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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, 2003

Commission file number: 0-30900

XO Communications, Inc.




(Exact name of registrant as specified in its charter)


|                                         |  |                    
|---------------------------------------- |  | -------------------
|Delaware                                 |  | 54-1983517         
|                                        
|(State or other jurisdiction of          |  | (I.R.S. Employer   
|incorporation or organization)           |  | Identification No.)
|11111 Sunset Hills Road, Reston, VA      |  | 20190              
|                                        
|(Address of principal executive offices) |  | (Zip Code)         

(703) 547-2000




(Registrants telephone number, including area code)


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 [  ]

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  YES [X]  NO [  ]

As of May 12, 2003, the number of shares of common stock of XO Communications,
Inc. issued and outstanding was 95,016,251.





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XO Communications, Inc. and Subsidiaries
Index to Form 10-Q

|                              |                                                                                               |                                                                                                                                                                                                       |    |      |   | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                              |                                                                                               |                                                                                                                                                                                                       |    | Page
|                             
|Part I. Financial Information |                                                                                               |                                                                                                                                                                                                       |    |     
|                              | Item 1. XO Communications, Inc. and Subsidiaries Condensed Consolidated Financial Statements  |                                                                                                                                                                                                       |    |      |  
|                              |                                                                                               | Condensed Consolidated Balance Sheets for Reorganized XO as of March
31, 2003 and January 1, 2003 and for Predecessor XO as of December 31, 2002                                                      |    |      | 1 | 
|                              |                                                                                               | Condensed Consolidated Statements of Operations for Reorganized XO for the Three Months
Ended March 31, 2003 and for Predecessor XO for January 1, 2003 and for the Three Months
Ended March 31, 2002 |    |      | 2 | 
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows for Reorganized XO for the Three Months
Ended March 31, 2003 and for Predecessor XO for January 1, 2003 and for the Three Months
Ended March 31, 2002 |    |      | 3 | 
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                                                                                                                  |    |      | 4 | 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                                                                                                       |    | 15   |  
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                                                                                                       |    | 24   |  
|                              | Item 4. Controls and Procedures                                                               |                                                                                                                                                                                                       |    | 24   |  
|Part II. Other Information    |                                                                                               |                                                                                                                                                                                                       |    |     
|                              | Item 1. Legal Proceedings                                                                     |                                                                                                                                                                                                       |    | 25   |  
|                              | Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                                                                                                       |    | 25   |  
|                              | Item 3. Defaults Upon Securities                                                              |                                                                                                                                                                                                       |    | 25   |  
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                                                                                                       |    | 25   |  
|                              | Item 5. Other Information                                                                     |                                                                                                                                                                                                       |    | 25   |  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                                                                                                       |    | 25   |  
|Signatures                    |                                                                                               |                                                                                                                                                                                                       | 26 |     
|Certifications                |                                                                                               |                                                                                                                                                                                                       | 27 |     

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PART I. FINANCIAL INFORMATION
    Item 1. Financial Statements

XO Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except for share and per share data)

|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |            |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------- | -------------- | --------- | -------------- | ------- | -------------- | --------- |  | --------- | ---------- | ---------- | -
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         | Reorganized XO |           | Reorganized XO |         | Predecessor XO
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         | March 31,      |           | January 1,     |         | December 31,  
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         | 2003           |           | 2003           |         | 2002          
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |               
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         | (Unaudited)    |           | (Unaudited)    |         |                |           | 
|ASSETS                                                                                                                                                                                                             |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|Current assets:                                                                                                                                                                                                    |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   | Cash and cash equivalents                                                                                                                                                                                                      |                                                      | $       | 288,764        |           |                | $       | 314,038        |           |  | $         | 314,038    |           
|                                                                                                                                                                                                                   | Marketable securities                                                                                                                                                                                                          |                                                      |         | 249,616        |           |                |         | 246,945        |           |  |           | 246,945    |           
|                                                                                                                                                                                                                   | Accounts receivable, net of allowance for doubtful
accounts of $38,965 at March 31, 2003; $37,030, at
January 1, 2003 and at December 31, 2002, respectively                                                                   |                                                      |         | 105,549        |           |                |         | 116,541        |           |  |           | 116,541    |           
|                                                                                                                                                                                                                   | Other current assets                                                                                                                                                                                                           |                                                      |         | 28,564         |           |                |         | 35,192         |           |  |           | 83,480     |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                | Total current assets                                 |         |                | 672,493   |                |         |                | 712,716   |  |           |            | 761,004    |  
|Property and equipment, net                                                                                                                                                                                        |                                                                                                                                                                                                                                |                                                      | 476,509 |                |           |                | 476,588 |                |           |  | 2,780,589 |           
|Fixed wireless licenses and other intangibles, net                                                                                                                                                                 |                                                                                                                                                                                                                                |                                                      | 129,137 |                |           |                | 135,678 |                |           |  | 984,614   |           
|Other assets, net                                                                                                                                                                                                  |                                                                                                                                                                                                                                |                                                      | 45,804  |                |           |                | 23,108  |                |           |  | 59,289    |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                | Total assets                                         |         | $              | 1,323,943 |                |         | $              | 1,348,090 |  |           | $          | 4,585,496  |  
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |            |           
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                                     |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|Current liabilities:                                                                                                                                                                                               |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   | Accounts payable                                                                                                                                                                                                               |                                                      | $       | 56,304         |           |                | $       | 67,268         |           |  | $         | 63,729     |           
|                                                                                                                                                                                                                   | Accrued liabilities                                                                                                                                                                                                            |                                                      |         | 232,872        |           |                |         | 235,192        |           |  |           | 266,102    |           
|                                                                                                                                                                                                                   | Current liabilities subject to compromise                                                                                                                                                                                      |                                                      |         |               |           |                |         |               |           |  |           | 5,497,207  |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                | Total current liabilities                            |         |                | 289,176   |                |         |                | 302,460   |  |           |            | 5,827,038  |  
|Long-term liabilities not subject to compromise                                                                                                                                                                    |                                                                                                                                                                                                                                |                                                      |        |                |           |                |        |                |           |  | 75,242    |           
|Long-term liabilities subject to compromise                                                                                                                                                                        |                                                                                                                                                                                                                                |                                                      |        |                |           |                |        |                |           |  | 7,182     |           
|Long-term debt                                                                                                                                                                                                     |                                                                                                                                                                                                                                |                                                      | 507,868 |                |           |                | 500,000 |                |           |  |          |           
|Other long-term liabilities                                                                                                                                                                                        |                                                                                                                                                                                                                                |                                                      | 72,585  |                |           |                | 70,630  |                |           |  |          |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                | Total liabilities                                    |         |                | 869,629   |                |         |                | 873,090   |  |           |            | 5,909,462  |  
|Predecessor XO redeemable preferred stock: par value
$0.01 per share, 25,000,000 shares authorized: 7,856,918
shares issued and outstanding, aggregate liquidation
preference of $1,693,293, subject to compromise |                                                                                                                                                                                                                                |                                                      |        |                |           |                |        |                |           |  | 1,708,316 |           
|Commitments and contingencies                                                                                                                                                                                      |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|Stockholders equity (deficit):                                                                                                                                                                                    |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   | Reorganized XO preferred stock: par value $0.01 per
share, 200,000,000 shares authorized: none issued                                                                                                                          |                                                      |         |               |           |                |         |               |           |  |           |           |           
|                                                                                                                                                                                                                   | Predecessor XO common stock, par value $0.02 per
share, Class A, 1,000,000,000 shares authorized: 331,033,219 shares issued and outstanding, Class B,
120,000,000 shares authorized: 104,423,158 shares
issued and outstanding |                                                      |         |               |           |                |         |               |           |  |           | 4,628,139  |           
|                                                                                                                                                                                                                   | Reorganized XO common stock, par value $0.01 per
share, 1,000,000,000 shares authorized: 95,000,001
shares issued and outstanding on
March 31, 2003                                                                            |                                                      |         | 475,000        |           |                |         | 475,000        |           |  |           |           |           
|                                                                                                                                                                                                                   | Deferred compensation                                                                                                                                                                                                          |                                                      |         |               |           |                |         |               |           |  |           | (8,500     | )         
|                                                                                                                                                                                                                   | Accumulated other comprehensive income (loss)                                                                                                                                                                                  |                                                      |         | (198           | )         |                |         |               |           |  |           | 2,512      |           
|                                                                                                                                                                                                                   | Accumulated deficit                                                                                                                                                                                                            |                                                      |         | (20,488        | )         |                |         |               |           |  |           | (7,654,433 | )         
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                | Total stockholders equity (deficit)                 |         |                | 454,314   |                |         |                | 475,000   |  |           |            | (3,032,282 | )
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |           
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                | Total liabilities and stockholders equity (deficit) |         | $              | 1,323,943 |                |         | $              | 1,348,090 |  |           | $          | 4,585,496  |  
|                                                                                                                                                                                                                   |                                                                                                                                                                                                                                |                                                      |         |                |           |                |         |                |           |  |           |            |           

See accompanying notes to the unaudited condensed consolidated financial statements.

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XO Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except for share and per share data)
(Unaudited)

|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |         |         | 
|------------------------------------------------------------------------------------- | ------------------------------- | ------------------------ | ---------- | ------------------ | ------- | -------------- | ----------- | --------- | - | ------------------ | ----------- | ------- | ------- | 
|                                                                                      |                                 |                          |            | Reorganized XO     |         | Predecessor XO
|                                                                                      |                                 |                          |            |                    |         |               
|                                                                                      |                                 |                          |            | Three months ended |         |                |             |           |   | Three months ended
|                                                                                      |                                 |                          |            | March 31,          |         | January 1,     |             | March 31,
|                                                                                      |                                 |                          |            | 2003               |         | 2003           |             | 2002     
|                                                                                      |                                 |                          |            |                    |         |                |             |          
|Revenue                                                                               |                                 | $                        | 286,093    |                    |         | $              |            |           |   | $                  | 333,405     |        
|Costs and expenses:                                                                   |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|                                                                                      | Cost of service                 |                          |            | 107,506            |         |                |             |          |   |                    |             | 140,367 |        
|                                                                                      | Selling, operating, and general |                          |            | 166,235            |         |                |             |          |   |                    |             | 205,250 |        
|                                                                                      | Stock-based compensation        |                          |            |                   |         |                |             |          |   |                    |             | 9,095   |        
|                                                                                      | Depreciation and amortization   |                          |            | 26,367             |         |                |             |          |   |                    |             | 161,356 |        
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|                                                                                      |                                 | Total costs and expenses |            |                    | 300,108 |                |             |           |  |                    |             |         | 516,068 | 
|Income (loss) from operations                                                         |                                 |                          | (14,015    | )                  |         |                |            |           |   |                    | (182,663    | )      
|Interest income                                                                       |                                 |                          | 3,210      |                    |         |                |            |           |   |                    | 5,540       |        
|Interest expense, net                                                                 |                                 |                          | (9,683     | )                  |         |                |            |           |   |                    | (120,726    | )      
|Other income (loss), net                                                              |                                 |                          |           |                    |         |                |            |           |   |                    | (203        | )      
|Reorganization gain (expense), net                                                    |                                 |                          |           |                    |         |                | 3,032,282   |           |   |                    | (976        | )      
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|Net income (loss) before cumulative effect of accounting change                       |                                 |                          | (20,488    | )                  |         |                | 3,032,282   |           |   |                    | (299,028    | )      
|Cumulative effect of accounting change                                                |                                 |                          |           |                    |         |                |            |           |   |                    | (1,876,626  | )      
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|Net income (loss)                                                                     |                                 |                          | (20,488    | )                  |         |                | 3,032,282   |           |   |                    | (2,175,654  | )      
|Preferred stock dividends and accretion of preferred stock
redemption obligation, net |                                 |                          |           |                    |         |                |            |           |   |                    | (22,826     | )      
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|Net income (loss) applicable to common shares                                         |                                 | $                        | (20,488    | )                  |         | $              | 3,032,282   |           |   | $                  | (2,198,480  | )      
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|Net income (loss) per common share, basic and diluted:                                |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|Net income (loss) before cumulative effect of accounting change                       |                                 | $                        | (0.22      | )                  |         | $              | 6.86        |           |   | $                  | (0.68       | )      
|Cumulative effect of accounting change                                                |                                 |                          |           |                    |         |                |            |           |   |                    | (4.24       | )      
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|Net income (loss)                                                                     |                                 |                          | (0.22      | )                  |         |                | 6.86        |           |   |                    | (4.92       | )      
|Preferred stock dividends and accretion of preferred stock
redemption obligation, net |                                 |                          |           |                    |         |                |            |           |   |                    | (0.05       | )      
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|Net income (loss) per common share, basic and diluted                                 |                                 | $                        | (0.22      | )                  |         | $              | 6.86        |           |   | $                  | (4.97       | )      
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        
|Weighted average shares, basic and diluted                                            |                                 |                          | 95,000,001 |                    |         |                | 441,964,342 |           |   |                    | 442,205,796 |        
|                                                                                      |                                 |                          |            |                    |         |                |             |           |   |                    |             |        

See accompanying notes to the unaudited condensed consolidated financial statements.

