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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 June 30, 2001

Commission file number: 0-30900

XO Communications, Inc.
XO Capital, Inc.

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|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|DelawareWashington                                            |  | 54-198351791-1716062               
|                                                             
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              |  |                                    
|11111 Sunset Hills Road, Reston, VA                           |  | 20190                              
|                                                             
|(Address of principal executive offices)                      |  | (Zip Code)                         

(703) 547-2000

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

As of August 7, 2001, the number of shares of Class A and Class B common stock
of XO Communications, Inc. issued and outstanding was 324,374,237 and
105,414,226, respectively, and there were 1,000 shares of common stock of XO
Capital, Inc. issued and outstanding, all of which 1,000 shares were held by XO
Communications, Inc.

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





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XO Communications, Inc.

XO Capital, Inc.

Index to Form 10-Q

|                              |  |                                                                                               |                                                                                                           |  |    |      |  | 
|----------------------------- |  | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- |  | -- | ---- |  | 
|                              |  |                                                                                               |                                                                                                           |  |    | Page
|                              |  |                                                                                               |                                                                                                           |  |    |     
|Part I. Financial Information
|                              |  | Item 1(a). XO Communications, Inc. Financial Statements                                      
|                              |  |                                                                                               | Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000                           |  |    | 1    | 
|                             
|                             
|                             
|                             
|                              |  |                                                                                               | Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2001 and 2000 |  |    | 2    | 
|                             
|                             
|                             
|                             
|                              |  |                                                                                               | Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000           |  |    | 3    | 
|                             
|                             
|                             
|                             
|                              |  |                                                                                               | Notes to Interim Condensed Consolidated Financial Statements                                              |  |    | 5    | 
|                             
|                             
|                             
|                             
|                              |  | Item 1(b). XO Capital, Inc. Financial Statements                                             
|                             
|                             
|                             
|                             
|                              |  |                                                                                               | Balance Sheets as of June 30, 2001 and December 31, 2000                                                  |  |    | 9    | 
|                             
|                             
|                             
|                             
|                              |  |                                                                                               | Notes to Balance Sheets                                                                                   |  |    | 9    | 
|                             
|                             
|                             
|                             
|                              |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                           |  | 10 |     
|                             
|                             
|                             
|                             
|                              |  | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                           |  | 18 |     
|                             
|                             
|                             
|                             
|Part II. Other Information   
|                             
|                             
|                             
|                             
|                              |  | Item 1. Legal Proceedings                                                                     |                                                                                                           |  | 18 |     
|                             
|                             
|                             
|                             
|                              |  | Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                           |  | 18 |     
|                             
|                             
|                             
|                             
|                              |  | Item 3. Defaults Upon Senior Securities                                                       |                                                                                                           |  | 19 |     
|                             
|                             
|                             
|                             
|                              |  | Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                           |  | 19 |     
|                             
|                             
|                             
|                             
|                              |  | Item 5. Other Information                                                                     |                                                                                                           |  | 20 |     
|                             
|                             
|                             
|                             
|                              |  | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                           |  | 20 |     
|                             
|                             
|                             
|                             
|Signatures                    |  |                                                                                               | 21                                                                                                        | 
|                             
|                             
|                             
|                             
|Exhibit Index                 |  |                                                                                               | 22                                                                                                        | 





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PART I. FINANCIAL INFORMATION

Item 1(a). Financial Statements

XO Communications, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except for per share amounts)

|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |            |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------- | --------- | ------------ | --------- | ---------- | --------- | 
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           | June 30,    |           | December 31,
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           | 2001        |           | 2000        
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |             
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           | (Unaudited)
|ASSETS                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Current assets:                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                       |                                            | $         | 494,976     |           |              | $         | 493,004    |          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Marketable securities                                                                                                                                                                                                                                                                                                                                                           |                                            |           | 873,988     |           |              |           | 1,367,959  |          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Accounts receivable, net of allowance for
doubtful accounts of $23,497  and $20,999,
respectively                                                                                                                                                                                                                                                                               |                                            |           | 192,816     |           |              |           | 181,309    |          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Other current assets                                                                                                                                                                                                                                                                                                                                                            |                                            |           | 315,504     |           |              |           | 71,536     |          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Pledged securities                                                                                                                                                                                                                                                                                                                                                              |                                            |           | 17,070      |           |              |           | 17,415     |          
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |           
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 | Total current assets                       |           |             | 1,894,354 |              |           |            | 2,131,223 | 
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Property and equipment, net                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                 |                                            | 3,504,853 |             |           |              | 2,794,105 |           
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Fixed wireless licenses, net                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                 |                                            | 981,222   |             |           |              | 997,333   |           
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Goodwill and other intangibles, net                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                 |                                            | 2,606,680 |             |           |              | 2,914,876 |           
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Other assets, net                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                 |                                            | 250,091   |             |           |              | 247,838   |           
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |           
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 | Total assets                               |           | $           | 9,237,200 |              |           | $          | 9,085,375 | 
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |           
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Current liabilities:                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Accounts payable                                                                                                                                                                                                                                                                                                                                                                |                                            | $         | 206,585     |           |              | $         | 357,451    |          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Accrued liabilities                                                                                                                                                                                                                                                                                                                                                             |                                            |           | 345,647     |           |              |           | 279,534    |          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Accrued interest payable                                                                                                                                                                                                                                                                                                                                                        |                                            |           | 65,251      |           |              |           | 46,018     |          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Current portion of capital lease obligations                                                                                                                                                                                                                                                                                                                                    |                                            |           | 21,801      |           |              |           | 24,820     |          
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |           
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 | Total current liabilities                  |           |             | 639,284   |              |           |            | 707,823   | 
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Long-term debt                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                 |                                            | 5,263,772 |             |           |              | 4,396,596 |           
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Other long-term liabilities                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                 |                                            | 21,667    |             |           |              | 45,539    |           
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |           
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 | Total liabilities                          |           |             | 5,924,723 |              |           |            | 5,149,958 | 
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Redeemable preferred stock, par value $0.01 per
share, 25,000,000 shares   authorized: 13,885,764
and 13,189,227 shares issued and outstanding on
   June 30, 2001 and December 31, 2000,
respectively; aggregate liquidation   preference
of $2,147,697 and $2,100,093 on June 30, 2001
and   December 31, 2000, respectively |                                                                                                                                                                                                                                                                                                                                                                                 |                                            | 2,240,906 |             |           |              | 2,097,016 |           
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Commitments and contingencies                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|Stockholders equity:                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Common Stock, par value $0.02 per share,
stated at amounts paid in Class    A,
1,000,000,000 shares authorized: 317,075,246
and 262,010,715   shares issued and outstanding
on June 30, 2001 and December 31, 2000,
   respectively; Class B, 120,000,000 shares
authorized: 105,414,226   shares issued and
outstanding on June 30, 2001 and December 31,
2000,   respectively |                                            |           | 4,576,374   |           |              |           | 4,392,646  |          
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Deferred compensation                                                                                                                                                                                                                                                                                                                                                           |                                            |           | (53,813     | )         |              |           | (72,050    | )        
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Accumulated other comprehensive loss                                                                                                                                                                                                                                                                                                                                            |                                            |           | (2,562      | )         |              |           | (17,041    | )        
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                               | Accumulated deficit                                                                                                                                                                                                                                                                                                                                                             |                                            |           | (3,448,428  | )         |              |           | (2,465,154 | )        
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |           
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 | Total stockholders equity                 |           |             | 1,071,571 |              |           |            | 1,838,401 | 
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |           
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 | Total liabilities and stockholders equity |           | $           | 9,237,200 |              |           | $          | 9,085,375 | 
|                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                 |                                            |           |             |           |              |           |           

See accompanying notes to unaudited interim condensed consolidated financial statements.

