##### Table of Contents



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




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##### 



XO HOLDINGS, INC.
Table of Contents
 PagePART I  FINANCIAL INFORMATIONITEM 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements of Operations
    
    
    2Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27ITEM 4.
    
    Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONITEM 1.
    
    Legal Proceedings
    
    
    29ITEM 1A.
    
    Risk Factors
    
    
    30ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30ITEM 3.
    
    Defaults Upon Senior Securities
    
    
    30ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31ITEM 5.
    
    Other Information
    
    
    31ITEM 6.
    
    Exhibits
    
    
    31EX-10.3EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 XO Holdings, Inc.


Condensed Consolidated Balance Sheets
 June 30, 2009
    
    
    December 31, 2008(Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    281,885
    
    
    $
    256,747Marketable securities
    
    
    115,129
    
    
    
    117,148Accounts receivable, net of allowance for doubtful
accounts of $8,975 and $9,727, respectively
    
    
    139,122
    
    
    
    152,622Prepaid expenses and other current assets
    
    
    42,410
    
    
    
    41,200Total current assets
    
    
    578,546
    
    
    
    567,717Property and equipment, net
    
    
    724,426
    
    
    
    724,404Intangible assets, net
    
    
    45,233
    
    
    
    53,515Other assets
    
    
    40,774
    
    
    
    30,348Total Assets
    
    $
    1,388,979
    
    
    $
    1,375,984LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS DEFICITCurrent LiabilitiesAccounts payable
    
    $
    91,311
    
    
    $
    93,547Accrued liabilities
    
    
    199,088
    
    
    
    221,356Total current liabilities
    
    
    290,399
    
    
    
    314,903Deferred revenue, less current portion
    
    
    47,937
    
    
    
    29,715Other liabilities
    
    
    47,333
    
    
    
    55,215Total Liabilities
    
    
    385,669
    
    
    
    399,833Class A convertible preferred stock
    
    
    267,860
    
    
    
    259,948Class B convertible preferred stock
    
    
    593,997
    
    
    
    573,795Class C perpetual preferred stock
    
    
    212,147
    
    
    
    200,877Commitments and contingenciesStockholders DeficitPreferred stock: par value $0.01 per share, 200,000 shares
authorized; 4,000 shares of Class A convertible preferred stock
issued and outstanding; 555 shares of Class B convertible preferred
stock issued and outstanding; 225 shares of Class C perpetual
preferred stock issued and outstanding
    
    
    
    
    
    
    Warrants, common stock and additional paid in capital: par
value $0.01 per share, 1,000,000 shares authorized; 182,075
shares issued and outstanding
    
    
    902,307
    
    
    
    941,270Accumulated other comprehensive income (loss)
    
    
    32,355
    
    
    
    (4,844
    )Accumulated deficit
    
    
    (1,005,356
    )
    
    
    (994,895
    )Total Stockholders Deficit
    
    
    (70,694
    )
    
    
    (58,469
    )Total Liabilities, Redeemable Preferred Stock and Stockholders
Deficit
    
    $
    1,388,979
    
    
    $
    1,375,984
  1




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XO Holdings, Inc.


Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    385,624
    
    
    $
    367,370
    
    
    $
    763,448
    
    
    $
    728,519Costs and expensesCost of service (exclusive of depreciation
and amortization)
    
    
    229,565
    
    
    
    213,272
    
    
    
    449,569
    
    
    
    441,615Selling, general and administrative
    
    
    119,122
    
    
    
    127,770
    
    
    
    249,085
    
    
    
    255,569Depreciation and amortization
    
    
    42,910
    
    
    
    47,139
    
    
    
    86,306
    
    
    
    92,668Impairment of LMDS licenses
    
    
    8,282
    
    
    
    
    
    
    
    8,282
    
    
    
    Loss (gain) on disposal of assets
    
    
    2,562
    
    
    
    (878
    )
    
    
    4,077
    
    
    
    (832
    )Total costs and expenses
    
    
    402,441
    
    
    
    387,303
    
    
    
    797,319
    
    
    
    789,020Loss from operations
    
    
    (16,817
    )
    
    
    (19,933
    )
    
    
    (33,871
    )
    
    
    (60,501
    )Interest income
    
    
    3,554
    
    
    