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XO Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

|                                                                                                   |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |        |           |  
|-------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------- | ------- | ------------------ | ------ | -------------- | --------- | --------- | ---------- | ------------------ | ---------- | ------ | --------- | -
|                                                                                                   |                                                                                               |                                        |         | Reorganized XO     |        | Predecessor XO
|                                                                                                   |                                                                                               |                                        |         |                    |        |               
|                                                                                                   |                                                                                               |                                        |         | Three months ended |        |                |           |           |            | Three months ended
|                                                                                                   |                                                                                               |                                        |         | March 31,          |        | January 1,     |           | March 31,
|                                                                                                   |                                                                                               |                                        |         | 2003               |        | 2003           |           | 2002     
|                                                                                                   |                                                                                               |                                        |         |                    |        |                |           |          
|OPERATING ACTIVITIES:                                                                              |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Net income (loss)                                                                                  |                                                                                               | $                                      | (20,488 | )                  |        | $              | 3,032,282 |           |            | $                  | (2,175,654 | )     
|Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|                                                                                                   |                                                                                               | Non-cash reorganization items          |         |                    |       |                |           |           | (3,032,282 | )                  |            |        |          |  
|                                                                                                   |                                                                                               | Depreciation and amortization          |         |                    | 26,367 |                |           |           |           |                    |            |        | 161,356   |  
|                                                                                                   |                                                                                               | Stock-based compensation               |         |                    |       |                |           |           |           |                    |            |        | 9,095     |  
|                                                                                                   |                                                                                               | Cumulative effect of accounting change |         |                    |       |                |           |           |           |                    |            |        | 1,876,626 |  
|                                                                                                   |                                                                                               | Accretion of interest                  |         |                    | 9,897  |                |           |           |           |                    |            |        | 36,045    |  
|Changes in assets and liabilities:                                                                 |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|                                                                                                   |                                                                                               | Accounts receivable                    |         |                    | 15,176 |                |           |           |           |                    |            |        | 39,224    |  
|                                                                                                   |                                                                                               | Other assets                           |         |                    | 982    |                |           |           |           |                    |            |        | (17,164   | )
|                                                                                                   |                                                                                               | Accounts payable                       |         |                    | (4,586 | )              |           |           |           |                    |            |        | 23,671    |  
|                                                                                                   |                                                                                               | Accrued liabilities                    |         |                    | (3,158 | )              |           |           |           |                    |            |        | (607      | )
|                                                                                                   |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Net cash provided by (used in) operating activities                                                |                                                                                               |                                        | 24,190  |                    |        |                |          |           |            |                    | (47,408    | )     
|INVESTING ACTIVITIES:                                                                              |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Purchases of property and equipment                                                                |                                                                                               |                                        | (21,377 | )                  |        |                |          |           |            |                    | (136,454   | )     
|Proceeds from sales of property and equipment                                                      |                                                                                               |                                        |        |                    |        |                |          |           |            |                    | 24,339     |       
|Sales of marketable securities                                                                     |                                                                                               |                                        | 30,825  |                    |        |                |          |           |            |                    | 278,293    |       
|Purchases of marketable securities                                                                 |                                                                                               |                                        | (33,693 | )                  |        |                |          |           |            |                    | (8,224     | )     
|Net releases (purchases) of escrowed/pledged securities                                            |                                                                                               |                                        | (25,000 | )                  |        |                |          |           |            |                    | 1,960      |       
|                                                                                                   |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Net cash provided by (used in) investing activities                                                |                                                                                               |                                        | (49,245 | )                  |        |                |          |           |            |                    | 159,914    |       
|FINANCING ACTIVITIES:                                                                              |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Repayments of capital leases and other obligations                                                 |                                                                                               |                                        | (219    | )                  |        |                |          |           |            |                    | (4,848     | )     
|                                                                                                   |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Net cash used in financing activities                                                              |                                                                                               |                                        | (219    | )                  |        |                |          |           |            |                    | (4,848     | )     
|Effect of exchange rate changes on cash                                                            |                                                                                               |                                        |        |                    |        |                |          |           |            |                    | (1,256     | )     
|                                                                                                   |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Net increase (decrease) in cash and cash equivalents                                               |                                                                                               |                                        | (25,274 | )                  |        |                |          |           |            |                    | 106,402    |       
|Cash and cash equivalents, beginning of period                                                     |                                                                                               |                                        | 314,038 |                    |        |                | 314,038   |           |            |                    | 246,189    |       
|                                                                                                   |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Cash and cash equivalents, end of period                                                           |                                                                                               | $                                      | 288,764 |                    |        | $              | 314,038   |           |            | $                  | 352,591    |       
|                                                                                                   |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|SUPPLEMENTAL DATA:                                                                                 |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|Non-cash financing and investing activities:                                                       |                                                                                               |                                        |         |                    |        |                |           |           |            |                    |            |       
|                                                                                                   | Accrued redeemable preferred stock dividends,
payable in shares of redeemable preferred stock |                                        | $       |                   |        |                | $         |          |            |                    | $          | 12,357 |          
|Cash paid for interest                                                                             |                                                                                               | $                                      | 213     |                    |        | $              |          |           |            | $                  | 19,192     |       

See accompanying notes to the unaudited condensed consolidated financial statements.

3



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##### 



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

1.     BASIS OF PRESENTATION

As further discussed in the annual report on Form 10-K of XO
Communications, Inc. (XO Parent) and its subsidiaries (together with its
predecessors, collectively referred to as the Company or XO) for the year
ended December 31, 2002 as filed with the Securities and Exchange Commission
(the Commission) on March 21, 2003 (the 2002 Annual Report), XO Parent
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code (the Bankruptcy Code) with the United States Bankruptcy Court
for the Southern District of New York (the Bankruptcy Court), on June 17,
2002 (the Petition Date). XO Parent emerged from the Bankruptcy Court
proceedings pursuant to the terms of its third amended plan of reorganization
(the Plan of Reorganization) on January 16, 2003 (the Effective Date). As
discussed in note 2, the Company implemented the fresh start accounting
provisions (fresh start) of the American Institute of Certified Public
Accountants Statement of Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code, (SOP 90-7) as of January 1, 2003.
Under fresh start, the fair value of the reorganized Company was allocated
among its assets and liabilities, and its accumulated deficit as of January 1,
2003 was eliminated. As discussed in note 2, the implementation of fresh start
has resulted in a substantial reduction in the carrying value of the Companys
long-lived assets, including property and equipment, fixed wireless licenses,
other intangible assets and other noncurrent assets. As a result, the
predecessor financial statements are not comparable to financial statements of
the reorganized Company.

The condensed consolidated financial statements of XO are unaudited and
have been prepared in accordance with generally accepted accounting principles
in the United States for interim financial statements and the Commissions
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 generally
accepted accounting principles in the United States for complete financial
statements. As discussed further in note 2, the condensed consolidated
statements of operations and cash flows for Reorganized XO for the three months
ended March 31, 2003, show the operations of the reorganized Company from and
including January 1, 2003, the date that the reorganized Company applied fresh
start, through March 31, 2003. Predecessor XOs January 1, 2003 statements of
operations and cash flows reflect only the effect of the reorganization and
application of fresh start as of such date and do not reflect any operating
results. Operating results for the three month period ended March 31, 2003 are
not necessarily indicative of the results that may be expected for any
subsequent quarterly period, or for the year ending December 31, 2003.

2.     REORGANIZATION AND FRESH START ACCOUNTING

On the Effective Date, XO Parent consummated the Plan of Reorganization
and it emerged from its Chapter 11 reorganization proceedings with a
significantly restructured balance sheet. As described in more detail in the
2002 Annual Report, the consummation of the Plan of Reorganization resulted in
the following changes in XO Parents capital structure:



| |  |  | The conversion of $1.0 billion of loans under its pre-petition
secured credit facility into $500.0 million of outstanding principal
amount under a new credit agreement (the New Credit Agreement);                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The extinguishment of all amounts due under its pre-petition
unsecured senior and subordinated notes and certain general unsecured
obligations;                                                                                    
|
| |  |  | The cancellation of all outstanding shares and interests in its
pre-petition preferred stock and pre-petition common stock; and                                                                                                    
|
| |  |  | The issuance of approximately 95.0 million shares of common stock
of the reorganized Company (New Common Stock) and warrants to
purchase up to an additional 23.75 million shares of New Common Stock
of the reorganized Company.

4



---



##### 



The Company adopted fresh start as of January 1, 2003.
Although the
Effective Date of the Plan of Reorganization was January 16, 2003, due to the
immateriality of the results of operations for the period between
January 1, 2003 and the Effective Date, the Company has accounted for the
consummation of the Plan of Reorganization as if it had occurred on January 1,
2003 and implemented fresh start as of that date. Fresh start required that the
Company adjust the historical cost of its assets and liabilities to their fair
values as determined by the reorganization value of the Company and that the
reorganization value be allocated among the reorganized entitys net assets in
conformity with procedures specified by Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, (SFAS No. 141). The
Company engaged an independent appraiser to assist in the allocation of the
reorganization value to the reorganized Companys assets and liabilities by
determining the fair market value of its property and equipment, intangible
assets and certain obligations related to its facility leases. The accompanying
January 1, 2003 statement of operations and balance sheet show the impact of
this valuation, but do not reflect any of the Companys operating results as
attributable to that date. A reconciliation of the adjustments recorded in
connection with the reorganization and the adoption of fresh start is presented
below (in thousands):

|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |         |           | 
|------------------------------------------------------ | ----------------------------------------- | ---------------------------------------------------- | --------- | ------------ | ---------- | -------------- | ---------- | ---------- | ---------- | - | -- | --------------- | - | ----------- | ---------- | ---------- | ---------- | ----------- | ------- | ------- | --------- | 
|                                                       |                                           |                                                      |           | Predecessor  |            |                |            |            |            |   |    |                 |   |             |            |            |            | Reorganized
|                                                       |                                           |                                                      |           | XO           |            |                |            |            |            |   |    |                 |   |             |            |            |            | XO         
|                                                       |                                           |                                                      |           | December 31, |            |                |            |            |            |   |    |                 |   |             |            |            |            | January 1, 
|                                                       |                                           |                                                      |           | 2002         |            |                |            |            |            |   |    |                 |   | Fresh Start |            | 2003      
|                                                       |                                           |                                                      |           | (Audited)    |            | Reorganization |            |            |            |   |    | Adjustments (d) |   | (Unaudited)
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |            
|ASSETS                                                 |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|Current assets:                                        |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       | Cash and cash equivalents                 |                                                      | $         | 314,038      |            |                | $          |           |            |   |    |                 |   |             | $          |           |            |             | $       | 314,038 |          
|                                                       | Marketable securities                     |                                                      |           | 246,945      |            |                |            |           |            |   |    |                 |   |             |            |           |            |             |         | 246,945 |          
|                                                       | Accounts receivable, net                  |                                                      |           | 116,541      |            |                |            |           |            |   |    |                 |   |             |            |           |            |             |         | 116,541 |          
|                                                       | Other current assets                      |                                                      |           | 83,480       |            |                |            |           |            |   |    |                 |   |             |            | (48,288    | )          |             |         | 35,192  |          
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       |                                           | Total current assets                                 |           |              | 761,004    |                |            |            |           |   |    |                 |   |             |            |            | (48,288    | )           |         |         | 712,716   | 
|Property and equipment, net                            |                                           |                                                      | 2,780,589 |              |            |                |           |            |            |   |    |                 |   |             | (2,304,001 | )          |            |             | 476,588 |        
|Fixed wireless licenses and other intangibles, net     |                                           |                                                      | 984,614   |              |            |                |           |            |            |   |    |                 |   |             | (848,936   | )          |            |             | 135,678 |        
|Other assets, net                                      |                                           |                                                      | 59,289    |              |            |                |           |            |            |   |    |                 |   |             | (36,181    | )          |            |             | 23,108  |        
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       |                                           | Total assets                                         |           | $            | 4,585,496  |                |            | $          |           |   |    |                 |   |             |            | $          | (3,237,406 | )           |         | $       | 1,348,090 | 
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY         |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|Current liabilities:                                   |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       | Accounts payable                          |                                                      | $         | 63,729       |            |                | $          |           |            |   |    |                 |   |             | $          | 3,539      |            |             | $       | 67,268  |          
|                                                       | Accrued liabilities                       |                                                      |           | 266,102      |            |                |            |           |            |   |    |                 |   |             |            | (30,910    | )          |             |         | 235,192 |          
|                                                       | Current liabilities subject to compromise |                                                      |           | 5,497,207    |            |                |            | (5,466,667 | )          |   |    | (a              | ) |             |            | (30,540    | )          |             |         |        |          
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|Total current liabilities                              |                                           |                                                      | 5,827,038 |              |            |                | (5,466,667 | )          |            |   |    |                 |   |             | (57,911    | )          |            |             | 302,460 |        
|Long-term debt                                         |                                           |                                                      |          |              |            |                | 500,000    |            |            |   | (b | )               |   |             |           |            |            |             | 500,000 |        
|Other long-term liabilities                            |                                           |                                                      | 75,242    |              |            |                |           |            |            |   |    |                 |   |             | (4,612     | )          |            |             | 70,630  |        
|Long-term liabilities subject to compromise            |                                           |                                                      | 7,182     |              |            |                |           |            |            |   |    |                 |   |             | (7,182     | )          |            |             |        |        
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       |                                           | Total liabilities                                    |           |              | 5,909,462  |                |            |            | (4,966,667 | ) |    |                 |   |             |            |            | (69,705    | )           |         |         | 873,090   | 
|Predecessor XO redeemable preferred stock 
subject to |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       | compromise                                |                                                      |           | 1,708,316    |            |                |            | (1,708,316 | )          |   |    | (a              | ) |             |            |           |            |             |         |        |          
|Stockholders (deficit) equity:                        |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       | Predecessor XO common stock               |                                                      |           | 4,628,139    |            |                |            |           |            |   |    |                 |   |             |            | (4,628,139 | )          |             |         |        |          
|                                                       | Reorganized XO common stock and warrants  |                                                      |           |             |            |                |            | 475,000    |            |   |    | (c              | ) |             |            |           |            |             |         | 475,000 |          
|                                                       | Deferred compensation                     |                                                      |           | (8,500       | )          |                |            |           |            |   |    |                 |   |             |            | 8,500      |            |             |         |        |          
|                                                       | Accumulated other comprehensive income    |                                                      |           | 2,512        |            |                |            |           |            |   |    |                 |   |             |            | (2,512     | )          |             |         |        |          
|                                                       | Accumulated deficit                       |                                                      |           | (7,654,433   | )          |                |            | 6,199,983  |            |   |    |                 |   |             |            | 1,454,450  |            |             |         |        |          
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       |                                           | Total stockholders (deficit) equity                 |           |              | (3,032,282 | )              |            |            | 6,674,983  |   |    |                 |   |             |            |            | (3,167,701 | )           |         |         | 475,000   | 
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        
|                                                       |                                           | Total liabilities and stockholders
(deficit) equity |           | $            | 4,585,496  |                |            | $          |           |   |    |                 |   |             |            | $          | (3,237,406 | )           |         | $       | 1,348,090 | 
|                                                       |                                           |                                                      |           |              |            |                |            |            |            |   |    |                 |   |             |            |            |            |             |         |        