1



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

|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |         |         | 
|---------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------ | ----------- | ------------------ | ------- | ---------------- | ----------- | ------- | ------- | ---- | ----------- | ------- | --------- | - | ----------- | ------- | ------- | 
|                                                                                   |                                                                       |                          |             | Three Months Ended |         | Six Months Ended
|                                                                                   |                                                                       |                          |             | June 30,           |         | June 30,        
|                                                                                   |                                                                       |                          |             |                    |         |                 
|                                                                                   |                                                                       |                          |             | 2001               |         | 2000             |             | 2001    |         | 2000
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |     
|Revenue                                                                            |                                                                       | $                        | 306,779     |                    |         | $                | 140,649     |         |         | $    | 584,086     |         |           | $ | 246,498     |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |         |         | 
|Costs and expenses:                                                               
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cost of service                                                       |                          |             | 122,942            |         |                  |             | 59,375  |         |      |             | 237,836 |           |   |             | 106,366 |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Selling, operating, and general
(excludes   stock-based compensation) |                          |             | 254,569            |         |                  |             | 149,914 |         |      |             | 494,095 |           |   |             | 271,913 |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Stock-based compensation                                              |                          |             | 9,316              |         |                  |             | 17,228  |         |      |             | 18,627  |           |   |             | 26,213  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Depreciation                                                          |                          |             | 104,498            |         |                  |             | 40,869  |         |      |             | 199,684 |           |   |             | 81,252  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Amortization                                                          |                          |             | 177,872            |         |                  |             | 35,542  |         |      |             | 354,510 |           |   |             | 41,155  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | In-process research and development                                   |                          |             |                   |         |                  |             | 36,166  |         |      |             |        |           |   |             | 36,166  |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |        
|                                                                                   |                                                                       | Total costs and expenses |             |                    | 669,197 |                  |             |         | 339,094 |      |             |         | 1,304,752 |   |             |         | 563,065 | 
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |         |         | 
|Loss from operations                                                               |                                                                       |                          | (362,418    | )                  |         |                  | (198,445    | )       |         |      | (720,666    | )       |           |   | (316,567    | )      
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |         |         | 
|Interest income                                                                    |                                                                       |                          | 21,771      |                    |         |                  | 46,067      |         |         |      | 56,879      |         |           |   | 90,680      |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Interest expense                                                                   |                                                                       |                          | (115,841    | )                  |         |                  | (107,305    | )       |         |      | (234,432    | )       |           |   | (215,664    | )      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Other income (loss), net                                                           |                                                                       |                          | (4,628      | )                  |         |                  | 885         |         |         |      | (6,408      | )       |           |   | 225,997     |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |         |         | 
|Net loss                                                                           |                                                                       | $                        | (461,116    | )                  |         | $                | (258,798    | )       |         | $    | (904,627    | )       |           | $ | (215,554    | )      
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |         |         | 
|Preferred stock dividends and accretion of
preferred   stock redemption obligation |                                                                       |                          | (39,606     | )                  |         |                  | (31,764     | )       |         |      | (78,647     | )       |           |   | (65,199     | )      
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |        
|Net loss applicable to common shares                                               |                                                                       | $                        | (500,722    | )                  |         | $                | (290,562    | )       |         | $    | (983,274    | )       |           | $ | (280,753    | )      
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |         |         | 
|Net loss per share (basic and diluted)                                             |                                                                       | $                        | (1.32       | )                  |         | $                | (0.95       | )       |         | $    | (2.62       | )       |           | $ | (0.98       | )      
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |         |         | 
|Weighted average shares (basic and diluted)                                        |                                                                       |                          | 380,300,361 |                    |         |                  | 305,145,306 |         |         |      | 374,712,398 |         |           |   | 286,982,516 |        
|                                                                                   |                                                                       |                          |             |                    |         |                  |             |         |         |      |             |         |           |   |             |        

See accompanying notes to unaudited interim condensed consolidated financial statements.

2



---



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

|                                                                            |                                               |   |                  |         |      |   |           |          |  
|--------------------------------------------------------------------------- | --------------------------------------------- | - | ---------------- | ------- | ---- | - | --------- | -------- | -
|                                                                            |                                               |   | Six Months Ended
|                                                                            |                                               |   | June 30,        
|                                                                            |                                               |   |                 
|                                                                            |                                               |   | 2001             |         | 2000
|                                                                            |                                               |   |                  |         |     
|OPERATING ACTIVITIES:                                                      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Net loss                                                                    |                                               | $ | (904,627         | )       |      | $ | (215,554  | )       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Adjustments to reconcile net loss to net cash used in operating activities:
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Stock-based compensation                      |   |                  | 18,627  |      |   |           | 26,213   |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Net losses (gains) on investments             |   |                  | 3,937   |      |   |           | (226,539 | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Depreciation and amortization                 |   |                  | 554,194 |      |   |           | 122,407  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accretion of interest on senior notes         |   |                  | 66,170  |      |   |           | 56,773   |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | In-process research and development write-off |   |                  |        |      |   |           | 36,166   |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Changes in assets and liabilities:                                         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accounts receivable                           |   |                  | (16,934 | )    |   |           | (25,615  | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Other assets                                  |   |                  | (64,728 | )    |   |           | (7,270   | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accounts payable                              |   |                  | (5,377  | )    |   |           | 10,213   |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accrued liabilities                           |   |                  | 37,165  |      |   |           | 53,038   |  
|                                                                            |                                               |   |                  |         |      |   |           |         
|Net cash used in operating activities                                       |                                               | $ | (311,573         | )       |      | $ | (170,168  | )       
|                                                                            |                                               |   |                  |         |      |   |           |          |  
|INVESTING ACTIVITIES:                                                      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Purchases of property and equipment                                         |                                               | $ | (1,030,928       | )       |      | $ | (457,516  | )       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Prepayment for network assets                                               |                                               |   | (120,800         | )       |      |   |          |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Payments to acquire fixed wireless licenses                                 |                                               |   | (206             | )       |      |   | (33,948   | )       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|(Purchases) release of pledged securities                                   |                                               |   | (7               | )       |      |   | 29,571    |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Net sales of marketable securities                                          |                                               |   | 498,229          |         |      |   | 52,202    |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from sale of equity investments                                    |                                               |   | 14,771           |         |      |   | 245,112   |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cash acquired in acquisition                                                |                                               |   |                 |         |      |   | 50,792    |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Investments in unconsolidated affiliates                                    |                                               |   | (2,545           | )       |      |   | (37,119   | )       
|                                                                            |                                               |   |                  |         |      |   |           |         
|Net cash used in investing activities                                       |                                               | $ | (641,486         | )       |      | $ | (150,906  | )       
|                                                                            |                                               |   |                  |         |      |   |           |          |  
|FINANCING ACTIVITIES:                                                      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Net proceeds from issuance of redeemable preferred stock                    |                                               | $ |                 |         |      | $ | 849,046   |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Repayment of notes payable and other obligations                            |                                               |   | (28,266          | )       |      |   | (3,129    | )       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from issuance of common stock under employee benefit plans         |                                               |   | 25,689           |         |      |   | 42,569    |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Dividends paid on convertible preferred stock                               |                                               |   | (26,890          | )       |      |   | (32,708   | )       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from issuance of subordinated convertible notes                    |                                               |   | 517,500          |         |      |   |          |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Costs incurred in connection with financing activities                      |                                               |   | (14,200          | )       |      |   | (17,100   | )       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from equity investment                                             |                                               |   | 248,657          |         |      |   |          |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Borrowings under credit facility                                            |                                               |   | 237,500          |         |      |   | 375,000   |         
|                                                                            |                                               |   |                  |         |      |   |           |         
|Net cash provided by financing activities                                   |                                               | $ | 959,990          |         |      | $ | 1,213,678 |         
|                                                                            |                                               |   |                  |         |      |   |           |         
|Effect of exchange rate changes on cash                                     |                                               | $ | (4,959           | )       |      | $ |          |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Net increase in cash and cash equivalents                                   |                                               |   | 1,972            |         |      |   | 892,604   |         
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cash and cash equivalents, beginning of period                              |                                               |   | 493,004          |         |      |   | 868,463   |         
|                                                                            |                                               |   |                  |         |      |   |           |         
|Cash and cash equivalents, end of period                                    |                                               | $ | 494,976          |         |      | $ | 1,761,067 |         
|                                                                            |                                               |   |                  |         |      |   |           |         

 Continued 

3



---



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

|                                             |                                                                                                                                                      |   |                  |        |      |   |         |           | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------------- | ------ | ---- | - | ------- | --------- | 
|                                             |                                                                                                                                                      |   | Six Months Ended
|                                             |                                                                                                                                                      |   | June 30,        
|                                             |                                                                                                                                                      |   |                 
|                                             |                                                                                                                                                      |   | 2001             |        | 2000
|                                             |                                                                                                                                                      |   |                  |        |     
|SUPPLEMENTAL DATA:                          
|                                            
|                                            
|                                            
|                                            
|Non-cash financing and investing activities:
|                                            
|                                            
|                                            
|                                            
|                                             | Redeemable preferred stock dividends, paid in
shares of redeemable preferred stock                                                                   |   | $                | 25,555 |      |   | $       | 30,262    | 
|                                            
|                                            
|                                            
|                                            
|                                             | Accrued redeemable preferred stock dividends,
payable in shares of redeemable preferred
stock and accretion of preferred stock
redemption obligation |   | $                | 14,033 |      |   | $       | 2,230     | 
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock issued in acquisitions                                                                                                                  |   | $                |       |      |   | $       | 2,868,287 | 
|                                            
|                                            
|                                            
|                                            
|Cash paid for interest                       |                                                                                                                                                      | $ | 172,437          |        |      | $ | 158,921 |          

See accompanying notes to unaudited interim condensed consolidated financial statements.

