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 March 31, 2008
 or
 o
    
    TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 0-30900
 XO HOLDINGS, INC.
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    54-1983517
(I.R.S. Employer Identification No.)
 
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þNon-accelerated filer o
    
    Smaller reporting company o
 o þ




---



##### 



XO Holdings, Inc.
Index to Form 10-Q
 PagePart I. Financial InformationItem 1.
    
    
    Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and March 31, 2007 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and March 31, 2007 (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    4Item 2.
    
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4.
    
    
    Controls and Procedures
    
    
    31Part II. Other InformationItem 1.
    
    
    Legal Proceedings
    
    
    33Item 1A.
    
    
    Risk Factors
    
    
    35Item 2.
    
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3.
    
    
    Defaults Upon Senior Securities
    
    
    37Item 4.
    
    
    Submission of Matters to a Vote of Security Holders
    
    
    37Item 5.
    
    
    Other Information
    
    
    38Item 6.
    
    
    Exhibits
    
    
    38Signatures
    
    
    39




---



##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 XO Holdings, Inc.
Condensed Consolidated Balance Sheets
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    126,074
    
    
    $
    108,075Marketable securities
    
    
    7,860
    
    
    
    885Accounts receivable, net of allowance for doubtful
accounts of $9,078 at March 31, 2008 and $10,116 at
December 31, 2007
    
    
    135,533
    
    
    
    131,705Prepaid expenses and other current assets
    
    
    52,650
    
    
    
    30,928Total current assets
    
    
    322,117
    
    
    
    271,593Property and equipment, net
    
    
    730,281
    
    
    
    720,396Goodwill and intangible assets, net
    
    
    53,515
    
    
    
    53,515Other assets
    
    
    42,659
    
    
    
    44,622Total Assets
    
    $
    1,148,572
    
    
    $
    1,090,126LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
(DEFICIT) EQUITYCurrent LiabilitiesAccounts payable
    
    $
    111,988
    
    
    $
    106,488Other current liabilities
    
    
    268,280
    
    
    
    252,217Total current liabilities
    
    
    380,268
    
    
    
    358,705Long-term debt and accrued interest payable to related parties
    
    
    461,206
    
    
    
    377,213Other long-term liabilities
    
    
    64,334
    
    
    
    67,050Total Liabilities
    
    
    905,808
    
    
    
    802,968Class A convertible preferred stock
    
    
    248,512
    
    
    
    244,811Commitments and contingencies
    
    
    
    
    
    
    Stockholders EquityPreferred stock: par value $0.01 per share, 200,000,000
shares authorized: 4,000,000 shares of class A convertible
preferred stock issued and outstanding on March 31, 2008
and December 31, 2007
    
    
    
    
    
    
    Warrants, common stock and additional paid in capital: par
value $0.01 per share, 1,000,000,000 shares authorized;
182,075,035 shares issued and outstanding on March 31,
2008 and December 31, 2007
    
    
    950,208
    
    
    
    953,427Accumulated other comprehensive loss
    
    
    (1,936
    )
    
    
    Accumulated deficit
    
    
    (954,020
    )
    
    
    (911,080
    )Total Stockholders (Deficit) Equity
    
    
    (5,748
    )
    
    
    42,347Total Liabilities, Convertible Preferred Stock and
Stockholders (Deficit) Equity
    
    $
    1,148,572
    
    
    $
    1,090,126
  1




---



##### 



XO Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2008
    
    
    2007Revenue
    
    $
    361,149
    
    
    $
    349,936Costs and expenses:Cost of service (exclusive of depreciation and amortization)
    
    
    228,344
    
    
    
    191,398Selling, general and administrative
    
    
    126,327
    
    
    
    121,799Depreciation and amortization
    
    
    45,575
    
    
    
    50,636Total costs and expenses
    
    
    400,246
    
    
    
    363,833Loss from operations
    
    
    (39,097
    )
    
    
    (13,897
    )Interest and other income, net
    
    
    5,249
    
    
    
