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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001

Commission file number: 000-22939

XO Communications, Inc.
XO Capital, Inc.

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|DelawareWashington                                            |  | 91-173822191-1716062               
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|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
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|11111 Sunset Hills Road, Reston, VA                           |  | 20190                              
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|(Address of principal executive offices)                      |  | (Zip Code)                         

(703) 547-2000

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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.Yes X  No .

As of May 8, 2001, the number of shares of Class A and Class B common stock of
XO Communications, Inc. issued and outstanding was 266,807,438 and 105,414,226,
respectively, and there were 1,000 shares of common stock of XO Capital, Inc.,
all of which 1,000 shares were held by XO Communications, Inc.

XO Capital, Inc. meets the conditions set forth in General Instruction H (1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.





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PART I. FINANCIAL INFORMATION

Item 1 (a) Financial Statements

XO Communications, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except for per share amounts)
(Amounts as of March 31, 2001 are unaudited)

|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |            |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | --------- | ---------- | --------- | ------------ | --------- | ---------- | --------- | 
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           | March 31,  |           | December 31,
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           | 2001       |           | 2000        
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |             
|ASSETS                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Current assets:                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                            |                           | $         | 740,052    |           |              | $         | 493,004    |          
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Marketable securities                                                                                                                                                                                                                                                                                                                                                                |                           |           | 1,158,082  |           |              |           | 1,367,959  |          
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Accounts receivable, net of allowance for
doubtful accounts of $23,395    and $20,999,
respectively                                                                                                                                                                                                                                                                                  |                           |           | 190,882    |           |              |           | 181,309    |          
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Other current assets                                                                                                                                                                                                                                                                                                                                                                 |                           |           | 85,862     |           |              |           | 71,536     |          
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Pledged securities                                                                                                                                                                                                                                                                                                                                                                   |                           |           | 17,422     |           |              |           | 17,415     |          
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |           
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      | Total current assets      |           |            | 2,192,300 |              |           |            | 2,131,223 | 
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Property and equipment, net                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                      |                           | 3,361,582 |            |           |              | 2,794,105 |           
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Investments in fixed wireless licenses, net                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                      |                           | 989,793   |            |           |              | 997,333   |           
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Goodwill and other intangibles, net                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                      |                           | 2,766,769 |            |           |              | 2,914,876 |           
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Other assets                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                      |                           | 274,030   |            |           |              | 247,838   |           
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |           
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      | Total assets              |           | $          | 9,584,474 |              |           | $          | 9,085,375 | 
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |           
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Current liabilities:                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Accounts payable                                                                                                                                                                                                                                                                                                                                                                     |                           |           | 393,196    |           |              | $         | 357,451    |          
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Accrued liabilities                                                                                                                                                                                                                                                                                                                                                                  |                           |           | 322,059    |           |              |           | 279,534    |          
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Accrued interest payable                                                                                                                                                                                                                                                                                                                                                             |                           |           | 115,289    |           |              |           | 46,018     |          
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Current portion of
capital lease obligations                                                                                                                                                                                                                                                                                                                                         |                           |           | 24,824     |           |              |           | 24,820     |          
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |           
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      | Total current liabilities |           |            | 855,368   |              |           |            | 707,823   | 
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Long-term debt                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                      |                           | 5,187,585 |            |           |              | 4,396,596 |           
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Other long-term liabilities                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                      |                           | 26,216    |            |           |              | 45,539    |           
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |           
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      | Total liabilities         |           |            | 6,069,169 |              |           |            | 5,149,958 | 
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Redeemable preferred stock, par value $0.01 per
share, 25,000,000 shares    authorized: 13,531,528
and 13,189,227 shares issued and outstanding on
    March 31, 2001 and December 31, 2000,
respectively; aggregate    liquidation preference
of $2,122,142 and $2,100,093 on March 31, 2001
    and December 31, 2000, respectively |                                                                                                                                                                                                                                                                                                                                                                                      |                           | 2,122,610 |            |           |              | 2,097,016 |           
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|Commitments and contingencies (Note 7)
Stockholders equity:                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Common Stock, par value $0.02 per share,
stated at amounts paid in    Class A, 1,000,000,000 shares authorized: 265,337,068
and 262,010,715    shares issued and outstanding
on March 31, 2001 and December 31,    2000,
respectively; Class B, 120,000,000 shares
authorized:    105,414,226 shares issued and
outstanding on March 31, 2001 and    December
31, 2000, respectively |                           |           | 4,414,933  |           |              |           | 4,392,646  |          
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Deferred compensation                                                                                                                                                                                                                                                                                                                                                                |                           |           | (63,045    | )         |              |           | (72,050    | )        
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Accumulated other comprehensive loss                                                                                                                                                                                                                                                                                                                                                 |                           |           | (11,487    | )         |              |           | (17,041    | )        
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                      | Accumulated deficit                                                                                                                                                                                                                                                                                                                                                                  |                           |           | (2,947,706 | )         |              |           | (2,465,154 | )        
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |           
|Total stockholders equity                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                      |                           | 1,392,695 |            |           |              | 1,838,401 |           
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |           
|Total liabilities and stockholders equity                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                      | $                         | 9,584,474 |            |           | $            | 9,085,375 |           
|                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                      |                           |           |            |           |              |           |           

See accompanying notes to unaudited interim consolidated financial statements.





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XO Communications, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except for per share amounts)
(Unaudited)

|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |             |         | 
|----------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ------------------------ | -------- | ------------------ | ------- | ---- | -------- | ----------- | ------- | 
|                                                                                    |                                                                                                                |                          |          | Three Months Ended
|                                                                                    |                                                                                                                |                          |          | March 31,         
|                                                                                    |                                                                                                                |                          |          |                   
|                                                                                    |                                                                                                                |                          |          | 2001               |         | 2000
|                                                                                    |                                                                                                                |                          |          |                    |         |     
|Revenue                                                                             |                                                                                                                | $                        | 277,307  |                    |         | $    | 105,849  |            
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Costs and expenses:                                                                
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Operating (excluding stock-based
compensation of $158 and $74,    
respectively)                               |                          |          | 176,543            |         |      |          | 76,021      |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Selling, general and administrative
(excluding stock-based    compensation of
$9,153 and $8,911, respectively) |                          |          | 177,877            |         |      |          | 92,969      |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Stock-based compensation                                                                                       |                          |          | 9,311              |         |      |          | 8,985       |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Depreciation                                                                                                   |                          |          | 95,186             |         |      |          | 40,383      |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Amortization                                                                                                   |                          |          | 176,638            |         |      |          | 5,613       |        
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|                                                                                    |                                                                                                                | Total costs and expenses |          |                    | 635,555 |      |          |             | 223,971 | 
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|Loss from operations                                                                |                                                                                                                |                          | (358,248 | )                  |         |      | (118,122 | )          
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Interest income                                                                     |                                                                                                                |                          | 35,108   |                    |         |      | 44,613   |            
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Interest expense                                                                    |                                                                                                                |                          | (118,591 | )                  |         |      | (108,359 | )          
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Other (loss) income, net                                                            |                                                                                                                |                          | (1,780   | )                  |         |      | 225,112  |            
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|Net (loss) income                                                                   |                                                                                                                | $                        | (443,511 | )                  |         | $    | 43,244   |            
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Preferred stock dividends and accretion of
preferred stock    redemption obligation |                                                                                                                |                          | (39,041  | )                  |         |      | (33,435  | )          
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|Net (loss) income applicable to common shares                                       |                                                                                                                | $                        | (482,552 | )                  |         | $    | 9,809    |            
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Earnings (loss) per common share:                                                  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Basic                                                                                                          |                          | $        | (1.31              | )       |      | $        | 0.04        |        
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|                                                                                    | Diluted                                                                                                        |                          | $        | (1.31              | )       |      | $        | 0.03        |        
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|Weighted average shares:                                                           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Basic                                                                                                          |                          |          | 369,025,470        |         |      |          | 270,801,716 |        
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            
|                                                                                    | Diluted                                                                                                        |                          |          | 369,025,470        |         |      |          | 314,420,494 |        
|                                                                                    |                                                                                                                |                          |          |                    |         |      |          |            

See accompanying notes to unaudited interim consolidated financial statements.