    801
    
    
    
    7,461
    
    
    
    1,678Investment gain (loss), net
    
    
    8,262
    
    
    
    (15
    )
    
    
    18,020
    
    
    
    4,106Interest expense, net
    
    
    (475
    )
    
    
    (9,513
    )
    
    
    (1,261
    )
    
    
    (18,264
    )Other income
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    251Net loss before income taxes
    
    
    (5,476
    )
    
    
    (28,659
    )
    
    
    (9,651
    )
    
    
    (72,730
    )Income tax expense
    
    
    (518
    )
    
    
    (342
    )
    
    
    (810
    )
    
    
    (684
    )Net loss
    
    
    (5,994
    )
    
    
    (29,001
    )
    
    
    (10,461
    )
    
    
    (73,414
    )Preferred stock accretion
    
    
    (19,874
    )
    
    
    (3,756
    )
    
    
    (39,383
    )
    
    
    (7,457
    )Net loss allocable to common shareholders
    
    $
    (25,868
    )
    
    $
    (32,757
    )
    
    $
    (49,844
    )
    
    $
    (80,871
    )Net loss allocable to common shareholders
per common share, basic and diluted
    
    $
    (0.14
    )
    
    $
    (0.18
    )
    
    $
    (0.27
    )
    
    $
    (0.44
    )Weighted average shares, basic and diluted
    
    
    182,075
    
    
    
    182,075
    
    
    
    182,075
    
    
    
    182,075
  2




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XO Holdings, Inc.


Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Six Months Ended June 30,2009
    
    
    2008OPERATING ACTIVITIES:Net loss
    
    $
    (10,461
    )
    
    $
    (73,414
    )Adjustments to reconcile net loss to net cash
provided by operating activitiesDepreciation and amortization
    
    
    86,306
    
    
    
    92,668Accrued interest converted to long term debt
    
    
    
    
    
    
    18,289Provision for doubtful accounts
    
    
    8,449
    
    
    
    6,282Stock-based compensation
    
    
    421
    
    
    
    897Gain from investments
    
    
    (18,020
    )
    
    
    (4,106
    )Impairment of LMDS licenses
    
    
    8,282
    
    
    
    Loss (gain) on disposal of assets
    
    
    4,077
    
    
    
    (832
    )Changes in assets and liabilitiesAccounts receivable
    
    
    5,052
    
    
    
    (9,166
    )Other assets
    
    
    (11,636
    )
    
    
    (16,690
    )Accounts payable
    
    
    (1,069
    )
    
    
    17,063Accrued liabilities
    
    
    (9,967
    )
    
    
    (28,553
    )Net cash provided by operating activities
    
    
    61,434
    
    
    
    2,438INVESTING ACTIVITIES:Capital expenditures
    
    
    (91,720
    )
    
    
    (118,524
    )Proceeds from fixed asset sales
    
    
    150
    
    
    
    1,574Proceeds from the sale of available-for-sale marketable
securties
    
    
    57,238
    
    
    
    132Net cash used in investing activities
    
    
    (34,332
    )
    
    
    (116,818
    )FINANCING ACTIVITIES:Proceeds from issuance of related party note
    
    
    
    
    
    
    75,000Financing costs
    
    
    
    
    
    
    (1,007
    )Payments on capital leases
    
    
    (1,964
    )
    
    
    (2,104
    )Net cash (used in) provided by financing activities
    
    
    (1,964
    )
    
    
    71,889Net increase (decrease) in cash and cash equivalents
    
    
    25,138
    
    
    
    (42,491
    )Cash and cash equivalents, beginning of period
    
    
    256,747
    
    
    
    108,075Cash and cash equivalents, end of period
    
    $
    281,885
    
    
    $
    65,584SUPPLEMENTAL DATA:Cash paid for interest
    
    $
    695
    
    
    $
    539Cash paid for income taxes
    
    $
    993
    
    
    $
    854
  3




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XO Holdings, Inc.