    2,199Interest expense, net
    
    
    (8,750
    )
    
    
    (8,635
    )Net loss before income taxes
    
    
    (42,598
    )
    
    
    (20,333
    )Income tax expense
    
    
    (342
    )
    
    
    (300
    )Net loss
    
    
    (42,940
    )
    
    
    (20,633
    )Preferred stock accretion
    
    
    (3,701
    )
    
    
    (3,488
    )Net loss allocable to common shareholders
    
    $
    (46,641
    )
    
    $
    (24,121
    )Net loss allocable to common shareholders per common share, basic and diluted
    
    $
    (0.26
    )
    
    $
    (0.13
    )Weighted average shares, basic and diluted
    
    
    182,075,035
    
    
    
    182,001,910
  2




---



##### 



XO Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three months
    
    
    Three monthsEnded
    
    
    endedMarch 31,
    
    
    March 31,2008
    
    
    2007OPERATING ACTIVITIES:Net loss
    
    $
    (42,940
    )
    
    $
    (20,633
    )Adjustments to reconcile net loss to net cash provided by operating activitiesDepreciation and amortization
    
    
    45,575
    
    
    
    50,636Accrual of interest
    
    
    8,993
    
    
    
    9,566Provision for doubtful accounts
    
    
    2,723
    
    
    
    5,561Stock-based compensation
    
    
    483
    
    
    
    506Non cash gain from investments
    
    
    (4,121
    )
    
    
    Changes in assets and liabilitiesAccounts receivable
    
    
    (6,551
    )
    
    
    6,904Other assets
    
    
    (23,543
    )
    
    
    (3,274
    )Accounts payable
    
    
    15,345
    
    
    
    (3,421
    )Accrued liabilities
    
    
    13,882
    
    
    
    (31,891
    )Net cash provided by operating activities
    
    
    9,846
    
    
    
    13,954INVESTING ACTIVITIES:Capital expenditures
    
    
    (65,305
    )
    
    
    (41,128
    )Net cash used in investing activities
    
    
    (65,305
    )
    
    
    (41,128
    )FINANCING ACTIVITIES:Payments on capital leases
    
    
    (535
    )
    
    
    (563
    )Financing costs
    
    
    (1,007
    )
    
    
    Proceeds from note to related party
    
    
    75,000
    
    
    
    Proceeds from employee stock option exercises
    
    
    
    
    
    
    19Net cash provided by (used in) financing activities
    
    
    73,458
    
    
    
    (544
    )Net increase (decrease) in cash and cash equivalents
    
    
    17,999
    
    
    
    (27,718
    )Cash and cash equivalents, beginning of period
    
    
    108,075
    
    
    
    168,563Cash and cash equivalents, end of period
    
    $
    126,074
    
    
    $
    140,845SUPPLEMENTAL DATA:Cash paid for interest
    
    $
    292
    
    
    $
    291Cash paid for income taxes
    
    $
    46
    
    
    $
    Accrued interest converted to long-term debt
    
    $
    8,993
    
    
    $
    9,566
  3




---



##### 



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




---



##### 



Reclassification
    Transaction Based Taxes and Other Surcharges
  Error Correction
 New Accounting Pronouncements
 Fair Value Measurements
 5




---



##### 



The Fair Value Option for Financial Assets and
Financial Liabilities
 Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB SFAS No. 133
 2. COMPREHENSIVE LOSS
  Three Months Ended March 31,2008
    
    
    2007Net loss
    
    $
    (42,940
    )
    
    $
    (20,633
    )Other comprehensive income:Net unrealized (loss) gain on investments
    
    
    (1,936
    )
    
    
    40Comprehensive loss
    
    $
    (44,876
    )
    