4



---



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

1. BASIS OF PRESENTATION

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

The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation of the results for interim
periods. Operating results for the three month and six month periods ended June
30, 2001 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001.

Reporting Format

Certain items related to prior periods have been reclassified to conform
with the 2001 reporting format.

Long-Lived Assets

Long-lived assets, including property and equipment, goodwill and
identifiable intangible assets to be held and used, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
should be addressed. Impairment is determined by comparing the carrying value
to the estimated undiscounted future cash flows expected to result from the use
of the assets and their eventual dispositions. The Company considers expected
cash flows and estimated future operating results, trends, and other available
information in assessing whether the carrying value of the assets is impaired.
In the event an impairment exists, a loss is recognized based on the amount by
which the carrying value exceeds the fair value of the asset, which is
generally determined using quoted market prices or valuation techniques such as
the discounted present value of expected future cash flows, appraisals, or
other pricing models as appropriate. The Company believes that no such
impairment existed as of June 30, 2001 and December 31, 2000.

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

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 Business Combinations,
(SFAS No. 141) which is effective for all business combinations completed
after June 30, 2001 and supercedes Accounting Principles Board Opinion (APB)
No. 16, Business Combinations. Under SFAS No. 141, companies will be required
to account for all business combinations using the purchase method of
accounting, recognize intangible assets if certain criteria are met, as well as
provide additional disclosures regarding business combinations and the
allocation of purchase price. Management does not believe SFAS No. 141 will
have an immediate impact on the Company as we have no transactions pending
subject to the statement.

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 supercedes APB Opinion No. 17, Intangible Assets.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001
and must be applied to all goodwill and other intangible assets recorded at
that date. However, goodwill and intangible assets acquired after June 30, 2001
will be subject immediately to the amortization provisions of this statement.
Under SFAS No. 142, goodwill and intangible assets with indefinite lives will
no longer be amortized but will be tested for impairment annually or more
frequently if an event indicates that the asset might be impaired. The
statement

5



---



provides guidance on measuring goodwill and intangible asset impairments
to include a discounted cash flow methodology. The initial impairment analysis
of intangible assets recorded at December 15, 2001 (other than those acquired
after June 30, 2001) must be completed by March 31, 2002 and goodwill
impairment testing must be completed by June 30, 2002. Management is currently
evaluating the impact of this statement on the Companys results of operations
and financial position. As of June 30, 2001, the carrying value of goodwill and
other intangibles was $2,397.8 million and $208.9 million, respectively.
Additionally, the Company has fixed wireless licenses with a carrying value of
$981.2 million as of June 30, 2001.

2. ACQUISITIONS

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

The Concentric Merger was accounted for using the purchase method of
accounting. The consideration and final adjusted purchase price allocation were
as follows (dollars in thousands):

|                                          |  |   |           | 
|----------------------------------------- |  | - | --------- | 
|Stock issued                              |  | $ | 2,542,356 | 
|                                         
|                                         
|                                         
|                                         
|Liabilities, warrants and options assumed |  |   | 1,042,750 | 
|                                          |  |   |           | 
|Consideration                             |  | $ | 3,585,106 | 
|                                          |  |   |           | 
|In-process research and development       |  | $ | 36,166    | 
|                                         
|                                         
|                                         
|                                         
|Fair value of intangible assets acquired  |  |   | 246,234   | 
|                                         
|                                         
|                                         
|                                         
|Fair value of tangible assets acquired    |  |   | 342,641   | 
|                                         
|                                         
|                                         
|                                         
|Goodwill                                  |  |   | 2,960,065 | 
|                                          |  |   |           | 
|                                          |  | $ | 3,585,106 | 
|                                          |  |   |           | 

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

3. LONG TERM OBLIGATIONS

The Company and certain of its subsidiaries, as guarantors, entered into a
$1.0 billion senior secured credit facility (the Facility) with various
lenders in February 2000. The Facility is comprised of a $387.5 million senior
secured multi-draw term loan A, a $225.0 million senior secured term loan B,
and a $387.5 million revolving credit facility. In February 2001, the Company
borrowed the remaining $237.5 million available under the term loan A. As of
June 30, 2001, the Company had borrowed $612.5 million under the Facility
consisting of the $387.5 million of the term loan A and $225.0 million of the
term loan B. In July 2001, the Company borrowed $387.5 million on the revolving
credit facility. Giving effect to that borrowing, the Company has fully drawn
the $1.0 billion available under the Facility.

The term loan A and the revolving credit facility mature on December 31,
2006, and the term loan B matures on June 30, 2007. In each case, the maturity
dates are subject to acceleration to October 31, 2005 if the Company has not
refinanced its 12 1/2% Senior Notes due 2006 by April 15, 2005. Amounts drawn
under the revolving credit facility and the term loans bear interest, at the
Companys option, at the alternate base rate, as defined, or reserve-adjusted
London Interbank Offered Rate (LIBOR) plus, in each case, applicable margins.
As of June 30, 2001, the annualized weighted average interest rate applicable
to outstanding borrowings under the Facility was 7.8%.

In January 2001, the Company completed the issuance and sale of $517.5
million of 5 3/4% convertible subordinated notes due 2009 for proceeds, net of
underwriting and other fees, totaling $503.3 million. Interest on the notes is
payable on January 15 and July 15 of each year, beginning on July 15, 2001. The
notes are unsecured obligations of the Company and are subordinated in right of
payment to all other senior indebtedness of the Company. The notes are
convertible at the option of the holders at any time prior to maturity into
shares of Class A common stock at a conversion rate of 39.1484 shares per
$1,000 principal amount of notes, subject to adjustment upon the occurrence of
certain events. The Company may terminate such conversion rights on or after
January 18, 2003 if the current market price of its Class A common stock equals
or exceeds 150%, on or prior to January 18,

6



---



2004, or 135% thereafter, of the $25.5438 implied conversion price for 20
days in a 30 consecutive day trading period. The notes are not redeemable prior
to their maturity date of January 15, 2009.

As of June 30, 2001, the Company was in compliance with all covenants
under the Facility and the indentures under which its senior notes, senior
discount notes and convertible subordinated notes were issued.

In the third quarter of 2001, one of the Companys subsidiaries affected cash purchases of certain long
term obligations, including unsecured debt and preferred stock, at a
substantial discount to their respective Face amounts which will result in an extraordinary gain.

4. PRIVATE EQUITY INVESTMENT

On June 7, 2001, an investment fund controlled by Forstmann Little & Co.
(Forstmann Little) invested $250.0 million of cash in the Company to provide
additional funding for general corporate purposes. In exchange for the
investment, the Company issued 50.0 million shares of its Class A common stock
to the Forstmann Little fund and amended the terms of outstanding convertible
preferred stock held by various Forstmann Little investment funds to reduce the
share conversion price from $31.625 to $17.00 per share. The value of the Class
A common stock issued at the date the investment closed was $157.5 million. The
remaining $92.5 million, attributed to the convertible preferred stock
amendment, was recorded as a credit to the preferred stock balance and is being
amortized against the accretion of the preferred stock redemption obligation.

