##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 Commission File Number: 0-30900
 XO HOLDINGS, INC.
  Delaware
    
    54-1983517(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



XO HOLDINGS, INC.
Table of Contents
 PagePART I  FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    1Condensed Consolidated Balance Sheets
    
    1Condensed Consolidated Statements of Operations
    
    2Condensed Consolidated Statements of Cash Flows
    
    3Notes to Condensed Consolidated Financial Statements
    
    4ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    15ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    28ITEM 4. Controls and Procedures
    
    28PART II  OTHER INFORMATIONITEM 1. Legal Proceedings
    
    30ITEM 1A. Risk Factors
    
    31ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    31ITEM 3. Defaults Upon Senior Securities
    
    31ITEM 4. Submission of Matters to a Vote of Security Holders
    
    31ITEM 5. Other Information
    
    31ITEM 6. Exhibits
    
    32EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 XO Holdings, Inc.
 
 Condensed Consolidated Balance Sheets
 September 30, 2009
    
    
    December 31, 2008(Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    263,276
    
    
    $
    256,747Marketable securities
    
    
    84,728
    
    
    
    117,148Accounts receivable, net of allowance for doubtful
accounts of $7,726 and $9,727, respectively
    
    
    169,590
    
    
    
    152,622Prepaid expenses and other current assets
    
    
    49,145
    
    
    
    41,200Total current assets
    
    
    566,739
    
    
    
    567,717Property and equipment, net
    
    
    741,597
    
    
    
    724,404Intangible assets, net
    
    
    45,233
    
    
    
    53,515Other assets
    
    
    54,831
    
    
    
    30,348Total Assets
    
    $
    1,408,400
    
    
    $
    1,375,984LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS DEFICITCurrent LiabilitiesAccounts payable
    
    $
    96,024
    
    
    $
    93,547Accrued liabilities
    
    
    203,632
    
    
    
    221,356Total current liabilities
    
    
    299,656
    
    
    
    314,903Deferred revenue, less current portion
    
    
    67,382
    
    
    
    29,715Other liabilities
    
    
    43,892
    
    
    
    55,215Total Liabilities
    
    
    410,930
    
    
    
    399,833Class A convertible preferred stock
    
    
    251,216
    
    
    
    259,948Class B convertible preferred stock
    
    
    604,363
    
    
    
    573,795Class C perpetual preferred stock
    
    
    217,983
    
    
    
    200,877Commitments and contingenciesStockholders DeficitPreferred stock: par value $0.01 per share, 200,000 shares
authorized; 3,696 and 4,000 shares of Class A convertible
preferred stock issued and outstanding at September 30, 2009 and
December 31, 2008, respectively; 555 shares of Class B
convertible preferred stock issued and outstanding; 225 shares
of Class C perpetual preferred stock issued and outstanding
    
    
    
    
    
    
    Warrants, common stock and additional paid in capital: par value $0.01 per share,
1,000,000 shares authorized;
182,075 shares issued and outstanding
    
    
    884,465
    
    
    
    941,270Accumulated other comprehensive income (loss)
    
    
    25,768
    
    
    
    (4,844
    )Accumulated deficit
    
    
    (986,325
    )
    
    
    (994,895
    )Total Stockholders Deficit
    
    
    (76,092
    )
    
    
    (58,469
    )Total Liabilities, Redeemable Preferred Stock and Stockholders
Deficit
    
    $
    1,408,400
    
    
    $
    1,375,984




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##### Table of Contents



XO
Holdings, Inc.
 
 Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    382,000
    
    
    $
    373,925
    
    
    $
    1,145,448
    
    
    $
    1,102,444Costs and expensesCost of service (exclusive
of depreciation
and amortization)
    
    
    217,712
    
    
    
    210,925
    
    
    
    667,281
    
    
    
    652,540Selling, general and
administrative
    
    
    120,331
    
    
    
    119,964
    
    
    
    369,418
    
    
    
    375,531Depreciation and
amortization
    
    
    43,288
    
    
    
    47,847
    
    
    
    129,593
    
    
    
    140,515Impairment of LMDS licenses
    
    
    
    
    
    
    
    
    
    
    8,282
    
    
    
    Loss (gain) on disposal of
assets
    
    
    912
    
    
    
    796
    
    
    
    4,989
    
    
    
    (37
    )Total costs and expenses
    
    
    382,243
    
    
    