    $
    (20,593
    )
 3. FAIR VALUE MEASUREMENTS
  6




---



##### 



Quoted Prices in ActiveMarkets (Level 1)Available-for-sale securities
    
    $
    7,860Total assets measured at fair value
    
    $
    7,860
   4. LONG-LIVED ASSETS
  Property and Equipment
  March 31, 2008
    
    
    December 31, 2007Telecommunications networks and acquired bandwidth
    
    $
    1,116,182
    
    
    $
    1,056,102Furniture, fixtures, equipment and other
    
    
    340,334
    
    
    
    340,0041,456,516
    
    
    
    1,396,106Less: accumulated depreciation
    
    
    (803,088
    )
    
    
    (757,677
    )653,428
    
    
    
    638,429Construction-in-progress, parts and equipment
    
    
    76,853
    
    
    
    81,967Property and equipment, net
    
    $
    730,281
    
    
    $
    720,396
  7




---



##### 



Broadband Wireless Licenses and Other Intangibles
  March 31, 2008
    
    
    December 31, 2007Customer relationships
    
    $
    112,366
    
    
    $
    112,366Internally developed technology
    
    
    9,521
    
    
    
    9,521Acquired trade names
    
    
    5,673
    
    
    
    5,673127,560
    
    
    
    127,560Less accumulated amortization
    
    
    (127,560
    )
    
    
    (127,560
    )
    
    
    
    Broadband wireless licenses  indefinite life asset
    
    
    35,782
    
    
    
    35,782Goodwill  indefinite life asset
    
    
    16,662
    
    
    
    16,662XO Trade name  indefinite life asset
    
    
    1,071
    
    
    
    1,071$
    53,515
    
    
    $
    53,515
  Goodwill and Other Intangible Assets
 5. LONG-TERM DEBT TO RELATED PARTIES
  March 31, 2008
    
    
    December 31, 2007Credit facility
    
    $
    385,751
    
    
    $
    377,213Promissory note
    
    
    75,455
    
    
    
    $
    461,206
    
    
    $
    377,213
 Credit Facility
   8




---



##### 



Promissory Note
   9




---



##### 



pari passu
   
    
    defaults in the payment of any principal on the Note when the same becomes due and
payable,
    
    defaults in the payment of any interest on the Note for more than ten business days
after the same becomes due and payable, and
    
    any default by a guarantor under the terms of its guaranty.
  Debt Service Requirements
    10




---



##### 



6. UNDERUTILIZED OPERATING LEASES
   Balance as of January 1, 2008
    
    $
    20,422Usage, net
    
    
    (3,227
    )Accretion
    
    
    1,079Estimate revisions
    
    
    (196
    )Balance as of March 31, 2008
    
    $
    18,078
 7. INCOME TAXES
 Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS No. 109
  Open Tax Years
  8. EARNINGS (LOSS) PER SHARE
  11




---



##### 



9. RELATED PARTY TRANSACTIONS
  At March 31, 2008(1)
    
    At December 31, 2007(2)Outstanding Common Stock
    
    Greater than 50%
    
    Greater than 50%Series A, B and C Warrants
    
    Greater than 40%
    
    Greater than 40%Credit Facility
    
    Greater than 90%
    
    Greater than 90%Promissory Note
    
    Greater than 90%
    
    N/APreferred Stock
    
    Greater than 50%
    
    Greater than 50%
 
 (1)
    
    As reported in the April 2, 2008 Form 4 for the Chairman, and the March 17, 2008 Amendment No.
10 to Schedule 13D filed by Cardiff Holding, LLC and other parties to such joint filings.(2)
    
    As reported in the October 2, 2007 Form 4 for the Chairman, and the July 2, 2007 Amendment No.
9 to Schedule 13D filed by Cardiff and other parties to such joint filings.     10. SEGMENT INFORMATION
  12




---



##### 



XO Communications
   Nextlink
    Three Months Ended March 31, 2008IntercompanyXOC
    
    
    Nextlink
    
    
    Elimination
    
    
    ConsolidatedRevenue from external customers
    
    $
    360,560
    
    
    $
    589
    
    
    $
    
    
    
    $
    361,149Inter-segment revenue
    
    
    82
    
    
    
    283
    
    
    