5. OPERATING SEGMENTS

Reportable Segments

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

Products and Services

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

|                                   |  |                             |         |                           |  |      |         |      |  |   |         |  |  |   |         | 
|---------------------------------- |  | --------------------------- | ------- | ------------------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                   |  | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                   |  |                             |         |                          
|                                   |  | 2001                        |         | 2000                      |  | 2001 |         | 2000
|                                   |  |                             |         |                           |  |      |         |     
|Data services                      |  | $                           | 148,978 |                           |  | $    | 48,424  |      |  | $ | 291,187 |  |  | $ | 76,174  | 
|                                  
|                                  
|                                  
|                                  
|Voice services                     |  |                             | 147,742 |                           |  |      | 91,926  |      |  |   | 278,841 |  |  |   | 169,945 | 
|                                  
|                                  
|                                  
|                                  
|Integrated voice
and data services |  |                             | 8,539   |                           |  |      | 209     |      |  |   | 12,128  |  |  |   | 229     | 
|                                  
|                                  
|                                  
|                                  
|Other services                     |  |                             | 1,520   |                           |  |      | 90      |      |  |   | 1,930   |  |  |   | 150     | 
|                                   |  |                             |         |                           |  |      |         |      |  |   |         |  |  |   |         | 
|Total revenue                      |  | $                           | 306,779 |                           |  | $    | 140,649 |      |  | $ | 584,086 |  |  | $ | 246,498 | 
|                                   |  |                             |         |                           |  |      |         |      |  |   |         |  |  |   |         | 

7



---



6. COMPREHENSIVE LOSS

Comprehensive net loss applicable to common shares includes the Companys
net loss applicable to common shares, as well as changes in equity from other
sources. The following table reflects the Companys calculation of
comprehensive loss applicable to common shares for the three and six months
ended June 30, 2001 and 2000 (dollars in thousands):

|                                                     |                                                                                                                     |   |                             |       |                           |   |          |        |      |   |          |        |  |   |          |          |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | - | --------------------------- | ----- | ------------------------- | - | -------- | ------ | ---- | - | -------- | ------ |  | - | -------- | -------- | -
|                                                     |                                                                                                                     |   | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                                     |                                                                                                                     |   |                             |       |                          
|                                                     |                                                                                                                     |   | 2001                        |       | 2000                      |   | 2001     |        | 2000
|                                                     |                                                                                                                     |   |                             |       |                           |   |          |        |     
|Net loss applicable to
common   shares               |                                                                                                                     | $ | (500,722                    | )     |                           | $ | (290,562 | )      |      | $ | (983,274 | )      |  | $ | (280,753 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|Other comprehensive income:                         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Unrealized net holding
gains   (losses) and
foreign currency
   translation adjustments
arising   during the
period |   |                             | 8,925 |                           |   |          | (9,096 | )    |   |          | 14,479 |  |   |          | 102,049  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Less: Net realized
gains   transferred to
current period   earnings                                                 |   |                             |      |                           |   |          |       |      |   |          |       |  |   |          | (258,023 | )
|                                                     |                                                                                                                     |   |                             |       |                           |   |          |        |      |   |          |        |  |   |          |         
|Comprehensive net loss
applicable   to common
shares |                                                                                                                     | $ | (491,797                    | )     |                           | $ | (299,658 | )      |      | $ | (968,795 | )      |  | $ | (436,727 | )       
|                                                     |                                                                                                                     |   |                             |       |                           |   |          |        |      |   |          |        |  |   |          |         

The Companys change in other comprehensive loss includes unrealized
gains and losses on available-for-sale investments and foreign currency
translation adjustments relating to the Companys foreign operations. Net
realized gains transferred to current period earnings in the six months ended
June 30, 2000 include the sale of an equity investment which resulted in a
realized gain of $225.1 million net of other costs associated therewith. This
gain is recorded in other income (loss) in the accompanying consolidated
statement of operations.

7. COMMITMENTS AND CONTINGENCIES

Inter-City Network Agreements

In April 2001, the Company and Level 3 Communications, Inc. (Level 3)
restructured their agreements pertaining to the Companys purchase of fiber
networks from Level 3 that are being constructed in North America and Europe.
The Company and Level 3 agreed to cancel commitments relating to the previously
announced purchase of the European metro and inter-city fiber networks from
Level 3. Under the agreement (i) approximately $128 million in payments that
were previously made to Level 3 for the European networks will be applied as a
credit to reduce the remaining amounts payable by the Company to Level 3 under
the North American inter-city fiber network agreement, (ii) the Company became
a broadband transport customer of Level 3 and agreed to lease
approximately $30 million of wavelength capacity on Level 3s inter-city
network in North America, and (iii) the Company will transfer to Level 3
approximately $60 million of inter-city transmission equipment to be applied
toward the purchase of wavelength capacity, none of which had been delivered as
of June 30, 2001. As a result of receiving these credits and making certain
additional prepayments, the Company reclassified approximately $180 million
from property and equipment to other current assets on the accompanying June
30, 2001 condensed consolidated balance sheet.

Contingencies

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

8



---



PART I. FINANCIAL INFORMATION

Item 1(b) Financial Statements

XO Capital, Inc.
Balance Sheets

|                     |                                                                             |  |             |     |              |  |   |     | 
|-------------------- | --------------------------------------------------------------------------- |  | ----------- | --- | ------------ |  | - | --- | 
|                     |                                                                             |  | June 30,    |     | December 31,
|                     |                                                                             |  | 2001        |     | 2000        
|                     |                                                                             |  |             |     |             
|                     |                                                                             |  | (Unaudited)
|Assets              
|                    
|                    
|                    
|                    
|                     | Receivable from XO Communications, Inc.                                     |  | $           | 100 |              |  | $ | 100 | 
|                     |                                                                             |  |             |     |              |  |   |    
|Shareholders Equity
|                    
|                    
|                    
|                    
|                     | Common stock, no par value, 1,000 shares
authorized, issued and outstanding |  | $           | 100 |              |  | $ | 100 | 
|                     |                                                                             |  |             |     |              |  |   |    

XO Capital, Inc.
Notes to Balance Sheets
(Unaudited)

1. Organization and Description of Business

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

2. Basis of Presentation

The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The financial information included herein
reflects all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary for a fair presentation of
the results for interim periods. These financial statements should be read in
conjunction with the annual report on Form 10-K for the year ended December 31,
2000 of XO and XO Capital as filed with the Securities and Exchange Commission
on April 2, 2001.

9



---



PART I. FINANCIAL INFORMATION

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

Overview

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

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

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

Recent Developments

Inter-City Network Agreements

In April 2001, we announced that we had agreed to cancel our plans to
purchase European metro and inter-city fiber networks from Level 3
Communications, Inc. Under the agreement, approximately $128 million in
payments that were previously made to Level 3 for the European networks will be
applied as a credit to reduce the remaining amounts payable by us to Level 3
for our North American inter-city fiber network agreement. As a result of these
transactions, we are suspending expansion of our European operations.

In connection with the restructuring of our arrangements with Level 3, we
have delayed the lighting of our North American inter-city network. In the
meantime, we became a broadband transport customer of Level 3. We agreed to
lease approximately $30 million of wavelength capacity on Level 3s
inter-city network in North America. In connection with this lease, we will
transfer to Level 3 approximately $60 million of inter-city transmission
equipment to be applied toward the purchase of wavelength capacity from Level
3, none of which had been delivered as of June 30, 2001. We will retain for
future deployment the fibers and empty conduit that comprise our North American
inter-city network purchased from Level 3.

Private Equity Investment

On June 7, 2001, an investment fund controlled by Forstmann Little & Co.
invested $250.0 million of cash in XO to provide additional funding for general
corporate purposes. In exchange for the investment, we issued 50.0 million
shares of our Class A common stock to the Forstmann Little fund and amended the
terms of outstanding convertible preferred stock held by various Forstmann
Little investment funds to reduce the share conversion price from $31.625 to
$17.00 per share.

Results of Operations

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

10



---



Operating Data

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

|                                           |  |          |           |              |  |          |         |         |  |          |       |   |  |   |         |  |  |  |      |  
|------------------------------------------ |  | -------- | --------- | ------------ |  | -------- | ------- | ------- |  | -------- | ----- | - |  | - | ------- |  |  |  | ---- | -
|                                           |  | June 30, |           |              |  |          |         |        
|                                           |  |          |           | Year to Year |  | Dec. 31, |         | 6 month
|                                           |  | 2001     |           | 2000         |  | % Change |         | 2000    |  | % Change
|                                           |  |          |           |              |  |          |         |         |  |         
|Operating data (a):                       
|                                          
|                                          
|                                          
|                                          
|Route miles (b)                            |  |          | 20,661    |              |  |          | 5,380   |         |  |          | 284.0 | % |  |   | 13,493  |  |  |  | 53.1 | %
|                                          
|                                          
|                                          
|                                          
|Fiber miles (c)                            |  |          | 1,025,072 |              |  |          | 435,992 |         |  |          | 135.1 | % |  |   | 748,604 |  |  |  | 36.9 | %
|                                          
|                                          
|                                          
|                                          
|On-net buildings connected (d)             |  |          | 2,240     |              |  |          | 1,738   |         |  |          | 28.9  | % |  |   | 1,947   |  |  |  | 15.0 | %
|                                          
|                                          
|                                          
|                                          
|Off-net buildings connected (e)            |  |          | 69,859    |              |  |          | 43,264  |         |  |          | 61.5  | % |  |   | 51,345  |  |  |  | 36.1 | %
|                                          
|                                          
|                                          
|                                          
|Voice grade equivalents (in
thousands) (f) |  |          | 17,338    |              |  |          | 5,566   |         |  |          | 211.5 | % |  |   | 11,211  |  |  |  | 54.7 | %
|                                          
|                                          
|                                          
|                                          
|Customers (g)                              |  |          | 96,707    |              |  |          | 74,051  |         |  |          | 30.6  | % |  |   | 87,755  |  |  |  | 10.2 | %
|                                          
|                                          
|                                          
|                                          
|Average monthly revenue per
customer (h)   |  | $        | 1,031     |              |  | $        | 817     |         |  |          | 26.2  | % |  | $ | 916     |  |  |  | 12.6 | %
|                                          
|                                          
|                                          
|                                          
|Data centers operational                   |  |          | 9         |              |  |          | 8       |         |  |          | 12.5  | % |  |   | 8       |  |  |  | 12.5 | %
|                                          
|                                          
|                                          
|                                          
|Employees                                  |  |          | 7,475     |              |  |          | 6,155   |         |  |          | 21.4  | % |  |   | 7,400   |  |  |  | 1.0  | %

