XO Communications 2009 Annual Report Download - page 35

marketable securities purchases, partially offset by $57.4 million received from the settlement of litigation related to our holding of
Allegiance debt securities. 2007 and 2006 included $21.5 million and $12.7 million, respectively, of investment income from
settlements of legal matters related to our holding of Global Crossing debt securities.
d
2009 included the Company’s redemption and retirement of 304,314 shares of Class A preferred stock at an aggregate purchase price
of approximately $18.4 million.
e
2008 included proceeds of $75.0 million from the issuance of a promissory note to a related party. Subsequently, in 2008 0.8 million
shares of Class B convertible preferred stock and Class C perpetual preferred stock were issued to affiliates of the Chairman resulting
in repayment of all our promissory note and credit facility and net cash provided by financing activities of $307.0 million.
f
2005 includes a voluntary payment of $100.0 million on our long-term obligations.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This management’s discussion and analysis of financial condition and results of operations is intended to
provide readers with an understanding of our past performance, our financial condition and our prospects. This
discussion should be read in conjunction with our audited consolidated financial statements and notes
appearing in Item 8 of this Annual Report.
Executive Summary
We are a leading nationwide facilities-based competitive telecommunications services provider that delivers a
comprehensive array of telecommunications solutions to large enterprises, medium and small business,
government customers, telecommunications carriers and service providers, and internet content providers. The
items we believe differentiate us from the competition include our nationwide high-capacity network, advanced
IP and converged communications services, broadband wireless capabilities, and a responsive, customer-
focused orientation. We offer customers a broad range of managed voice, data and IP services in more than 80
metropolitan markets across the United States.
During 2009, we continued to see the results from a number of initiatives previously implemented including
the lighting of our long-haul fiber network, development of the carrier/wholesale channel, and expansion of
our portfolio of services to business and enterprise customers. Our prior capital expenditure investments
significantly contributed to $82.1 million of revenue growth for our core services. While our total revenue
increased 3.0% for the year ended December 31, 2009 compared to the year-ago period, we were able to limit
the corresponding increase in cost of service to 1.0% due primarily to planned network optimization projects.
Additionally, improvements to our internal cost structure have driven the reduction in our selling, general and
administrative expenses as a percentage of revenue to 32.2% for the year ended December 31, 2009 compared
to 33.7% and 35.6% for the years ended December 31, 2008 and 2007, respectively.
For the year ended December 31, 2009 we recognized net income of $21.8 million. These results were
primarily derived from investment gains from the sale of marketable securities of $53.3 million during 2009
and the year over year improvement in operating losses of $37.6 million. While we expect continued
improvements in operating losses, we do not anticipate significant investment gains in 2010.
On July 9, 2009, we redeemed 304,314 shares of our Class A preferred stock from entities unaffiliated with
our Chairman at an aggregate purchase price of approximately $18.4 million. On January 15, 2010, we
redeemed all remaining 599,137 shares of Class A preferred stock held by entities unaffiliated with our
Chairman at an aggregate purchase price of approximately $41.4 million. As of March 31, 2010, ACF Holding
is the record holder of 100% of the remaining 3,096,549 shares of Class A preferred stock. We are required to
redeem any outstanding ACF Holding Shares for cash at an aggregate liquidation preference of up to
$217.4 million at a date no later than April 15, 2010.
On July 9, 2009, we received a letter from ACF Holding, an entity wholly owned by the Chairman that owns
the majority of the Company’s common shares, pursuant to which ACF Holding made a non-binding proposal
to acquire all of the Company’s outstanding common shares which it does not own, for consideration in the
form of cash of $0.55 net per share.
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