    (365
    )
    
    
    Total revenue
    
    $
    360,642
    
    
    $
    872
    
    
    $
    (365
    )
    
    $
    361,149Depreciation and amortization
    
    $
    45,372
    
    
    $
    203
    
    
    $
    
    
    
    $
    45,575Loss from operations
    
    $
    (35,840
    )
    
    $
    (3,257
    )
    
    $
    
    
    
    $
    (39,097
    )Interest and other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,249Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,750
    )Net loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,598
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (342
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (42,940
    )Capital expenditures
    
    $
    63,366
    
    
    $
    1,939
    
    
    $
    
    
    
    $
    65,305
 13




---



##### 



Three Months Ended March 31, 2007IntercompanyXOC
    
    
    Nextlink
    
    
    Elimination
    
    
    ConsolidatedRevenue from external customers
    
    $
    349,884
    
    
    $
    52
    
    
    $
    
    
    
    $
    349,936Inter-segment revenue
    
    
    74
    
    
    
    170
    
    
    
    (244
    )
    
    
    Total revenue
    
    $
    349,958
    
    
    $
    222
    
    
    $
    (244
    )
    
    $
    349,936Depreciation and amortization
    
    $
    50,555
    
    
    $
    81
    
    
    $
    
    
    
    $
    50,636Loss from operations
    
    $
    (11,334
    )
    
    $
    (2,563
    )
    
    $
    
    
    
    $
    (13,897
    )Interest and other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,199Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,635
    )Net loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,333
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (20,633
    )Capital expenditures
    
    $
    40,807
    
    
    $
    321
    
    
    $
    
    
    
    $
    41,128
 Total Assets
    
    XOC
    
    
    Nextlink
    
    
    ConsolidatedMarch 31, 2008
    
    $
    1,100,778
    
    
    $
    47,794
    
    
    $
    1,148,572December 31, 2007
    
    $
    1,042,060
    
    
    $
    48,066
    
    
    $
    1,090,126
 11. COMMITMENTS AND CONTINGENCIES
 Loss Contingencies
 Allegiance Telecom Liquidating Trust Litigation
   14




---



##### 



(a)
    
    with respect to the ATLTs reimbursement claim of approximately $20 million, XOH must
pay to the ATLT damages in the minimum amount of approximately $8.0 million, subject to an
upward adjustment of up to an additional amount of approximately $2 million pending
resolution of the dispute regarding the true-up of certain disputed liabilities by the
referee, together with interest accruing at the New York statutory rate of 9% per annum;(b)
    
    the Company must pay to the ATLT the amount of approximately $0.5 million, together
with interest accruing at the New York statutory rate, which amount represents cash
received by the Company after the closing of the Allegiance acquisition, provided there is
a corresponding reduction in accounts receivable included in the Acquired Assets;(c)
    
    the Company must immediately pay or deliver to the ATLT certain checks in the
approximate aggregate amount of $0.6 million issued by the U.S. Internal Revenue Service on
account of tax refunds owed to Allegiance, together with interest accruing at the New York
statutory rate;(d)
    
    with respect to the true-up of certain disputed liabilities, the ATLT shall pay to XOH
the approximate amount of $2.8 million, together with interest accruing at the New York
statutory rate, which amount may be increased by the referee;(e)
    
    XOH is fully subrogated to the obligations of approximately $1.7 million of Allegiance
liabilities that the Company caused to be honored after the closing; and(f)
    
    to the extent not satisfied, the ATLT must pay to XOH its tax reimbursement
obligations, together with interest accruing at the New York statutory rate.
    Litigation Relating to the Wireline Sale
  15




