeveloped oil and natural gas properties. Total share-based compensation to be recognized on unvested awards as of March 31, 2007 is $14.8 million over a weighted average period of 2.0 years.

During the three months ended March 31, 2007, options to purchase 468,500 shares were granted under the 2005 Incentive

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Plan at prices ranging from $16.00 to $17.24 per share with fair values ranging from $5.60 to $6.01 per share. The options expire ten years following the date of grant. Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant. As of December 31, 2006 and March 31, 2007, there were 1,574,475 and 1,215,825 shares available to be granted under the 2005 Incentive Plan, respectively.

This excerpt taken from the XCO 10-K filed Mar 19, 2007.

Stock options

On December 16, 2004, FASB issued SFAS No. 123(R), which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated fair values. Pro forma disclosure is no longer an alternative.

Holdings (formerly Holdings II) adopted the 2005 Long-Term Incentive Plan (the 2005 Incentive Plan) which provides for the granting of options to purchase up to 10,000,000 shares of Holdings common stock. New shares will be issued for any stock options exercised. As a result of the new basis in accounting due to the Equity Buyout, we adopted the provisions of SFAS No. 123(R) as of October 3, 2005 in connection with the Equity Buyout. See “Note 14. Stock transactions” for additional information related to the 2005 Incentive Plan. The adoption of SFAS No. 123(R) did not have a cumulative affect on our financial statements as no options were outstanding prior to October 5, 2005.

SFAS No. 123, “Accounting for Stock-Based Compensation” defines a fair value based method of accounting for employee stock compensation plans, but allows for the continuation of the intrinsic value based method of accounting to measure compensation cost prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). For companies electing not to change their accounting, SFAS 123 requires pro forma disclosures of earnings and earnings per share as if the change in accounting provision of SFAS 123 has been adopted.

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EXCO elected to continue to utilize the accounting method prescribed by APB 25 until October 3, 2005, under which no compensation cost was recognized, and adopted the disclosure requirements of SFAS 123.

Certain employees were granted Holdings stock options under Holdings’ 2004 Long-Term Incentive Plan (the Holdings Plan). The Holdings Plan provides for grants of stock options that could have been exercised for Class A common shares of Holdings. The stock options were to vest upon the earlier of a change in control of Holdings, the consummation of an initial public offering or three years from the date of grant, and expire ten years after the date of grant. Holdings had reserved 12,962,968 shares of its Class A common stock for issuance upon the exercise of stock options. The Equity Buyout was a change of control under the Holdings Plan. All Holdings stock options outstanding on October 3, 2005 (8,671,906 shares) were cancelled upon the payment of an aggregate amount of $17.8 million to the holders of the stock options. This amount was expensed as general and administrative expense during the 275 day period from January 1, 2005 to October 2, 2005.

This excerpt taken from the XCO 8-K filed Dec 21, 2006.

5.             Stock options

As discussed in “Note 2. Summary of significant accounting policies”, certain of Resources’ employees assigned to TXOK have been granted Holdings stock options under the 2005 Incentive Plan which provides for the granting of options to purchase up to 10,000,000 shares of Holdings common stock.  On October 5, 2005, options were granted under the 2005 Incentive Plan to certain of Resources’ employees assigned to TXOK to purchase 414,550

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shares of Holdings common stock at $7.50 per share.  The options expire ten years following the date of grant.  Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant.

The following table summarizes Holdings stock option activity related to certain of Resources employees assigned to TXOK under the 2005 Incentive Plan:

 

 

Stock options

 

Weighted average
exercise price
per share

 

Options outstanding at October 3, 2005

 

 

$

 

Granted

 

414,550

 

7.50

 

Expired or canceled

 

 

 

Exercised

 

 

 

Options outstanding at December 31, 2005

 

414,550

 

$

7.50

 

Options exercisable at December 31, 2005

 

103,638

 

$

7.50

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for the Holdings options included in the above table:

Fair market value of stock at date of grant

$7.50

Option exercise prices

$7.50

Option term

10 years

Risk-free rate of return

10-year U.S. Treasury Notes

Company stock volatility

30.4%

Company dividend yield

0%

Calculated Black-Scholes values

$2.29 per option

As required by SFAS No. 123(R), the granting of options under the 2005 Incentive Plan by Holdings to Resources’ employees assigned to TXOK are share-based payment transactions and are to be treated as compensation expense by us.  Volatility was determined based on the weighted average of historical volatility of the common stock of EXCO Resources, Inc., a wholly-owned subsidiary of Holdings for 1.25 years and the daily closing prices from five comparable public companies. During the period from September 16, 2005 (date of inception) to December 31, 2005, we have recorded a general and administrative expense of $0.3 million related to stock option compensation expense.  Under the terms of a services agreement between Resources and TXOK, we are to reimburse Resources for this stock option compensation expense.  See “Note 9. Related party transactions” for additional information concerning this services agreement and transactions between Resources and TXOK.

This excerpt taken from the XCO 8-K filed Dec 20, 2006.

Stock options

 

Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment,” was issued December 16, 2004 and is a revision of SFAS No. 123. SFAS No. 123(R) supersedes Accounting Principles Board (APB) 25 and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) will require all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated values as the services are performed. The pro forma disclosure allowed by APB 25 is no longer an alternative.

 

On October 5, 2005, a total of 411,650 stock options to purchase shares of Holdings II common stock were granted to EXCO Resources, Inc. (Resources) employees who have been assigned to TXOK, of which 102,913 are currently exercisable. The exercise price for each option is $7.50 per share. The options expire on October 5, 2015. Pursuant to the option award, 25% are immediately vested with an additional 25% vesting occurring on each of the next three anniversaries of the date of the grant. We will adopt the provisions of SFAS No. 123(R) upon the granting of these stock options. We have not yet completed our evaluation of the impact

 

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that the adoption of SFAS No. 123(R) will have on our results of operations for the fourth quarter of 2005 or on subsequent periods.

 

This excerpt taken from the XCO 8-K filed Dec 13, 2006.

Stock options

 

On December 16, 2004, FASB issued SFAS No. 123(R), which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated fair values. Pro forma disclosure is no longer an alternative.

 

We adopted the 2005 Long-Term Incentive Plan (the 2005 Incentive Plan) which provides for the granting of options to purchase up to 10,000,000 shares of Holdings common stock. New shares will be issued for any stock options exercised. As a result of the new basis in accounting due to the Equity Buyout, we adopted the provisions of SFAS No. 123(R) as of October 3, 2005 in connection with the Equity Buyout. See “Note 6. Stock transactions” for additional information related to the 2005 Incentive Plan. The adoption of SFAS No. 123(R) did not have a cumulative affect on our financial statements as no options were outstanding prior to October 5, 2005.

 

SFAS No. 123, “Accounting for Stock—Based Compensation” defines a fair value based method of accounting for employee stock compensation plans, but allows for the continuation of the intrinsic value based method of accounting to measure compensation cost prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). For companies electing not to change their accounting, SFAS 123 requires pro forma disclosures of earnings and earnings per share as if the change in accounting provision of SFAS 123 has been adopted.

 

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Certain employees were granted Holdings stock options under Holdings’ 2004 Long-Term Incentive Plan (the Holdings Plan). The Holdings Plan provides for grants of stock options that could have been exercised for Class A common shares of Holdings. The stock options were to vest upon the earlier of a change in control of Holdings, the consummation of an initial public offering or three years from the date of grant, and expire ten years after the date of grant. Holdings had reserved 12,962,968 shares of its Class A common stock for issuance upon the exercise of stock options. The Equity Buyout was a change of control under the Holdings Plan. All Holdings stock options outstanding on October 3, 2005 (8,671,906 shares) were cancelled upon the payment of an aggregate amount of $17.8 million to the holders of the stock options. This amount was expensed as general and administrative expense during the 275 day period from January 1, 2005 to October 2, 2005.