|(a) |  | To record the discharge of pre-petition indebtedness, including a
$1.0 billion credit facility, $4.2 billion of senior and convertible
subordinated notes, and $245.2 million of accrued interest, and the
elimination of $1.7 billion of pre-petition redeemable preferred stock
and $50.6 million of accrued dividends all in accordance with the Plan
of Reorganization.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | To record the outstanding principal under the New Credit Agreement,
in accordance with the Plan of Reorganization.                                                                                                                                                                                                                                                         
|   
|(c) |  | To record the issuance of New Common Stock and warrants in
accordance with the Plan of Reorganization.                                                                                                                                                                                                                                                                     
|   
|(d) |  | To adjust the carrying value of assets, liabilities and
stockholders equity to fair value, in accordance with fresh start.                                                                                                                                                                                                                                                

5



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##### 



Reorganization gain on January 1, 2003 consisted of the following (dollars
in thousands):

|                                                                                     |                                |   |            |           | 
|------------------------------------------------------------------------------------ | ------------------------------ | - | ---------- | --------- | 
|Net gain resulting from reorganization of debt, preferred
stock and equity           |                                | $ | 6,199,983  |          
|Net loss resulting from fresh start fair value
adjustments to assets and liabilities |                                |   | (3,167,701 | )        
|                                                                                     |                                |   |            |          
|                                                                                     | Total reorganization gain, net |   | $          | 3,032,282 | 
|                                                                                     |                                |   |            |          

As of December 31, 2002, the Company had incurred $91.1 million in net
reorganization expenses which included the write-off of deferred financing fees
associated with the issuance of XOs pre-petition debt and professional fees
incurred in conjunction with the Companys recapitalization.

3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Review of Significant Accounting Policies

As discussed in note 2, the Company adopted fresh start as of January 1,
2003, creating, in substance, per SOP 90-7, a new reporting entity. The
reorganized Company has adopted the policy of expensing customer installation
costs and internal labor directly associated with network
construction in the period in which the costs are incurred. The predecessor
Company capitalized and amortized these costs. In accordance with SOP 90-7, the
reorganized Company was also required to implement newly issued accounting
pronouncements that would require adoption within twelve months of applying
fresh start.

Principles of Consolidation

The Companys condensed consolidated financial statements include all of
the assets, liabilities and results of operations of subsidiaries in which the
Company has a controlling interest. All inter-company accounts and transactions
among consolidated entities have been eliminated.

Preparation of Condensed Consolidated Financial Statements

The preparation of condensed 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 condensed consolidated financial statements and
the reported amounts of revenue and expenses during the reporting period.
Management periodically assesses the accuracy of these estimates and
assumptions. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of money market accounts that are available on
demand. The carrying amount of these instruments approximates fair value due to
their short maturities.

Marketable Securities

Substantially all of the Companys marketable
securities currently consist of U.S.
government agency issued and other high-grade and highly-liquid securities with
original maturities beyond three months. The Company classifies investments in
debt and equity securities as available-for-sale and records such investments
at fair value. The fair values are based on quoted market prices. Unrealized
gains and losses on available-for-sale marketable securities are reported as a
separate component of comprehensive income. Realized gains and losses for
available-for-sale securities are recognized in interest income.

Long-Lived Assets

Long-lived assets includes property and equipment, fixed wireless
licenses, and intangible assets to be held and used. Long-lived assets,
excluding intangible assets with indefinite useful lives, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount should be addressed pursuant to SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, (SFAS No. 144). The
criteria for determining impairment for such long-lived assets to be held and
used is determined by comparing the carrying value of these long-lived assets
to managements best estimate of future undiscounted cash flows expected to
result
from the use of the assets. The Company believes that no impairment
existed under SFAS No. 144 as of March 31, 2003. In the event that there are
changes in the planned use of the Companys long-lived assets or its expected
future undiscounted cash flows are reduced significantly, the Companys
assessment of its ability to recover the carrying value of these assets under
SFAS No. 144 could change.

6



---



##### 



Intangible assets with indefinite useful lives are tested for impairment
annually or more frequently if an event indicates that the asset might be
impaired. In accordance with SFAS No. 142, the fair value of these intangible
assets is determined based on a discounted cash flow methodology.

Property and Equipment

Property and equipment acquired prior to December 31, 2002 is stated at
its fair value at January 1, 2003, as required by fresh start, net of
subsequent depreciation. Additions to property and equipment during 2003 are
stated at cost, net of accumulated depreciation. Depreciation is calculated on
a straight-line basis over the estimated useful lives of the assets beginning
in the month telecommunications networks and acquired bandwidth are
substantially complete and available for use and in the month equipment and
furniture are acquired. Telecommunications networks and bandwidth include the
deployment of fiber optic cable and telecommunications hardware and software
for the expressed purpose of delivering telecommunications services. Costs of
additions and improvements are capitalized, and repairs and maintenance are
charged to expense as incurred. Direct external costs of constructing property
and equipment are capitalized including interest costs related to construction.
The reorganized Company has adopted the policy of expensing internal labor directly associated with network
construction in the period in which the costs are incurred.

Equipment held under capital leases is stated at the lower of the fair
value of the asset or the net present value of the minimum lease payments at
the inception of the lease. For equipment held under capital leases,
depreciation is provided using the straight-line method over the shorter of the
estimated useful lives of the assets owned or the related lease term.

The estimated useful lives of property and equipment are as follows:

|                                                   |  |                                                                     
|-------------------------------------------------- |  | --------------------------------------------------------------------
|Telecommunications networks and acquired bandwidth |  | 3-20 years                                                          
|Furniture, fixtures, equipment, and other          |  | 5-7 years                                                           
|Leasehold improvements                             |  | the shorter of the estimated
useful lives or
the terms of the leases

These useful lives are determined based on historical usage with
consideration given to technological changes and trends in the industry, which
could impact the network architecture and asset utilization. Accordingly, in
making this assessment, the Company considers its planned use of the assets,
the views of experts within the Company and outside sources regarding the
impact of technological advances and trends in the industry on the value and
useful lives of its network assets.

Fixed Wireless Licenses and Other Intangibles

Fixed wireless licenses acquired prior to December 31, 2002 are stated at
their fair values at January 1, 2003, as required by fresh start, net of
subsequent amortization. The Company is amortizing these licenses over an
estimated useful life of 10 years based on the initial license term granted by
the Federal Communications Commission. Amortization commences when commercial
service using fixed wireless technology is deployed in the licenses geographic
area.

Other intangibles of the Company are valued at fair value as required by
the provisions of fresh start and SFAS No. 141 and consist of customer
relationships, internally developed technology and XOs trade name. The
customer relationships and internally developed technology are being amortized
using the straight-line method over their estimated useful lives of three
years. The XO trade name was determined to have an indefinite life.
Accordingly, it is not subject to amortization; however, it is reviewed at
least annually for impairment as required under SFAS No. 142, Goodwill and
Other Intangible Assets, (SFAS No. 142).

Other Assets

Other assets consist primarily of escrow and security deposits,
investments in publicly traded companies and pledged securities. The escrow and
security deposits and pledged securities are stated at cost, and their fair
value approximates their carrying value. Investments in publicly traded
companies are stated at fair value.

7



---



##### 



Income Taxes

The Company accounts for income taxes in accordance with the provisions of
SFAS No.109, Accounting for Income Taxes, (SFAS No. 109) which requires
that deferred income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. Valuation
allowances are used to reduce deferred tax assets to the amount considered
likely to be realized.

As of December 31, 2002, the Company had capital loss carryforwards of
approximately $0.5 billion and net operating loss carryforwards of
approximately $4.0 billion. As of the Effective Date, the Company recognized a
substantial amount of taxable income from the cancellation of indebtedness.
Accordingly, a substantial portion of the Companys $4.5 billion of capital and
net operating loss carryforwards have been eliminated. Other tax attributes,
including property bases, have also been reduced. Any surviving capital or net
operating loss carryforwards will be subject to limitations imposed under the
ownership change rules in the U.S. Internal Revenue Code. As discussed in more
detail in note 10, the Company will join with the affiliated group of
corporations controlled by Mr. Carl C. Icahn in filing a consolidated federal
income tax return for periods following the Effective Date.

Revenue Recognition

Revenues from telecommunication services are recognized when the services
are performed, evidence of an arrangement exists, the fee is fixed and
determinable and collectibility is probable. In circumstances when these
criteria are not met, revenue recognition is deferred until resolution occurs.

Service discounts and incentives related to telecommunication services are
recorded as a reduction of revenue when granted or ratably over a contract
period. Fees billed in connection with customer installations and other upfront
charges are deferred and recognized ratably over the estimated customer life.

Revenue from the sale or lease of unlit network capacity is recognized
upon consummation of the transaction and the acquirers acceptance of the
capacity in instances when the Company receives upfront cash payments and is
contractually obligated to transfer title to the specified capacity at the end
of the contract term. If the transaction does not meet these criteria, revenue
is recognized ratably over the contract term. There were no sales of unlit
capacity during the three months ended March 31, 2003 and March 31, 2002.

The Company establishes allowances for collection of doubtful accounts and
other sales credit adjustments. Allowances for sales credits are established
through a charge to revenue, while allowances for doubtful accounts are
established through a charge to selling, operating and general expense. The
Company assesses the adequacy of these reserves monthly by considering general
factors, such as the length of time individual receivables are past due,
historical collection experience, the economic and competitive environment, and
changes in the credit worthiness of its customers. The Company believes that
the established valuation allowances were adequate as of March 31, 2003 and
December 31, 2002. If circumstances relating to specific customers change or
economic conditions worsen such that the Companys past collection experience
and assessment of the economic environment are no longer relevant, XOs
estimate of the recoverability of its trade receivables could be further
reduced.

Cost of Service

Cost of service includes expenses directly associated with providing
telecommunications services to customers, including, among other items, the
cost of connecting customers to the Companys networks via leased facilities,
the costs of leasing components of our network facilities and costs paid to
third party providers for interconnect access and transport services. All such
costs are expensed as incurred. The Company accrues for the expected costs of
services received from third party telecommunications providers during the
period the services are rendered. Invoices received from the third party
telecommunications providers are often disputed due to billing discrepancies.
The Company accrues for all invoiced amounts, even amounts in dispute, as these
amounts represent contingent liabilities that are considered probable and
measurable. Disputes resolved in the Companys favor may reduce cost of service
in the period the dispute is settled and typically reflect costs paid in the prior periods. Because the period of time required to resolve these
types of disputes often lapses over several quarters, the benefits associated
with the favorable resolution of such disputes normally are realized in periods
subsequent to the accrual of the disputed invoice. During the first quarter of
2003, the settlements resulted in approximately $6.4 million of net benefit to cost of
service.

8



---



##### 



Net Income (Loss) Per Share

Net income (loss) per common share, basic and diluted, is computed by
dividing income (loss) applicable to common shares by the weighted average
number of common shares outstanding for the period. In periods of net loss, the
assumed common share equivalents for options and warrants are anti-dilutive.

Stock-Based Compensation

Effective January 1, 2003, the Company adopted the disclosure provisions
of SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure, (SFAS No. 148). This statement amends SFAS No. 123, Accounting
for Stock-Based Compensation, (SFAS No. 123), to provide for alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure provisions of SFAS No. 123 and Accounting Principles
Board Opinion (APB) No. 28, Interim Financial Reporting, (APB No. 28) to
require disclosure in the summary of significant accounting policies of the
effects of an entitys accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and
interim financial statements.