    379,532
    
    
    
    1,179,563
    
    
    
    1,168,549Loss from operations
    
    
    (243
    )
    
    
    (5,607
    )
    
    
    (34,115
    )
    
    
    (66,105
    )Interest income
    
    
    3,246
    
    
    
    1,851
    
    
    
    10,707
    
    
    
    3,528Investment gain (loss), net
    
    
    16,271
    
    
    
    (15,408
    )
    
    
    34,291
    
    
    
    (11,302
    )Interest
expense, net
    
    
    310
    
    
    
    (3,871
    )
    
    
    (951
    )
    
    
    (22,135
    )Other income
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    255Net income (loss) before
income taxes
    
    
    19,584
    
    
    
    (23,032
    )
    
    
    9,932
    
    
    
    (95,759
    )Income tax expense
    
    
    (552
    )
    
    
    (299
    )
    
    
    (1,362
    )
    
    
    (983
    )Net income (loss)
    
    
    19,032
    
    
    
    (23,331
    )
    
    
    8,570
    
    
    
    (96,742
    )Preferred stock accretion
    
    
    (19,942
    )
    
    
    (15,021
    )
    
    
    (59,325
    )
    
    
    (22,478
    )Net loss allocable to common
shareholders
    
    $
    (910
    )
    
    $
    (38,352
    )
    
    $
    (50,755
    )
    
    $
    (119,220
    )Net loss allocable to common
shareholders per common share,
basic and diluted
    
    $
    (0.00
    )
    
    $
    (0.21
    )
    
    $
    (0.28
    )
    
    $
    (0.65
    )Weighted average shares, basic
and diluted
    
    
    182,075
    
    
    
    182,075
    
    
    
    182,075
    
    
    
    182,075




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XO
Holdings, Inc.
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended September 30,2009
    
    
    2008OPERATING ACTIVITIES:Net income (loss)
    
    $
    8,570
    
    
    $
    (96,742
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activitiesDepreciation and amortization
    
    
    129,593
    
    
    
    140,515Accrued interest converted to long term debt
    
    
    
    
    
    
    20,829Provision for doubtful accounts
    
    
    9,759
    
    
    
    7,963Stock-based compensation
    
    
    549
    
    
    
    1,185(Gain) loss from investments
    
    
    (34,291
    )
    
    
    11,302Impairment of LMDS licenses
    
    
    8,282
    
    
    
    Loss (gain) on disposal of assets
    
    
    4,989
    
    
    
    (37
    )Changes in assets and liabilitiesAccounts receivable
    
    
    (26,728
    )
    
    
    (11,070
    )Other assets
    
    
    (32,428
    )
    
    
    (14,118
    )Accounts payable
    
    
    (705
    )
    
    
    8,895Accrued liabilities
    
    
    12,079
    
    
    
    (15,107
    )Net cash provided by operating activities
    
    
    79,669
    
    
    
    53,615INVESTING ACTIVITIES:Capital expenditures
    
    
    (148,899
    )
    
    
    (174,998
    )Payments for marketable securities purchases
    
    
    
    
    
    
    (42,775
    )Proceeds from fixed asset sales
    
    
    307
    
    
    
    2,516Proceeds from the sale of available-for-sale marketable
securities
    
    
    97,323
    
    
    
    132Net cash used in investing activities
    
    
    (51,269
    )
    
    
    (215,125
    )FINANCING ACTIVITIES:Proceeds from preferred stock issuance
    
    
    
    
    
    
    329,242Proceeds from issuance of related party note
    
    
    
    
    
    
    75,000Payments on long-term debt
    
    
    
    
    
    
    (22,285
    )Repurchase of preferred stock
    
    
    (18,411
    )
    
    
    Financing costs
    
    
    
    
    
    
    (4,523
    )Payments on capital leases
    
    
    (3,461
    )
    
    
    (4,923
    )Net cash (used in) provided by financing activities
    
    
    (21,872
    )
    
    
    372,511Net increase in cash and cash equivalents
    
    
    6,529
    
    
    
    211,001Cash and cash equivalents, beginning of period
    
    
    256,747
    
    
    
    108,075Cash and cash equivalents, end of period
    
    $
    263,276
    
    
    $
    319,076SUPPLEMENTAL DATA:Cash paid for interest
    
    $
    1,121
    
    
    $
    918Cash paid for income taxes
    
    $
    1,044
    
    
    $
    900Non-cash debt extinguishment through issuance of
preferred stock
    
    $
    
    
    
    $
    450,758Increase in additional paid in capital related to
extinguishment of debt
through issuance of preferred stock
    
    $
    
    
    
    $
    30,491




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##### Table of Contents



XO
Holdings, Inc.
 