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XO Communications, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

|                                                                                     |                                                                                                                                                                |   |                    |         |      |   |           |          |  
|------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------- | ---- | - | --------- | -------- | -
|                                                                                     |                                                                                                                                                                |   | Three Months Ended
|                                                                                     |                                                                                                                                                                |   | March 31,         
|                                                                                     |                                                                                                                                                                |   |                   
|                                                                                     |                                                                                                                                                                |   | 2001               |         | 2000
|                                                                                     |                                                                                                                                                                |   |                    |         |     
|OPERATING ACTIVITIES:                                                               
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Net (loss) income                                                                    |                                                                                                                                                                | $ | (443,511           | )       |      | $ | 43,244    |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Adjustments to reconcile net (loss) income to net cash used in
operating activities:
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Stock-based compensation                                                                                                                                       |   |                    | 9,311   |      |   |           | 8,985    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Equity in loss of affiliates                                                                                                                                   |   |                    | 1,448   |      |   |           | 1,141    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Net gains on investments                                                                                                                                       |   |                    |        |      |   |           | (225,112 | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Depreciation and amortization                                                                                                                                  |   |                    | 271,824 |      |   |           | 45,996   |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Accretion of interest on senior notes                                                                                                                          |   |                    | 34,464  |      |   |           | 29,327   |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Changes in assets and liabilities:                                                  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Accounts receivable                                                                                                                                            |   |                    | (13,046 | )    |   |           | (29,254  | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Other assets                                                                                                                                                   |   |                    | (30,621 | )    |   |           | (4,612   | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Accounts payable                                                                                                                                               |   |                    | 23,125  |      |   |           | (10,755  | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Accrued liabilities                                                                                                                                            |   |                    | 49,071  |      |   |           | 81,732   |  
|                                                                                     |                                                                                                                                                                |   |                    |         |      |   |           |         
|Net cash used in operating activities                                                |                                                                                                                                                                | $ | (97,935            | )       |      | $ | (59,308   | )       
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|INVESTING ACTIVITIES:                                                               
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Purchase of property and equipment                                                   |                                                                                                                                                                | $ | (592,770           | )       |      | $ | (194,674  | )       
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Investment in fixed wireless licenses                                                |                                                                                                                                                                |   | (206               | )       |      |   |          |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|(Purchases) release of pledged securities                                            |                                                                                                                                                                |   | (7                 | )       |      |   | 30,906    |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Net sales (purchases) of marketable securities                                       |                                                                                                                                                                |   | 213,912            |         |      |   | (272,836  | )       
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from sale of equity investment                                              |                                                                                                                                                                |   |                   |         |      |   | 189,058   |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Investments in unconsolidated affiliates                                             |                                                                                                                                                                |   | (1,281             | )       |      |   | (27,242   | )       
|                                                                                     |                                                                                                                                                                |   |                    |         |      |   |           |         
|Net cash used in investing activities                                                |                                                                                                                                                                | $ | (380,352           | )       |      | $ | (274,788  | )       
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|FINANCING ACTIVITIES:                                                               
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Net proceeds from issuance of redeemable preferred stock                             |                                                                                                                                                                | $ |                   |         |      | $ | 849,046   |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Repayment of notes payable and
other obligations                                     |                                                                                                                                                                |   | (19,836            | )       |      |   | (962      | )       
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from issuance of common stock under employee benefit plans                  |                                                                                                                                                                |   | 21,049             |         |      |   | 30,666    |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Dividends paid on convertible preferred stock                                        |                                                                                                                                                                |   | (13,447            | )       |      |   | (18,297   | )       
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from subordinated convertible notes                                         |                                                                                                                                                                |   | 517,500            |         |      |   |          |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Borrowings under credit facility                                                     |                                                                                                                                                                |   | 237,500            |         |      |   | 375,000   |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Costs incurred in connection with financing activities                               |                                                                                                                                                                |   | (14,200            | )       |      |   | (17,100   | )       
|                                                                                     |                                                                                                                                                                |   |                    |         |      |   |           |         
|Net cash provided by financing activities                                            |                                                                                                                                                                | $ | 728,566            |         |      | $ | 1,218,353 |         
|                                                                                     |                                                                                                                                                                |   |                    |         |      |   |           |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Effect of exchange rate changes on cash                                              |                                                                                                                                                                | $ | (3,231             | )       |      | $ |          |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Net increase in cash and cash equivalents                                            |                                                                                                                                                                |   | 247,048            |         |      |   | 884,257   |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cash and cash equivalents, beginning of period                                       |                                                                                                                                                                |   | 493,004            |         |      |   | 868,463   |         
|                                                                                     |                                                                                                                                                                |   |                    |         |      |   |           |         
|Cash and cash equivalents, end of period                                             |                                                                                                                                                                | $ | 740,052            |         |      | $ | 1,752,720 |         
|                                                                                     |                                                                                                                                                                |   |                    |         |      |   |           |         
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|SUPPLEMENTAL DATA:                                                                  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Non-cash financing and investing activities:                                        
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Redeemable preferred stock dividends, paid in redeemable
preferred shares                                                                                      |   | $                  | 24,716  |      |   | $         | 13,918   |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Accrued redeemable preferred stock dividends, payable in
redeemable preferred    shares and accretion of preferred stock
redemption obligation and issue costs |   | $                  | 14,687  |      |   | $         | 1,220    |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cash paid for interest                                                               |                                                                                                                                                                | $ | 25,983             |         |      | $ | 20,372    |         

See accompanying notes to unaudited interim consolidated financial statements.





---



XO Communications, Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Overview

XO Communications Inc., a Delaware corporation, provides broadband
communication services, offering local and long distance voice communication
services and a wide array of data services. Data services offered include
Internet access, virtual private networks, high-capacity data network services
including dedicated wavelength and Ethernet services, and hosting
services.

The consolidated financial statements include the accounts and activities
of XO Communications, Inc. and its wholly owned subsidiaries (together with its
predecessors, collectively referred to as the Company or XO). The
consolidated financial statements also include the results of Concentric
Network Corporation (Concentric) from its acquisition date in June 2000. The
Company, through predecessor entities, was formed in September 1994. The
Company is majority controlled by Craig O. McCaw through shares of Class A and
Class B common stock held by Eagle River Investments, LLC, an entity controlled
by Mr. McCaw, and other shares of the Companys Class A and Class B common
stock owned by Mr. McCaw or over which he has voting control.

2. BASIS OF PRESENTATION

The interim consolidated financial statements are unaudited and have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
These condensed consolidated financial statements should be read in conjunction
with the Companys annual report on Form 10-K for the year ended December 31,
2000 as filed with the Securities and Exchange Commission on April 2, 2001.

The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation of the results for interim
periods. Operating results for the three months ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.

On June 15, 2000, the Company effected a two-for-one stock split in the
form of a 100% stock dividend to holders of its common stock as of the June 1,
2000 record date. Share and per share data has been adjusted to reflect the
stock dividend.

Principles of Consolidation

The Companys consolidated financial statements include all of the assets,
liabilities and results of operations of subsidiaries in which the Company has
a controlling interest. The Companys investments in unconsolidated companies
in which it has a less than majority interest but exercises significant
influence are accounted for using the equity method and are included in other
assets. Investments in entities in which the Company has no significant
influence are accounted for using the cost method and are also included in
other assets. All significant inter-company accounts and transactions have been
eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to prior period amounts in order
to conform to the current periods presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial





---



statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Long-lived assets

Long-lived assets, including goodwill and intangible assets to be held and
used, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount should be addressed. The Company considers
expected cash flows and estimated future operating results, trends, and other
available information in assessing whether the carrying value of the assets is
impaired. The Company believes that no such impairment existed as of March 31,
2001 and December 31, 2000.