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




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c. Transaction-Based Taxes and Other Surcharges
  d. New Accounting Pronouncements
 The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles
 Interim Disclosures about Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments Interim Financial Reporting
 Recognition and Presentation of
Other-Than-Temporary Impairments Accounting for
Certain Investments in Debt and Equity Securities
 e. Reclassifications
  5




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2. COMPREHENSIVE LOSS
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (5,994
    )
    
    $
    (29,001
    )
    
    $
    (10,461
    )
    
    $
    (73,414
    )Other comprehensive income:Net unrealized gain (loss) on investments
    
    
    22,817
    
    
    
    (319
    )
    
    
    37,199
    
    
    
    (2,255
    )Comprehensive income (loss)
    
    $
    16,823
    
    
    $
    (29,320
    )
    
    $
    26,738
    
    
    $
    (75,669
    )
 3. PRIOR PERIOD ADJUSTMENTS
   Three Months Ended
    
    Six Months EndedJune 30, 2008
    
    June 30, 2008Prior
    
    Adjusted
    
    Prior
    
    AdjustedUnderutilized operating lease liability
    
    $
    16,325
    
    
    $
    25,654
    
    
    $
    16,325
    
    
    $
    25,654Selling, general and administrative
    
    $
    128,446
    
    
    $
    127,770
    
    
    $
    254,771
    
    
    $
    255,569Net loss
    
    $
    (29,677
    )
    
    $
    (29,001
    )
    
    $
    (72,616
    )
    
    $
    (73,414
    )Accumulated deficit-beginning
    
    $
    (911,080
    )
    
    $
    (919,614
    )
    
    $
    (911,080
    )
    
    $
    (919,614
    )Net loss
allocable to common shareholders per common share, basic and diluted
    
    $
    (0.18
    )
    
    $
    (0.18
    )
    
    $
    (0.44
    )
    
    $
    (0.44
    )
 4. FAIR VALUE MEASUREMENTS
  6




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Quoted Prices inActive Markets(Level 1)Available-for-sale marketable securitiesEquity securities
    
    $
    19,214Corporate debt securities
    
    
    95,915Total marketable securities
    
    $
    115,129
  Significant
    
    Total LossesUnobservable
    
    for the SixInputs
    
    Months Ended(Level 3)
    
    June 30, 2009LMDS licenses
    
    $
    27,500
    
    
    $
    (8,282
    )
 Goodwill and Other Intangible Assets,
  5. MARKETABLE SECURITIES
  7




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Gross UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueJune 30, 2009Equity Securities
    
    $
    10,309
    
    
    $
    8,905
    
    
    $
    
    
    
    $
    19,214Corporate Debt Securities
    
    
    72,465
    
    
    
    23,450
    
    
    
    
    
    
    
    95,915Total
    
    $
    82,774
    
    
    $
    32,355
    
    
    $
    
    
    
    $
    115,129December 31, 2008Equity Securities
    
    $
    10,632
    
    
    $
    
    
    
    $
    
    
    
    $
    10,632Corporate Debt Securities
    
    
    111,360
    
    
    
    1,835
    
    
    
    (6,679
    )
    
    
    106,516Total
    
    $
    121,992
    
    
    $
    1,835
    
    
    $
    (6,679
    )
    
    $
    117,148
     Less than Twelve MonthsGrossEstimated
    
    UnrealizedFair Value
    
    LossesCorporate Debt Securities
    
    $
    65,786
    
    
    $
    (6,679
    )
  8




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6. PROPERTY AND EQUIPMENT
  June 30, 2009
    
    
    December 31, 2008Telecommunications networks and acquired bandwith
    
    $
    1,291,025
    
    
    $
    1,211,894Furniture, fixtures, equipment and other
    
    
    388,231
    
    
    
    371,5611,679,256
    
    
    
    1,583,455Less: accumulated depreciation
    
    
    (1,021,480
    )
    
    
    (931,607
    )657,776
    
    
    
    651,848Construction-in-progress, parts and equipment
    
    
    66,650
    
    
    
    72,556Property and equipment, net
    
    $
    724,426
    
    
    $
    724,404
  7. EARNINGS (LOSS) PER SHARE
  9




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2009
    
    2008Stock options
    
    
    8.2
    
    
    
    9.7Warrants
    
    
    23.7
    
    
    
    23.7Class A preferred stock
    
    
    58.0
    
    
    
    54.6Class B convertible preferred stock
    
    
    394.9
    
    
    