We define certain business metrics used above as follows:



|(a) |  | Operating data Except as noted below, the operating data for all periods
presented include the statistics of the Las Vegas network, which we
control and in which we had a 40% membership interest as of June 30, 2001.                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Route miles  The number of operational miles of the telecommunications
path in which the leased or owned fiber optic cables are installed. These
include metro and inter-city miles. The June 30, 2001 statistic gives
effect to transactions announced with Level 3 on April 26, 2001.                       
|   
|(c) |  | Fiber miles  The number of operational route miles installed along a
telecommunications path, multiplied by our estimate of the number of
fibers along that path. These include metro and inter-city miles. The June
30, 2001 statistic gives effect to transactions announced with Level 3 on
April 26, 2001.
|   
|(d) |  | On-net buildings connected  Buildings physically connected to our
networks, excluding those connected by unbundled incumbent local exchange
carrier facilities.                                                                                                                                               
|   
|(e) |  | Off-net buildings connected  Buildings connected to our networks through
leased or unbundled incumbent carrier facilities.                                                                                                                                                                                    
|   
|(f) |  | Voice grade equivalents  Voice grade equivalents, or VGEs, is a
revenue-generating digital broadband equivalent of 64 kilobits per second,
known as DS-0 level, the standard capacity of a voice grade line, and
measures the network utilization of both our voice and data services.                        
|   
|(g) |  | Customers  The number of revenue-generating invoices within our billing
systems. This statistic excludes Europe as well as consumer dial up and
shared hosting accounts. Periods prior to June 2001 also exclude customers
serviced over our network in the Las Vegas market.                                 
|   
|(h) |  | Average monthly revenue per customer  This calculation excludes both the
associated revenue and customer counts for Europe as well as consumer dial
up and shared hosting accounts. Periods prior to June 2001 exclude
customers serviced over our network in the Las Vegas market.                           

Comparison of Financial Results

Three and Six Months Ended June 30, 2001 versus Three and Six Months Ended
June 30, 2000

Revenue.Revenue in the second quarter of 2001 increased 118.1% to $306.8
million from $140.6 million in the second quarter of 2000, and revenue for the
six months ended June 30, 2001 increased 137.0% to $584.1 million from $246.5
million in the same period of 2000. These increases were primarily due to the
increase in the number of our customers and continued penetration into existing
markets. Our customer base grew 30.6% from 74,051 customers as of June 30, 2000
to 96,707 as of June 30, 2001. Also contributing to the revenue growth was a
26.2% increase in average monthly revenue per customer from $817 per customer
for the quarter ended June 30, 2000 to $1,031 per customer for the quarter
ended June 30, 2001. Based on current estimates, we believe that the trend of increasing revenue per customer
will continue in future periods as we continue targeting larger business
customers by enhancing existing product



11



---



lines and focusing on broadening the base of service offerings with higher
end services such as metro wavelength services, and managed firewall and
virtual private network services. Expanding our sales mix to include larger
enterprises and consequently achieving growth in revenue per customer is
dependent upon our ability to provide high-bandwidth products and services over
our networks. We have invested in equipment and facilities, including on-net
and off-net buildings and data centers, in addition to our own fiber network.
Network traffic, as measured by VGEs, increased 211.5% from 5.6 million as of
June 30, 2000 to 17.3 million as of June 30, 2001.

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

|                                   |  |                             |         |                    |  |      |       |                    |  |          |         |  |  |  |       |   |  |  |       |  
|---------------------------------- |  | --------------------------- | ------- | ------------------ |  | ---- | ----- | ------------------ |  | -------- | ------- |  |  |  | ----- | - |  |  | ----- | -
|                                   |  | Three Months Ended June 30,
|                                   |  |                            
|                                   |  | 2001                        |         | % of Total Revenue |  | 2000 |       | % of Total Revenue |  | % Change
|                                   |  |                             |         |                    |  |      |       |                    |  |         
|Data services                      |  | $                           | 148,978 |                    |  |      | 48.5  | %                  |  | $        | 48,424  |  |  |  | 34.4  | % |  |  | 207.7 | %
|                                  
|                                  
|                                  
|                                  
|Voice services                     |  |                             | 147,742 |                    |  |      | 48.2  | %                  |  |          | 91,926  |  |  |  | 65.4  | % |  |  | 60.7  | %
|                                  
|                                  
|                                  
|                                  
|Integrated voice and data services |  |                             | 8,539   |                    |  |      | 2.8   | %                  |  |          | 209     |  |  |  | 0.1   | % |  |  | NM    |  
|                                  
|                                  
|                                  
|                                  
|Other services                     |  |                             | 1,520   |                    |  |      | 0.5   | %                  |  |          | 90      |  |  |  | 0.1   | % |  |  | NM    |  
|                                   |  |                             |         |                    |  |      |       |                    |  |          |         |  |  |  |       |  
|Total revenue                      |  | $                           | 306,779 |                    |  |      | 100.0 | %                  |  | $        | 140,649 |  |  |  | 100.0 | % |  |  | 118.1 | %
|                                   |  |                             |         |                    |  |      |       |                    |  |          |         |  |  |  |       |  

|                                   |  |                           |         |                    |  |      |       |                    |  |          |         |  |  |  |       |   |  |  |       |  
|---------------------------------- |  | ------------------------- | ------- | ------------------ |  | ---- | ----- | ------------------ |  | -------- | ------- |  |  |  | ----- | - |  |  | ----- | -
|                                   |  | Six Months Ended June 30,
|                                   |  |                          
|                                   |  | 2001                      |         | % of Total Revenue |  | 2000 |       | % of Total Revenue |  | % Change
|                                   |  |                           |         |                    |  |      |       |                    |  |         
|Data services                      |  | $                         | 291,187 |                    |  |      | 49.9  | %                  |  | $        | 76,174  |  |  |  | 30.9  | % |  |  | 282.3 | %
|                                  
|                                  
|                                  
|                                  
|Voice services                     |  |                           | 278,841 |                    |  |      | 47.7  | %                  |  |          | 169,945 |  |  |  | 68.9  | % |  |  | 64.1  | %
|                                  
|                                  
|                                  
|                                  
|Integrated voice and data services |  |                           | 12,128  |                    |  |      | 2.1   | %                  |  |          | 229     |  |  |  | 0.1   | % |  |  | NM    |  
|                                  
|                                  
|                                  
|                                  
|Other services                     |  |                           | 1,930   |                    |  |      | 0.3   | %                  |  |          | 150     |  |  |  | 0.1   | % |  |  | NM    |  
|                                   |  |                           |         |                    |  |      |       |                    |  |          |         |  |  |  |       |  
|Total revenue                      |  | $                         | 584,086 |                    |  |      | 100.0 | %                  |  | $        | 246,498 |  |  |  | 100.0 | % |  |  | 137.0 | %
|                                   |  |                           |         |                    |  |      |       |                    |  |          |         |  |  |  |       |  

*NM  Not Meaningful

Data services revenue includes revenue from Internet access, network
access and applications hosting services. Data services revenue in the second
quarter of 2001 increased 207.7% to $149.0 million from $48.4 million in the
second quarter of 2000, and for the six months ended June 30, 2001 it increased
282.3% to $291.2 million from $76.2 million in the same period of 2000. A
primary contributor to this growth was our migration from a voice-centric to a
more data-centric business, facilitated in large part by our acquisition of
Concentric and the integration of its data products with our pre-existing
services. Although data services revenue as a percentage of total revenue for the second quarter of 2001
declined slightly in comparison to the first quarter of 2001, over
the long term, we expect data services revenue to grow as a percentage of total
revenue, but at a slower pace than our historical trend. The anticipated
increases, both in absolute dollars and as a percentage of revenue, are due to
our targeting of larger enterprise customers, the broadening of our available
data products and our increasing emphasis on the sale of data products, which
generally yield higher margins than our voice products.