 

This excerpt taken from the XCO 10-K filed Dec 7, 2006.

Stock options

        On December 16, 2004, FASB issued SFAS No. 123(R), which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated fair values. Pro forma disclosure is no longer an alternative.

        Holdings (formerly Holdings II) adopted the 2005 Long-Term Incentive Plan (the 2005 Incentive Plan) which provides for the granting of options to purchase up to 10,000,000 shares of Holdings common stock. New shares will be issued for any stock options exercised. As a result of the new basis in accounting due to the Equity Buyout, we adopted the provisions of SFAS No. 123(R) as of October 3, 2005 in connection with the Equity Buyout. See "Note 8. Stock transactions" for additional information related to the 2005 Incentive Plan. The adoption of SFAS No. 123(R) did not have a cumulative affect on our financial statements as no options were outstanding prior to October 5, 2005.

        SFAS No. 123, "Accounting for Stock—Based Compensation" defines a fair value based method of accounting for employee stock compensation plans, but allows for the continuation of the intrinsic value based method of accounting to measure compensation cost prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). For companies electing not to change their accounting, SFAS 123 requires pro forma disclosures of earnings and earnings per share as if the change in accounting provision of SFAS 123 has been adopted.

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        EXCO elected to continue to utilize the accounting method prescribed by APB 25 until October 3, 2005, under which no compensation cost was recognized, and adopted the disclosure requirements of SFAS 123. As a result, SFAS 123 had no effect on EXCO's results of operations for the 209 day period from January 1, 2003 to July 28, 2003. Stock based compensation expense reflected in the table below for the 209 day period from January 1, 2003 to July 28, 2003, is a result of options issued under EXCO's 1998 Stock Option Plan that were issued subject to shareholders' approval and options that were issued to the management and key employees of Addison. See "Note 8. Stock transactions" for a further description of these stock options.

        Had compensation costs for these plans been determined consistent with SFAS No. 123, EXCO's net income and earnings (loss) per share (EPS) would have been adjusted to the following pro forma amounts (See "Note 8. Stock transactions" for assumptions used in fair value method):

(in thousands)

  period from
January 1, 2003
to July 28, 2003

 
Net income applicable to common stockholders, as reported   $ (1,588 )
Add: Stock-based compensation expense, as reported (net of taxes)     2,578  
Less: Total stock-based compensation expense determined under the fair value method for employee stock awards, net of taxes     (6,969 )
   
 
Net income applicable to common stockholders, proforma   $ (5,979 )
   
 

Basic and diluted net loss per share, as reported

 

$

(0.19

)
   
 
Basic and diluted net loss per share, proforma   $ (0.74 )
   
 

        Certain employees were granted Holdings stock options under Holdings' 2004 Long-Term Incentive Plan (the Holdings Plan). The Holdings Plan provides for grants of stock options that could have been exercised for Class A common shares of Holdings. The stock options were to vest upon the earlier of a change in control of Holdings, the consummation of an initial public offering or three years from the date of grant, and expire ten years after the date of grant. Holdings had reserved 12,962,968 shares of its Class A common stock for issuance upon the exercise of stock options. The Equity Buyout was a change of control under the Holdings Plan. All Holdings stock options outstanding on October 3, 2005 (8,671,906 shares) were cancelled upon the payment of an aggregate amount of $17.8 million to the holders of the stock options. This amount was expensed as general and administrative expense during the 275 day period from January 1, 2005 to October 2, 2005.

        Effective with the grant of these options on June 3 and June 4, 2004, we elected to utilize the accounting method prescribed by APB 25 under which no compensation expense was required to be recognized upon the issuance of stock options to our employees as the exercise price of the option is equal to or higher than the fair value of the underlying common stock at the date of grant.

        Under the minimum value method as prescribed under SFAS No. 123, no compensation expense would have been incurred during the year ended December 31, 2004 from the granting of these stock options and, as such, no pro forma disclosure is required.

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This excerpt taken from the XCO 10-Q filed Nov 2, 2006.