    
 8. INCOME TAXES
  Open Tax Years
  9. RELATED PARTY TRANSACTIONS
  At June 30, 2009 1
    

At December 31, 2008 2Outstanding Common Stock
    
    Greater than 50%
    
    Greater than 50%Series A, B and C Warrants
    
    Greater than 40%
    
    Greater than 40%Class A Preferred Stock 3
    
    Greater than 70%
    
    Greater than 70%Class B Convertible Preferred Stock
    
    
    100
    %
    
    
    100
    %Class C Perpetual Preferred Stock
    
    
    100
    %
    
    
    100
    %
 
 1
    
    As reported in the July 1, 2009 Form 4 for the Chairman and other parties to such
joint filing, and the July 1, 2009 Amendment No. 18 to Schedule 13D filed by the Chairman and other
parties to such joint filing.2
    
    As reported in the January 5, 2009 Form 4 for the Chairman and other parties to such
joint filing, and the January 5, 2009 Amendment No. 15 to Schedule 13D filed by the Chairman and
other parties to such joint filing.3
    
    The terms of the Companys Class A preferred stock provide that on January 15, 2010,
the Company redeem in cash and in a manner provided for therein all of the shares of Class A
preferred stock then outstanding at a redemption price equal to 100% of its liquidation preference.
On February 5, 2009, ACF Industries Holding Corp. (ACF Holding), an affiliate of the Chairman,
agreed to extend the date on which the Company would be required to redeem the shares of Class A
preferred stock held by ACF Holding from January 15, 2010 to a date no later than April 15, 2010.
ACF Holding is the record holder of 3,096,549 shares of Class A
preferred stock (the ACF Holding Shares) which represent
77.4% of the outstanding shares of the Class A preferred stock as of June 30, 2009 (83.8% after giving
effect to the July 9, 2009 repurchase of 304,314 shares of Class A
preferred stock discussed in Note 12). The
extension will not affect the redemption date of any of the shares of Class A preferred stock other
than the ACF Holding Shares. 10




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10. SEGMENT INFORMATION
  11. COMMITMENTS AND CONTINGENCIES
  11




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Metro Nashville
  Nashville Electric Service
  12




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Choice Tel
  City of Memphis Franchise Fees
 BellSouth vs. City of Memphis
 13




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R2 Derivative Litigation
  12. SUBSEQUENT EVENTS
 Subsequent Events
   14




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




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Executive Summary
       16




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Critical Accounting Policies and Estimates
   Results of Operations
  Three Months Ended June 30,% of
    
    
    
    
    
    
    % ofConsolidated
    
    
    
    
    
    
    Consolidated
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentRevenue
    
    $
    385,624
    
    
    
    100.0
    %
    
    $
    367,370
    
    
    
    100.0
    %
    
    $
    18,254
    
    
    
    5.0
    %Costs and expenses:Cost of service*
    
    
    229,565
    
    
    
    59.5
    %
    
    
    213,272
    
    
    
    58.0
    %
    
    
    16,293
    
    
    
    7.6
    %Selling, general and administrative
    
    
    119,122
    
    
    
    30.9
    %
    
    
    127,770
    
    
    
    34.8
    %
    
    
    (8,648
    )
    
    
    -6.8
    %Depreciation and amortization
    
    
    42,910
    
    
    
    11.1
    %
    
    
    47,139
    
    
    
    12.8
    %
    
    
    (4,229
    )
    
    
    -9.0
    %Impairment of LMDS licenses
    
    
    8,282
    
    
    
    2.2
    %
    
    
    
    
    
    
    
    
    
    
    8,282
    
    
    nmLoss (gain) on disposal of assets
    
    
    2,562
    
    
    
    0.7
    %
    
    
    (878
    )
    
    
    -0.2
    %
    
    
    3,440
    
    
    
    391.8
    %Total costs and expenses
    
    
    402,441
    
    
    
    104.4
    %
    
    
    387,303
    
    
    
    105.4
    %
    
    
    15,138
    
    
    
    3.9
    %Loss from operations
    
    $
    (16,817
    )
    
    
    -4.4
    %
    
    $
    (19,933
    )
    
    
    -5.4
    %
    
    $
    (3,116
    )
    
    
    -15.6
    %
 
 *
    
    exclusive of depreciation and amortizationnm  not meaningful 17




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Six Months Ended June 30,% of
    