 Notes to Condensed Consolidated Financial Statements
(Unaudited)
 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 a.
Organization
  b.
Basis of Presentation
    4




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c.
Transaction-Based Taxes and Other Surcharges
  d. New
Accounting Pronouncements
 .
  e.
Reclassifications
  2. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    19,032
    
    
    $
    (23,331
    )
    
    $
    8,570
    
    
    $
    (96,742
    )Other comprehensive income:Net unrealized gain (loss) on investments
    
    
    5,913
    
    
    
    
    
    
    
    48,649
    
    
    
    (2,500
    )Investment loss reclassified into earnings
    
    
    (12,500
    )
    
    
    2,255
    
    
    
    (18,037
    )
    
    
    2,500Comprehensive income (loss)
    
    $
    12,445
    
    
    $
    (21,076
    )
    
    $
    39,182
    
    
    $
    (96,742
    )
 5




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3. PRIOR PERIOD ADJUSTMENTS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2008Prior
    
    
    Adjusted
    
    
    Prior
    
    
    AdjustedUnderutilized operating lease liability
    
    $
    14,892
    
    
    $
    24,264
    
    
    $
    14,892
    
    
    $
    24,264Selling, general and administrative
    
    $
    119,921
    
    
    $
    119,964
    
    
    $
    374,692
    
    
    $
    375,531Net loss
    
    $
    (23,287
    )
    
    $
    (23,331
    )
    
    $
    (95,903
    )
    
    $
    (96,742
    )Accumulated deficit-beginning
    
    $
    (983,696
    )
    
    $
    (993,025
    )
    
    $
    (911,080
    )
    
    $
    (919,611
    )Net loss
allocable to common shareholders per common share, basic and diluted
    
    $
    (0.21
    )
    
    $
    (0.21
    )
    
    $
    (0.65
    )
    
    $
    (0.65
    )
 4. FAIR VALUE MEASUREMENTS
  Quoted Prices inActive Markets(Level 1)Available-for-sale marketable securitiesEquity securities
    
    $
    2,540Corporate debt securities
    
    
    82,188Total marketable securities
    
    $
    84,728
 6




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Significant
    
    
    Total ImpairmentUnobservable
    
    
    Losses for the NineInputs
    
    
    Months Ended(Level 3)
    
    
    September 30, 2009LMDS licenses
    
    $
    27,500
    
    
    $
    (8,282
    )
 ,
  5. MARKETABLE SECURITIES
  7




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Gross UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSeptember 30, 2009Equity securities
    
    $
    195
    
    
    $
    2,345
    
    
    $
    
    
    
    $
    2,540Corporate debt securities
    
    
    58,765
    
    
    
    23,423
    
    
    
    
    
    
    
    82,188Total
    
    $
    58,960
    
    
    $
    25,768
    
    
    $
    
    
    
    $
    84,728December 31, 2008Equity securities
    
    $
    10,632
    
    
    $
    
    
    
    $
    
    
    
    $
    10,632Corporate debt securities
    
    
    111,360
    
    
    
    1,835
    
    
    
    (6,679
    )
    
    
    106,516Total
    
    $
    121,992
    
    
    $
    1,835
    
    
    $
    (6,679
    )
    
    $
    117,148
     Less than Twelve MonthsGrossEstimated 
Fair Value
    
    Unrealized
LossesCorporate debt securities
    
    $
    65,786
    
    
    $
    (6,679
    )




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##### Table of Contents



6. PROPERTY AND EQUIPMENT
  September 30, 2009
    
    
    December 31, 2008Telecommunications networks and acquired bandwith
    
    $
    1,329,194
    
    
    $
    1,211,894Furniture, fixtures, equipment and other
    
    
    397,910
    
    
    
    371,5611,727,104
    
    
    
    1,583,455Less: accumulated depreciation
    
    
    (1,065,859
    )
    
    
    (931,607
    )661,245
    
    
    
    651,848Construction-in-progress, parts and equipment
    
    
    80,352
    
    
    
