XO Communications 2009 Annual Report Download - page 46

Segment Financial Results
As previously reported in our 2008 Annual Report, we operated our business in two reportable segments
through two primary operating subsidiaries. XO Communications, LLC operated our wireline business under
the trade name “XO Communications” (“XOC”) and Nextlink Wireless, Inc. (“Nextlink”) operated our fixed-
wireless business. XOC and Nextlink were managed separately; each segment required different resources,
expertise and marketing strategies. In April 2009, we decided to integrate Nextlink’s operations into XOC’s
existing product offerings, discontinuing Nextlink as a separate operating segment. As a result of this change,
our chief operating decision maker no longer reviews the results of Nextlink’s operations to evaluate
performance and allocate resources. Thus, Nextlink ceased to be considered a reportable segment resulting in
XOC being our only operating segment as of June 30, 2009. XOC continues to use the Nextlink LMDS
spectrum assets to support existing fixed wireless customers, customer growth and network cost reduction
opportunities.
Liquidity and Capital Resources
Our primary capital needs are to finance the cost of operations, to acquire capital assets in support of our
operations, to fund the redemption of our Class A preferred stock and to take advantage of opportunities to
enhance our competitive position. 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
cash needs for at least the next twelve 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 telecommuni-
cations 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.
Redemption of Our 6% Class A Convertible Preferred Stock
The terms of our Class A preferred stock provided that on January 15, 2010, we redeem in cash and in a
manner provided for therein all of the shares of Class A preferred stock then outstanding at a redemption price
equal to 100% of its liquidation preference. On February 5, 2009, ACF Holding, an affiliate of our Chairman,
agreed to extend the date on which we would be required to redeem the shares of Class A preferred stock held
by ACF Holding (the “ACF Holding Shares”) from January 15, 2010 to a date no later than April 15, 2010.
The extension did not affect the redemption date of any of the shares of Class A preferred stock other than the
ACF Holding Shares.
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 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.
Debt Retirement through Issuance of Preferred Stock
During 2008, all of our long-term debt and accrued interest was retired in connection with the issuance and
sale of shares from a new series of 7% Class B convertible preferred stock and a new series of 9.5% Class C
perpetual preferred stock. On July 25, 2008, we entered into a Stock Purchase Agreement with Arnos Corp.,
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