The Companys estimates of anticipated net revenues, the remaining
estimated lives of tangible and intangible assets, or both, could be reduced
significantly in the future due to changes in technology, regulation, available
financing, or intense competition. As a result, the carrying amount of
long-lived assets could be reduced materially in the future.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133, as recently amended, is
effective for fiscal years beginning after June 15, 2000. The Company has
implemented SFAS No. 133 in the first quarter of 2001 and it did not have a
material effect on the Companys financial position or results of operations.

3. ACQUISITIONS

On June 16, 2000, the Company merged with Concentric, a provider of
high-speed DSL, web hosting, e-commerce, and other Internet and data
transmission services. In the merger (the Concentric merger), the Company
issued shares of its Class A common stock, warrants, and options and assumed
liabilities of Concentric. The aggregate value of this consideration was
approximately $3.6 billion.

The Concentric merger was accounted for using the purchase method of
accounting. The consideration and purchase price allocation, which are still
subject to adjustment, were as follows (dollars in thousands):

|                                          |  |   |           | 
|----------------------------------------- |  | - | --------- | 
|Stock issued                              |  | $ | 2,542,356 | 
|Liabilities, warrants and options assumed |  |   | 1,038,650 | 
|                                          |  |   |           | 
|Consideration                             |  | $ | 3,581,006 | 
|                                          |  |   |           | 
|                                         
|In-process research and development       |  | $ | 36,166    | 
|Fair value of intangible assets acquired  |  |   | 246,234   | 
|Fair value of tangible assets             |  |   | 345,701   | 
|Goodwill                                  |  |   | 2,952,905 | 
|                                          |  |   |           | 
|                                          |  | $ | 3,581,006 | 
|                                          |  |   |           | 

The allocation to in-process research and development represents the
estimated fair value based on risk adjusted future cash flows related to
incomplete projects. At the date of the Concentric merger, the development of
these projects had not yet reached technological feasibility and the technology
had no alternative future uses. As such, the entire $36.2 million of acquired
in-process research and development was expensed as of the acquisition date.

4. LONG TERM DEBT

Convertible Subordinated Notes

In January 2001, the Company completed the issuance and sale of $517.5
million of 5 3/4% convertible subordinated notes due 2009 for
proceeds, net of
underwriting and other fees, totaling $503.3 million. Interest on the notes is
payable on January 15 and July 15 of each year, beginning on July 15, 2001. The
notes are unsecured obligations of the Company and are subordinated in right of
payment to all other senior indebtedness. The notes are convertible at the
option of the holders at any time prior to maturity into shares of Class A common



---



stock at a conversion rate of 39.1484 shares per $1,000 principal amount of
notes, subject to adjustment upon the occurrence of certain events. The Company
may terminate such conversion rights on or after January 18, 2003 if the
current market price of our Class A common stock equals or exceeds 150%, on or
prior to January 18, 2004, or 135% thereafter, of the $25.5438 implied
conversion price for 20 days in a 30 consecutive day trading period. The notes
are not redeemable prior to their maturity date of January 15, 2009.

Senior Secured Credit Facility

In February 2001, the Company borrowed the remaining $237.5 million of the
term loan A under our senior secured credit facility (the Facility), as
required under the terms of that facility. The Company and certain of its
subsidiaries, as guarantors, entered into the $1.0 billion Facility with
various lenders in February 2000. The Facility is comprised of a $387.5 million
senior secured multi-draw term loan A, a $225.0 million senior secured term
loan B, and a $387.5 million revolving credit facility. As of March 31, 2001,
the Company had borrowed $612.5 million under the $1 billion Facility
consisting of the entire $387.5 million of the term loan A and the entire
$225.0 million of the term loan B. As of March 31, 2001, no borrowings were
outstanding on the $387.5 million revolving credit facility.

The term loan A and the revolving credit facility mature on December 31,
2006, and the term loan B matures on June 30, 2007. In each case, the maturity
dates are subject to acceleration to October 31, 2005 if the Company has not
refinanced its 12 1/2% Senior Notes due 2006 by April 15, 2005. Amounts drawn
under the revolving credit facility and the term loans bear interest, at the
Companys option, at the alternate base rate, as defined, or reserve-adjusted
London Interbank Offered Rate (LIBOR) plus, in each case, applicable margins.
As of March 31, 2001, the annualized weighted average interest rate applicable to
the Facility was 8.97%.

Covenants

As of March 31, 2001, the Company was in compliance with all
covenants under the Facility and the indentures under
which its senior notes, senior discount notes and convertible
subordinated notes were issued.

5. OPERATING SEGMENTS

Reportable Segments

The Company operates its business as one communications segment. The
Companys communications segment includes all of its products and services
including data, voice and other services. These services have similar network
operations and technology requirements and are sold through similar sales
channels to a similar targeted customer base. Therefore, the Company manages
these services as a single segment that is divided into profit centers that are
focused on geographic areas, or markets, within the United States, or that are
focused on customers with a presence across geographical markets.

Products and Services

The Company classifies its products and services offered by its
communications services segment into data services, voice services, and other
services. The revenues generated by the Companys products and services were as
follows (dollars in thousands):

|               |  |                              |         |      |  |   |         | 
|-------------- |  | ---------------------------- | ------- | ---- |  | - | ------- | 
|               |  | Three Months Ended March 31,
|               |  |                             
|               |  | 2001                         |         | 2000
|               |  |                              |         |     
|Data services  |  | $                            | 142,209 |      |  | $ | 27,749  | 
|              
|              
|              
|              
|Voice services |  |                              | 131,099 |      |  |   | 78,018  | 
|              
|              
|              
|              
|Other services |  |                              | 3,999   |      |  |   | 82      | 
|               |  |                              |         |      |  |   |         | 
|Total revenue  |  | $                            | 277,307 |      |  | $ | 105,849 | 
|               |  |                              |         |      |  |   |         | 





---



6. COMPREHENSIVE LOSS

Comprehensive loss includes
the Companys net income (loss) applicable to common stockholders, as well as
changes in equity from other sources. The following table reflects the
Companys calculation of comprehensive loss for the three months ended March
31, 2001 and 2000 (dollars in thousands):

|                                                                                                        |  |                              |          |      |  |   |          |  
|------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | ---- |  | - | -------- | -
|                                                                                                        |  | Three Months Ended March 31,
|                                                                                                        |  |                             
|                                                                                                        |  | 2001                         |          | 2000
|                                                                                                        |  |                              |          |     
|Net income (loss) applicable to
common    stockholders                                                  |  | $                            | (482,552 | )    |  | $ | 9,809    |  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Other comprehensive income:                                                                            
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Unrealized net holding gains and foreign currency
    translation adjustments arising during the period |  |                              | 5,554    |      |  |   | 111,145  |  
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Less: Net realized gains transferred to current
period    earnings                                      |  |                              |         |      |  |   | (258,023 | )
|                                                                                                        |  |                              |          |      |  |   |          |  
|Comprehensive net loss applicable to
common    stockholders                                             |  | $                            | (476,998 | )    |  | $ | (137,069 | )
|                                                                                                        |  |                              |          |      |  |   |          |  

The Companys change in other comprehensive income includes unrealized
gains and losses on available-for-sale investments and foreign currency
translation adjustments relating to the Companys foreign operations. Net
realized gains transferred to current period earnings in the three months ended
March 31, 2000 relate to the sale of an equity investment which resulted in a
realized gain of $225.1 million net of other costs associated therewith. This
gain is recorded in the period ending March 31, 2000 in other income in the
accompanying consolidated statement of operations.

7. COMMITMENTS AND CONTINGENCIES

Commitments

The Company has lease commitments under operating and capital leases. The
Company leases premises under various operating leases and certain network
assets under capital leases. In addition, the Company has commitments with
Level 3 Communications, Inc. (Level 3), which is constructing a fiber optic
network in the United States and Canada. As described in Note 8 below, the
Level 3 agreements were restructured in April 2001 canceling previous
commitments associated with purchasing a European fiber optic network.

