XO Communications 2010 Annual Report Download - page 38

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 business customers, government agencies,
telecommunications carriers and service and internet content providers. We strive to be the trusted, high-value
provider of broadband solutions to mid-market, enterprise and carrier customers. The items we believe
differentiate us from the competition include our nationwide high-capacity network, advanced IP and
converged communications services, broadband wireless capabilities, consistent competitive pricing strategy
and a responsive, customer-focused orientation. We offer customers a broad range of managed voice, data
and IP services in more than 85 metropolitan markets across the United States. While we, like other
providers, continue to face short term challenges, we continue to remain bullish on the long term potential for
the Company.
In 2008, after an extensive review of our business and operations with the assistance of outside advisers,
we commenced an enterprise-wide transformation plan intended to enhance shareholder value through
focusing on improving service delivery, accelerating broadband revenue growth and reducing our operating
costs. In conjunction with this initiative, we have invested in new network infrastructure, developed new
service offerings and expanded our customer base in high-growth markets. While this transformation plan will
continue to require significant capital expenditures, we continue to believe that it is the optimal, and perhaps
the only, way for us to remain competitive in the long term with much larger telecommunications providers.
In this regard, we will continue to require significant capital expenditures to enhance, maintain and operate
our fiber network.
On October 8, 2010, we entered into a Revolving Promissory Note (the ‘‘Promissory Note’’) with
Arnos Corp., an affiliate of Carl C. Icahn, the Chairman of our Board of Directors and majority shareholder,
(the ‘‘Chairman’’), pursuant to which Arnos Corp. provided access to a $50.0 million revolving credit facility
at an annual interest rate equal to the greater of LIBOR plus 525 basis points or 6.75%. The Promissory Note
includes a fee of 0.75% on undrawn amounts and initially matured on the earliest of (i) October 8, 2011, (ii)
the date on which any financing transaction, whether debt or equity, is consummated by us or certain of our
affiliates in an amount equal to or greater than $50.0 million, or (iii), at our option, a date selected by us that
is earlier than October 8, 2011.
On February 11, 2011, at our request, we and Arnos Corp. entered into a First Amendment to the
Revolving Promissory Note (the ‘‘Amendment’’). The Amendment extends the latest maturity date of the
Promissory Note from October 8, 2011 to May 1, 2012. Accordingly, the maturity date of the Promissory
Note is the earliest of (i) May 1, 2012, (ii) the date on which any financing transaction, whether debt or
equity, is consummated by us or certain of our affiliates in an amount equal to or greater than $50.0 million,
and (iii), at our option, a date selected by the us that is earlier than May 1, 2012. As of March 31, 2011, no
amounts have been drawn on the Promissory Note.
On October 12, 2010, we announced plans to offer to holders of our common stock rights to purchase
shares of a new class of non-convertible preferred stock. Through this rights offering, we would seek to issue
up to $200.0 million of non-convertible preferred stock. Prior to the issuance of any rights, we may apply for
listing of our common stock on the Nasdaq Global Market. Any application for the Nasdaq listing of our
common stock would follow a one-for-twenty reverse split of our common stock intended to bring the share
price to the level required for Nasdaq listing. There is no assurance that a one-for-twenty reverse split will
take place or that any application for listing of our common stock on Nasdaq would be accepted. If the listing
application is not accepted, we could still proceed with a rights offering (subject to any applicable state law
restrictions) with the intention that our common stock would continue to be quoted on the Over-the-Counter
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