Voice services revenue includes revenue from bundled local and long
distance voice services, prepaid call processing, and other voice
communications based services, including shared tenant services, interactive
voice response and stand-alone long distance services. Voice services revenue
in the second quarter of 2001 increased 60.7% to $147.7 million from $91.9
million in the second quarter of 2000, and for the six months ended June 30,
2001 it increased 64.1% to $278.8 million from $169.9 million in the second
quarter of 2000. These increases were primarily due to the growth in the number
of our customers to which we are providing bundled local and long distance
services. We expect voice services revenue to continue to increase in absolute
dollars over future periods as a result of anticipated growth in revenue from
continued penetration of existing markets, but over time to decrease as a
percentage of total revenue as we target growth in higher margin data services.

Integrated voice and data services
revenue,
which was previously reported in other services, consists of bundled data and
voice service offerings. Prior periods have been reclassified to conform with the
2001 reporting format. Integrated voice and data services revenue in the second quarter
of 2001 increased to $8.5 million from $0.2 million in the second quarter of
2000, and for the six months ended June 30, 2001 it increased to $12.1 million
from $0.2 million in the same period of 2000. The increase is attributable to
the addition of bundled service packages to our product portfolio beginning in
the second quarter of 2000. We anticipate that revenue from bundled services
will increase in future periods both in absolute amounts and as a percentage of
our total revenue as we add product enhancements, introduce new XOptions
bundles and continue to penetrate existing markets.

12



---



Costs and expenses.The table below provides expenses by classification
and as a percentage of revenue. It also reflects the reporting of engineering
and operations expenses in selling, operating and general expenses which was
previously reported with cost of service. Prior periods have been reclassified
to conform with the 2001 reporting format (dollars in thousands):

|                                    |  |                             |         |                    |  |      |      |                    |  |          |         |  |  |  |       |   |  |  |       |   
|----------------------------------- |  | --------------------------- | ------- | ------------------ |  | ---- | ---- | ------------------ |  | -------- | ------- |  |  |  | ----- | - |  |  | ----- | --
|                                    |  | Three Months Ended June 30,
|                                    |  |                            
|                                    |  | 2001                        |         | % of Total Revenue |  | 2000 |      | % of Total Revenue |  | % Change
|                                    |  |                             |         |                    |  |      |      |                    |  |         
|Costs and expenses:                
|                                   
|                                   
|                                   
|                                   
|Cost of service                     |  | $                           | 122,942 |                    |  |      | 40.1 | %                  |  | $        | 59,375  |  |  |  | 42.2  | % |  |  | 107.1 | % 
|                                   
|                                   
|                                   
|                                   
|Sales, operating and general        |  |                             | 254,569 |                    |  |      | 83.0 | %                  |  |          | 149,914 |  |  |  | 106.6 | % |  |  | 69.8  | % 
|                                   
|                                   
|                                   
|                                   
|Stock-based compensation            |  |                             | 9,316   |                    |  |      | 3.0  | %                  |  |          | 17,228  |  |  |  | 12.2  | % |  |  | (45.9 | %)
|                                   
|                                   
|                                   
|                                   
|Depreciation                        |  |                             | 104,498 |                    |  |      | 34.1 | %                  |  |          | 40,869  |  |  |  | 29.1  | % |  |  | 155.7 | % 
|                                   
|                                   
|                                   
|                                   
|Amortization                        |  |                             | 177,872 |                    |  |      | 58.0 | %                  |  |          | 35,542  |  |  |  | 25.3  | % |  |  | 400.5 | % 
|                                   
|                                   
|                                   
|                                   
|In-process research and
development |  |                             |        |                    |  |      |     |                    |  |          | 36,166  |  |  |  | 25.7  | % |  |  |      |   
|                                    |  |                             |         |                    |  |      |      |                    |  |          |         | 
|Total                               |  | $                           | 669,197 |                    |  |      |      |                    |  | $        | 339,094 |  |  |  |       |   |  |  | 97.3  | % 
|                                    |  |                             |         |                    |  |      |      |                    |  |          |         | 

|                                    |  |                           |           |                    |  |      |      |                    |  |          |         |  |  |  |       |   |  |  |       |   
|----------------------------------- |  | ------------------------- | --------- | ------------------ |  | ---- | ---- | ------------------ |  | -------- | ------- |  |  |  | ----- | - |  |  | ----- | --
|                                    |  | Six Months Ended June 30,
|                                    |  |                          
|                                    |  | 2001                      |           | % of Total Revenue |  | 2000 |      | % of Total Revenue |  | % Change
|                                    |  |                           |           |                    |  |      |      |                    |  |         
|Costs and expenses:                
|                                   
|                                   
|                                   
|                                   
|Cost of service                     |  | $                         | 237,836   |                    |  |      | 40.7 | %                  |  | $        | 106,366 |  |  |  | 43.2  | % |  |  | 123.6 | % 
|                                   
|                                   
|                                   
|                                   
|Sales, operating and general        |  |                           | 494,095   |                    |  |      | 84.6 | %                  |  |          | 271,913 |  |  |  | 110.3 | % |  |  | 81.7  | % 
|                                   
|                                   
|                                   
|                                   
|Stock-based compensation            |  |                           | 18,627    |                    |  |      | 3.2  | %                  |  |          | 26,213  |  |  |  | 10.6  | % |  |  | (28.9 | %)
|                                   
|                                   
|                                   
|                                   
|Depreciation                        |  |                           | 199,684   |                    |  |      | 34.2 | %                  |  |          | 81,252  |  |  |  | 33.0  | % |  |  | 145.8 | % 
|                                   
|                                   
|                                   
|                                   
|Amortization                        |  |                           | 354,510   |                    |  |      | 60.7 | %                  |  |          | 41,155  |  |  |  | 16.7  | % |  |  | 761.4 | % 
|                                   
|                                   
|                                   
|                                   
|In-process research and
development |  |                           |          |                    |  |      |     |                    |  |          | 36,166  |  |  |  | 14.7  | % |  |  |      |   
|                                    |  |                           |           |                    |  |      |      |                    |  |          |         | 
|Total                               |  | $                         | 1,304,752 |                    |  |      |      |                    |  | $        | 563,065 |  |  |  |       |   |  |  | 131.7 | % 
|                                    |  |                           |           |                    |  |      |      |                    |  |          |         | 

Cost of service.Cost of service includes costs paid to third party
providers for interconnect access and transport services. Cost of service in
the second quarter of 2001 was $122.9 million compared to $59.4 million in the
second quarter of 2000. For the six months ended June 30, 2001, cost of service
was $237.8 million compared to $106.4 million in the same period of 2000. Cost
of service for the three and six month periods in 2001 decreased as a percent of revenue compared to 2000
due to increased sales of
higher margin products and increased on-net services. Cost of service in 2001
increased in absolute dollars on a period-over-period comparison due to the
corresponding increase in revenue. Over the long term, we expect cost of
service as a percentage of revenue to continue to decrease as our revenue
shifts to a higher mix of data products which generally yield higher margins,
and as we continue to migrate customers from more expensive leased transport
capacity to our facilities-based networks.

Selling, operating and general.Selling, operating and general expenses
include expenses related to sales and marketing, network operations and
engineering, information systems, and general corporate office functions.
Selling, operating and general expenses in the second quarter of 2001 were
$254.6 million compared to $149.9 million in the second quarter of 2000. For
the six months ended June 30, 2001, selling, operating, and general expenses
were $494.1 million compared to $271.9 million for the comparable period of
2000. Selling, operating and general expenses decreased as a percentage of
revenue for both the three and six month periods in 2001 compared to 2000 due
to continued efficiencies generated by the centralization of many functions.
Approximately half of the period-over-period increase is due to an increase in
sales, network operations and customer support headcount associated with the
expansion of our business and the acquisition of Concentric. Other contributing
factors include increases in network maintenance, office related and marketing
expenses. Marketing costs increased due to additional advertising and marketing
campaigns to support our new product offerings, such as XOptions, and brand
awareness. We expect our selling, operating and general expenses to continue to
increase in future periods in connection with our growth and expansion plans.
However, we expect to continue to see a reduction of selling, operating and
general expenses as a percentage of revenue due to the accelerated growth in anticipated
revenue, cost efficiencies resulting from the centralization of key functions,
realization of synergies from the Concentric merger, and our ongoing efforts to
control these costs.