Contingencies

The Company is subject to legal proceedings, claims, and litigation
arising in the ordinary course of business. While the outcome of these matters
is currently not determinable, management does not expect that the ultimate
costs to resolve these matters will have a material adverse effect on the
Companys consolidated financial position, results of operations, or cash
flows.

8. SUBSEQUENT EVENTS

Long Haul Network Agreements

On April 26, 2001, the Company and Level 3 restructured their agreements
pertaining to the Companys purchase of fiber networks from Level 3 in the
United States and Europe. The Company and Level 3 have agreed to cancel
commitments relating to the previously announced purchase of the European metro
and inter-city fiber networks from Level 3. The $128.0 million in payments that
had already been made to Level 3 for the European networks will be applied as a
credit to reduce the remaining amounts payable by XO under its North American
inter-city network commitment.
The Company will become a broadband transport customer of Level 3 and
initially lease approximately $30 million of wavelength services
on Level 3s
inter-city network in North America. In connection with this lease,
we will transfer to Level 3 certain inter-city transmission equipment,
the value of which will be applied toward the purchase of the
services described above and future wavelength services from Level 3.





---



Private Equity Investment

On April 26, 2001, several investment funds
controlled by Forstmann Little & Co. (Forstmann Little) agreed to
invest $250.0 million in the Company to provide additional funding to the Company
for general corporate purposes under its business plan. In exchange for the investment,
the Company will issue 50.0 million shares of the Companys Class A common
stock to Forstmann Little and amend the terms of the convertible preferred stock held
by various Forstmann Little investment funds to reduce the share conversion price
from $31.625 to $17.00 per share. The transaction is subject to
customary closing conditions and is expected to close by the end of June 2001. Once closed, Forstmann
Littles total investment in XO will increase to $1.5 billion, representing a fully
diluted ownership interest in the Company of approximately 22.4%.





---



PART I. FINANCIAL INFORMATION

Item 1(b)     Financial Statements

XO Capital, Inc.
Balance Sheets
(Amounts as of March 31, 2001 are unaudited)

|                     |                                                                                |  |           |     |              |  |   |     | 
|-------------------- | ------------------------------------------------------------------------------ |  | --------- | --- | ------------ |  | - | --- | 
|                     |                                                                                |  | March 31, |     | December 31,
|                     |                                                                                |  | 2001      |     | 2000        
|                     |                                                                                |  |           |     |             
|Assets              
|                    
|                    
|                    
|                    
|                     | Receivable from XO Communications, Inc.                                        |  | $         | 100 |              |  | $ | 100 | 
|                     |                                                                                |  |           |     |              |  |   |    
|Shareholders Equity
|                    
|                    
|                    
|                    
|                     | Common stock, no par value, 1,000 shares
authorized, issued and    outstanding |  | $         | 100 |              |  | $ | 100 | 
|                     |                                                                                |  |           |     |              |  |   |    

XO Capital, Inc.
Notes to Balance Sheets

1. Organization and Description of Business

XO Capital, Inc. (XO Capital) is a Washington corporation and a wholly
owned subsidiary of XO Communications, Inc. (XO). XO Capital was formed for the
sole purpose of obtaining financing from external sources and is a joint
obligor on the 12 1/2% Senior Notes due April 15, 2006 of XO. XO Capital was
initially funded with a $100 contribution from XO and has had no operations to
date. XO Capitals sole source and repayment for the 12 1/2% Senior Notes will be
from the operations of XO. Therefore, these balance sheets should be read in
conjunction with the consolidated financial statements of XO.

2. Basis of Presentation

The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation of the results for interim
periods. All significant inter-company accounts and transactions have been
eliminated in consolidation. These condensed consolidated financial statements
should be read in conjunction with the XO Communications annual report on Form
10-K for the year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.





---



PART I. FINANCIAL INFORMATION

Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations

Overview

Since 1996, we have provided high-quality bundled local and long distance,
as well as dedicated voice, telecommunications services to the rapidly growing
business market. We expanded our services through our acquisition of Concentric
Network Corporation on June 16, 2000 to offer a complete, single source of
communications services to our customers by combining our data and voice
services. The data services we offer include Internet access, virtual private
networks, high-capacity data network services including dedicated wavelength
and Ethernet services, and hosting services.

We believe that increasing usage of both telephone service and new data
application and information services will continue to increase demand for
telecommunications capacity and for new communications services and
applications. To serve our customers broad and expanding telecommunications
needs, we have assembled a collection of metro and inter-city network assets in
the United States that incorporate state-of-the-art fiber optic cable and
transmission equipment and fixed wireless spectrum and related equipment, each
of which is capable of carrying high volumes of data, voice, video and Internet
traffic.

We intend to integrate our network assets with advanced communications
technologies to enable us to provide a comprehensive array of communications
services entirely over our network, from point of initiation of the voice or
data transmission to the point of termination, which we refer to as end-to-end
service. To accomplish this, we are creating a North American fiber optic
network, which will consist of a series of rings of fiber optic cables that
encircle the central business districts of numerous metropolitan areas, which
we refer to as metro networks, that are connected by a network of
fiber optic cables, which we refer to as an inter-city network. Our combination
of metro and inter-city networks will enable us to provide high-speed,
high-capacity communications services between customers connected to our
network and among customers with multiple locations entirely over our network.

Recent Developments

Long-Haul Network Agreements

In May 2000, we announced plans to expand our operations into Europe
through a purchase of inter-city and metro fiber networks from Level 3
Communications. In April 2001, we announced that we had cancelled our planned
purchase of these European networks, and Level 3 will apply all payments
previously made to them for these networks to reduce the remaining amounts
payable by us to Level 3 for our North American inter-city fiber network.

Although we are suspending expansion of our European operations, we will
continue our existing European operations, which consist primarily of
consumer-based Internet access services in the United Kingdom and Netherlands
that were acquired as part of the Concentric merger. We also are retaining the
transatlantic capacity acquired from Level 3 and will continue to hold the
licenses for fixed wireless spectrum in the United Kingdom that we were awarded
in the recently completed U.K. Broadband Fixed Wireless Auction, which include
licenses covering the Greater London, Greater Manchester and Birmingham/West
Midlands Regions.

In connection with the restructuring of our arrangements with Level 3, we
announced that we will be delaying the lighting of our North American
inter-city network. In the meantime, we will become a broadband transport
customer of Level 3. Initially, we will lease approximately $30 million of
wavelength services on Level 3s inter-city network in North America. In
connection with this lease, we will transfer to Level 3 certain inter-city
transmission equipment, the value of
which will be applied toward the purchase of the services described above and
future wavelength services from Level 3. We will retain for future deployment
the fibers and empty conduit that comprise our North American inter-city
network purchased from Level 3.





---



Private Equity Investment

In April 2001, several investment funds controlled by Forstmann Little &
Co. agreed to invest $250.0 million in XO to provide additional funding for
general corporate purposes under our business plan. In exchange for Forstmann
Littles investment, we will issue 50.0 million shares of our Class A common
stock to Forstmann Little and amend the terms of the convertible preferred
stock held by various Forstmann Little investment funds to reduce the share
conversion price from $31.625 to $17.00 per share. These amendments have been
approved by holders of our common stock that represent more than 50%
of the total voting power of all outstanding shares entitled to vote for the
amendment. The transaction is subject to customary closing conditions and is expected to
close by the end of June 2001. Once closed, Forstmann Littles total investment
in XO will increase to $1.5 billion, (including the $850 million of convertible
preferred stock purchased in January 2000 and the $400 million of convertible
preferred stock purchased in July 2000) and Forstmann Little will own
approximately 22.4% of our fully diluted common stock.

Results of Operations

Operating results for any period are not necessarily indicative of results
for any future period. In June 2000, we completed
the acquisition of Concentric which was accounted for using the purchase method
of accounting, accordingly, the operating results of Concentric are included
from the date of acquisition.