---



##### 



Houlihan Lokey Howard and Zukin Capital LLC
 nd
 16




---



##### 



Metro Nashville
  Choice Tel
  12. SUBSEQUENT EVENTS
    17




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  
    
    overview of the business;
    
    critical accounting policies and estimates;
    
    results of operations;
    
    comparison of segment financial results;
    
    liquidity and capital resources; and
    
    recent developments.
 Regarding Forward-Looking Statements
 This Quarterly Report on Form 10-Q contains forward-looking statements, as this term is defined in
the Private Securities Litigation Reform Act of 1995. 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. Readers are cautioned not to place undue reliance on these
forward-looking statements.
 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, among others, statements concerning:
 
    
    expectations regarding revenue, margins, expenses, capital expenditures and financial
position in future periods;
    
    development and expansion of our fixed wireless communications business; and
    
    anticipated liquidity and financial resources.
 Except as required by applicable law and regulations, we undertake no obligation to publicly update
or revise 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.
 All such forward-looking statements are subject to various risks, uncertainties and changes in
circumstances that are difficult to predict. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, our actual results in future periods
may differ materially from those expressed or implied in this document. These risks include any
failure by us to:
 
    
    comply with the covenants in our Credit Facility;
    
    generate funds from operations sufficient to meet our cash requirements or execute our
business strategy;
    
    raise additional capital through one or more offerings of debt and/or equity securities;
    
    prevail in our legal proceedings;
    
    increase the volume of traffic on our network;
    
    develop a market for our fixed wireless licenses; and
    
    achieve and maintain market penetration and revenue levels given the highly competitive
nature of the telecommunications industry.
 18




---



##### 



Overview of the Business
  Critical Accounting Policies and Estimates
   19




---



##### 



Results of Operations
  Three Months Ended March 31,% of
    
    
    
    
    
    
    % ofConsolidated
    
    
    
    
    
    
    Consolidated2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    Change
    
    
    % ChangeRevenue
    
    $
    361,149
    
    
    
    100.0
    %
    
    $
    349,936
    
    
    
    100.0
    %
    
    $
    11,213
    
    
    
    3.2
    %Cost and expensesCost of service*
    
    
    228,344
    
    
    
    66.2
    
    
    
    191,398
    
    
    
    54.7
    
    
    $
    36,946
    
    
    
    19.3
    %Selling, general and
administrative
    
    
    126,327
    
    
    
    35.0
    
    
    
    121,799
    
    
    
    34.8
    
    
    $
    4,528
    
    
    
    3.7Depreciation and amortization
    
    
    45,575
    
    
    
    12.6
    
    
    
    50,636
    
    
    
    14.5
    
    
    $
    (5,061
    )
    
    
    (10.0
    )%Total cost and expenses
    
    
    400,246
    
    
    
    110.8
    
    
    
    363,833
    
    
    
    104.0
    
    
    $
    36,413
    
    
    
    10.0
    %Loss from operations
    
    
    (39,097
    )
    
    
    (10.8
    )
    
    
    (13,897
    )
    
    
    (4.0
    )
    
    $
    25,200
    
    
    
    181.3
    %Interest and other income, net
    
    
    5,249
    
    
    
    1.5
    
    
    
    2,199
    
    
    
    0.6
    
    
    $
    3,050
    
    
    
    138.7
    %Interest expense, net
    
    
    (8,750
    )
    
    
    (2.4
    )
    
    
    (8,635
    )
    
    
    (2.5
    )
    
    $
    115
    
    
    
    1.3
    %Net loss before income taxes
    
    
    (42,598
    )
    
    
    (11.8
    )
    
    
    (20,333
    )
    
    
    (5.8
    )
    
    $
    22,265
    
    
    
    109.5
    %Income tax expense
    
    
    (342
    )
    
    
    (0.1
    )
    
    
    (300
    )
    
    
    (0.1
    )
    
    $
    42
    
    
    
    14.0
    %Net loss
    
    
    (42,940
    )
    
    
    (11.9
    )
    
    
    (20,633
    )
    
    
    (5.9
    )
    
    $
    22,307
    
    
    
    108.1
    %Preferred stock accretion
    
    
    (3,701
    )
    
    
    (1.0
    )
    
    
    (3,488
    )
    
    
    (1.0
    )
    
