XO Communications 2010 Annual Report Download - page 48

Capital Expenditures
Capital Expenditures
(dollars in thousands) Dollars % of Revenue
2010 .................................................... $211,690 13.8%
2009 .................................................... $198,974 13.1%
2008 .................................................... $216,958 14.7%
Capital expenditures increased in 2010 compared to 2009 due to the growth of our on-net buildings
footprint and increased investment in customer-based capital in support of our expansion into the enterprise
market intended to drive future broadband revenue growth. Additionally, we increased our capital expenditures
to continue to improve our network efficiency. The reduction in capital expenditures from 2008 to 2009
primarily relates to improved capital efficiency on new customer installations, the integration and
rationalization of Nextlink as well as our consolidation of switch facilities in 2008 which resulted in capital
expenditures not repeated in 2009.
We plan to spend between $220 million and $250 million on capital expenditures during 2011 for
continued investment in our networks, Ethernet and IP-based services, expansion into new markets and
continuation of our transformation initiative.
Liquidity and Capital Resources
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, sought to develop
new service offerings and sought to expand 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 and cable companies. 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 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 would
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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