    72,556Property and equipment, net
    
    $
    741,597
    
    
    $
    724,404
  7. PREFERRED STOCK
  8. EARNINGS (LOSS) PER SHARE




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2009
    
    
    2008Stock options
    
    
    7.7
    
    
    
    9.1Warrants
    
    
    23.7
    
    
    
    23.7Class A preferred stock 1
    
    
    57.5
    
    
    
    54.2Class B convertible preferred stock 1
    
    
    391.6
    
    
    
    373.2
 
 1
    
    Shares issued during the period and shares reacquired during the period have been weighted
for the portion of the period they were outstanding. 9. INCOME TAXES
  Open Tax Years
  10. RELATED PARTY TRANSACTIONS
  At September 30, 2009 1
    

At December 31, 2008 2Outstanding
Common Stock
Series A, B and C Warrants
Class A Preferred Stock 3
Class B Convertible Preferred Stock
Class C Perpetual Preferred Stock
    
    Greater than 50%
Greater than 40%
Greater than 80%
100%
100%
    
    Greater than 50%
Greater than 40%
Greater than 70%
100%
100%
 
 1
    
    As reported in the October 1, 2009 Form 4 for the Chairman and other parties to such
joint filing, and the October 1, 2009 Amendment No. 20 to Schedule 13D filed by the Chairman
and other parties to such joint filing.2
    
    As reported in the January 5, 2009 Form 4 for the Chairman and other parties to such
joint filing, and the January 5, 2009 Amendment No. 15 to Schedule 13D filed by the Chairman
and other parties to such joint filing.3
    
    The terms of our Class A preferred stock provide 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 agreed to extend the date on which we would be required to redeem the shares
of Class A preferred stock held by ACF Holding from January 15, 2010 to a date no later than
April 15, 2010. ACF Holding is the record holder of 3,096,549 shares of Class A preferred
stock (the ACF Holding Shares) which represented 77.4% of the 4,000,000 outstanding shares
of Class A preferred stock, prior to the repurchase and retirement of non ACF Holding Shares
on July 9, 2009 (83.8% of the 3,695,686 outstanding shares of the Class A preferred stock
following the repurchase and retirement transaction). The extension will not affect the redemption date of any of the shares of Class A
preferred stock other than the ACF Holding Shares.




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11. SEGMENT INFORMATION
  12. COMMITMENTS AND CONTINGENCIES




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Metro
Nashville
 .
 Nashville
Electric Service




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Choice
Tel
  City of
Memphis Franchise Fees
 BellSouth vs. City of Memphis




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R2
Derivative Litigation
  Hillenmeyer
Derivative Litigation
  13. SUBSEQUENT EVENTS




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Cautionary Language Concerning Forward-Looking Statements
 The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are
forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act
of 1995, that involve risks and uncertainties. These statements can be identified by the use of
words such as anticipate, believe, estimate, expect, plan, intend, can, may,
could or other comparable words. Our forward-looking statements are based on currently available
operational, financial and competitive information and managements current expectations, estimates
and projections. These forward-looking statements include:
 
    
    expectations regarding revenue, expenses, capital expenditures and financial position in
future periods;
    
    our ability to broaden our customer reach and expand our market share;
    
    pursuit of growth opportunities; and
    
    the potential need to obtain future financing to fund our business plan and repay our
scheduled obligations.
 Readers are cautioned that these forward-looking statements are only predictions and are subject to
a number of both known and unknown risks and uncertainties. Should one or more of these risks or
uncertainties materialize, or should our underlying assumptions prove incorrect, our actual results
in future periods may differ materially from the future results, performance, and/or achievements
expressed or implied in this document. These risks include any failure by us to:
 
    
    generate funds from operations sufficient to meet our cash requirements and execute our
business strategy;
    
    prevail in our legal proceedings;
    
    increase the volume of traffic on our network; and
    
    achieve and maintain market penetration and revenue levels given the highly competitive
nature of the telecommunications industry.
 For a detailed discussion of risk factors affecting our business and operations, see Item 1A, Risk
Factors in our 2008 Annual Report. We undertake no obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise. These
forward-looking statements should not be relied on as representing our estimates or views as of any
subsequent date.
 15




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Executive Summary
       16




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Critical Accounting Policies and Estimates
   17




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Results of Operations
  Three Months Ended September 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentRevenue
    
    $
    382,000
    
    
    