    $
    213
    
    
    
    6.1
    %Net loss allocable to common
shareholders
    
    $
    (46,641
    )
    
    
    (12.9
    )%
    
    $
    (24,121
    )
    
    
    (6.9
    )%
    
    $
    22,520
    
    
    
    93.4
    %Net loss allocable to common
shareholders, basic and diluted
    
    $
    (0.26
    )
    
    
    
    
    
    $
    (0.13
    )Weighted average shares, basic
and diluted
    
    
    182,075,035
    
    
    
    
    
    
    
    182,001,910
 
 *exclusive of depreciation and amortization Revenue
 20




---



##### 



Three months ended March 31% of
    
    
    
    
    
    
    % of
    
    
    Change2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    Dollars
    
    
    PercentCore servicesData and IP
    
    $
    155,081
    
    
    
    42.9
    %
    
    $
    119,316
    
    
    
    34.1
    %
    
    $
    35,765
    
    
    
    30.0
    %Integrated/Voice
    
    
    83,043
    
    
    
    23.0
    
    
    
    81,432
    
    
    
    23.3
    
    
    $
    1,611
    
    
    
    2.0
    %Total core services
    
    
    238,124
    
    
    
    65.9
    
    
    
    200,748
    
    
    
    57.4
    
    
    $
    37,376
    
    
    
    18.6
    %Legacy/TDM services
    
    
    123,025
    
    
    
    34.1
    
    
    
    149,188
    
    
    
    42.6
    
    
    $
    (26,163
    )
    
    
    (17.5
    )%Total revenue
    
    $
    361,149
    
    
    
    100.0
    %
    
    $
    349,936
    
    
    
    100.0
    %
    
    $
    11,213
    
    
    
    3.2
    %
 Core Services.
  Legacy/TDM Services.
 Cost of Service
 21




---



##### 



Three Months ended March 31,% of
    
    
    
    
    
    
    % of
    
    
    Change2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    Dollars
    
    
    PercentTelecommunications services
    
    $
    164,692
    
    
    
    45.6
    %
    
    $
    136,240
    
    
    
    38.9
    %
    
    $
    28,452
    
    
    
    20.9
    %Network operations
    
    
    47,990
    
    
    
    13.3
    
    
    
    43,073
    
    
    
    12.3
    
    
    $
    4,917
    
    
    
    11.4
    %Pass-through taxes
    
    
    15,662
    
    
    
    4.3
    
    
    
    12,085
    
    
    
    3.5
    
    
    $
    (3,577
    )
    
    
    (29.6
    )%Total cost of service
    
    $
    228,344
    
    
    
    63.2
    %
    
    $
    191,398
    
    
    
    54.7
    %
    
    $
    36,946
    
    
    
    19.3
    %
     Selling, General and Administrative
 22




---



##### 



Depreciation and Amortization
 Interest and Other Income, Net
 Comparison of Segment Financial Results
 Overview
  XO Communications
   23




---



##### 



Three Months ended March 31,% of
    
    
    
    
    
    
    % ofXOC
    
    
    
    
    
    
    XOC
    
    
    Change2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    Dollars
    
    
    PercentRevenue from external customers
    
    $
    360,560
    
    
    
    99.98
    
    
    $
    349,884
    
    
    
    99.98
    
    
    $
    10,676
    
    
    
    3.1
    %Inter-segment revenue
    
    
    82
    
    
    
    0.02
    
    
    
    74
    
    
    
    0.02
    
    
    $
    8
    
    
    
    10.8
    %Total revenue
    
    
    360,642
    
    
    
    100.0
    %
    
    $
    349,958
    
    
    
    100.0
    %
    
    $
    10,684
    
    
    
    3.1
    %Cost and expensesCost of service*
    
    
    227,038
    
    
    
    63.0
    
    
    
    191,125
    
    
    
    54.6
    
    
    $
    35,913
    
    
    
    18.8
    %Selling, general and administrative
    
    
    124,072
    
    
    