As allowed by SFAS No. 148, the Company has chosen to continue to account
for compensation cost associated with its employee stock plans in accordance
with the intrinsic value method prescribed by APB No. 25, Accounting for Stock
Issued to Employees, (APB No. 25) adopting the disclosure-only provisions of
SFAS No. 123. Under this method, no compensation expense is recorded if stock
options are granted at an exercise price equal to the fair market value of the
Companys stock on the grant date. If the Company had adopted the fair value
method of accounting for its stock awards, stock-based compensation would have
been determined based on the fair value for all stock awards at the grant date
using a Black-Scholes pricing model and the assumptions noted below. The
Companys pro forma net loss applicable to common shares, and pro forma net
loss per common share, basic and diluted, under the fair value method would
have been as follows (dollars in thousands, except per share data):

|                                                  |                                                                                                                                                    |   |                    |        |                    |   |            |       |  
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------ | ------------------ | - | ---------- | ----- | -
|                                                  |                                                                                                                                                    |   | Reorganized XO     |        | Predecessor XO    
|                                                  |                                                                                                                                                    |   | Three months ended |        | Three months ended
|                                                  |                                                                                                                                                    |   | March 31, 2003     |        | March 31, 2002    
|                                                  |                                                                                                                                                    |   |                    |        |                   
|Net loss applicable to common shares, as reported |                                                                                                                                                    | $ | (20,488            | )      |                    | $ | (2,198,480 | )    
|                                                  | Add: Stock-based employee compensation expense included in net loss applicable
to common shares, as reported                                       |   |                    |       |                    |   |            | 9,095 |  
|                                                  | Deduct: Total stock-based employee compensation expense determined under fair
value based methods for all stock awards, net of related tax effects |   |                    | (4,038 | )                  |   |            | (366  | )
|                                                  |                                                                                                                                                    |   |                    |        |                    |   |            |      
|Pro forma net loss                                |                                                                                                                                                    | $ | (24,526            | )      |                    | $ | (2,189,751 | )    
|                                                  |                                                                                                                                                    |   |                    |        |                    |   |            |      
|Net loss per common share, basic and diluted:     |                                                                                                                                                    |   |                    |        |                    |   |            |      
|                                                  | Net loss per common share, basic and diluted  as reported                                                                                         |   | $                  | (0.22  | )                  |   | $          | (4.97 | )
|                                                  |                                                                                                                                                    |   |                    |        |                    |   |            |      
|                                                  | Net loss per common share, basic and diluted  pro forma                                                                                           |   | $                  | (0.26  | )                  |   | $          | (4.95 | )
|                                                  |                                                                                                                                                    |   |                    |        |                    |   |            |      
|Black Scholes Assumptions:                        |                                                                                                                                                    |   |                    |        |                    |   |            |      
|                                                  | Expected volatility                                                                                                                                |   |                    | 75.0   | %                  |   |            | 125.0 | %
|                                                  | Risk free interest rate                                                                                                                            |   |                    | 2.6    | %                  |   |            | 4.0   | %
|                                                  | Dividend yield                                                                                                                                     |   |                    | 0.0    | %                  |   |            | 0.0   | %
|                                                  | Expected life (range in years)                                                                                                                     |   |                    | 4.0    |                    |   |            | 4.0   |  
|                                                  | Weighted average fair value per share at grant date                                                                                                |   | $                  | 2.85   |                    |   | $          | 0.11  |  

Comprehensive Loss

Comprehensive loss includes the Companys
net loss applicable to common
shares, as well as net unrealized gains and losses onavailable-for-sale
investments and, for any periods prior to second quarter 2002, foreign currency
translation adjustments relating to the Companys European operations, which
were disposed of in February 2002.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. Although
the Companys trade receivables are geographically dispersed and include
customers in many different industries, a portion of the Companys revenue is
generated from services provided to other
telecommunications service providers. Several of these companies have
filed for protection under Chapter 11 of the Bankruptcy Code. The Company
believes that its established valuation and credit allowances are adequate as
of March 31, 2003 to cover these risks. The Companys Board of Directors has
recently taken actions that would permit the Company to make
investments in a broader range of securities, including securities that may
increase the Companys credit risk.

9



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Fair Value of Financial Instruments

SFAS No. 107, Disclosure about Fair Value of Financial Instruments
(SFAS No. 107), requires disclosure of fair value information about financial
instruments, for which it is practicable to estimate the value. The carrying
amounts for the Companys financial instruments classified as current assets
and liabilities approximate their fair value due to their short maturities.

Recent Accounting Pronouncements

Effective January 1, 2003, the Company adopted SFAS No. 145, Rescission
of the Financial Accounting Standards Board (the FASB) Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of
April 2002 (SFAS No. 145), which eliminates the requirement to report
material gains or losses from debt extinguishments as an extraordinary item,
net of any applicable income tax effect, in an entitys statement of
operations. SFAS No. 145 instead requires that a gain or loss recognized from a
debt extinguishment be classified as an extraordinary item only when the
extinguishment meets the criteria of both unusual in nature and infrequent
in occurrence as prescribed under APB Opinion No. 30, Reporting the Results
of Operations  Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(APB No. 30). The adoption of SFAS No. 145 had no effect on the Companys
financial position or results of operations for the three months ended March
31, 2003 and 2002. The Company recognized extraordinary gains from debt
repurchases in the third and fourth quarters of 2001. In the future, such gains
will be reclassified in the respective consolidated statements of operations in
accordance with SFAS No. 145.

Effective January 1, 2003, the Company adopted SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities (SFAS No. 146), which
requires that costs, including severance costs, associated with exit or
disposal activities be recorded at their fair value when a liability has been
incurred. Under previous guidance, certain exit costs, including severance
costs, were accrued upon managements commitment to an exit plan, which is
generally before an actual liability has been incurred. In the first quarter of
2003, the Company did not have any exit or disposal activities after December
31, 2002; however, the provisions of SFAS No. 146 were implemented in
conjunction with the Companys implementation of fresh start. Accordingly, as
discussed in note 6, the Companys remaining restructuring accrual has been
reduced to its net present value.

4.     LONG-LIVED ASSETS

As discussed in note 2, the Company applied fresh start on January 1,
2003. Accordingly its property and equipment, fixed wireless licenses and other
intangible assets, have been recorded at their then fair values.

As of March 31, 2003, the Company had
approximately $606 million of
long-lived assets, including approximately $94 million of
construction-in-progress and certain fixed wireless licenses that are not
currently ready for their intended use. Accordingly, these long-lived assets
are not being depreciated or amortized.

Property and Equipment

Property and equipment consisted of the following components (dollars in
thousands):

|                                                   |  |                |         |                |  |                |         |  |  |   |            |  
|-------------------------------------------------- |  | -------------- | ------- | -------------- |  | -------------- | ------- |  |  | - | ---------- | -
|                                                   |  | Reorganized XO |         | Reorganized XO |  | Predecessor XO
|                                                   |  | March 31,      |         | January 1,     |  | December 31,  
|                                                   |  | 2003           |         | 2003           |  | 2002          
|                                                   |  |                |         |                |  |               
|Telecommunications networks and acquired
bandwidth |  | $              | 358,368 |                |  | $              | 359,247 |  |  | $ | 2,920,819  |  
|Furniture, fixtures, equipment, and other          |  |                | 67,301  |                |  |                | 61,501  |  |  |   | 656,994    |  
|                                                   |  |                |         |                |  |                |         |  |  |   |            |  
|                                                   |  |                | 425,669 |                |  |                | 420,748 |  |  |   | 3,577,813  |  
|Less accumulated depreciation                      |  |                | (19,890 | )              |  |                |        |  |  |   | (1,165,216 | )
|                                                   |  |                |         |                |  |                |         |  |  |   |            |  
|                                                   |  |                | 405,779 |                |  |                | 420,748 |  |  |   | 2,412,597  |  
|Network construction-in-progress                   |  |                | 70,730  |                |  |                | 55,840  |  |  |   | 367,992    |  
|                                                   |  |                |         |                |  |                |         |  |  |   |            |  
|                                                   |  | $              | 476,509 |                |  | $              | 476,588 |  |  | $ | 2,780,589  |  
|                                                   |  |                |         |                |  |                |         |  |  |   |            |  

10



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Depreciation expense related to property and equipment for the reorganized
Companys three months ended March 31, 2003 was $19.9 million and for the
predecessor Companys three months ended March 31, 2002 was $135.1 million.

Fixed Wireless
Licenses and Other Intangibles

Fixed wireless licenses and intangible assets consisted of the following
components (dollars in thousands):

|                                      |  |                |         |                |  |                |         |  |  |   |           |  
|------------------------------------- |  | -------------- | ------- | -------------- |  | -------------- | ------- |  |  | - | --------- | -
|                                      |  | Reorganized XO |         | Reorganized XO |  | Predecessor XO
|                                      |  | March 31,      |         | January 1,     |  | December 31,  
|                                      |  | 2003           |         | 2003           |  | 2002          
|                                      |  |                |         |                |  |               
|Fixed wireless licenses               |  | $              | 59,508  |                |  | $              | 59,508  |  |  | $ | 997,942   |  
|Customer relationships                |  |                | 49,987  |                |  |                | 49,987  |  |  |   | 123,745   |  
|Internally developed technology       |  |                | 9,521   |                |  |                | 9,521   |  |  |   |          |  
|Acquired technology                   |  |                |        |                |  |                |        |  |  |   | 130,515   |  
|Other                                 |  |                |        |                |  |                |        |  |  |   | 35,413    |  
|                                      |  |                |         |                |  |                |         |  |  |   |           |  
|                                      |  |                | 119,016 |                |  |                | 119,016 |  |  |   | 1,287,615 |  
|Less accumulated amortization         |  |                | (6,541  | )              |  |                |        |  |  |   | (303,001  | )
|                                      |  |                |         |                |  |                |         |  |  |   |           |  
|                                      |  |                | 112,475 |                |  |                | 119,016 |  |  |   | 984,614   |  
|XO Trade name  indefinite life asset |  |                | 16,662  |                |  |                | 16,662  |  |  |   |          |  
|                                      |  |                |         |                |  |                |         |  |  |   |           |  
|                                      |  | $              | 129,137 |                |  | $              | 135,678 |  |  | $ | 984,614   |  
|                                      |  |                |         |                |  |                |         |  |  |   |           |  

Amortization expense related to intangible assets for the reorganized
Companys three months ended March 31, 2003 was $6.5 million and for the
predecessor Companys three months ended March 31, 2002 was $26.3 million.

Goodwill

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, (SFAS No. 142) which revises the accounting for purchased goodwill
and intangible assets and supersedes APB Opinion No. 17, Intangible Assets
(APB No. 17). As described in greater detail in the 2002 Annual Report, the
predecessor Company performed the required impairment tests of goodwill as of
January 1, 2002, and as a result, during the first quarter of 2002, the
predecessor Company recorded a $1,876.6 million adjustment as a cumulative
effect of accounting change to write-off all of its goodwill.

5.     ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, (SFAS No. 143) which requires an entity to recognize
the fair value of a liability for an asset retirement obligation in the period
in which the entity makes the legal or contractual commitment related to the
removal obligation if a reasonable estimate of fair value can be made. The
Company implemented SFAS No. 143 on January 1, 2003 in conjunction with its
implementation of fresh start.

The Company leases Internet data center facilities and various technical
sites. Terminating and decommissioning these locations would require the
removal of any XO assets and restoration of the leased space to its original
condition. Accordingly, upon adoption of SFAS No. 143, the Company recorded an
estimated asset retirement obligation of $12.0 million, which was estimated
using the weighted average probability of incurring these costs in the future.
The present value of the asset retirement obligation was calculated using a
discount rate of 8.0% over a period of 5-20 years, which is representative of
the estimated remaining period XO will occupy its data centers and technical
facilities.

6.     RESTRUCTURING CHARGES AND ASSET WRITE-DOWNS

During the second half of 2001, and the first half of 2002, the Company
implemented a plan to restructure certain of its business operations. The
restructuring plan included reducing the Companys discretionary spending,
capital expenditures and workforce based on its assessment at that time of then
current and expected future market conditions and the divestiture of its
European operations. As of March 31, 2003, the remaining restructuring accrual
was $37.8 million, which relates primarily to payments due to landlords on
exited leased facilities. The restructuring
accrual has decreased from $125.8 million as of December 31, 2001,
primarily due to payments associated with exited leased facilities and
adjustments made in conjunction with the Companys implementation of fresh
start to appropriately reflect the remaining accrual at its net present value
in accordance with the provisions of SFAS No. 146.