    
    
    
    
    
    % ofConsolidated
    
    
    
    
    
    
    Consolidated
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentRevenue
    
    $
    763,448
    
    
    
    100.0
    %
    
    $
    728,519
    
    
    
    100.0
    %
    
    $
    34,929
    
    
    
    4.8
    %Costs and expenses:Cost of service*
    
    
    449,569
    
    
    
    58.9
    %
    
    
    441,615
    
    
    
    60.6
    %
    
    
    7,954
    
    
    
    1.8
    %Selling, general and administrative
    
    
    249,085
    
    
    
    32.6
    %
    
    
    255,569
    
    
    
    35.1
    %
    
    
    (6,484
    )
    
    
    -2.5
    %Depreciation and amortization
    
    
    86,306
    
    
    
    11.3
    %
    
    
    92,668
    
    
    
    12.7
    %
    
    
    (6,362
    )
    
    
    -6.9
    %Impairment of LMDS licenses
    
    
    8,282
    
    
    
    1.1
    %
    
    
    
    
    
    
    
    
    
    
    8,282
    
    
    nmLoss (gain) on disposal of assets
    
    
    4,077
    
    
    
    0.5
    %
    
    
    (832
    )
    
    
    -0.1
    %
    
    
    4,909
    
    
    
    -590.0
    %Total costs and expenses
    
    
    797,319
    
    
    
    104.4
    %
    
    
    789,020
    
    
    
    108.3
    %
    
    
    8,299
    
    
    
    1.1
    %Loss from operations
    
    $
    (33,871
    )
    
    
    -4.4
    %
    
    $
    (60,501
    )
    
    
    -8.3
    %
    
    $
    (26,630
    )
    
    
    -44.0
    %
 
 *
    
    exclusive of depreciation and amortizationnm  not meaningful Revenue
   Three Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentCore servicesBroadband
    
    $
    195,361
    
    
    
    50.7
    %
    
    $
    163,744
    
    
    
    44.6
    %
    
    $
    31,617
    
    
    
    19.3
    %Integrated/Voice
    
    
    74,533
    
    
    
    19.3
    %
    
    
    82,026
    
    
    
    22.3
    %
    
    
    (7,493
    )
    
    
    -9.1
    %Total core services
    
    
    269,894
    
    
    
    70.0
    %
    
    
    245,770
    
    
    
    66.9
    %
    
    
    24,124
    
    
    
    9.8
    %Legacy/TDM services
    
    
    115,730
    
    
    
    30.0
    %
    
    
    121,600
    
    
    
    33.1
    %
    
    
    (5,870
    )
    
    
    -4.8
    %Total revenue
    
    $
    385,624
    
    
    
    100.0
    %
    
    $
    367,370
    
    
    
    100.0
    %
    
    $
    18,254
    
    
    
    5.0
    %
 Core Services.
 18




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##### Table of Contents



Legacy/TDM Services.
  19




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##### Table of Contents



Six Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentCore servicesBroadband
    
    $
    384,727
    
    
    
    50.4
    %
    
    $
    317,231
    
    
    
    43.5
    %
    
    $
    67,496
    
    
    
    21.3
    %Integrated/Voice
    
    
    147,289
    
    
    
    19.3
    %
    
    
    167,965
    
    
    
    23.1
    %
    
    
    (20,676
    )
    
    
    -12.3
    %Total core services
    
    
    532,016
    
    
    
    69.7
    %
    
    
    485,196
    
    
    
    66.6
    %
    
    
    46,820
    
    
    
    9.6
    %Legacy/TDM services
    
    
    231,432
    
    
    
    30.3
    %
    
    
    243,323
    
    
    
    33.4
    %
    
    
    (11,891
    )
    
    
    -4.9
    %Total revenue
    
    $
    763,448
    
    
    
    100.0
    %
    
    $
    728,519
    
    
    
    100.0
    %
    
    $
    34,929
    
    
    
    4.8
    %
 Core Services.
   Legacy/TDM Services.
  20




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##### Table of Contents



Cost of Service
   Three Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentTelecommunications services
    
    $
    165,990
    
    
    
    43.0
    %
    
    $
    153,762
    
    
    
    41.8
    %
    
    $
    12,228
    
    
    