    34.4
    
    
    
    119,612
    
    
    
    34.2
    
    
    $
    4,460
    
    
    
    3.7
    %Depreciation and amortization
    
    
    45,372
    
    
    
    12.6
    
    
    
    50,555
    
    
    
    14.4
    
    
    $
    (5,183
    )
    
    
    (10.3
    )%Total cost and expenses
    
    
    396,482
    
    
    
    109.9
    
    
    
    361,292
    
    
    
    103.2
    
    
    $
    35,190
    
    
    
    9.7
    %Segment loss
    
    $
    (35,840
    )
    
    
    (9.9
    )%
    
    $
    (11,334
    )
    
    
    (3.2
    )%
    
    $
    (24,506
    )
    
    
    216.2
    %Capital expenditures
    
    $
    63,366
    
    
    
    17.6
    %
    
    $
    40,807
    
    
    
    11.7
    %
    
    $
    22,559
    
    
    
    55.3
    %
 
 *
    
    exclusive of depreciation and amortization  Capital Expenditures
  Nextlink
  24




---



##### 



Three Months ended March 31% of
    
    
    
    
    
    
    % ofNextlink
    
    
    
    
    
    
    Nextlink
    
    
    Change2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    Dollars
    
    
    PercentRevenue from external customers
    
    $
    589
    
    
    
    67.5
    %
    
    $
    52
    
    
    
    23.4
    %
    
    $
    537
    
    
    
    1,032.7
    %Inter-segment revenue
    
    
    283
    
    
    
    32.5
    
    
    
    170
    
    
    
    76.6
    
    
    $
    113
    
    
    
    66.5
    %Total revenue
    
    
    872
    
    
    
    100.0
    
    
    
    222
    
    
    
    100.0
    
    
    $
    650
    
    
    
    292.8
    %Cost and expensesCost of service*
    
    
    1,671
    
    
    
    191.6
    
    
    
    517
    
    
    
    232.9
    
    
    $
    1,154
    
    
    
    223.2
    %Selling, general and administrative
    
    
    2,255
    
    
    
    258.6
    
    
    
    2,187
    
    
    
    985.1
    
    
    $
    68
    
    
    
    3.1
    %Depreciation and amortization
    
    
    203
    
    
    
    23.3
    
    
    
    81
    
    
    
    36.5
    
    
    $
    122
    
    
    
    150.6
    %Total cost and expenses
    
    
    4,129
    
    
    
    473.5
    
    
    
    2,785
    
    
    
    1,254.5
    
    
    $
    1,344
    
    
    
    48.3
    %Segment loss
    
    $
    (3,257
    )
    
    
    (373.5
    )%
    
    $
    (2,563
    )
    
    
    (1,154.5
    )%
    
    $
    694
    
    
    
    27.1
    %Capital expenditures
    
    $
    1,939
    
    
    
    222.4
    %
    
    $
    321
    
    
    
    144.6
    %
    
    $
    1,618
    
    
    
    504.0
    %
 
 *
    
    exclusive of depreciation and amortization Revenue
 Cost of Service (exclusive of depreciation and amortization)
 25




---



##### 



Depreciation and Amortization
 Capital Expenditures
 Liquidity and Capital Resources
  Cash Flow
   2008
    
    
    2007Cash provided by operating activities
    
    $
    9,846
    
    
    $
    13,954Cash used in investing activities
    
    $
    (65,305
    )
    
    $
    (41,128
    )Cash provided by (used in) financing activities
    
    $
    73,458
    
    
    $
    (544
    )
    26




---



##### 



Debt and Borrowing Capacity
  March 31, 2008
    
    
    December 31, 2007Credit facility
    
    $
    385,751
    
    
    $
    377,213Promissory note
    
    
    75,455
    
    
    