11



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7.     LONG-TERM DEBT

As discussed in the 2002 Annual Report and in note 2, upon the Effective
Date the $1.0 billion of loans under the pre-petition senior secured credit
facility were converted into 90.25 million shares of New Common Stock of the
reorganized Company and $500.0 million of outstanding principal amount of loans
under the New Credit Agreement. The maturity date of the outstanding principal
under the New Credit Agreement is July 15, 2009 and automatic and permanent
quarterly reductions of the principal amount commence on October 15, 2007. The
security for the New Credit Agreement consists of all assets of XO Parent,
including stock of its direct and indirect subsidiaries, and all assets of
virtually all of those subsidiaries. The New Credit Agreement limits additional
indebtedness, liens, dividend payments and certain investments and
transactions, and contains certain covenants with respect to minimum cash
balance and EBITDA (earnings before interest, taxes, depreciation and
amortization) requirements and maximum capital expenditures. Under certain
circumstances, the New Credit Agreement permits the Company to obtain a senior
secured facility of up to $200.0 million, subject to reduction in an amount
equal to any proceeds received from the exercise of rights in a rights offering
to be undertaken in accordance with the Plan of Reorganization. At March 31,
2003, long-term debt totaled $507.9 million including $500.0 million principal
amount outstanding on the New Credit Agreement and accrued interest thereon
totaling $7.9 million. Approximately 85% of the underlying loans of the New
Credit Agreement are held by Arnos Corp., an entity controlled by Mr. Carl C.
Icahn.

The Company is not required to pay interest accrued on the principal
amount under the New Credit Agreement until it meets certain financial ratios;
however the Company can elect to begin paying interest in cash prior to the
required date. Loans under the New Credit Agreement bear interest, at the
Companys option, at an alternate base rate, as defined, or a Eurodollar rate,
plus in each case, applicable margins. Once the Company begins to pay accrued
interest in cash, the applicable margins are reduced. At March 31, 2003, the
annualized weighted average interest rate applicable to outstanding borrowings
under the New Credit Agreement was 7.66%.

Also upon the Effective Date, all of XO Parents pre-petition unsecured
senior notes and pre-petition general unsecured claims were cancelled in
exchange for (i) 4,750,000 shares of New Common Stock of the reorganized
Company, (ii) warrants to purchase shares up to an additional 23,750,000 shares
of New Common Stock of the reorganized Company (iii) rights to purchase shares
of New Common Stock in a rights offering to be undertaken in accordance with
the Plan of Reorganization and (iv) a portion of the cash consideration
received by XO Parent in connection with the settlement and termination of the
proposed investment transaction that was the basis for the first restructuring
alternative contemplated by the Plan of Reorganization, discussed further in
note 8. Holders of pre-petition subordinated notes of XO Parent had their
securities cancelled, and received a cash payment under certain terms as
defined by the Plan of Reorganization and are entitled to participate in a
rights offering to be undertaken in accordance with the Plan of Reorganization.

8.     STOCKHOLDERS EQUITY

Pursuant to the Companys Certificate of Incorporation that was adopted in
connection with the Plan of Reorganization, the Company has the authority to
issue 1,000.0 million shares of New Common Stock and 200.0 million shares of
new preferred stock. At March 31, 2003, approximately 95.0 million shares of
New Common Stock had been issued, more than 80% of which were owned and controlled by
Cardiff Holding LLC (Cardiff), a Delaware limited liability company
controlled by Mr. Icahn.

As a result of the cancellation of the pre-petition senior notes and
pre-petition general unsecured claims, discussed in note 7, pursuant to the
Plan of Reorganization, such holders were granted warrants to purchase shares
up to an additional 23.75 million shares of New Common Stock.

The warrants consist of:



| |  |  | Series A Warrants to purchase 9.5 million shares of New
Common Stock at an exercise price of $6.25 per share;
| | - |  | -------------------------------------------------------------------------------------------------------------

12



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| |  |  | Series B Warrants to purchase approximately 7.1 million
shares of New Common Stock at an exercise price of $7.50 per share;
and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Series C Warrants to purchase approximately 7.1 million
shares of New Common Stock at an exercise price of $10.00 per share.   

The warrants are included in reorganized XOs common stock in the
accompanying condensed consolidated balance sheet. The warrants will expire 7
years after the date of issuance. The exercise price applicable to each
respective series of warrants is subject to adjustment in certain events. Of
the warrants distributed under the Plan of Reorganization, XO estimates Cardiff
received Series A Warrants to purchase approximately 3.0 million shares of New
Common Stock, Series B Warrants to purchase approximately 2.3 million shares of
New Common Stock, and Series C Warrants to purchase approximately 2.3 million
shares of New Common Stock.

The Companys pre-petition Class A
common stock stopped trading on the
National Association of Securities Dealers, Inc.Over-the-Counter Bulletin
Board (the OTCBB) as of the Effective Date, and the Companys New Common
Stock began trading on the OTCBB and the pink sheets (www.pinksheets.com) under the symbol XOCM shortly thereafter.
Pursuant to the Plan of Reorganization, all interests in the Companys
pre-petition Class A and Class B common stock were terminated as of the
Effective Date. As discussed in note 2, the Companys pre-petition redeemable
preferred stock was cancelled and discharged and the holders of such securities
received no distribution under the Plan of Reorganization, but are entitled to
participate in a rights offering to be undertaken in accordance with the Plan
of Reorganization.

9.     OPERATING SEGMENTS

The Company operates its business as one communications segment and
classifies its products and services revenues offered by its communications
services segment into voice services, data services and integrated voice and
data services (dollars in thousands):

|                                   |               |   |                    |         |                    |   |         |         | 
|---------------------------------- | ------------- | - | ------------------ | ------- | ------------------ | - | ------- | ------- | 
|                                   |               |   | Reorganized XO     |         | Predecessor XO    
|                                   |               |   | Three months ended |         | Three months ended
|                                   |               |   | March 31,          |         | March 31,         
|                                   |               |   | 2003               |         | 2002              
|                                   |               |   |                    |         |                   
|Voice services                     |               | $ | 150,723            |         |                    | $ | 168,834 |        
|Data services                      |               |   | 101,977            |         |                    |   | 135,761 |        
|Integrated voice and
data services |               |   | 33,393             |         |                    |   | 28,810  |        
|                                   |               |   |                    |         |                    |   |         |        
|                                   | Total revenue |   | $                  | 286,093 |                    |   | $       | 333,405 | 
|                                   |               |   |                    |         |                    |   |         |        

10.     RELATED PARTY TRANSACTIONS

In February 2003, Dixon Properties, LLC (Dixon), which is controlled by
Mr. Icahn, acquired ownership of the building in which XO headquarters is
located in a transaction that was approved by the Bankruptcy Court. XO
currently leases approximately 170,000 square feet of space in that building.
In connection with Dixons purchase of the building, it assumed the Companys
existing lease agreement and amended the lease to include certain terms that are more favorable to
the Company. Pursuant to the assumed lease agreement, XO is obligated to pay
approximately $19.0 million in the aggregate to Dixon through the expiration of
the initial term of the lease, which is November 30, 2007.

XO Parent has entered into a Tax Allocation Agreement, dated January 16,
2003, between XO Parent and Starfire Holding Corporation (Starfire), the
parent entity of the affiliated group of corporations controlled by Mr. Icahn,
which in turn indirectly controls Cardiff, because it is contemplated that
these entities will be filing consolidated federal income tax returns, and
possibly combined returns for state tax purposes. The Tax Allocation Agreement,
which was approved by the Bankruptcy Court in connection with XO Parents
Chapter 11 proceedings, establishes the methodology for the calculation and
payment of income taxes in connection with the consolidation of the Company
with Starfire for income tax purposes. Generally, the Tax Allocation Agreement
provides that Starfire will pay all consolidated federal income taxes on behalf
of the consolidated group that includes the Company, and the Company will make
payments to Starfire in an amount equal to the tax liability, if any, that it
would have if it were to file as a consolidated group separate and apart from
Starfire.

The Company provides certain telecommunications services to affiliates of
Mr. Icahn at rates that the Company believes are comparable to rates charged
other customers that purchase similar services and volumes. For the three months
ended March 31, 2003, the Company recognized revenue of approximately $88
thousand with respect to these services and had outstanding receivables for
such services at March 31, 2003 of approximately $83 thousand.

13



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11.     STOCK-BASED COMPENSATION

Upon the Effective Date of the Plan of Reorganization, all options under
the predecessor XO stock option plans were cancelled and the plans were
terminated. Upon consummation of the Plan of Reorganization, on the Effective
Date, the XO Communications, Inc. 2002 Stock Incentive Plan (the 2002 Stock
Incentive Plan) was adopted. Under the 2002 Stock Incentive Plan, the Company
is authorized to issue awards in the form of restricted stock or options to
purchase stock, pursuant to which up to 17.6 million shares of New Common Stock
may be issued. Non-qualified options to purchase 11.4 million shares of New
Common Stock have been granted and are outstanding as of March 31, 2003.

12.     COMMITMENTS AND CONTINGENCIES

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.
However, as discussed above, although XO Parent has consummated its Plan of
Reorganization and emerged from its Chapter 11 proceedings, disputes with
respect to the amount of allowed claims owed by XO Parent to certain of its
general unsecured creditors, and claims of certain professionals remain
outstanding.
In addition, a party has filed a complaint in the Bankruptcy Court
seeking relief from the courts order confirming the Plan of
Reorganization and a declaratory judgment that such partys
derivative suit for the benefit of the Company against a former
director of XO Parent and an affiliate of that director should not be released by the
confirmation order.
While the outcome of these matters, or any other relief that may be
granted, 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.

Prepaid Calling Card Tax Matter

On July 26, 2002, the Company was advised by the staff of the Commission
that it was conducting an informal inquiry primarily relating to the Companys
obligations with respect to, and its accrual of liabilities for, specified
federal excise and state sales tax and similar tax obligations arising in
connection with prepaid calling card services and relating to certain other
matters. Sales from prepaid calling card services that are potentially subject
to these taxes accounted for approximately $56 million of the Companys total
revenues from 1999, when the Company began providing these services, through
June 30, 2002. The Company believes that its accounting for these potential tax
obligations is appropriate and that its accruals of liabilities relating to
these obligations are adequate.

Unfunded Affiliate Pension Obligation

As affiliates of Mr. Icahn hold over 80% of the outstanding New Common
Stock of XO Parent, applicable pension and tax laws make each member of a plan
sponsors controlled group (generally defined as entities in which there is
at least an 80% common ownership interest) jointly and severally liable for
certain pension plan obligations of the plan sponsor. These pension obligations
include ongoing contributions to fund the plan, as well as liability for any
unfunded liabilities that may exist at the time the plan is terminated. In
addition, the failure to pay these pension obligations when due may result in
the creation of liens in favor of the pension plan or the Pension Benefit
Guaranty Corporation, (the PBGC) against the assets of each member of the
plan sponsors controlled group.

As a result of the more than 80% ownership interest in XO Parent by Mr.
Icahns affiliates, XO Parent and its subsidiaries will be subject to the
pension liabilities of any entities in which Mr. Icahn has a direct or indirect
ownership interest of at least 80%, which includes ACF Industries, Inc.
(ACF), which is the sponsor of certain pension plans. As most recently
determined by the ACF plans actuaries, pension plans maintained by ACF are
underfunded in the aggregate by approximately $14 million on an ongoing
actuarial basis and by approximately $102 million if those plans were
terminated. As a member of the same controlled group, XO Parent and each of its
subsidiaries would be liable for any failure of ACF to make ongoing pension
contributions or to pay the unfunded liabilities upon a termination of the ACF
pension plans.

The current underfunded status of the ACF pension plans requires ACF to
notify the PBGC if XO Parent or its subsidiaries cease to be a member of the
ACF controlled group. In addition, so long as the Company remains a member of
the ACF controlled group, certain other reportable events, including certain
extraordinary dividends and stock redemptions, must be reported to the PBGC.

14



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PART I. FINANCIAL INFORMATION

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

Forward-looking and Cautionary Statements

Some of the statements contained in this filing discuss future
expectations and business strategies or include other forward-looking
information. Those statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions. We undertake no obligation to publicly update or revise any
forward-looking statements.

Overview

We provide a comprehensive array of voice and data communications services
to business customers. Our voice services include local and long distance, both
bundled and standalone, other voice-related services such as conferencing,
domestic and international toll free services and voicemail, and transactions
processing services for prepaid calling cards. Our data services include
Internet access, private data networking, including dedicated transmission
capacity on our networks, virtual private network services and Ethernet
services, and hosting services. We also combine many of these services in flat
rate service packages. These services are offered to a variety of customers,
including small, medium and large retail business, multi-location businesses
and carrier or wholesale customers.

To serve our customers broad and expanding telecommunications needs, we
operate a network comprised of a series of rings of fiber optic cables located
in the central business districts of numerous metropolitan areas, which we
refer to as metro fiber networks, that are connected primarily by a network of
numerous dedicated wavelengths on fiber optic cables, which we refer to as an
intercity network. By integrating these networks with advanced communications
technologies, we are able to provide a comprehensive array of communications
services entirely over a network that we own or control, from the initiation of
the voice or data transmission to the point of termination, which we refer to
as end-to-end service. This capability enables us to provide communication
services between customers connected to our network and among customers with
multiple locations entirely over our network.