    8.0
    %Network operations
    
    
    49,766
    
    
    
    12.9
    %
    
    
    47,438
    
    
    
    12.9
    %
    
    
    2,328
    
    
    
    4.9
    %Pass-through taxes
    
    
    13,809
    
    
    
    3.6
    %
    
    
    12,072
    
    
    
    3.3
    %
    
    
    1,737
    
    
    
    14.4
    %Total cost of services
    
    $
    229,565
    
    
    
    59.5
    %
    
    $
    213,272
    
    
    
    58.0
    %
    
    $
    16,293
    
    
    
    7.6
    %
  Six Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Dollars
    
    
    PercentTelecommunications services
    
    $
    324,229
    
    
    
    42.5
    %
    
    $
    318,453
    
    
    
    43.7
    %
    
    $
    5,777
    
    
    
    1.8
    %Network operations
    
    
    99,804
    
    
    
    13.1
    %
    
    
    95,428
    
    
    
    13.1
    %
    
    
    4,375
    
    
    
    4.6
    %Pass-through taxes
    
    
    25,536
    
    
    
    3.3
    %
    
    
    27,734
    
    
    
    3.8
    %
    
    
    (2,198
    )
    
    
    -7.9
    %Total cost of services
    
    $
    449,569
    
    
    
    58.9
    %
    
    $
    441,615
    
    
    
    60.6
    %
    
    $
    7,954
    
    
    
    1.8
    %
  21




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##### Table of Contents



Selling, General and Administrative
    Impairment of LMDS Licenses
  Interest Income
  22




---



##### Table of Contents



Investment Gain, Net
   Interest Expense, Net
  Capital Expenditures
 Six Months Ended June 30,
    
    
    
    
    
    
    % of Revenue(dollars in thousands)2009
    
    
    $
    91,720
    
    
    
    12.0
    %2008
    
    
    $
    118,524
    
    
    
    16.3
    %
  Liquidity and Capital Resources
  Redemption of Class A Convertible Preferred Stock
  23




---



##### Table of Contents



Cash Flow
   2009
    
    2008
    
    ChangeCash provided by operating activities
    
    $
    61,434
    
    
    $
    2,438
    
    
    $
    58,996Cash used in investing activities
    
    $
    (34,332
    )
    
    $
    (116,818
    )
    
    $
    (82,486
    )Cash (used in) provided by financing activities
    
    $
    (1,964
    )
    
    $
    71,889
    
    
    $
    (73,853
    )
 Operating Activities.
 Investing Activities.
 24




---



##### Table of Contents



Financing Activities.
 Recently Issued Accounting Pronouncements
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles
 Interim Disclosures about Fair Value of
Financial Instruments Disclosures about Fair Value of
Financial Instruments Interim Financial Reporting
 Recognition and Presentation of
Other-Than-Temporary Impairments Accounting for
Certain Investments in Debt and Equity Securities
 Regulatory
  LMDS Licenses
  25




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##### Table of Contents



LMDS License Renewal Filings
 LMDS Substantial Service Filings
 Additional Federal Regulations
 Verizon and Qwest Petitions for Forbearance from Unbundling Requirements.
 26




---



##### Table of Contents



Additional State and Local Regulation
 XOH Complaints Against Verizon .
 Qwest Complaints Against XOH.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  27




---



##### Table of Contents



Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
   Changes in Internal Controls
  28




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  Nashville Electric Service
  29




---



##### Table of Contents



R2 Derivative Litigation
  Hillenmeyer Derivative Litigation
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  30




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  Votes For
    
    Votes WithheldCarl C. Icahn
    
    
    716,495,459
    
    
    
    46,207,945Carl J. Grivner
    
    
    727,916,700
    
    
    
    34,786,704Adam Dell
    
    
    725,939,187
    
    
    
    36,764,217Vincent J. Intrieri
    
    
    725,949,662
    
    
    
    36,753,742David S. Schechter
    
    
    719,235,073
    
    
    
    43,468,331Keith Meister
    
    
    719,137,822
    
    
    
    43,565,582Robert Knauss
    
    
    723,738,843
    
    
    
    38,964,561Fredrik Gradin
    
    
    719,138,420
    
    
    