    $
    461,206
    
    
    $
    377,213
 Credit Facility
     27




---



##### 



Arnos Promissory Note
   pari passu
  
    
    defaults in the payment of any principal on the note when the same becomes due and
payable,
    
    defaults in the payment of any interest on the note for more than ten business days
after the same becomes due and payable, and
    
    any default by a guarantor under the terms of its guaranty.
   28




---



##### 



Near Term Liquidity Outlook
      29




---



##### 



Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB SFAS No. 133
 30




---



##### 



Regulatory
  FCC Regulation of Wireless Services
 Additional State and Local Regulation
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
  31




---



##### 



Changes in Internal Controls
   32




---



##### 



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  Allegiance Telecom Liquidating Trust Litigation
    (a)
    
    with respect to the ATLTs reimbursement claim of approximately $20 million, XOH must
pay to the ATLT damages in the minimum amount of approximately $8.0 million, subject to an
upward adjustment of up to an additional amount of approximately $2 million pending
resolution of the dispute regarding the true-up of certain disputed liabilities by the
referee, together with interest accruing at the New York statutory rate of 9% per annum;(b)
    
    the Company must pay to the ATLT the amount of approximately $0.5 million, together
with interest accruing at the New York statutory rate, which amount represents cash
received by the Company after the closing of the Allegiance acquisition, provided there is
a corresponding reduction in accounts receivable included in the Acquired Assets;(c)
    
    the Company must immediately pay or deliver to the ATLT certain checks in the
approximate aggregate amount of $0.6 million issued by the U.S. Internal Revenue Service on
account of tax refunds owed to Allegiance, together with interest accruing at the New York
statutory rate;
 
 33




---



##### 



(d)
    
    with respect to the true-up of certain disputed liabilities, the ATLT shall pay to XOH
the approximate amount of $2.8 million, together with interest accruing at the New York
statutory rate, which amount may be increased by the referee;(e)
    
    XOH is fully subrogated to the obligations of approximately $1.7 million of Allegiance
liabilities that the Company caused to be honored after the closing; and(f)
    
    to the extent not satisfied, the ATLT must pay to XOH its tax reimbursement
obligations, together with interest accruing at the New York statutory rate.
   Litigation Relating to the Wireline Sale
    34




---



##### 



Houlihan Lokey Howard and Zukin Capital LLC
 nd
 
 Item 1A. Risk Factors
  Risks Related to Liquidity, Financial Resources, and Capitalization
 If we are unable to identify, structure and consummate financing solutions or an alternative
strategic transaction which would enable us to fund our business plan and refinance or repay our
indebtedness when it becomes due, we may be forced to, among other things, limit, scale back or
cease our operations.
  35




---



##### 



Risks Related To Long Term Debt Covenant
 The financial covenants in our
Credit Facility restrict our financial and operational flexibility, which could have an adverse
effect on our results of operations. If we do not receive waivers from our lenders, we expect to be
in non-compliance with the financial covenants in our credit facility, which would likely have an
adverse effect on our business.
 36




---



##### 



Risks Related to our Wireless Operations
 Our spectrum licenses may not be renewed upon expiration, which could harm our business.
   
 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.
  37




---



##### 



Item 5. Other Information.
  
 Item 6. Exhibits.
  38




---



##### 



SIGNATURES
  Date: May 12, 2008
    XO HOLDINGS, INC.By:
    /s/  Gregory W. FreibergGregory W. FreibergSenior Vice President and Chief Financial Officer 39




---



##### 



EXHIBIT INDEX
 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 herein 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 herein 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)10.1
    
    Promissory note, dated as of March 13, 2008, executed by XO
Communications, LLC in favor of Arnos Corp. (filed herewith)10.2
    
    Stipulation and Agreement of Compromise, Settlement and Release,
approved by the Delaware Court of Chancery on March 31, 2008, among
XO Holdings, Inc. and certain minority stockholders (filed herewith)10.3
    
    Amendment No. 2 and Waiver to Amended and Restated Credit and
Guaranty Agreement dated May 9, 2008 between XO Communications, LLC,
its subsidiaries and Arnos Corp., as Requisite Lenders (filed
herewith)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)
 40