XO Communications 2009 Annual Report Download - page 36

As reported in our 8-K filing, on September 28, 2009 the special committee of the Board of Directors of XO
Holdings, Inc. announced that it has “unanimously concluded that the proposal of ACF Industries Holding
Corp., an affiliate of Carl C. Icahn and holder of a majority of the shares of XO Holdings’ common stock, to
purchase all of the shares of XO Holdings’ common stock not currently held by ACF Holding at a price of
$0.55 per share substantially undervalues the company, and, therefore, the special committee does not support
the proposal.” The special committee communicated to Mr. Icahn that it would consider a proposal that
recognizes the full value of the company and reflects the significant benefits that would accrue to ACF
Holding as a result of full ownership.
On October 23, 2009, ACF Holding sent a letter to the special committee pursuant to which ACF Holding
made a non-binding proposal to increase its previously outstanding offer to acquire all of the outstanding
shares which it does not own, to an aggregate of $0.80 net per share in cash. The offer made on October 23,
2009 expired on October 26, 2009 at 6:00 pm (EST). The Chairman and other related parties filed Amendment
no. 22 to Schedule 13D on November 9, 2009. Such amendment stated: “In the period following October 26,
2009, the stated termination date of ACF Holding’s $0.80 per share offer, representatives of ACF Holding
continued to discuss the matter with members of the Special Committee and its advisors...Representatives of
ACF Holding pointed out that the CLEC industry faced difficult times ahead and that ACF Holding believed
that its offer of $0.80 per share was fair, especially in light of the fact that it required a majority of the
minority stockholders to vote for it in order to become effective. Representatives of ACF Holding also pointed
out that ACF Holding had raised its proposed merger price from $0.55 to $0.80 per share without receiving a
counteroffer. They also stated that the initial offer was made when the market price for the Shares was under
$0.30 per share. In light of all of the above facts, ACF Holding is now terminating its offer.”
We believe that to remain competitive with much larger telecom and cable companies, we will require
significant additional capital expenditures to enhance and operate our fiber network. We believe that cash on
hand and operating cash flow will be sufficient to finance our operational needs for at least the next 12 months.
However, in order to maintain our competitive position, we intend to raise additional capital and continue to
explore various alternatives to obtain additional capital. We continue to believe that these alternatives should
not include an issuance of high yield debt because such an issuance would be deleterious to XOH for the
following reasons: 1) the high cost of such debt will negatively affect our ability to compete in the current
highly competitive telecommunications environment; and 2) the burdensome restrictive covenants associated
with such debt would impair our ability to pursue potential strategic investments and to take advantage of
other opportunities which may be necessary for us to compete in such environment. We believe that certain
opportunities exist today in the highly competitive telecommunications industry that may not recur such as,
but not limited to, the acquisition of other CLECs. For all the above reasons, we intend to seek to raise
appropriate levels of capital in the near future.
In 2008, we commenced an enterprise-wide transformation initiative intended to enhance shareholder value
through focusing on improving service delivery, accelerating revenue growth, and reducing operating costs.
These initiatives are being partially realized in 2009, with further realization expected in 2010 and beyond. In
conjunction with this transformation initiative, we intend to continue to invest in new network infrastructure,
develop new service offerings and continue expanding our customer base in high-growth markets.
We continue to monitor the impact of macro-economic conditions on our business. Potential negative aspects
include a general slowdown in the demand for telecommunications services, delayed IT and other projects that
have telecommunications needs, elongated sales cycles on the part of our customers, higher involuntary churn,
and delayed payments from customers.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses.
We continually evaluate the estimates we use to prepare the consolidated financial statements and update those
estimates as necessary. In general our estimates are based on historical experience, on information from third
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