13



---



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 and relates entirely to selling,
operating, and general personnel. Compensation expense is recognized over the
vesting periods of compensatory stock options based on the excess of the fair
value of the common stock at the date of grant (determined by reference to the
market price on that date) over the exercise price of the option. Stock-based
compensation in the second quarter of 2001 decreased 45.9% to $9.3 million from
$17.2 million in the second quarter of 2000. For the first half of
2001, stock-based compensation expense decreased 28.9% to $18.6 million from
$26.2 million for the first half of 2000. The decrease in 2001 over the comparable periods in the prior
year is due to the decrease in the amount of vested restricted stock issued to
Concentric employees at the time of the merger in June 2000 compared to the
amount that vested during 2001.

Depreciation.We are constructing integrated end-to-end facilities-based
networks in the United States, consisting of metro fiber network and fixed
wireless connections. Our net property and equipment, which also reflects
assets acquired from Concentric in June 2000, increased to $3,504.9 million as
of June 30, 2001 versus $1,754.7 million as of June 30, 2000. As we launched and
expanded services in new and existing markets, more assets were placed into
service, which caused depreciation expense to increase to $104.5 million for
the second quarter of 2001 from $40.9 million for the second quarter of 2000
and to $199.7 million for the first half of 2001 from $81.3 million in the
first half of 2000. We expect depreciation expense to continue to increase as
we place additional network assets into service.

Amortization.Amortization expense includes amortization of goodwill,
licenses and other intangibles. Amortization increased to $177.9 million for
the second quarter of 2001 from $35.5 million in the second quarter of 2000,
and it increased to $354.5 million for the first half of 2001 from $41.2
million for the first half of 2000. The increase is primarily due to the
amortization of additional goodwill and intangible assets recorded as a result
of the June 2000 Concentric acquisition.

In-process research and development.As a result of the Concentric merger
in June 2000, we incurred a $36.2 million one-time charge resulting from an
allocation of the purchase price to in-process research and development. The
allocation represents the estimated fair value based on risk-adjusted future
cash flows of Concentrics incomplete projects.

Interest income.Interest income in the second quarter of 2001 decreased
52.7% to $21.8 million from $46.1 million in the second quarter of 2000. For
the six months ended June 30, 2001, interest income decreased 37.3% to $56.9
million from $90.7 million in the first half of 2000. The decrease in interest
income corresponds to the decrease in our average cash and investment balances.

Interest expense.Interest expense in the second quarter of 2001 increased
7.9% to $115.8 million from $107.3 million in the second quarter of 2000. For
the six months ended June 30, 2001, interest expense increased 8.7% to $234.4
million from $215.7 million in the first half of 2000. The increase in interest
expense was primarily due to an increase in our average outstanding
indebtedness over the respective periods resulting from our borrowings under
our senior secured credit facility during 2000 and 2001, the issuance of $517.5
million of 5 3/4% convertible subordinated notes in January 2001, and the
assumption of $150.0 million of debt in connection with our June 2000
acquisition of Concentric.

Net Loss.Net loss in the second quarter of 2001 increased to $461.1
million from a net loss of $258.8 million in the second quarter of 2000, due to
the foregoing factors. Net loss for the six months ended June 30, 2001
increased to $904.6 million from a net loss of $215.6 million during the same
period of 2000, due to the foregoing factors. Our net loss would have been
$440.7 million for the six months ended June 30, 2000 excluding a $225.1
million net gain on the sale of an equity investment in the first quarter of
2000.

Net loss applicable to common shares.Net loss applicable to common shares
represents net loss less preferred stock dividends and the accretion of the
preferred stock redemption obligations. Net loss applicable to common shares in
the second quarter of 2001 increased to $500.7 million from $290.6 million in
the second quarter of 2000, and increased to $983.3 million for the six
months ended June 30, 2001 from $280.8 million for the six months ended June
30, 2000. Preferred stock dividends increased during 2001 due to the issuance
of $400.0 million of preferred stock to Forstmann Little in July 2000 and the
assumption of $250.9 million of Concentric preferred stock as a result of the
Concentric merger in June 2000. Our net loss applicable to common shares would
have been $505.9 million for the six months ended June 30, 2000 excluding a
$225.1 million net gain on the sale of an equity investment in the first
quarter of 2000.

14



---



EBITDA.EBITDA is not a generally accepted accounting principle measure
but rather a measure employed by management to view operating results adjusted
for major non-cash items. EBITDA, as defined by XO, represents operating loss
adjusted for stock-based compensation, depreciation, amortization and
in-process research and development write-offs. The table below summarizes
EBITDA, both in amount and as a percentage of revenue (dollars in thousands):

|       |  |                             |         |                           |  |        |       |              |  |        |         |              |  |        |       |              |  |   |          |   |  |  |       |    |  |   |          |   |  |  |       |   
|------ |  | --------------------------- | ------- | ------------------------- |  | ------ | ----- | ------------ |  | ------ | ------- | ------------ |  | ------ | ----- | ------------ |  | - | -------- | - |  |  | ----- | -- |  | - | -------- | - |  |  | ----- | --
|       |  | Three Months Ended June 30, |         | Six Months Ended June 30,
|       |  | 2001                        |         | 2000                      |  | 2001   |       | 2000        
|       |  |                             |         |                           |  |        |       |             
|       |  | Amount                      |         | % of Revenue              |  | Amount |       | % of Revenue |  | Amount |         | % of Revenue |  | Amount |       | % of Revenue
|       |  |                             |         |                           |  |        |       |              |  |        |         |              |  |        |       |             
|EBITDA |  | $                           | (70,732 | )                         |  |        | (23.1 | %)           |  | $      | (68,640 | )            |  |        | (48.8 | %)           |  | $ | (147,845 | ) |  |  | (25.3 | %) |  | $ | (131,781 | ) |  |  | (53.5 | %)

EBITDA has been consistently improving as a percentage of revenue due to
revenue growth and the decrease in cost of service and selling, operating and
general expenses as a percentage of revenue as indicated above. In absolute
dollars, our EBITDA loss has increased due to business expansion costs as
discussed above.

Liquidity and Capital Resources

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

Capital Uses

During the first six months of 2001, net cash used in investing activities
was $641.5 million. Our investment in property and equipment was $1,030.9
million and net proceeds from the sale of marketable securities was $498.2
million for the first half of 2001. Approximately 40% of our investment in
property and equipment in the first half of 2001 was for the buildout of the
inter-city network and approximately 8% was for the European operations. The
remainder was spent on continued buildout of the local market infrastructure
and operating systems. We expect that our capital expenditures for the second
half of 2001 will be predominantly success-based. We continue to generate
operating losses as we incur operating expenses while we expand and execute our
business strategy. Our net operating activities used $311.6 million of cash
during the first six months of 2001.

We expect that our business will continue to require substantial amounts
of cash to fund operations and capital expenditures relating to our existing
and planned network development in 2001 and beyond. These funds are expected to
relate to:



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

In July 2001, we filed a current report on Form 8-K in which we disclosed
that we or our affiliates may, from time to time, acquire our senior notes,
subordinated notes and preferred stock in open market or privately negotiated

15



---



transactions. Certain of these transactions may involve the use of cash.
In the third quarter of 2001, we effected cash purchases of certain of these
securities at substantial discounts to their respective face amounts.

Capital Resources

We have funded our operating and investing activities to date through the
issuance of various debt and equity offerings. In 2001, these included:

Private Equity Investment.On June 7, 2001, an investment fund controlled
by Forstmann Little invested $250.0 million in XO to provide additional funding
for general corporate purposes. In exchange for the investment, we issued 50.0
million shares of our Class A common stock to the Forstmann Little fund and
amended the terms of outstanding convertible preferred stock held by various
Forstmann Little investment funds to reduce the share conversion price from
$31.625 to $17.00 per share.

Secured Credit Facility.We entered into a $1.0 billion senior secured
credit facility with various lenders in February 2000. The facility is
comprised of a $387.5 million senior secured multi-draw term loan A, a $225.0
million senior secured term loan B, and a $387.5 million revolving credit
facility. In February 2001, we borrowed the remaining $237.5 million available
under the term loan A. As of June 30, 2001, we had borrowed $612.5 million
under the facility consisting of the $387.5 million of the term loan A and
$225.0 million of the term loan B. In July 2001, we borrowed the remaining
$387.5 million under the revolving credit facility.

The term loan A and the revolving credit facility mature on December 31,
2006, and the term loan B matures on June 30, 2007. In each case, the maturity
dates are subject to acceleration to October 31, 2005 if we do not refinance
the 12 1/2% Senior Notes due 2006 by April 15, 2005. Amounts drawn under the
revolving credit facility and the term loans bear interest, at the our option,
at the alternate base rate, as defined, or reserve-adjusted London Interbank
Offered Rate (LIBOR) plus, in each case, applicable margins. As of June 30,
2001, the annualized weighted average interest rate applicable to outstanding
borrowings under the facility was 7.8%.