To develop these networks, we have assembled a collection of metro and
inter-city network assets in the United States, substantially all of which we
own or control, making us a facilities-based carrier. These network assets
incorporate state-of-the-art fiber optic cable, dedicated wavelengths of
transmission capacity on fiber optic networks and transmission equipment
capable of carrying high volumes of data, voice, video and Internet traffic. We
operate 37 metro broadband fiber optic networks in 22 states and the District
of Columbia, including 25 of the 30 largest metropolitan areas in the U.S. We
have constructed or acquired many of these metro networks, which consist of up
to 432 strands of fiber optic cable and, in some cases, additional empty fiber
conduits through which fiber optic cable can be deployed. For our inter-city
network, we have acquired dedicated, high-capacity wavelengths on fiber optic
cables, onto which we have deployed our own switching, routing and optical
equipment, thereby giving us greater control over the transmission of voice and
data information. We also hold indefeasible exclusive rights to use 18 unlit
fiber optic strands on the routes served by our intercity networks pursuant to
arrangements with Level 3 Communications, Inc.

Recent Events

Announcement of Chief Executive Officer Appointment

On April 28, 2003, we announced that we had hired Carl J. Grivner as our
new Chief Executive Officer effective May 15, 2003. Effective May 1, 2003, Mr.
Grivner joined XO as a member of the newly created Office of the Chairman. Mr.
Grivners career in telecom and technology spans more than 25 years. He most
recently served as Chief Operating Officer of Global Crossing, Ltd. Prior to
joining Global Crossing in June 2000, Mr. Grivner served as Chief Executive
Officer of Worldport Communications and before that he served as Chief
Executive Officer, Western Hemisphere, of Cable & Wireless PLC. Additionally,
Mr. Grivner has held various senior executive positions at Advanced Fiber
Communications and Ameritech.

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Our Chapter 11 Reorganization and Emergence

The Reorganization Proceedings

On June 17, 2002, XO Parent filed for protection under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York. On November 15, 2002, the Bankruptcy Court confirmed XO Parents
plan of reorganization, and, on January 16, 2003, the Effective Date, XO Parent
consummated the plan of reorganization and it emerged from its Chapter 11
reorganization proceedings with a significantly restructured balance sheet. As
described in more detail in our annual report on Form 10-K for the year ended
December 31, 2002 as filed with the Securities and Exchange Commission on March
21, 2003, hereinafter referred to as the 2002 Annual Report, the consummation
of the Plan of Reorganization resulted in the following changes in our debt and
equity capital structure:



| |  |  | The conversion of $1.0 billion of loans under XO Parents
pre-petition senior secured credit facility, which we refer to as the
Pre-Petition Credit Facility, into $500.0 million of outstanding
principal amount which we refer to as the New Credit Agreement;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The extinguishment of all amounts due under our pre-petition
unsecured senior and subordinated notes and certain general unsecured
obligations; and                                                                                                             
|
| |  |  | The cancellation of all outstanding shares and interest in our
pre-petition preferred stock and pre-petition common stock.                                                                                                                                      

Under our Plan of Reorganization the following equity securities have been
or will be distributed to holders of XO Parents Pre-Petition Credit Facility,
pre-petition unsecured senior subordinated notes, and pre-petition general
unsecured claims:



| |  |  | 95.0 million shares of common stock of the reorganized company,
which we refer to as the New Common Stock;                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Series A Warrants to purchase 9.5 million shares of New Common
Stock at an exercise price of $6.25 per share;                  
|
| |  |  | Series B Warrants to purchase approximately 7.1 million shares of
New Common Stock at an exercise price of $7.50 per share; and
|
| |  |  | Series C Warrants to purchase approximately 7.1 million shares of
New Common Stock at an exercise price of $10.00 per share.   

Under the Plan of Reorganization and after the Securities and Exchange
Commission, or the SEC, has declared effective our registration statement, XO
Parent will issue to certain holders of claims and/or interests in XO Parent
who held such claims and/or interests as of the November 15, 2002 record date,
rights to subscribe for up to 40,000,000 shares of New Common Stock, at $5.00
per share for an aggregate purchase price of up to $200.0 million through a
rights offering, which we refer to as the Rights Offering. In addition, holders
of shares of pre-petition class A common stock of XO Parent will receive
additional nontransferable rights to the extent that the rights otherwise
allocable to such holders in the Rights Offering are exercisable for less than
3,333,333 shares of New Common Stock. Accordingly, not less than 40,000,000 and
not more than 43,333,333 shares at $5.00 per share will be offered in the
Rights Offering.

Pursuant to the order confirming the Plan of Reorganization, the Rights
Offering will not take place until the date a registration statement covering
the offer and sale of such rights and shares to be offered thereunder is filed
with the SEC and such Registration Statement becomes effective. We have not yet
filed a registration statement with respect to the rights and the Rights
Offering.

Distributions to and Interests Held by Entities Controlled by Mr. Carl C.
Icahn

After the initial distribution of New Common Stock pursuant to the Plan of
Reorganization, Cardiff Holding LLC, a Delaware limited liability company
controlled by Mr. Carl C. Icahn, holds more than 80% of the outstanding shares
of New Common Stock. Of the warrants to be distributed under the Plan of
Reorganization to holders of the pre-petition senior unsecured notes, we
estimate Cardiff will receive Series A Warrants to purchase approximately 3.0
million shares of New Common Stock, Series B Warrants to purchase approximately
2.3 million shares of New Common Stock, and Series C Warrants to purchase
approximately 2.3 million shares of New Common Stock. In
addition, approximately 85% of the $500.0 million in loans outstanding
under the New Credit Agreement are held by Arnos Corp., an entity which is also
controlled by Mr. Icahn.

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Accounting Impact of Implementing the Plan of Reorganization

Due to XO Parents emergence from its Chapter 11 proceeding, we have
implemented the fresh start accounting provisions of the American Institute
of Certified Public Accountants, or the AICPA, Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code,
hereinafter referred to as SOP 90-7, to our financial statements. Fresh start
requires that, upon our emergence, we establish a fair value basis for the
carrying value of the assets and liabilities for reorganized XO. Although the
effective date of the Plan of Reorganization was January 16, 2003, due to the
immateriality of the results of operations for the period between January 1,
2003 and the Effective Date, we accounted for the consummation of the Plan of
Reorganization as if it had occurred on January 1, 2003 and implemented fresh
start as of that date. The January 1, 2003 balance sheet included in the
accompanying condensed consolidated financial statements set forth in Item 1
above, and in note 2 to such financial statements, illustrates the impact of
applying fresh start.

Comparison of Financial Results

As a consequence of the Chapter 11 reorganization, the first quarter
financial results have been separately presented under the label Reorganized
XO for the period January 1, 2003 to March 31, 2003. The results for
Predecessor XO for January 1, 2003 reflect solely the impact of the
application of fresh start on that date. The reorganized Company has adopted the policy of expensing customer installation costs and internal labor directly associated with network construction in the period in
which the costs are incurred. The predecessor Company capitalized and amortized
these costs. In accordance with SOP 90-7, the reorganized Company was required
to implement newly issued accounting pronouncements that would require adoption
within twelve months of applying fresh start.

The operational results for the quarter are discussed below.

Three Months Ended March 31, 2003 versus Three Months Ended March 31, 2002

Revenue. Total revenue for the three months ended March 31, 2003 decreased
14.2% to $286.1 million from $333.4 million in the same period of 2002. The
decline is primarily due to a high level of customer disconnects due to reduced
demand from other telecommunications companies, customer bankruptcies in the
telecommunication industry, and the weakened economy. In addition, sales
productivity was reduced due to fewer direct sales representatives and adverse
public perception that accompanied our Chapter 11 proceedings. To increase
sales activity in 2003, we are in the process of hiring additional direct sales
personnel. Programs launched in 2002 to decrease customer disconnects will
continue. New order entry and order processing systems, which are designed to
improve speed and efficiency of new customer installations, are partially
installed, and we expect to complete installation of these systems in the
second half of 2003. We believe that total revenue in the near term will remain
relatively stable with first quarter 2003 results. Given our recent emergence from bankruptcy and continued
uncertainty in the economy and our industry specifically, we are unable to predict revenue trends in future periods. Revenue was earned from providing the
following services (dollars in thousands):

|                          |               |   |                    |         |                    |  |      |       |              |   |          |         |  |  |      |       |   |  |       |       |   
|------------------------- | ------------- | - | ------------------ | ------- | ------------------ |  | ---- | ----- | ------------ | - | -------- | ------- |  |  | ---- | ----- | - |  | ----- | ----- | --
|                          |               |   | Reorganized XO     |         | Predecessor XO     |  |      |       |             
|                          |               |   | Three Months Ended |         | Three Months Ended |  |      |       |             
|                          |               |   | March 31,          |         | March 31,          |  |      |       |             
|                          |               |   |                    |         |                    |  |     
|                          |               |   | 2003               |         | % of Revenue       |  | 2002 |       | % of Revenue |   | % Change
|                          |               |   |                    |         |                    |  |      |       |              |   |         
|Voice services            |               | $ | 150,723            |         |                    |  | 52.7 | %     |              | $ | 168,834  |         |  |  | 50.7 | %     |   |  | (10.7 | %)   
|Data services             |               |   | 101,977            |         |                    |  | 35.6 | %     |              |   | 135,761  |         |  |  | 40.7 | %     |   |  | (24.9 | %)   
|Integrated voice and data |               |   | 33,393             |         |                    |  | 11.7 | %     |              |   | 28,810   |         |  |  | 8.6  | %     |   |  | 15.9  | %    
|                          |               |   |                    |         |                    |  |      |       |              |   |          |         |  |  |      |       |   |  |       |      
|                          | Total revenue |   | $                  | 286,093 |                    |  |      | 100.0 | %            |   | $        | 333,405 |  |  |      | 100.0 | % |  |       | (14.2 | %)
|                          |               |   |                    |         |                    |  |      |       |              |   |          |         |  |  |      |       |   |  |       |      

Voice services revenue includes revenue from bundled local and long
distance voice services, prepaid calling card processing, and other voice
communications based services, interactive voice response services and
stand-alone long distance services. Voice services revenue in the first quarter
of 2003 decreased to $150.7 million from $168.8 million in the first quarter of
2002. The decrease is primarily attributable to customer bankruptcy impacts in
the telecommunications industry, continued customer disconnects due to the
state of the economy and reduced sales productivity in 2002 due to our
bankruptcy filing.

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Data services revenue includes revenue from Internet access, network
access and web applications hosting services. Data services revenue in the
first quarter of 2003 decreased to $102.0 million from $135.8 million in the
first quarter of 2002. The decline was attributable to customer bankruptcies,
continued customer disconnects, and a lower demand from large customers due to
reductions in those customers data capacity needs. The sale of our European
operations in February 2002 also contributed somewhat to this decline.

Integrated voice and data services revenue is generated largely from our
XOptions service offerings, a flat-rate bundled package offering a combination
of voice and data services. Integrated voice and data services revenue in the
first quarter of 2003 increased to $33.4 million from $28.8 million in the
first quarter of 2002. The increase is due to the success of our XOptions
service offering.

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

|                    |                                |   |                    |         |                    |  |      |      |              |   |          |         |  |  |  |      |   |  |       |       |   
|------------------- | ------------------------------ | - | ------------------ | ------- | ------------------ |  | ---- | ---- | ------------ | - | -------- | ------- |  |  |  | ---- | - |  | ----- | ----- | --
|                    |                                |   | Reorganized XO     |         | Predecessor XO     |  |      |      |             
|                    |                                |   | Three Months Ended |         | Three Months Ended |  |      |      |             
|                    |                                |   | March 31,          |         | March 31,          |  |      |      |             
|                    |                                |   |                    |         |                    |  |     
|                    |                                |   | 2003               |         | % of Revenue       |  | 2002 |      | % of Revenue |   | % Change
|                    |                                |   |                    |         |                    |  |      |      |              |   |         
|Costs and expenses: |                                |   |                    |         |                    |  |      |      |              |   |          |         |  |  |  |      |   |  |       |      
|                    | Cost of service                |   | $                  | 107,506 |                    |  |      | 37.6 | %            |   | $        | 140,367 |  |  |  | 42.1 | % |  |       | (23.4 | %)
|                    | Selling, operating and general |   |                    | 166,235 |                    |  |      | 58.1 | %            |   |          | 205,250 |  |  |  | 61.6 | % |  |       | (19.0 | %)
|                    | Stock-based compensation       |   |                    |        |                    |  |      |     |              |   |          | 9,095   |  |  |  | 2.7  | % |  | NM   
|                    | Depreciation and amortization  |   |                    | 26,367  |                    |  |      | 9.2  | %            |   |          | 161,356 |  |  |  | 48.4 | % |  | NM   
|                    |                                |   |                    |         |                    |  |      |      |              |   |          |         |  |  |  |      |   |  |       |      
|Total               |                                | $ | 300,108            |         |                    |  |      |      |              | $ | 516,068  |         |  |  |  |      |   |  | (41.9 | %)   
|                    |                                |   |                    |         |                    |  |      |      |              |   |          |         |  |  |  |      |   |  |       |      

NM  Not Meaningful

Cost of service. Cost of service includes expenses directly associated
with providing telecommunications services to our customers. Cost of service
includes, among other items, the cost of connecting customers to our networks
via leased facilities, the costs of leasing components of our network
facilities and costs paid to third party providers for interconnect access and
transport services. Cost of service for the three months ended March 31, 2003
of $107.5 million decreased in absolute dollars and as a percentage of revenue
versus $140.4 million in the period ended March 31, 2002. The year over year
2003 decline was due primarily to cost optimization programs which reduced
expenses by transferring traffic from leased facilities onto our owned or
controlled facilities, reduced costs due to customer disconnects and approximately $6.4
million of net benefit associated with favorable resolution of disputed third
party costs. The decline was somewhat offset by our adoption of an accounting
policy during the first quarter of 2003 to cease the deferral of costs associated with the
installation of customer services and expense such installation costs as
incurred.