    100.0
    %
    
    $
    373,925
    
    
    
    100.0
    %
    
    $
    8,075
    
    
    
    2.2
    %Costs and expenses:Cost of service*
    
    
    217,712
    
    
    
    57.1
    %
    
    
    210,925
    
    
    
    56.4
    %
    
    
    6,787
    
    
    
    3.2
    %Selling, general and administrative
    
    
    120,331
    
    
    
    31.5
    %
    
    
    119,964
    
    
    
    32.1
    %
    
    
    367
    
    
    
    0.3
    %Depreciation and amortization
    
    
    43,288
    
    
    
    11.3
    %
    
    
    47,847
    
    
    
    12.8
    %
    
    
    (4,559
    )
    
    
    -9.5
    %Loss on disposal of assets
    
    
    912
    
    
    
    0.2
    %
    
    
    796
    
    
    
    0.2
    %
    
    
    116
    
    
    
    14.6
    %Total costs and expenses
    
    
    382,243
    
    
    
    100.1
    %
    
    
    379,532
    
    
    
    101.5
    %
    
    
    2,711
    
    
    
    0.7
    %Loss from operations
    
    $
    (243
    )
    
    
    -0.1
    %
    
    $
    (5,607
    )
    
    
    -1.5
    %
    
    $
    (5,364
    )
    
    
    -95.7
    %
 Nine Months Ended September 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentRevenue
    
    $
    1,145,448
    
    
    
    100.0
    %
    
    $
    1,102,444
    
    
    
    100.0
    %
    
    $
    43,004
    
    
    
    3.9
    %Costs and expenses:Cost of service*
    
    
    667,281
    
    
    
    58.3
    %
    
    
    652,540
    
    
    
    59.2
    %
    
    
    14,741
    
    
    
    2.3
    %Selling, general and administrative
    
    
    369,418
    
    
    
    32.3
    %
    
    
    375,531
    
    
    
    34.1
    %
    
    
    (6,113
    )
    
    
    -1.6
    %Depreciation and amortization
    
    
    129,593
    
    
    
    11.3
    %
    
    
    140,515
    
    
    
    12.7
    %
    
    
    (10,922
    )
    
    
    -7.8
    %Impairment of LMDS licenses
    
    
    8,282
    
    
    
    0.7
    %
    
    
    
    
    
    
    
    
    
    
    8,282
    
    
    nmLoss (gain) on disposal of assets
    
    
    4,989
    
    
    
    0.4
    %
    
    
    (37
    )
    
    nm
    
    
    
    5,026
    
    
    nmTotal costs and expenses
    
    
    1,179,563
    
    
    
    103.0
    %
    
    
    1,168,549
    
    
    
    106.0
    %
    
    
    11,014
    
    
    
    0.9
    %Loss from operations
    
    $
    (34,115
    )
    
    
    -3.0
    %
    
    $
    (66,105
    )
    
    
    -6.0
    %
    
    $
    (31,990
    )
    
    
    -48.4
    %
 
 *
    
     exclusive of depreciation and amortizationnm
    
     not meaningful Revenue
  18




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##### Table of Contents



Three Months Ended September 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentCore servicesBroadband
    
    $
    199,949
    
    
    
    52.3
    %
    
    $
    173,398
    
    
    
    46.4
    %
    
    $
    26,551
    
    
    
    15.3
    %Integrated/Voice
    
    
    69,151
    
    
    
    18.1
    %
    
    
    77,799
    
    
    
    20.8
    %
    
    
    (8,648
    )
    
    
    -11.1
    %Total core services
    
    
    269,100
    
    
    
    70.4
    %
    
    
    251,197
    
    
    
    67.2
    %
    
    
    17,903
    
    
    
    7.1
    %Legacy/TDM services
    
    
    112,900
    
    
    
    29.6
    %
    
    
    122,728
    
    
    
    32.8
    %
    
    
    (9,828
    )
    
    
    -8.0
    %Total revenue
    
    $
    382,000
    
    
    
    100.0
    %
    
    $
    373,925
    
    
    
    100.0
    %
    
    $
    8,075
    
    
    
    2.2
    %
 Core Services.
   19




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##### Table of Contents



Legacy/TDM Services.
  Nine Months Ended September 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentCore servicesBroadband
    
    $
    584,677
    
    
    
    51.0
    %
    
    $
    490,629
    
    
    