10. Stock options

        In August 2005, Holdings II adopted the 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan. As a result of the merger of Holdings II with and into EXCO Holdings in connection with the Equity Buyout, the 2005 Incentive Plan was assumed by EXCO Holdings. As a result of the merger of EXCO Holdings with and into EXCO Resources in connection with the IPO, the 2005 Incentive Plan was assumed by EXCO Resources effective February 14, 2006. All awards previously granted under the 2005 Incentive Plan were then converted into awards in EXCO Resources common stock pursuant to the requirements of Treasury Regulation section 1.424-1.

        We adopted Statement of Financial Accounting Standards No. 123(R), "Share-Based Compensation", or SFAS No. 123(R), on October 3, 2005. As required by SFAS 123(R), the granting of options to our employees under the 2005 Incentive Plan are share-based payment transactions and are to be treated as compensation expense by us with a corresponding increase to additional paid-in capital. Volatility was determined based on the weighted average of volatility of our common stock from October 1, 2001 to December 31, 2002 and the daily closing prices from five comparable public companies. For the three and nine months ended September 30, 2006, total share-based compensation was $1.0 million and $3.2 million, respectively. A portion of our share-based compensation is capitalized to oil and natural gas properties. The capitalized amounts for the three months ended September 30, 2006 were $0.3 million and $0.7 million for the nine months ended September 30, 2006. Total share-based compensation to be recognized on unvested awards as of September 30, 2006 is $7.2 million over a weighted average period of 2.5 years.

        During the nine months ended September 30, 2006, options to purchase 812,100 shares were granted by EXCO under the 2005 Incentive Plan at prices ranging from $11.90 to $13.45 per share, with fair values ranging from $3.84 to $4.52. The options expire ten years following the date of grant. Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant. As of December 31, 2005 and September 30, 2006, there were 5,026,925 and 4,342,900 shares available to be granted under the 2005 Incentive Plan, respectively.

        Prior to October 3, 2005, as allowed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", we elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," or APB 25, and provide pro forma disclosures of earnings and earnings per share as if a fair value based method of accounting for employee stock compensation plans were adopted. Under APB 25, no compensation expense is recognized upon the issuance of stock options to our employees as the exercise price of the option is equal to or higher than the fair value of the underlying common stock at the date of grant.

This excerpt taken from the XCO 10-Q filed Aug 9, 2006.

10.          Stock options

In August 2005, Holdings II adopted the 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan. As a result of the merger of Holdings II with and into EXCO Holdings in connection with the Equity Buyout, the 2005 Incentive Plan was assumed by EXCO Holdings. As a result of the merger of EXCO Holdings with and into EXCO Resources in connection with the IPO, the 2005 Incentive Plan was assumed by EXCO Resources effective February 14, 2006. All awards previously granted under the 2005 Incentive Plan were then converted into awards in EXCO Resources common stock pursuant to the requirements of Treasury Regulation section 1.424-1.

We adopted SFAS No. 123(R), “Share-Based Compensation”, or SFAS No. 123(R), on October 3, 2005. As required by SFAS 123(R), the granting of options to our employees under the 2005 Incentive Plan are share-based payment transactions and are to be treated as compensation expense by us with a corresponding increase to additional paid-in capital. Volatility was determined based on the weighted average of volatility of our common stock from October 1, 2001 to December 31, 2002 and the daily closing prices from five comparable public companies. For the three and six months ended June 30, 2006, total share-based compensation was $1.4 million and $2.2 million, respectively.  A portion of our share-based compensation is capitalized to oil and natural gas properties.  The capitalized amounts for the three months ended June 30, 2006 were $0.2 million and $0.4 million for the six months ended June 30, 2006. Total share-based compensation to be recognized on unvested awards as of June 30, 2006 is $7.8 million over a weighted average period of 2.6 years.