Operating Data

The table below provides a summary of the key operating metrics we use to
assess our operational performance.

|                                           |  |                 |           |                           |  |        |         |   |  |   |         |  |       |   |  | 
|------------------------------------------ |  | --------------- | --------- | ------------------------- |  | ------ | ------- | - |  | - | ------- |  | ----- | - |  | 
|                                           |  | As of March 31, |           | Quarter
to Quarter Change
|                                           |  |                 |           |                          
|                                           |  | 2001            |           | 2000                      |  | Amount |         | %
|                                           |  |                 |           |                           |  |        |         |  
|Operating data (a):                       
|                                          
|                                          
|                                          
|                                          
|Route miles (b)                            |  |                 | 22,416    |                           |  |        | 4,356   |   |  |   | 18,060  |  | 414.6 | %
|                                          
|                                          
|                                          
|                                          
|Fiber miles (c)                            |  |                 | 1,042,902 |                           |  |        | 413,407 |   |  |   | 629,495 |  | 152.3 | %
|                                          
|                                          
|                                          
|                                          
|On-net buildings connected (d)             |  |                 | 2,090     |                           |  |        | 1,485   |   |  |   | 605     |  | 40.7  | %
|                                          
|                                          
|                                          
|                                          
|Off-net buildings connected (e)            |  |                 | 63,641    |                           |  |        | 31,797  |   |  |   | 31,844  |  | 100.1 | %
|                                          
|                                          
|                                          
|                                          
|Voice grade equivalents (in thousands) (f) |  |                 | 14,867    |                           |  |        | 3,337   |   |  |   | 11,530  |  | 345.5 | %
|                                          
|                                          
|                                          
|                                          
|Customers (g)                              |  |                 | 91,722    |                           |  |        | 50,085  |   |  |   | 41,637  |  | 83.1  | %
|                                          
|                                          
|                                          
|                                          
|Average monthly revenue per customer (h)   |  | $               | 941       |                           |  | $      | 728     |   |  | $ | 213     |  | 29.3  | %
|                                          
|                                          
|                                          
|                                          
|Voice switches operational                 |  |                 | 34        |                           |  |        | 32      |   |  |   | 2       |  | 6.3   | %
|                                          
|                                          
|                                          
|                                          
|ATM switches operational                   |  |                 | 50        |                           |  |        |        |   |  |   |        |  |      |  
|                                          
|                                          
|                                          
|                                          
|Managed servers (i)                        |  |                 | 3,070     |                           |  |        |        |   |  |   |        |  |      |  
|                                          
|                                          
|                                          
|                                          
|Hosted shared websites (j)                 |  |                 | 237,695   |                           |  |        |        |   |  |   |        |  |      |  
|                                          
|                                          
|                                          
|                                          
|Data centers operational                   |  |                 | 10        |                           |  |        |        |   |  |   |        |  |      |  
|                                          
|                                          
|                                          
|                                          
|Employees                                  |  |                 | 7,425     |                           |  |        | 3,872   |   |  |   | 3,553   |  | 91.8  | %

The Company defines certain business metrics used above as follows:

|    |  |                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Operating data  All operating data, except for average monthly revenue
per customer and customers, for all periods presented include the
statistics of the Las Vegas network, which the Company manages and in
which the Company has a 40% membership interest.                                                
|   
|   
|   
|   
|(b) |  | Route miles  The number of operational miles of the telecommunications
path in which the leased or Company-owned fiber optic cables are
installed. These include metro and inter-city miles. This statistic does
not give effect to transactions with Level 3 announced in April 2001.                         
|   
|   
|   
|   
|(c) |  | Fiber miles  The number of operational route miles installed along a
telecommunications path, multiplied by the Companys estimate of the
number of fibers along that path. These include metro and inter-city
miles. This statistic does not give effect to transactions with Level 3
announced in April 2001.
|   
|   
|   
|   
|(d) |  | On-net buildings connected  Buildings physically connected to the
Companys networks, excluding those connected by unbundled incumbent local
exchange carrier facilities.                                                                                                                                      
|   
|   
|   
|   
|(e) |  | Off-net buildings connected  Buildings connected to the Companys
networks through leased or unbundled incumbent carriers facilities.                                                                                                                                                                          





---



|    |  |                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(f) |  | Voice grade equivalents  Voice grade equivalents is a revenue-generating
digital broadband equivalent of 64 kilobits per second, known as DS-0
level, the standard capacity of a voice grade line, and measures the
network utilization of both our voice and data services.
|   
|   
|   
|   
|(g) |  | Customers  The number of revenue-generating invoices within our billing
systems. This statistic excludes Europe, Las Vegas, as well as consumer
dial up and shared hosting accounts.                                                                                        
|   
|   
|   
|   
|(h) |  | Average monthly revenue per customer  This calculation excludes both the
associated revenue and customer counts for Europe, Las Vegas, as well as
consumer dial up and shared hosting accounts.                                                                             
|   
|   
|   
|   
|(i) |  | Managed servers  The number of Company or customer owned servers that
are dedicated to hosting a single customers websites which reside in the
Companys data centers.                                                                                                     
|   
|   
|   
|   
|(j) |  | Hosted shared websites  The number of websites that are hosted for
multiple customers on shared servers.                                                                                                                                                                    

Comparison of Financial Results

Revenue. Revenue in the first quarter of 2001 increased 162.0% to $277.3
million from $105.8 million in the first quarter of 2000. This increase was
primarily due to the increase in our overall number of customers and continued
penetration into existing markets. Our customer base grew 83.1% from 50,085
customers at March 31, 2000 to 91,722 at March 31, 2001. We expect the number
of customers to increase during the remainder of 2001 as we launch services in
Minneapolis, Minnesota and Cincinnati, Ohio and penetrate further into existing
markets. Also contributing to the revenue growth was a $213 increase in average
monthly revenue per customer from $728 per customer in the first quarter of
2000 to $941 per customer for the first quarter of 2001. We anticipate the
trend of increasing revenue per customer to continue in future periods as we
continue targeting larger business customers by enhancing existing product
lines and focusing on broadening the base of service offerings with higher end
services such as metro wavelength services, and
managed firewall and virtual private network services. Servicing these larger
enterprises and consequently achieving growth in revenue per customer is
dependent upon our ability to provide high bandwidth products and services over
our networks. Network traffic, as measured by voice grade equivalents, or VGEs,
increased 345.5% from 3.3 million in the first quarter of 2000 to 14.9 million
in the comparable period in 2001. A VGE is a revenue-generating digital
broadband equivalent of 64 kilobits per second, the standard capacity of a
voice grade line, and measures the network utilization of both our voice and
data services.

Revenue was derived from provision of the following services (dollars in
thousands):

|               |  |                              |         |         |  |            |      |         |  |          |         |            |  |  |      |   |  |  |        |  
|-------------- |  | ---------------------------- | ------- | ------- |  | ---------- | ---- | ------- |  | -------- | ------- | ---------- |  |  | ---- | - |  |  | ------ | -
|               |  | Three Months Ended March 31,
|               |  |                             
|               |  |                              |         |         |  | % of Total |      |         |  |          |         | % of Total
|               |  | 2001                         |         | Revenue |  | 2000       |      | Revenue |  | % Change
|               |  |                              |         |         |  |            |      |         |  |         
|Data services  |  | $                            | 142,209 |         |  |            | 51.3 | %       |  | $        | 27,749  |            |  |  | 26.2 | % |  |  | 412.5  | %
|              
|              
|              
|              
|Voice services |  |                              | 131,099 |         |  |            | 47.3 | %       |  |          | 78,018  |            |  |  | 73.7 | % |  |  | 68.0   | %
|              
|              
|              
|              
|Other services |  |                              | 3,999   |         |  |            | 1.4  | %       |  |          | 82      |            |  |  | 0.1  | % |  |  | 4776.8 | %
|               |  |                              |         |         |  |            |      |         |  |          |         |           
|Total revenue  |  | $                            | 277,307 |         |  |            |      |         |  | $        | 105,849 |            |  |  |      |   |  |  | 162.0  | %
|               |  |                              |         |         |  |            |      |         |  |          |         |           

Data services revenue in the first quarter of 2001 increased 412.5% to
$142.2 million from $27.7 million in the first quarter of 2000. A primary
contributor to this growth was our migration from a voice-centric to a more
data-centric business, facilitated in large part by our acquisition of
Concentric and the integration of its data products with our pre-existing
services. In the first quarter of 2001, data revenue increased to 51.3% of
total revenue from 26.2% of total revenue for the comparable period in the
preceding year. We expect data services revenue to continue to grow as a
percentage of total revenue in future periods due to our targeting of larger
enterprise customers, the broadening of our available data products and our
increasing emphasis on the sale of data products, which generally yield higher
margins than our voice products.