We anticipate that cost of service will increase
to historical levels as a percentage of revenue in future periods, based on our expectation that
the reduction in expenses resulting from favorable dispute resolutions will be
less than we experienced in the first quarter of 2003. In addition, we expect
cost of service will also fluctuate based on trends in revenue, product mix,
the impact of customer bankruptcies and regulatory decisions.

Selling, operating and general.Selling, operating and general expense
includes expenses related to sales and marketing, internal network operations
and engineering, information systems, general corporate office functions and
collection risks. Selling, operating and general expense in the first quarter
of 2003 was $166.2 million versus $205.3 million in the first quarter of 2002.
Selling, operating and general expense decreased due to the centralization of
many functions, cost reduction and restructuring initiatives that included
significant headcount reductions and savings from the planned exit of our
European operations. In addition, recording our real estate contracts at their
fair value, as required by fresh start, contributed to the decrease. The
decline was somewhat offset by our adoption of the policy of expensing internal labor directly associated with the
construction of our network, which resulted in a $5.7 million increase in selling, operating and general expense in that period.

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We expect selling, operating and general expense to increase
in
absolute dollars for the remainder of 2003 due primarily to new sales incentive
programs and increased compensation costs.

Stock-based compensation. Stock-based compensation expense represents
non-cash charges recorded in connection with the grant of compensatory stock
options and restricted stock to employees whose compensation is included in
selling, operating and general expense. During the first quarter of 2003, XO
incurred no stock-based compensation expense as its deferred compensation
balance was eliminated in conjunction with fresh start. XO incurred $9.1
million in deferred compensation expense in the first quarter of 2002. The
reorganized company will recognize stock-based compensation only with respect
to any new grants of compensatory stock options and restricted stock.

Depreciation and amortization. As discussed above, we implemented fresh
start on January 1, 2003 which resulted in a reduction of the carrying value of
our property and equipment to its estimated fair value which is significantly
lower than historical cost. Consequently, depreciation expense decreased to
$19.9 million in the first quarter of 2003, versus $135.1 million in the first
quarter of 2002. Amortization expense includes the amortization of fixed
wireless licenses and other intangible assets with definite lives. As a result
of fresh start accounting, the carrying value of fixed wireless licenses and
intangible assets were adjusted to their estimated fair value. The aggregate
estimated fair value of these assets is significantly lower than their
historical cost. Total amortization expense decreased to $6.5 million for the
first quarter of 2003 versus $26.3 million in the first quarter of 2002.

We would expect depreciation and amortization expense for the remainder of
the year to continue to track with the first quarter 2003 amount. As of March
31, 2003, we had approximately $606 million of long-lived assets, including
approximately $94 million of construction-in-progress and certain fixed
wireless licenses that are not currently ready for their intended use and
accordingly, are not currently being depreciated or amortized.

Interest income. Interest income in the first quarter of 2003 decreased to
$3.2 million from $5.5 million in the first quarter of 2002. The decrease in
interest income is due to reduced interest rates.

Interest expense, net.Interest expense, net in the first quarter of 2003
decreased to $9.7 million from $120.7 million in the first quarter of 2002. The
significant reduction was principally caused by the cancellation of our
pre-petition senior notes, pre-petition convertible subordinated notes and the
Pre-Petition Credit Facility upon consummation of our Plan of Reorganization.
Interest expense for the three months ended March 31, 2003 primarily relates to
interest accreted on the New Credit Agreement.

Other income (loss), net.Other income (loss), net was zero in the first
quarter of 2003, versus a net loss of $0.2 million in the first quarter of
2002.

Net income (loss) before cumulative effect of accounting change. Net loss
before cumulative effect of accounting change for the reorganized company in
the first quarter of 2003 was $20.5 million versus a net loss before cumulative
effect of accounting change of $299.0 million for the predecessor company in
the first quarter of 2002, due to the foregoing factors.

Cumulative effect of accounting change.We performed the required
impairment tests of goodwill as required by SFAS No. 142 as of January 1, 2002.
Based on these tests, we recorded a $1,876.6 million impairment charge to
write-off all of our goodwill as a cumulative effect of accounting change
during the first quarter of 2002.

Net income (loss). Net loss for the reorganized company in the first
quarter of 2003 was $20.5 million versus a net loss for the predecessor company
for the first quarter of 2002 of $2,175.7 million, due to the foregoing
factors.

Preferred stock dividends and accretion of preferred stock redemption
obligation, net.As a result of our implementation of fresh start, as discussed
above, our pre-petition redeemable preferred stock has been cancelled and
discharged. As a result, the reorganized company recorded no preferred stock
dividends during the first quarter of 2003 versus $22.8 million net expense for
the predecessor companys first quarter of 2002.

Net income (loss) applicable to common shares.Net loss applicable to
common shares for the reorganized company in the first quarter of 2003 was
$20.5 million. Net loss applicable to common shares for the predecessor company
was $2,198.5 million in the first quarter of 2002.

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Critical Accounting Policies

Our significant accounting policies are more fully described in the notes
to the consolidated financial statements in our 2002 Annual Report and in note
3 to the accompanying condensed consolidated financial statements set forth in
Item 1 above. The preparation of the condensed consolidated financial
statements in accordance with accounting principles generally accepted in the
United States requires management to make judgments, estimates and assumptions
regarding uncertainties that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses. Management uses historical experience and all
available information to make these judgments and estimates and actual results
could differ from those estimates and assumptions that are used to prepare our
financial statements at any given time. Despite these inherent limitations,
management believes that Managements Discussion and Analysis and the
accompanying condensed consolidated financial statements and footnotes provide
a meaningful and fair perspective of our financial condition and our operating
results for the current period. Management believes the following critical
accounting policies represent the more significant judgments and estimates used
in the preparation of our condensed consolidated financial statements included
in this Quarterly Report on Form 10-Q.

Long-Lived Assets

Our long-lived assets include property and equipment, fixed wireless
licenses, and identifiable intangible assets to be held and used. Property and
equipment acquired prior to December 31, 2002 is stated at fair value as
required by fresh start, net of accumulated depreciation. Additions to property
and equipment during 2003 are stated at historical cost, net of accumulated
depreciation. Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets. The estimated useful lives of
telecommunications networks and acquired bandwidth are 3 to 20 years and 5 to 7
years for furniture fixtures, equipment and other. These useful lives are
determined based on historical usage with consideration given to technological
changes and trends in the industry that could impact the network architecture
and asset utilization. This latter assessment is significant because we operate
within an industry in which new technological changes could render some or all
of our network related equipment obsolete requiring application of a shorter
useful life or, in certain circumstances, a write-off of the entire value of
the asset. Accordingly, in making this assessment, we consider our planned use
of the assets, the views of experts both from internal and outside sources
regarding the impact of technological advances and trends in the industry on
the value and useful lives of our network assets. Costs of additions and
improvements (other than internal labor costs related to network construction, as discussed below) are
capitalized and repairs and maintenance are charged to expense as incurred.
Direct external costs of constructing property and equipment are capitalized
including interest costs related to construction. The reorganized Company has
adopted the policy of expensing internal
labor directly associated with network construction in the period in which the
costs are incurred.

Investments in fixed wireless licenses acquired prior to December 31, 2002
are stated at fair value as required by fresh start, net of accumulated
amortization. We are amortizing these over the license period of 10 years as
determined by the Federal Communications Commission. Other intangibles consist
of customer relationships, internally developed technology and XOs trade name.
The customer relationships and internally developed technology are being
amortized using the straight-line method over the estimated useful lives of
three years. The XO trade name was determined to have an indefinite life and is
not being amortized, but is reviewed at least annually for impairment, as
required under Statement of Financial Accounting Standards, or SFAS, No. 142
Goodwill and Other Intangible Assets, or SFAS No. 142.

Depreciation or amortization of the long-lived asset begins when the asset
is substantially complete or placed into service. At March 31, 2003, our
balance sheet includes approximately $606 million of long-lived assets,
including approximately $94 million of construction-in-process and certain
fixed wireless licenses, that were either not ready for their intended use or
not placed into service, and accordingly are not being depreciated or
amortized.

Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount should be addressed pursuant
to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, or SFAS No. 144. The criteria for determining impairment for
long-lived assets to be held and used is determined by comparing the carrying
value of these long-lived assets to managements best estimate of future
undiscounted cash flows expected to result from the use of the assets and their
eventual disposition. We believe that no impairment existed under SFAS No. 144
as of March 31, 2003. In the event that there are changes in the planned use of
our long-lived assets or our expected future undiscounted cash flows are
reduced significantly, our assessment of our ability to recover the carrying
value of these assets under SFAS No. 144 could change.

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Revenue Recognition

Revenues from telecommunications services are recognized when the services
are performed, evidence of an arrangement exists, the fee is fixed and
determinable and collectibility is probable. In circumstances when these
criteria are not met, revenue recognition is deferred until resolution occurs.
For example, if a customer files bankruptcy, we believe the probability of
collection is weakened. Consequently, under such circumstances, although we
continue to bill the customer for all services provided, we do not recognize
revenue until cash is received. In addition, telecommunications customers often
dispute the amounts that we invoice them due to regulatory issues, late payment
fees and disconnection penalties based on differences of opinion regarding
contract terms or service levels. Accordingly, these billings are not
considered fixed and determinable and collection of such amounts is not
considered probable while these disputed amounts are billed, revenue
recognition is deferred until the dispute is resolved and the cash is
collected.

Service discounts and incentives related to telecommunications services
are recorded as a reduction of revenue when granted or ratably over a contract
period. Fees billed in connection with customer installations and other upfront
fees are deferred and recognized ratably over the estimated customer life. The
estimated customer life is calculated by analyzing customer disconnects as a
percentage of revenue. This calculation is reviewed every quarter.

Revenue from the sale or lease of unlit network capacity is recognized
upon consummation of the transaction and the acquirers acceptance of the
capacity in instances when we receive upfront cash payments and are
contractually obligated to transfer title to the specified capacity at the end
of the contract term. If the transaction does not meet these criteria, revenue
is recognized ratably over the contract term. There were no sales of unlit
capacity during the three months ended March 31, 2003 and March 31, 2002.

We establish an allowance for collection of doubtful accounts and other
sales credit adjustments. Allowances for sales credits are established through
a charge to revenue, while allowances for doubtful accounts are established
through a charge to selling, operating and general expenses. We assess the
adequacy of these reserves monthly by considering general factors, such as the
length of time individual receivables are past due, historical collection
experience, the economic and competitive environment, and changes in the credit
worthiness of our customers. As considered necessary, we also assess the
ability of specific customers to meet their financial obligations to us and
establish specific valuation allowances based on the amount we expect to
collect from these customers. We can and have experienced material changes to
our reserve requirements on a month to month basis as significant customers
have in the past unexpectedly filed for bankruptcy or otherwise became
insolvent. We believe that our established valuation allowances were adequate
as of March 31, 2003. If circumstances relating to specific customers change or
economic conditions worsen such that our past collection experience and
assessment of the economic environment are no longer valid, our estimate of the
recoverability of our trade receivables could be changed. If this occurs, we
would adjust our valuation allowance in the period the new information is
known.

Cost of Service

Cost of service includes expenses directly associated with providing
telecommunications services to customers, including, among other items, the
cost of connecting customers to our networks via leased facilities, the costs
of leasing components of our network facilities and costs paid to third party
providers for interconnect access and transport services. All such costs are
expensed as incurred. We accrue for the expected costs of services received
from third party telecommunications providers during the period the services
are rendered. Invoices received from the third party telecommunications
providers are often disputed due to billing discrepancies. We accrue for all
invoiced amounts, even amounts in dispute, as these amounts represent
contingent liabilities that are considered probable and measurable. Disputes
resolved in our favor may reduce cost of service in the period the dispute is
settled and typically reflect costs paid in prior periods. Because
the period of time required to resolve these types of disputes often lapses
over several quarters, the benefits associated with the favorable resolution of
such disputes normally are realized in periods subsequent to the accrual of the
disputed invoice.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board, or FASB issued
SFAS No. 143, Accounting for Asset Retirement Obligations, or SFAS No. 143,
which requires an entity to recognize the fair value of a liability for an
asset retirement obligation in the period in which a legal or contractual
removal obligation is incurred if a reasonable estimate of fair value can be
made. If a reasonable estimate of fair value cannot be made in the period the
asset retirement obligation is incurred, SFAS No. 143 requires the liability to
be recognized when a reasonable
estimate of the fair value can be made. As required by SOP 90-7, we
implemented SFAS No. 143 on January 1, 2003, in conjunction with the
implementation of fresh start and recorded an estimated asset retirement
obligation of $12.0 million, as disclosed in note 5 to the accompanying
condensed consolidated financial statements.