13




 

During the six months ended June 30, 2006, options to purchase 714,900 shares were granted by EXCO under the 2005 Incentive Plan at prices ranging from $12.36 to $13.00 per share. The options expire ten years following the date of grant. Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant. As of December 31, 2005 and June 30, 2006, there were 5,026,925 and 4,377,325 shares available to be granted under the 2005 Incentive Plan, respectively.

Prior to October 3, 2005, as allowed by SFAS No. 123, “Accounting for Stock-Based Compensation”, we elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and provide pro forma disclosures of earnings and earnings per share as if a fair value based method of accounting for employee stock compensation plans were adopted. Under APB 25, no compensation expense is recognized upon the issuance of stock options to our employees as the exercise price of the option is equal to or higher than the fair value of the underlying common stock at the date of grant.

This excerpt taken from the XCO 8-K filed May 16, 2006.

Stock options

 

On December 16, 2004, FASB issued SFAS No. 123(R), which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated fair values. Pro forma disclosure is no longer an alternative.

 

We adopted the 2005 Long-Term Incentive Plan (the 2005 Incentive Plan) which provides for the granting of options to purchase up to 10,000,000 shares of Holdings common stock. New shares will be issued for any stock options exercised. As a result of the new basis in accounting due to the Equity Buyout, we adopted the provisions of SFAS No. 123(R) as of October 3, 2005 in connection with the Equity Buyout. See “Note 6. Stock transactions” for additional information related to the 2005 Incentive Plan. The adoption of SFAS No. 123(R) did not have a cumulative affect on our financial statements as no options were outstanding prior to October 5, 2005.

 

SFAS No. 123, “Accounting for Stock—Based Compensation” defines a fair value based method of accounting for employee stock compensation plans, but allows for the continuation of the intrinsic value based method of accounting to measure compensation cost prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). For companies electing not to change their accounting, SFAS 123 requires pro forma disclosures of earnings and earnings per share as if the change in accounting provision of SFAS 123 has been adopted.

 

11



 

Certain employees were granted Holdings stock options under Holdings’ 2004 Long-Term Incentive Plan (the Holdings Plan). The Holdings Plan provides for grants of stock options that could have been exercised for Class A common shares of Holdings. The stock options were to vest upon the earlier of a change in control of Holdings, the consummation of an initial public offering or three years from the date of grant, and expire ten years after the date of grant. Holdings had reserved 12,962,968 shares of its Class A common stock for issuance upon the exercise of stock options. The Equity Buyout was a change of control under the Holdings Plan. All Holdings stock options outstanding on October 3, 2005 (8,671,906 shares) were cancelled upon the payment of an aggregate amount of $17.8 million to the holders of the stock options. This amount was expensed as general and administrative expense during the 275 day period from January 1, 2005 to October 2, 2005.

 

This excerpt taken from the XCO 10-Q filed May 15, 2006.

7.             Stock options

 

In August 2005, Holdings II adopted the 2005 Long-Term Incentive Plan, or the 2005 Incentive Plan. As a result of the merger of Holdings II with and into EXCO Holdings in connection with the Equity Buyout, the 2005 Incentive Plan was assumed by EXCO Holdings. As a result of the merger of EXCO Holdings with and into EXCO Resources in connection with the IPO, the 2005 Incentive Plan was assumed by EXCO Resources effective February 14, 2006. All awards previously granted under the 2005 Incentive Plan were then converted into awards in EXCO Resources common stock pursuant to the requirements of Treasury Regulation section 1.424-1.

 

We adopted SFAS No. 123(R), “Share-Based Compensation” on October 3, 2005. As required by SFAS 123(R), the granting of options to our employees under the 2005 Incentive Plan are share-based payment transactions and are to be treated as compensation expense by us with a corresponding increase to additional paid-in capital. Volatility was determined based on the weighted average of volatility of our common stock from October 1, 2001 to December 31, 2002 and the daily closing prices from five comparable public companies. For the three months ended March 31, 2006, total share-based compensation was $0.8 million, of which $0.6 million is included in general and administrative expense and $0.2 million was capitalized as part of proved developed and undeveloped oil and natural gas properties. Total share-based compensation to be recognized on unvested awards as of March 31,

 

14



 

2006 is $7.7 million over a weighted average period of 2.7 years.