    44.5
    %
    
    $
    94,048
    
    
    
    19.2
    %Integrated/Voice
    
    
    216,440
    
    
    
    18.9
    %
    
    
    245,764
    
    
    
    22.3
    %
    
    
    (29,324
    )
    
    
    -11.9
    %Total core services
    
    
    801,117
    
    
    
    69.9
    %
    
    
    736,393
    
    
    
    66.8
    %
    
    
    64,724
    
    
    
    8.8
    %Legacy/TDM services
    
    
    344,331
    
    
    
    30.1
    %
    
    
    366,051
    
    
    
    33.2
    %
    
    
    (21,720
    )
    
    
    -5.9
    %Total revenue
    
    $
    1,145,448
    
    
    
    100.0
    %
    
    $
    1,102,444
    
    
    
    100.0
    %
    
    $
    43,004
    
    
    
    3.9
    %
 Core Services.
  20




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##### Table of Contents



Legacy/TDM Services.
  Cost of Service
   Three Months Ended September 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentTelecommunications services
    
    $
    154,499
    
    
    
    40.5
    %
    
    $
    150,021
    
    
    
    40.1
    %
    
    $
    4,478
    
    
    
    3.0
    %Network operations
    
    
    50,035
    
    
    
    13.1
    %
    
    
    47,617
    
    
    
    12.7
    %
    
    
    2,418
    
    
    
    5.1
    %Pass-through taxes
    
    
    13,178
    
    
    
    3.4
    %
    
    
    13,287
    
    
    
    3.6
    %
    
    
    (109
    )
    
    
    -0.8
    %Total cost of services
    
    $
    217,712
    
    
    
    57.0
    %
    
    $
    210,925
    
    
    
    56.4
    %
    
    $
    6,787
    
    
    
    3.2
    %
  21




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##### Table of Contents



Nine Months Ended September 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentTelecommunications services
    
    $
    478,729
    
    
    
    41.8
    %
    
    $
    468,474
    
    
    
    42.5
    %
    
    $
    10,255
    
    
    
    2.2
    %Network operations
    
    
    149,838
    
    
    
    13.1
    %
    
    
    143,045
    
    
    
    13.0
    %
    
    
    6,793
    
    
    
    4.7
    %Pass-through taxes
    
    
    38,714
    
    
    
    3.4
    %
    
    
    41,021
    
    
    
    3.7
    %
    
    
    (2,307
    )
    
    
    -5.6
    %Total cost of services
    
    $
    667,281
    
    
    
    58.3
    %
    
    $
    652,540
    
    
    
    59.2
    %
    
    $
    14,741
    
    
    
    2.3
    %
     Selling, General and Administrative
   22




---



##### Table of Contents



Impairment of LMDS Licenses
  Interest Income
  Investment
Gain, net
   Interest
Expense, net
  23




---



##### Table of Contents



Capital Expenditures
 Nine Months Ended September 30,
    

    
    
    
    
    % of Revenue(dollars in thousands)2009
    

    $
    148,899
    
    
    
    13.0
    %2008
    

    $
    174,998
    
    
    
    15.9
    %
  Liquidity and Capital Resources
  Redemption of Class A convertible preferred stock




---



##### Table of Contents



Cash Flow
   2009
    
    
    2008
    
    
    ChangeCash provided by operating activities
    
    $
    79,669
    
    
    $
    53,615
    
    
    $
    26,054Cash used in investing activities
    
    $
    (51,269
    )
    
    $
    (215,125
    )
    
    $
    163,856Cash (used in) provided by financing activities
    
    $
    (21,872
    )
    
    $
    372,511
    
    
    $
    (394,383
    )
 Operating Activities.
 Investing Activities.
 Financing Activities.




---



##### Table of Contents



Recently Issued Accounting Pronouncements
 .
  Regulatory
  LMDS
Licenses
 LMDS License Renewal Filings
 LMDS Substantial Service Filings




---



##### Table of Contents



Additional Federal Regulations
 Verizon and Qwest Petitions for Forbearance from Unbundling Requirements.
 Additional State and Local Regulation
 XOH Complaints Against Verizon .