Voice services revenue in the first quarter of 2001 increased 68.0% to
$131.1 million from $78.0 million in the first quarter of 2000. However, voice
services revenue decreased as a percentage of total revenue from 73.7% in the
first quarter 2000 to 47.3% in the first quarter 2001. Voice services revenue
includes revenue from bundled local and long distance voice services, prepaid
call processing, and other voice communications based services, including
shared tenant services, interactive voice response, or IVR, and stand-alone
long distance services. We expect voice services revenue to continue to
increase over future periods as a result of anticipated growth in revenue from





---



continued penetration of existing markets, but to decrease as a percentage
of total revenue as we expect growth in data services revenue to be higher than
growth in voice services.

Other services revenue in the first quarter of 2001 increased $3.9 million
to $4.0 million from $0.1 million in the first quarter of 2000. Other services
revenue consists of bundled data and voice service offerings at a single
fixed price and other services provided to our existing IP customers. The
increase in other services revenue is attributable to the addition of these
bundled services, such as XOptions, to our product portfolio introduced in the
second quarter of 2000. We anticipate that revenue from bundled services will
increase in future periods both in absolute amounts and as a percentage of our
total revenue.

Costs and expenses. The table below provides expenses by classification
and as a percentage of revenue (dollars in thousands):

|                         |  |                              |         |         |  |            |      |         |  |          |         |            |  |  |      |   |  |  |        |  
|------------------------ |  | ---------------------------- | ------- | ------- |  | ---------- | ---- | ------- |  | -------- | ------- | ---------- |  |  | ---- | - |  |  | ------ | -
|                         |  | Three Months Ended March 31,
|                         |  |                             
|                         |  |                              |         |         |  | % of Total |      |         |  |          |         | % of Total
|                         |  | 2001                         |         | Revenue |  | 2000       |      | Revenue |  | % Change
|                         |  |                              |         |         |  |            |      |         |  |         
|Costs and expenses:     
|                        
|                        
|                        
|                        
|Operating                |  | $                            | 176,543 |         |  |            | 63.7 | %       |  | $        | 76,021  |            |  |  | 71.8 | % |  |  | 132.2  | %
|                        
|                        
|                        
|                        
|SG&A                     |  |                              | 177,877 |         |  |            | 64.1 | %       |  |          | 92,969  |            |  |  | 87.8 | % |  |  | 91.3   | %
|                        
|                        
|                        
|                        
|Stock-based compensation |  |                              | 9,311   |         |  |            | 3.4  | %       |  |          | 8,985   |            |  |  | 8.5  | % |  |  | 3.6    | %
|                        
|                        
|                        
|                        
|Depreciation             |  |                              | 95,186  |         |  |            | 34.3 | %       |  |          | 40,383  |            |  |  | 38.2 | % |  |  | 135.7  | %
|                        
|                        
|                        
|                        
|Amortization             |  |                              | 176,638 |         |  |            | 63.7 | %       |  |          | 5,613   |            |  |  | 5.3  | % |  |  | 3046.9 | %
|                         |  |                              |         |         |  |            |      |         |  |          |         |           
|Total                    |  |                              | 635,555 |         |  |            |      |         |  | $        | 223,971 |            |  |  |      |   |  |  | 183.8  | %
|                         |  |                              |         |         |  |            |      |         |  |          |         |           

Operating. Operating expenses in the first quarter of 2001 increased
132.2% to $176.5 million from $76.0 million in the first quarter of 2000.
Operating expenses include telecommunications costs paid to third party
providers for access and transport services. Operating expenses also include
network operations and engineering costs for network-related and enhanced
communications services. Telecommunications costs accounted for 68% of the
increase in operating expenses, resulting primarily from the increased volumes
in our switched local and long distance communication services and rapid
expansion of our data services. Network operations and engineering costs
accounted for the remaining increase in operating expense. The increase in
network operations and engineering costs was primarily driven by increased
headcount and related costs necessitated by the expansion of our network and
service offerings. Operating expense as a percentage of revenue decreased from
71.8% in the first quarter of 2000 to 63.7% in the comparable period of 2001.
We expect our operating expenses, including our telecommunications costs of
service, to continue to increase in future periods in connection with our
growth and expansion plans. We further expect operating expenses to decrease as
a percentage of revenue over time as our revenue grows and we continue to migrate from
leased transport capacity to our facilities-based networks and increase the
number of our customers connected directly to those networks.

Selling, general and administrative. Selling, general and administrative,
or SG&A, expenses in the first quarter of 2001 increased 91.3% to $177.9
million from $93.0 million in the first quarter of 2000. SG&A expenses relate
to sales and marketing, information systems, and general corporate office
functions. A majority of the increase is attributable to increased sales,
customer support, and administrative headcount and related costs associated
with the expansion of our business. Marketing costs also increased $12.1
million due to costs associated with advertising and marketing campaigns to
support our new product offerings and brand awareness. SG&A expense decreased
as a percentage of revenue from 87.8% in the first quarter of 2000 to 64.1% in
the first quarter of 2001 due primarily to our ability to support higher
revenue growth with lower incremental costs. We expect to see a continued
reduction of SG&A as a percentage of revenue due to the anticipated growth in
our revenue, cost savings resulting from the centralization of key functions,
realization of synergies from the Concentric merger, and our ongoing efforts to
control these costs. We expect SG&A expenses to grow in absolute amounts due to
the continued expansion of our business.

Stock-based compensation. Stock-based compensation in the first quarter of
2001 increased 3.6% to $9.3 million from $9.0 million in the first quarter of
2000. The increase in the first quarter of 2001 over the comparable period in
the prior year resulted from an increase in compensation expense arising from
the amortization of additional stock option grants. Compensation expense is
recognized over the vesting periods of compensatory stock
 options based on the excess of the fair value of the common stock at the
date of grant (determined by reference to the market price on that date) over
the exercise price of the option.





---



Depreciation. Depreciation expense in the first quarter of 2001 increased
135.7% to $95.2 million from $40.4 million in the first quarter of 2000. The
increase was primarily attributable to the increase in network and technology
assets. Our net property and equipment, which also reflects assets acquired
from Concentric in June 2000, increased 155.2% to $3,361.6 million in the first
quarter of 2001 versus $1,317.3 million in the first quarter of 2000. In the
first three months of 2001, we had capital expenditures of $592.8 million
versus $194.7 million in the comparable period of the preceding year. As we
expand our networks and install related equipment and other network technology,
depreciation expense is expected to continue to increase.

Amortization. Amortization expense in the first quarter of 2001 increased
$171.0 million to $176.6 million from $5.6 million in the first quarter of
2000. Substantially all of the increase is attributable to the amortization of
goodwill and other intangibles associated with our June 2000 acquisition of
Concentric, which are being amortized over periods of up to five years.

Interest income. Interest income in the first quarter of 2001 decreased
21.3% to $35.1 million from $44.6 million in the first quarter of 2000. The
decrease in interest income corresponds to the decrease in our average cash and
investment balances.

Interest expense. Interest expense in the first quarter of 2001 increased
9.4% to $118.6 million from $108.4 million in the first quarter of 2000. The
increase in interest expense was primarily due to an increase in our average
outstanding indebtedness over the respective periods resulting from our
borrowings under our senior secured credit facility during 2000 and 2001, the
issuance of $517.5 million of 5 3/4% convertible subordinated notes in January
2001, and the assumption of $150.0 million of debt in connection with our June
2000 acquisition of Concentric.