 

During the three months ended March 31, 2006, options to purchase 131,300 shares were granted by EXCO under the 2005 Incentive Plan at prices ranging from $12.60 to $13.00 per share. The options expire ten years following the date of grant. Pursuant to the 2005 Incentive Plan, 25% of the options vest immediately with an additional 25% to vest on each of the next three anniversaries of the date of the grant. As of December 31, 2005 and March 31, 2006, there were 5,026,925 and 4,911,025 shares available to be granted under the 2005 Incentive Plan, respectively.

 

Prior to October 3, 2005, as allowed by SFAS No. 123, “Accounting for Stock-Based Compensation”, we elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and provide pro forma disclosures of earnings and earnings per share as if a fair value based method of accounting for employee stock compensation plans were adopted. Under APB 25, no compensation expense is recognized upon the issuance of stock options to our employees as the exercise price of the option is equal to or higher than the fair value of the underlying common stock at the date of grant.

 

This excerpt taken from the XCO 10-K filed Mar 31, 2006.

Stock options

        On December 16, 2004, FASB issued SFAS No. 123(R), which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated fair values. Pro forma disclosure is no longer an alternative.

        Holdings (formerly Holdings II) adopted the 2005 Long-Term Incentive Plan (the 2005 Incentive Plan) which provides for the granting of options to purchase up to 10,000,000 shares of Holdings common stock. New shares will be issued for any stock options exercised. As a result of the new basis in accounting due to the Equity Buyout, we adopted the provisions of SFAS No. 123(R) as of October 3, 2005 in connection with the Equity Buyout. See "Note 8. Stock transactions" for additional information related to the 2005 Incentive Plan. The adoption of SFAS No. 123(R) did not have a cumulative affect on our financial statements as no options were outstanding prior to October 5, 2005.

        SFAS No. 123, "Accounting for Stock—Based Compensation" defines a fair value based method of accounting for employee stock compensation plans, but allows for the continuation of the intrinsic value based method of accounting to measure compensation cost prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). For companies electing not to change their accounting, SFAS 123 requires pro forma disclosures of earnings and earnings per share as if the change in accounting provision of SFAS 123 has been adopted.

113



        EXCO elected to continue to utilize the accounting method prescribed by APB 25 until October 3, 2005, under which no compensation cost was recognized, and adopted the disclosure requirements of SFAS 123. As a result, SFAS 123 had no effect on EXCO's results of operations for the 209 day period from January 1, 2003 to July 28, 2003. Stock based compensation expense reflected in the table below for the 209 day period from January 1, 2003 to July 28, 2003, is a result of options issued under EXCO's 1998 Stock Option Plan that were issued subject to shareholders' approval and options that were issued to the management and key employees of Addison. See "Note 8. Stock transactions" for a further description of these stock options.

        Had compensation costs for these plans been determined consistent with SFAS No. 123, EXCO's net income and earnings (loss) per share (EPS) would have been adjusted to the following pro forma amounts (See "Note 8. Stock transactions" for assumptions used in fair value method):

(in thousands)

  period from
January 1, 2003
to July 28, 2003

 
Net income applicable to common stockholders, as reported   $ (1,588 )
Add: Stock-based compensation expense, as reported (net of taxes)     2,578  
Less: Total stock-based compensation expense determined under the fair value method for employee stock awards, net of taxes     (6,969 )
   
 
Net income applicable to common stockholders, proforma   $ (5,979 )
   
 

Basic and diluted net loss per share, as reported

 

$

(0.19

)
   
 
Basic and diluted net loss per share, proforma   $ (0.74 )
   
 

        Certain employees were granted Holdings stock options under Holdings' 2004 Long-Term Incentive Plan (the Holdings Plan). The Holdings Plan provides for grants of stock options that could have been exercised for Class A common shares of Holdings. The stock options were to vest upon the earlier of a change in control of Holdings, the consummation of an initial public offering or three years from the date of grant, and expire ten years after the date of grant. Holdings had reserved 12,962,968 shares of its Class A common stock for issuance upon the exercise of stock options. The Equity Buyout was a change of control under the Holdings Plan. All Holdings stock options outstanding on October 3, 2005 (8,671,906 shares) were cancelled upon the payment of an aggregate amount of $17.8 million to the holders of the stock options. This amount was expensed as general and administrative expense during the 275 day period from January 1, 2005 to October 2, 2005.