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Effective January 1, 2003, we adopted SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002 or SFAS No. 145, which eliminates the requirement
to report material gains or losses from debt extinguishments as an
extraordinary item, net of any applicable income tax effect, in an entitys
statement of operations. SFAS No. 145 instead requires that a gain or loss
recognized from a debt extinguishment be classified as an extraordinary item
only when the extinguishment meets the criteria of both unusual in nature and
infrequent in occurrence as prescribed under Accounting Principles Board
Opinion, or APB, No. 30, Reporting the Results of Operations  Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. The adoption of SFAS No. 145
had no effect on our financial position or results of operations for the three
months ended March 31, 2003 and 2002. We recognized extraordinary gains from
debt repurchases in the third and fourth quarters of 2001. In the future, such
gains will be reclassified in the respective consolidated statements of
operations in accordance with SFAS No. 145.

Effective January 1, 2003, we adopted SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities or SFAS No. 146, which requires
that costs, including severance costs, associated with exit or disposal
activities be recorded at their fair value when a liability has been incurred.
Under previous guidance, certain exit costs, including severance costs, were
accrued upon managements commitment to an exit plan, which is generally before
an actual liability has been incurred. In the first quarter of 2003, we did not
have any exit or disposal activities initiated after December 31, 2002;
however, the provisions of SFAS No. 146 were implemented in conjunction with
our implementation of fresh start accounting. Accordingly, as disclosed in note
6 to the accompanying condensed consolidated financial statements, our
remaining restructuring accrual has been reduced to its net present value.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure, or SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based Compensation, or SFAS No. 123, to
provide alternative methods of transition to SFAS No. 123s fair value method
of accounting for stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and APB No. 28, Interim Financial
Reporting, or APB No. 28, to require disclosure in the summary of significant
accounting policies of the effects of an entitys accounting policy with
respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. While SFAS No.
148 does not amend SFAS No. 123 to require companies to account for employee
stock options using the fair value method, the disclosure provisions of SFAS
No. 148 are applicable to all companies with stock-based employee compensation,
regardless of whether they account for that compensation using the fair value
method of SFAS No. 123 or the intrinsic value method of APB No. 28. Effective
January 1, 2003, we adopted the disclosure provisions of SFAS No. 148. As
allowed by SFAS No. 148, we have chosen to continue to account for compensation
cost associated with our employee stock plans in accordance with the intrinsic
value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, or APB No. 25.

Liquidity and Capital Resources

Our goal is to provide our customers complete, integrated, voice and data
network applications and services primarily through networks that we own or
control. We believe that the consummation of our Plan of Reorganization and the
changes in our capital structure as a result of our emergence from Chapter 11
bankruptcy along with the various initiatives we have undertaken to reduce
operating costs and capital expenditures over the past two years, position us
to be able to successfully execute our business plans and generate cash flow
over the long term. However, in the near term we expect to incur net negative
cash flows from operating and investing activities.

Capital Uses

Our balance of cash and marketable securities decreased to $538.4 million
at March 31, 2003 from $561.0 million at December 31, 2002. This decrease
resulted principally from the transfer of $25.0 million to an escrow deposit in
conjunction with an agreement to indemnify certain former directors, and
executive officers for any claims, liabilities, or expenses that may arise with
respect to actions that occurred prior to the consummation of our Plan of
Reorganization.

22



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##### 



We have and will continue to focus on minimizing the rate at which we use
our cash to fund operations and capital expenditures. For the past quarter, the
reduction in the rate at which we use our cash has been accomplished by:



| |  |  | improving working capital mainly through aggressive collections of
our outstanding accounts receivable, and                                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | improving operational results due to expense reduction initiatives,
which have resulted in the reduction of cost of service and selling,
operating and general expenses in both absolute dollars and as a
percentage of revenue.

Capital Resources and Liquidity Assessment

We expect that, in the near term, our business will use existing cash to
fund capital expenditures and working capital requirements. The majority of our
planned capital expenditure requirements will be success-based in that they
will be used to purchase and install optical equipment, channel banks, routers,
servers or other customer-related equipment and electronics in connection with
growing revenue by adding new customers or increasing the amount of services
provided to existing customers. Much of the remaining planned capital
expenditures will be for the continued development and implementation of our
information systems to support and enhance the provisioning and billing of new
and existing customers. Part of our working capital requirements are
commitments under lease and contractual obligations for software licenses and
ongoing support of software for IT and network applications.

There are no additional borrowings available under our New Credit
Agreement, although, under certain circumstances, the New Credit Agreement
permits us to obtain a senior secured facility of up to $200.0 million, less
the amount of any proceeds from the Rights Offering, so long as the terms are
satisfactory to the administrative agent and holders of a majority of the
principal amount of the loans outstanding under the New Credit Agreement. We
have no current debt service requirements since automatic and permanent
quarterly reductions of the principal amount outstanding under the New Credit
Agreement do not commence until October 15, 2007. We are not required to pay
cash for interest accrued on the principal amount under the New Credit
Agreement until we meet certain financial ratios. Nevertheless, we may elect to
begin paying interest in cash earlier than the required date in order to reduce
the effective interest rate, but, based on our current assessment of our
funding requirements, we would not anticipate making such an election in the
foreseeable future.

Under the Plan of Reorganization and after the SEC has declared effective
our registration statement to be filed with the SEC, XO Parent will issue to
certain holders of claims and interests in XO Parent who held such claims
and/or interests as of the November 15, 2002 record date, rights to subscribe
for up to 43,333,333 shares of New Common Stock, at $5.00 per share, through
the Rights Offering. The closing sale price of our New Common Stock as of May
12, 2003 was $5.72. Unless the trading price for our New Common Stock trades at
levels that are consistently above the $5.00 per share exercise price prior to
the conclusion of the Rights Offering, we would not expect much, if any,
additional funds to be raised through the Rights Offering. We presently expect
that any proceeds received from the Rights Offering would be used to repay
loans outstanding under the New Credit Agreement.

Although we expect that our balance of cash and
marketable securities will
decline in the near term to fund capital expenditures, working capital
requirements, and other financial investments, given (i) our
current assumptions with respect to trends in our business, (ii) our estimates
concerning the level of capital expenditures that we will
incur to support our business plan and (iii) the significant reduction in cash
needed to meet our debt service requirements because we are not required to pay
interest accrued on the New Credit Agreement until we meet certain financial
ratios, we believe that the $538.4 million of cash and marketable securities on
hand as of March 31, 2003 will be sufficient to fund our operations until the
cash flows generated by our operations are sufficient to fund our capital
expenditures and debt service requirements.

Credit Risk

Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of trade receivables. Although our trade
receivables are geographically dispersed and include customers in many
different industries, a portion of our revenue is generated from services
provided to other telecommunications service providers. Several of these
companies have filed for protection under Chapter 11 of the Bankruptcy Code. We
believe that our established valuation and credit allowances are adequate as of
March 31, 2003 to cover these risks. Our Board of Directors has taken actions that would permit us to make investments in a broader
range of securities, including securities that may increase our credit risk.

23



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##### 



Forward-Looking and Cautionary Statements

Some statements and information contained in this document are not
historical facts, but are forward-looking statements, as such term is 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:



| |  |  | our services, 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;                            
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the operation of our network, including with respect to the
development of IP protocols;                                                                                                                                                         
|
| |  |  | liquidity and financial resources, including anticipated capital
expenditures, funding of capital expenditures and anticipated levels of
indebtedness; and                                                                                       
|
| |  |  | trends related to and expectations regarding the results of
operations in future periods, including but not limited to those
statements set forth in Managements Discussion and Analysis of
Financial Condition and Results of Operations above.

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 in the Liquidity
Assessment and Risks and Uncertainties discussion and the Risk Factors
section of our 2002 Annual Report, 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;
|
| |  |  | the quality and price of similar or comparable communications
services offered, or to be offered, by our current or future
competitors; and              
|
| |  |  | future telecommunications-related legislation or regulatory actions.                                                                                     

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We had $500.0 million in secured loans as of March 31, 2003. Currently we
do not pay cash interest on the loans under the New Credit Agreement.

Marketable securities consist of an investment portfolio containing U.S.
government agency issued and other securities with a duration of less than one
year. These securities are classified as available for sale. If interest
rates were to increase or decrease immediately, it would not likely have a
material impact on the fair value of these financial instruments or on the
interest we would earn on our investment portfolio.

There have been no adverse changes in our exposure to market risk since
December 31, 2002. We are not currently engaged in the use of off-balance sheet
derivative financial instruments, to hedge or partially hedge interest rate
exposure.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term disclosure controls and procedures is defined in Rules 13a-14(c)
and 15d-14(c) of the Securities Exchange Act of 1934. These rules refer to the
controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
required time periods. Our Principal Executive Officer and our Principal
Financial Officer have evaluated the effectiveness of our disclosure controls
and procedures as of a date within 90 days before the filing of this quarterly
report which we refer to as the Evaluation Date, and they have
concluded that, as of the Evaluation Date, such controls and procedures
were effective at ensuring that required information was disclosed on a timely
basis in our reports filed under the Exchange Act.

24



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##### 



Changes in Internal Controls

We maintain a system of internal accounting controls that are designed to
provide reasonable assurance that our books and records accurately reflect our
transactions and that our established policies and procedures are followed. For
the quarter ended March 31, 2003, there were no significant changes to our
internal controls or in other factors that could significantly affect our
internal controls.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

XO is not currently a party to any other legal proceedings, other than
regulatory and other proceedings that are in the normal course of business. However, as discussed above, although XO Parent has consummated
its Plan of Reorganization and emerged from its Chapter 11
proceedings, disputes with respect to the amount of allowed claims
owed by XO Parent to certain of its general unsecured creditors, and claims of certain professionals remain outstanding.
In addition, a party has filed a complaint in the Bankruptcy Court seeking relief from the courts order confirming
the Plan of Reorganization and declaratory judgment that such partys derivative suit for the benefit of XO against
a former director of XO Parent and an affiliate of that director should not be
released by the confirmation order. While the outcome
of these matters is currently not determinable, we do not expect that
the ultimate costs to resolve these
matters, or any other relief that may be granted, will have a
material adverse effect on our financial position, results of
operations, or cash flows.

Item 2. Changes in Securities and Use of Proceeds

The initial public offering, or IPO, of our pre-petition Class A common
stock closed in October 1997, pursuant to a registration statement on Form S-1
filed with the Securities and Exchange Commission (File No. 333-32001) that
became effective on September 26, 1997. The net proceeds we received from the
offering totaled approximately $226.8 million. During the quarter ended March
31, 2003, we used all such proceeds from the IPO to fund operations during such
period.

Item 3. Defaults Upon Securities

As of January 15, 2003, we failed to make interest payments with respect
to all interest paying pre-petition senior notes, pre-petition convertible
subordinated notes and the Pre-Petition Credit Facility of XO Parent or,
collectively, the Payment Default Indebtedness. Consequently, the failure to
make these interest payments had triggered the default provisions of the
governing documents relating to the Payment Default Indebtedness and the
cross-default provisions of the indentures under which all pre-petition senior
discount notes of XO Parent were issued.

In addition, we failed to make dividend payments under the terms of
certain of XO Parents pre-petition series of redeemable preferred stock that,
by their terms require the payment of dividends in cash during such periods.

As discussed further in the 2002 Annual Report, on January 16, 2003, the
day we emerged from Chapter 11 proceedings, all of XO Parents pre-petition
senior notes, all pre-petition convertible subordinated notes, and the
Pre-Petition Credit Facility were cancelled, with each respective party
receiving various distributions under the confirmed Plan of Reorganization. The
pre-petition redeemable preferred stock was cancelled and discharged and the
holders of such securities will receive no distribution under the Plan of
Reorganization.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the quarter ended March 31, 2003.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits



| | 10.1 |  | Employment Term Sheet between XO Communications, Inc.
and Carl J. Grivner.                                          
| | ---- |  | --------------------------------------------------------------------------------------------------------------------
|
| | 10.2 |  | Change of Control Agreement, dated April 25, 2003, by
and between XO Communications, Inc. and Carl J. Grivner.      
|
| | 99.1 |  | Certificate pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
| | 99.2 |  | Certificate pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

(b)  Reports on Form 8-K



| | (1) |  | Current Report on Form 8-K filed on January 30, 2003,
reporting under Item 1 the change of control of XO Parent
resulting from the consummation of the Plan of Reorganization.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25



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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 14, 2003 |  | By: /s/ Wayne M. Rehberger
Wayne M. Rehberger
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

26



---



##### 



CERTIFICATIONS

I, Nathaniel A. Davis, certify that:

1.     I have reviewed this quarterly report in Form 10-Q of XO Communications,
Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
|
| | b)     evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c)     presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weakness in internal controls; and
|
| | b)     any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                      

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003



| | /s/ Nathaniel A. Davis
Nathaniel A. Davis
President and Chief Operating Officer
(Principal Executive Officer)
| | -------------------------------------------------------------------------------------------------------------

27



---



##### 



CERTIFICATIONS

I, Wayne M. Rehberger, certify that:

1.     I have reviewed this quarterly report in Form 10-Q of XO Communications,
Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
|
| | b)     evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c)     presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weakness in internal controls; and
|
| | b)     any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                      

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003



| | /s/ Wayne M. Rehberger
Wayne M. Rehberger
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
| | ----------------------------------------------------------------------------------------------------------------------------

28