Net Loss. Net loss in the first quarter of 2001 increased $486.7 million
to $443.5 million from net income of $43.2 million in the first quarter of
2000, due to the foregoing factors. Additionally, the net income in the first
quarter of 2000 reflects a $225.1 million net gain on the sale of an equity
investment.

Other Operating Data

EBITDA, as defined by the
Company, represents operating loss adjusted for stock-based compensation,
depreciation, and amortization. The table below summarizes EBITDA, both in
amount and as a percentage of revenue (dollars in thousands):

|       |  |                              |         |         |  |            |       |         |  |   |         |            |  |  |       |   
|------ |  | ---------------------------- | ------- | ------- |  | ---------- | ----- | ------- |  | - | ------- | ---------- |  |  | ----- | --
|       |  | Three months Ended March 31,
|       |  |                             
|       |  | 2001                         |         | 2000   
|       |  |                              |         |        
|       |  |                              |         |         |  | % of Total |       |         |  |   |         | % of Total
|       |  | Amount                       |         | Revenue |  | Amount     |       | Revenue
|       |  |                              |         |         |  |            |       |        
|EBITDA |  | $                            | (77,113 | )       |  |            | (27.8 | %)      |  | $ | (63,141 | )          |  |  | (59.7 | %)

EBITDA is not a generally accepted accounting principle measure but rather
a measure employed by management to view operating results adjusted for major
non-cash items. EBITDA has been consistently improving as a percentage of
revenue due to revenue growth and the decrease in operating and SG&A expenses
as a percentage of revenue as indicated above. In absolute dollars, our EBITDA
loss has increased due to business expansion costs as discussed above.

Liquidity and Capital Resources

Our business is capital-intensive and, as such, has required and will
continue to require substantial capital investment. We build high capacity
networks with broad market coverage, a strategy that initially increases our
level of capital expenditures and operating losses and requires us to make a
substantial portion of our capital investments before we realize any revenue
from them. These capital expenditures, together with the associated early
operating expenses, will continue to result in negative cash flow from
operating and investing activities, unless and until we are able to establish
an adequate customer base. We believe, however, that over the long-term this
strategy will enhance our financial performance by increasing the traffic flow
over our networks.





---



Capital Uses

During the first three months of 2001, cash used in operating activities
was $97.9 million compared to $59.3 million in the prior year. The increase in
cash used was due to increased operating losses and the timing of expenditures
and customer receipts.

During the first three months of 2001, cash used in investing activities
was $380.4 million, compared to $274.8 million used in the comparable period
last year. Our investment in property and equipment increased $398.1 million
from $194.7 million in the first three months of 2000 to $592.8 million for the
first three months of 2001. In the first three months of 2000, we had
proceeds from the sale of an equity investment of $189.1 million. Surplus cash
is invested in available for sale marketable securities, which are purchased and
sold as our cash requirements permit. The increase in cash used
in investing activities is offset by the timing of purchases and sales of marketable
securities during the periods. We expect that our business will continue to
require substantial amounts of cash expenditures to fund operations and capital
expenditures in 2001 and beyond relating to our existing and planned network
development and operations. These funds are expected to relate to:



| |  |  | the purchase and installation of switches, routers, servers and
other data-related equipment and related electronics in existing
networks, for expansion of existing networks and in networks to be
constructed or acquired in new markets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the purchase and installation of fiber optic cable and electronics
to expand existing networks and develop new networks,                                                                                                                   
| |  |  | the development of our comprehensive information technology
platform;                                                                                                                                                                      
| |  |  | the purchase and installation of equipment associated with the
deployment of fixed wireless services using our fixed wireless
spectrum;                                                                                                    
| |  |  | funding of the commitments to build and expand our North American
metro and inter-city networks, our transatlantic capacity, and related
expenses we expect to incur in building these networks;                                           
| |  |  | the purchase and installation of equipment associated with
deployment of digital subscriber line, or DSL, and other data services;                                                                                                         
| |  |  | the funding of operating losses and working capital; and                                                                                                                                                                                   
| |  |  | possible expenditures associated with market expansions and
potential acquisitions of businesses or assets.                                                                                                                                

Capital Resources

5  3/4% Convertible Subordinated Notes. In January 2001, we completed the
issuance and sale of $517.5 million of 5  3/4% convertible subordinated notes due
2009 for proceeds, net of underwriting and other fees, totaling $503.3 million.
Interest on the notes is payable on January 15 and July 15 of each year,
beginning on July 15, 2001. The notes are unsecured obligations
and subordinated
in right of payment to all other senior indebtedness and are convertible at the
option of the holders at any time prior to maturity into shares of Class A common
stock at a conversion rate of 39.1484 shares per $1,000 principal amount of
notes, subject to adjustment upon the occurrence of certain events. We may
terminate such conversion rights on or after January 18, 2003 if the current
market price of our Class A common stock equals or exceeds 150%, on or prior to
January 18, 2004, or 135% thereafter, of the $25.5438 implied conversion price
for 20 days in a 30 consecutive day trading period. The notes are not
redeemable prior to their maturity date of January 15, 2009.

Secured Credit Facility. In February 2001, we borrowed the remaining
$237.5 million of the term loan A under our senior secured credit facility, as
required under the terms of that facility. The Company and certain of its
subsidiaries, as guarantors, entered into the $1.0 billion senior secured
facility with various lenders in February 2000. The facility is comprised of a
$387.5 million senior secured multi-draw term loan A, a $225.0 million senior
secured term loan B, and a $387.5 million revolving credit facility. As of
March 31, 2001, we had borrowed $612.5 million under the $1 billion facility
consisting of the entire $387.5 million of the term loan A and the entire
$225.0 million of the term loan B. At March 31, 2001, no borrowings were
outstanding on the $387.5 million revolving credit facility.

The term loan A and the revolving credit facility mature on December 31,
2006, and the term loan B matures on June 30, 2007. In each case, the maturity
dates are subject to acceleration to October 31, 2005 if we do not refinance
the 12 1/2% Senior Notes due 2006 by April 15, 2005. Amounts drawn under the
revolving credit facility and the term loans bear interest, at the our option,
at the alternate base rate, as defined, or reserve-adjusted London



---



Interbank Offered Rate (LIBOR) plus, in each case, applicable margins. As
of March 31, 2001, the annualized weighted average interest rate applicable to
the Facility was 8.97%.

Private Equity Investment.In April 2001, several investment funds
controlled by Forstmann Little & Co. agreed to invest $250.0 million in XO to
provide additional funding for general corporate purposes under our business
plan. In exchange for the investment, we will issue 50.0 million
shares of our Class A common stock to Forstmann Little and amend the terms of
the convertible preferred stock held by various Forstmann Little investment
funds to reduce the share conversion price from $31.625 to $17.00 per share.
The transaction is subject to customary closing conditions and is expected to close by
the end of June 2001. Once closed, Forstmann Littles total investment in XO
will increase to $1.5 billion, representing a fully diluted ownership interest
of approximately 22.4%.

Liquidity Assessment

As of March 31, 2001, giving effect to the planned $250.0 million
investment by Forstmann Little, our available funding sources totaled $2,535.6
million, including our cash and marketable securities balance of $1,898.1
million and $387.5 million of available borrowings under our senior secured
credit facility. We have made modifications to our previously
announced capital
plans to reflect reduced capital expenditures associated with the recent
amendments to agreements with Level 3 and changes in our domestic
capital plans. These modifications
significantly reduce future funding required to realize our
business plan. There are three major components to these revisions:



| |  |  | we have suspended our plans for European expansion,                                                                                                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | we have postponed the lighting of much of our domestic inter-city
long haul network and, for the time being, will lease inter-city
wavelengths for most segments of this network, and
| |  |  | we are reducing some plans for expansion in our metro networks.                                                                                                                      

Following these modifications to our capital plan, our estimate for our
capital expenditures in 2001 is between $1,300 million and $1,500 million,
reduced from our original estimate of $1,900 million to $2,100 million. Our
cash commitments for interest expense and preferred dividends in the year 2001
will be approximately $430 million based on our existing capital structure and
currently applicable interest rates. The remaining cash, together with funds
generated in our operations, will be available to fund debt service, other
operating expenses and other capital requirements. Giving effect to the
changes in our business plan, we estimate that the proceeds of the
new expected Forstmann Little
investment, together with cash on hand, committed financing and funds
generated in our operations, will be sufficient to fund us into the first half of 2003. We will need
and plan to raise additional funds to meet our liquidity needs for subsequent
periods. We currently plan to do so when market conditions permit us to raise
capital on acceptable terms.

