XO Communications 2010 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2010 XO Communications annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

Bulletin Board and on the Pink Sheets under the ticker symbol ‘‘XOHO.OB’’. No assurance can be given that
a market for any rights or any new class of preferred stock would develop.
On January 19, 2011, we received an offer from ACF Industries Holding Corp., which is an affiliate of
the Chairman, to acquire, either directly or through an affiliate, ownership of 100% of XO Holdings in a
transaction the exact form of which would be determined jointly. Under the proposal, holders of common
stock, other than ACF Holding and its affiliates, would receive consideration of $0.70 net per share in cash.
On January 21, 2011, we announced the formation of a Special Committee of our Board of Directors
composed of three independent directors to consider, review, and evaluate the proposal. At that time, the
Board of Directors delayed further action on the pending financing activities (reverse split, Nasdaq listing and
rights offering) so that the Special Committee could begin its review process. On March 5, 2011 Mr. First, a
member of the Company’s Board of Directors and the Special Committee, resigned from the Special
Committee.
We continue to monitor various alternatives to obtain additional capital. While we intend to explore every
alternative, including high yield debt, we continue to believe that an issuance of high yield debt would be
deleterious to XOH for the following reasons: 1) the high cost of such debt would 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.
Based on our current level of operations, we believe that cash flow from operations, cash on hand,
marketable securities and cash available from the Revolving Promissory Note will enable us to meet our
working capital and other obligations for at least the next 12 months. However, we believe that additional
capital, including cash available under the Promissory Note, is necessary to continue to implement our
transformation plan and also give us the resources to take advantage of strategic growth opportunities. Our
ability to fund our capital needs depends on our future operating performance and cash flow, which are
subject to prevailing economic conditions and other factors, many of which are beyond our control.
Heretofore, we have not generated sufficient free cash flows to allow us to continue to fully fund our
transformation plan or to pursue other strategic opportunities. Accordingly, we believe it will be necessary to
raise additional capital.
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
party professionals and other various assumptions that are believed to be reasonable under the facts and
circumstances. Actual results could differ materially from those estimates made by management.
The following list is not intended to be a comprehensive list of all of our accounting policies but are
considered to be the most critical in that they involve significant judgment and estimates. Our significant
accounting policies are described in Note 2 to our consolidated financial statements in Item 8 of this Annual
Report.
Revenue Recognition
Revenue from telecommunications services is recognized when the related services are provided. Fees
billed in connection with service installations and other non-recurring charges related to ongoing service are
deferred and recognized ratably over the average customer life. Up front cash collected from lease of unlit
network capacity under indefeasible rights of use is recognized ratably over the contract term.
35