        Effective with the grant of these options on June 3 and June 4, 2004, we elected to utilize the accounting method prescribed by APB 25 under which no compensation expense was required to be recognized upon the issuance of stock options to our employees as the exercise price of the option is equal to or higher than the fair value of the underlying common stock at the date of grant.

        Under the minimum value method as prescribed under SFAS No. 123, no compensation expense would have been incurred during the year ended December 31, 2004 from the granting of these stock options and, as such, no pro forma disclosure is required.

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This excerpt taken from the XCO 10-Q filed Nov 23, 2005.

Stock Options

 

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” defines a fair value based method of accounting for employee stock compensation plans, but allows for the continuation of the intrinsic value based method of accounting to measure compensation cost prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25).  For companies electing not to change their accounting, SFAS No. 123 requires pro forma disclosures of earnings and earnings per share as if the change in accounting provision of SFAS No. 123 has been adopted.

 

Certain of our employees have been granted stock options under our parent company’s (EXCO Holdings Inc., or Holdings) 2004 Long-Term Incentive Plan (the Holdings Plan).  The Holdings Plan provides for grants of stock options that can be exercised for Class A common shares of Holdings.  The stock options vest upon the earlier of specified events or three years from the date of grant and expire ten years after the date of grant.  Holdings has reserved 12,962,968 shares of its Class A common stock for issuance upon the exercise of stock options.  As of June 30, 2005, options to purchase 8,606,906 shares of Holdings’ common stock were outstanding.

 

Effective with the grant of the Holdings’ options on June 3 and June 4, 2004, we elected to continue to utilize the accounting method prescribed by APB No. 25 under which no compensation expense is required to be recognized upon the issuance of stock options to our employees as the exercise price of the option is equal to or higher than the fair value of the underlying common stock at the date of grant.

 

Under the minimum value method as prescribed under SFAS No. 123, no compensation expense would have been incurred under SFAS No. 123 during the three and six month periods ended June 30, 2004 and 2005 from the granting of these stock options and as such, no pro forma disclosure is required.

 

SFAS No. 123(R), “Share-Based Payment”, was issued December 16, 2004, and is a revision of SFAS No. 123.  SFAS No. 123(R) supersedes APB No. 25 and amends SFAS No. 95, “Statement of Cash Flows.”  Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123.  However, SFAS No. 123(R)

 

8



 

will require all share-based payments to employees, including grants of employee stock options, to be recognized in our consolidated statements of operations based on their estimated fair values.  Pro forma disclosure is no longer an alternative.

 

SFAS No. 123(R) must be adopted by us effective January 1, 2006 and permits public companies to adopt its requirements using one of two methods:

 

                  A “modified prospective” method in which compensation cost is recognized based on the requirements of SFAS No. 123 ( R ) for all share-based payments granted prior to the effective date of SFAS No. 123(R) that remain unvested on the adoption date.

 

                  A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate either all prior periods presented or prior interim periods of the year of adoption based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures.

 

As permitted by SFAS No. 123, we currently account for share-based payments to employees using the intrinsic value method prescribed by APB No. 25 and related interpretations.  As such, we generally do not recognize compensation expense associated with employee stock options.  Accordingly, the adoption of SFAS No. 123(R)’s fair value method could have a significant impact on our future results of operations, although it will have no impact on our overall financial position.  We have not completed evaluating the impact the adoption of SFAS No. 123(R) will have on our future results of operations.

 

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