Forward-looking and Cautionary Statements

Some statements and information contained in this report are not
historical facts, but are forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can be identified by the use of forward-looking terminology such as
believes, expects, plans, may, will, would, could, should, or
anticipates or the negative of these words or other variations of these words
or other comparable words, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding:



| |  |  | product and service development, including the development and
deployment of data products and services based on IP, Ethernet and
other technologies and strategies to expand our targeted customer base
and broaden our sales channels;                                                                                          
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | market development, including the number and location of markets we
expect to serve;                                                                                                                                                                                                                                              
|
| |  |  | network development, including those with respect to IP network and
facilities development and deployment, switches using next generation
switching
technology, broadband fixed wireless technology, testing and
installation, high speed technologies such as DSL, and matters relevant
to our metro and inter-city networks; and
|
| |  |  | liquidity and financial resources, including anticipated capital
expenditures, funding of capital expenditures and anticipated levels of
indebtedness.                                                                                                                                                                            





---



All such forward-looking statements are qualified by the inherent risks
and uncertainties surrounding expectations generally, and also may materially
differ from our actual experience involving any one or more of these matters
and subject areas. The operation and results of our business also may be
subject to the effect of other risks and uncertainties in addition to the
relevant qualifying factors identified in the above Risk Factors section of
our Annual Report on Form 10-K for the year ended December 31, 2000 filed with
the Securities and Exchange Commission on April 2, 2001, including, but not
limited to:



| |  |  | general economic conditions in the geographic areas that we are
targeting for communications services;                                                   
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the ability to achieve and maintain market penetration and average
per customer revenue levels sufficient to provide financial viability
to our business;
|
| |  |  | access to sufficient debt or equity capital to meet our operating
and financing needs;                                                                   
|
| |  |  | the quality and price of similar or comparable communications
services offered or to be offered by our competitors; and                                  
|
| |  |  | future telecommunications-related legislation or regulatory
actions.                                                                                     

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133, as recently amended, is
effective for fiscal years beginning after June 15, 2000. The Company has
implemented SFAS No. 133 in the first quarter of 2001 and it did not have a
material effect on the Companys financial position or results of operations.

Item 3.        Quantitative and Qualitative Disclosure about Market Risk

We have financial obligations outstanding which expose us to interest rate
risk including our redeemable preferred stock, senior notes, and bank credit
facilities. We do not have significant cash flow exposure to changing interest
rates on the majority of our long-term debt and redeemable preferred stock
because the interest and dividend rates of those securities are fixed. However,
the estimated fair values of the fixed-rate debt and redeemable preferred stock
are subject to market risk. We had $4,575.1 million in fixed rate debt, $612.5
million in variable rate debt and $2,122.6 million in fixed rate redeemable
preferred stock as of March 31, 2001. We are not currently engaged in the use
of off-balance sheet derivative financial instruments, including interest rate
swap and collar agreements, to hedge or partially hedge interest rate exposure
arising from changes in interest rates.

We also maintain an investment portfolio consisting of U.S. government and
other securities with an average maturity of less than one year. These
securities are classified as available for sale. If interest rates were to
increase or decrease immediately, it could have a material, short-term impact
on the fair value of these financial instruments. However, changes in interest
rates would not likely have a material impact on interest earned on our
investment portfolio. We currently mitigate our interest rate exposure on these
investments by maintaining shorter maturity periods, and cycling the maturity
dates for each investment over different periods throughout the year.

There have been no material
changes in our exposure to market risk since December 31, 2000.





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PART II. OTHER INFORMATION

Item 1.        Legal Proceedings

The Company is not currently a party to any legal proceedings, other than
regulatory and other proceedings that are in the normal course of business.

Item 2.        Changes in Securities and Use of Proceeds

The initial public offering (IPO) of our Class A common stock was
completed in October 1997, pursuant to a registration statement on Form S-1
filed with the Securities and Exchange Commission that become effective on
September 26, 1997. The net proceeds we received from the offering totaled
approximately $226.8 million. As of December 31, 2000, proceeds from the IPO
remain available for future network build out and working capital requirements.
We have raised additional funding from debt and additional equity offerings in
1999, 2000 and 2001. The proceeds from these recent offerings have been applied first in
funding the expansion of our network and other working capital requirements.

Sales of Unregistered Securities

In January 2001, XO completed
the issuance and sale in a private placement of $517.7 million 5.75%
convertible subordinated notes due 2009. The notes, which were sold
at 100% of their principal amount, are convertible into XO common
stock at a conversion price of $25.5438 per share. Salomon Smith
Barney, Inc. and Goldman, Sachs & Co. acted as initial purchasers
and received approximately $14.2 million in fees in connection with
the sale of the notes. The offer and sale of the notes were exempt
from registration requirements of the Securities Act of 1933, as
amended, because each initial purchaser offered and sold the notes in
the United States only to qualified institutional buyers in reliance
on Rule 144A under the Securities Act and outside the United States
only to non-persons in offshore transactions in reliance on
Regulation S under the Securities Act.

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|Item 3. |  | Defaults Upon Senior Securities                    
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|Item 4. |  | Submission of Matters to a Vote of Security Holders
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|Item 5. |  | Other Information                                  
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|Item 6. |  | Exhibits and Reports on Form 8-K                   

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits
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|10.1     |  | Amendment and Stock Purchase Agreement, dated as of April 25, 2001, among
XO Communications, Inc., Forstmann Little & Co. Equity Partnership VI,
L.P., Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership VII, L.P. and Forstmann Little Fund, L.P. (Incorporated
herein by reference to exhibit 99.3 filed with the Current Report on Form
8-K, filed on April 30, 2001, of XO Communications, Inc.)

Reports on Form 8-K



|(1) |  | Current Report on Form 8-K, dated January 12, 2001, reporting
under Item 5 the closing of the previously announced offering of
$517.5 million aggregate principal amount of 5 3/4% convertible
subordinated notes.                                                                                                                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amended Current Report on Form 8-K, dated January 18, 2001,
reporting under Item 2 is to provide an updated unaudited pro forma
condensed combined statement of operations for the year ended
December 31, 1999 and the nine months ended September 30, 2000
giving effect to the Concentric Network Corporation Merger as if it
occurred January 1, 1999.
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|(3) |  | Current report on Form 8-K, dated April 30,
2001, reporting under Item 5, the agreement by Forstmann Little to
make an additional investment in XO Communications, Inc.                                                                                                                                                                                   





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.

|                   |  |                                                                                                                                             
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------
|                   |  | XO Communications, Inc.                                                                                                                     
|                  
|Date: May 15, 2001 |  | By: /s/ Wayne M. Rehberger
Wayne M. Rehberger
Senior Vice President and Chief Financial Officer
(Principal financial and accounting officer)
|                  
|                   |  | XO Capital, Inc.                                                                                                                            
|                  
|Date: May 15, 2001 |  | By: /s/ Wayne M. Rehberger
Wayne M. Rehberger
Senior Vice President and Chief Financial Officer
(Principal financial and accounting officer)





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Exhibit Index

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of
Exhibit                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|10.1        |  | Amendment and Stock Purchase Agreement, dated as of April 25, 2001, among
XO Communications, Inc., Forstmann Little & Co. Equity Partnership VI,
L.P., Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership VII, L.P. and Forstmann Little Fund, L.P. (Incorporated
herein by reference to exhibit 99.3 filed with the Current Report on Form
8-K, filed on April 30, 2001, of XO Communications, Inc.)