---



##### Table of Contents



Qwest Complaints against XOH.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures




---



##### Table of Contents



Changes in Internal Controls




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  Nashville Electric Service




---



##### Table of Contents



R2 Derivative Litigation
  Hillenmeyer Derivative Litigation
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information




---



##### Table of Contents



Item 6. Exhibits
 3.1
    
    Certificate of Incorporation of XO Holdings, Inc., as filed with the
Secretary of State of the State of Delaware on October 25, 2005
(incorporated by reference to exhibit 3.1 filed with the Current
Report on Form 8-K of XO Holdings, Inc., filed on March 6, 2006)3.2
    
    Certificate of Designation of the Powers, Preferences and Relative,
Participating, Optional and other Special Rights of the 6% Class A
Convertible Preferred Stock and Qualifications, Limitations and
Restrictions thereof, as filed with the Secretary of State of the
State of Delaware on February 28, 2006 (incorporated by reference to
exhibit 3.2 filed with the Current Report on Form 8-K of XO Holdings,
Inc., filed on March 6, 2006)3.3
    
    Bylaws of XO Holdings, Inc. (incorporated herein by reference to
exhibit 3.3 filed with the Current Report on Form 8-K of XO Holdings,
Inc., filed on March 6, 2006)4.1
    
    Series A Warrant Agreement, dated as of January 16, 2003, by and
between XO Communications, Inc. and American Stock Transfer & Trust
Company (incorporated by reference to exhibit 10.1 filed with the
Current Report on Form 8-K of XO Communications, Inc. filed on
January 30, 2003).4.2
    
    Series B Warrant Agreement, dated as of January 16, 2003, by and
between XO Communications, Inc. and American Stock Transfer & Trust
Company (incorporated by reference to exhibit 10.2 filed with the
Current Report on Form 8-K of XO Communications, Inc. filed on
January 30, 2003).4.3
    
    Series C Warrant Agreement, dated as of January 16, 2003, by and
between XO Communications, Inc. and American Stock Transfer & Trust
Company (incorporated by reference to exhibit 10.3 filed with the
Current Report on Form 8-K of XO Communications, Inc. filed on
January 30, 2003).4.4
    
    Certificate of Designation of the Powers, Preferences and Relative
Participating, Optional and Other Special Rights of the 7% Class B
Convertible Preferred Stock and Qualifications, Limitations and
Restrictions Thereof (incorporated by reference to exhibit 4.1 filed
with the Current Report on Form 8-K of XO Holdings, Inc. filed on
July 28, 2008).4.5
    
    Certificate of Designation of the Powers, Preferences and Relative
Participating, Optional and Other Special Rights of the 9.50% Class C
Perpetual Preferred Stock and Qualifications, Limitations and
Restrictions Thereof (incorporated by reference to exhibit 4.2 filed
with the Current Report on Form 8-K of XO Holdings, Inc. filed on
July 28, 2008).10.1
    
    XO Holdings, Inc. 2009 Executive Bonus Plan (incorporated by
reference to exhibit 10.1 filed with the Quarterly Report on Form
10-Q of XO Holdings, Inc. for the quarter ended March 31, 2009)10.2
    
    Employment Agreement, dated as of January 5, 2009, by and between XO
Holdings, Inc. and Daniel J. Wagner (incorporated by reference to
exhibit 10.1 filed with the Current Report on Form 8-K of XO
Holdings, Inc., filed on January 20, 2009)10.3
    
    Redacted version of Master Professional Services Agreement, executed
April 31, 2009 and effective as of March 30, 2009, by and between XO
Communications Services, Inc. on behalf of itself, its operating
affiliates and subsidiaries and Thomas Cady. CONFIDENTIAL PORTIONS OF
THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER A CONFIDENTIAL TREATMENT
REQUEST, PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. THE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT AT THE
APPROPRIATE PLACE WITH THREE ASTERISKS [***]. (incorporated by
reference to exhibit 10.3




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##### Table of Contents



filed with the Quarterly Report on Form
10-Q of XO Holdings, Inc. for the quarter ended June 30, 2009)14.1
    
    XO Business Ethics Policy (incorporated by reference to exhibit 14.1
filed with the Current Report on Form 8-K of XO Holdings, Inc., filed
on March 17, 2009)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended (filed
herewith)31.2
    
    Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act as amended (filed
herewith)32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002 (filed herewith)




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##### Table of Contents



SIGNATURES
  Date: November 9, 2009
    XO HOLDINGS, INC.By:
    /s/ Laura W. ThomasLaura W. ThomasSenior Vice President and Chief Financial Officer
(Principal Financial Officer)