    43,564,984
 
 Item 5. Other Information
  
 Item 6. Exhibits
 3.1
    
    Certificate of Incorporation of XO Holdings, Inc., as filed with the
Secretary of State of the State of Delaware on October 25, 2005
(incorporated by reference to exhibit 3.1 filed with the Current
Report on Form 8-K of XO Holdings, Inc., filed on March 6, 2006)3.2
    
    Certificate of Designation of the Powers, Preferences and Relative,
Participating, Optional and other Special Rights of the 6% Class A
Convertible Preferred Stock and Qualifications, Limitations and
Restrictions thereof, as filed with the Secretary of State of the
State of Delaware on February 28, 2006 (incorporated by reference to
exhibit 3.2 filed with the Current Report on Form 8-K of XO Holdings,
Inc., filed on March 6, 2006)3.3
    
    Bylaws of XO Holdings, Inc. (incorporated herein by reference to
exhibit 3.3 filed with the Current Report on Form 8-K of XO Holdings,
Inc., filed on March 6, 2006)4.1
    
    Series A Warrant Agreement, dated as of January 16, 2003, by and between
XO Communications, Inc. and American Stock Transfer & Trust Company (incorporated by reference to
exhibit 10.1 filed with the Current Report on Form 8-K of XO Communications, Inc. filed on January 30, 2003).4.2
    
    Series B Warrant Agreement, dated as of January 16, 2003, by and between
XO Communications, Inc. and American Stock Transfer & Trust Company (incorporated by reference to
exhibit 10.2 filed with the Current Report on Form 8-K of XO Communications, Inc. filed on January 30, 2003).4.3
    
    Series C Warrant Agreement, dated as of January 16, 2003, by and between XO Communications, Inc. and
American Stock Transfer & Trust Company (incorporated by reference to exhibit 10.3 filed with the
Current Report on Form 8-K of XO Communications, Inc. filed on January 30, 2003).4.4
    
    Certificate of Designation of the Powers, Preferences and Relative
Participating, Optional and Other Special Rights of the 7% Class B Convertible Preferred Stock and
Qualifications, Limitations and Restrictions Thereof (incorporated by reference to exhibit 4.1
filed with the Current Report on Form 8-K of XO Holdings, Inc. filed on July 28, 2008).4.5
    
    Certificate of Designation of the Powers, Preferences and Relative Participating,
Optional and Other Special Rights of the 9.50% Class C Perpetual Preferred Stock and Qualifications, Limitations and
Restrictions Thereof (incorporated by reference to exhibit 4.2 filed with the Current Report on Form 8-K of
XO Holdings, Inc. filed on July 28, 2008).10.1
    
    XO Holdings, Inc. 2009 Executive Bonus Plan (incorporated by
reference to exhibit 10.1 filed with the Quarterly Report on Form
10-Q of XO Holdings, Inc. for the quarter ended March 31, 2009)10.2
    
    Employment Agreement, dated as of January 5, 2009, by and between XO
Holdings, Inc. and Daniel J. Wagner (incorporated by reference to
exhibit 10.1 filed with the Current Report on Form 8-K of XO
Holdings, Inc., filed on January 20, 2009)10.3
    
    Redacted version of Master Professional Services Agreement, executed April 21, 2009 and effective as of March 30, 2009,
by and between XO Communications Services, Inc. on behalf of itself,
its operating affiliates and subsidiaries and Thomas Cady (filed
herewith). CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
UNDER A CONFIDENTIAL TREATMENT REQUEST, PURSUANT TO RULE 406 OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE REDACTED TERMS HAVE
BEEN MARKED IN THIS EXHIBIT AT THE APPROPRIATE PLACE WITH THREE
ASTERISKS [***].14.1
    
    XO Business Ethics Policy (incorporated by reference to exhibit 14.1
filed with the Current Report on Form 8-K of XO Holdings, Inc., filed
on March 17, 2009)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended (filed
herewith)31.2
    
    Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act as amended (filed
herewith)32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002 (filed herewith)
 31




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##### Table of Contents



SIGNATURES
  Date: August 10, 2009
    XO HOLDINGS, INC.By:  /s/ Laura W. ThomasLaura W. ThomasSenior Vice President and Chief Financial Officer
(Principal Financial Officer) 32