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

Liquidity Assessment

In April 2001, we announced that we had made modifications to our
previously announced capital plans to reflect reduced capital expenditures
associated with the amendments to agreements with Level 3 and changes in our
domestic capital plans. There are three major components to these revisions:



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

These modifications significantly reduce future funding required to
realize our business plan resulting in revised estimated capital expenditures
for 2001 of $1,300 million to $1,500 million, reduced from our original
estimate of $1,900 million to $2,100 million. We expect capital expenditures
for 2001 to come in at the high end of this revised range. In addition, we
estimate that our cash commitments for interest expense and preferred dividends
for the year ended December 31, 2001 will be approximately $430 million based
on our capital structure at June 30, 2001 and current applicable interest
rates. Giving effect to the changes in our business plan, we estimate that the
cash and marketable securities on hand as of June 30, 2001, the $387.5 million
proceeds from our credit facility that we borrowed in July 2001 and expected
funds generated from future operations, will be sufficient to fund debt
service, operating expenses and other capital requirements into the first half
of 2003. We estimate that we will need to raise

16



---

between $500 million and $1,000 million in additional financing, primarily
to fund future debt service, until such time we expect to generate cash from
operations sufficient to satisfy debt service, operating expenses and other
capital requirements. There can be no guarantee that such funds will be
available, or on terms acceptable to us.

In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, as of June 30, 2001, we have reviewed our expected future
undiscounted cash flows excluding debt service and believe, based on this
analysis, that we will recover the carrying value of our long-lived assets,
including property and equipment, goodwill and identifiable intangible assets
to be held and used. In the event that our anticipated revenues are reduced
significantly due to changes in technology, regulation, available financing or
competition, our estimated future cash flows may be revised, and our assessment
of our ability to recover the carrying value of these assets may change.

Forward-looking and Cautionary Statements

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



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

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



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

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 141, Business Combinations,
or SFAS No. 141, which is effective for all business combinations completed
after June 30, 2001 and supercedes Accounting Principles Board, or APB, Opinion
No. 16, Business Combinations. Under SFAS No. 141, companies will be required
to account for all business combinations using the purchase method of
accounting, recognize intangible assets if certain criteria are met, as well as
provide additional disclosures regarding business combinations and the
allocation of purchase price. Management does not believe



---



SFAS No. 141 will have an immediate impact on the Company as we have no
transactions pending subject to the statement.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, or SFAS No. 142, which revises the accounting for purchased goodwill
and intangible assets and supercedes APB Opinion No. 17, Intangible Assets.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001
and must be applied to all goodwill and other intangible assets recorded at
that date. However, goodwill and intangible assets acquired after June 30, 2001
will be subject immediately to the amortization provisions of this statement.
Under SFAS No. 142, goodwill and intangible assets with indefinite lives will
no longer be amortized but will be tested for impairment annually or more
frequently if an event indicates that the asset might be impaired. The
statement provides guidance on measuring goodwill and intangible asset
impairments to include a discounted cash flow methodology. The initial
impairment analysis of intangible assets recorded at December 15, 2001 (other
than those acquired after June 30, 2001) must be completed by March 31, 2002
and goodwill impairment testing must be completed by June 30, 2002. Management
is currently evaluating the impact of this statement on the Companys results
of operations and financial position. As of June 30, 2001, the carrying value
of goodwill and other intangibles was $2,397.8 million and $208.9 million,
respectively. Additionally, we have fixed wireless licenses with a carrying
value of $981.2 million as of June 30, 2001.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We have financial obligations outstanding which expose us to interest rate
risk including our redeemable preferred stock, senior and subordinated notes,
and bank credit facilities. We do not have significant cash flow exposure to
changing interest rates on the majority of our long-term debt and redeemable
preferred stock because the interest and dividend rates of those securities are
fixed. However, the estimated fair values of the fixed-rate debt and redeemable
preferred stock are subject to market risk. We had $4,651.3 million in fixed
rate debt, $1.0 billion in variable rate debt, which includes the $387.5
million borrowed in July 2001, and $2,240.9 million in fixed rate redeemable
preferred stock as of June 30, 2001. We are not currently engaged in the use of
off-balance sheet derivative financial instruments, including interest rate
swap and collar agreements, to hedge or partially hedge interest rate exposure
arising from changes in interest rates.

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

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Changes in Securities and Use of Proceeds

On June 7, 2001, we completed an investment by an investment fund
controlled by Forstmann Little & Co. of $250.0 million in cash. In exchange for
the investment, we issued 50.0 million shares of our Class A common stock to
the Forstmann Little fund and amended the terms of our Series C Cumulative
Convertible Participating Preferred Stock, Series D Convertible Participating
Preferred Stock, Series G Cumulative Convertible Participating Preferred Stock
and Series H Convertible Participating Preferred Stock. In each case, the
certificate of designation for the series of preferred stock was amended to
reduce the share conversion price for the series from $31.625 to $17.00 per
share. The offer and sale of the shares of Class A Common stock were exempt
from the registration requirements of the Securities Act of 1933, as amended,
pursuant to Section 4(2) of the Act as transactions not involving any public
offering.

The initial public offering (IPO) of our Class A common stock was
completed in October 1997, pursuant to a registration statement on Form S-1
(File No. 333-32001) filed with the Securities and Exchange Commission that
become effective on September 26, 1997. The net proceeds we received from the
offering totaled approximately

18



---



$226.8 million. As of June 30, 2001, proceeds from the IPO remain
available for future network build out and working capital requirements.

Item 3. Defaults Upon Senior Securities

None.

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

Annual Meeting of Stockholders

The Company held its annual meeting of stockholders on May 30, 2001. The
following matters were voted upon at the meeting:

Proposal 1: The following directors were elected by the holders of Class A
and Class B common stock, voting together as a single class:

|                   |  |           |               |                |  |  |            | 
|------------------ |  | --------- | ------------- | -------------- |  |  | ---------- | 
|Nominee            |  | Votes For |               | Votes Withheld
|                   |  |           |               |               
|Daniel F. Akerson  |  |           | 1,270,489,593 |                |  |  | 10,161,243 | 
|                  
|                  
|                  
|                  
|Nathaniel A. Davis |  |           | 1,270,501,969 |                |  |  | 10,148,867 | 
|                  
|                  
|                  
|                  
|Joseph L. Cole     |  |           | 1,279,573,246 |                |  |  | 1,077,590  | 
|                  
|                  
|                  
|                  
|Nicolas Kauser     |  |           | 1,279,738,596 |                |  |  | 912,240    | 
|                  
|                  
|                  
|                  
|Craig O. McCaw     |  |           | 1,269,290,643 |                |  |  | 11,360,193 | 
|                  
|                  
|                  
|                  
|Sharon L. Nelson   |  |           | 1,279,224,018 |                |  |  | 1,426,818  | 
|                  
|                  
|                  
|                  
|Henry R. Nothhaft  |  |           | 1,279,738,046 |                |  |  | 912,790    | 
|                  
|                  
|                  
|                  
|Jeffrey S. Raikes  |  |           | 1,279,739,096 |                |  |  | 911,740    | 
|                  
|                  
|                  
|                  
|Peter C. Waal      |  |           | 1,279,388,788 |                |  |  | 1,262,048  | 
|                  
|                  
|                  
|                  
|Dennis M. Weibling |  |           | 1,279,576,096 |                |  |  | 1,074,740  | 

As provided in the terms of the Series C cumulative convertible
participating preferred stock, the holders of the Series C preferred stock are
entitled to elect one director nominated by the holders of the Series C
preferred stock. Currently, there is a vacancy on our Board that may be filled
only by a nominee elected by the holders of our series C preferred stock. The
series C preferred stockholders did not provide a nominee for election at the
Annual Meeting, but have the right to fill the vacancy at any time. As provided
in the terms of the Series D convertible participating preferred stock, the
holders of the Series D preferred stock are entitled to elect one director
nominated by the holders of the Series D preferred stock. The holders of the
Series D preferred stock nominated for director and cast all 265,625 votes for
Sandra J. Horbach.

Proposal 2: The stockholders approved the following amendments to the XO
Communications, Inc. Stock Option Plan to:



| |  |  | increase by 10,000,000 the number of shares that may be issued
under the plan, increasing the maximum number of shares authorized for
issuance under the plan to 113,000,000; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | permit us to award restricted stock to eligible individuals under
the plan in amounts determined by the Compensation Committee of our
Board of Directors.                        

Approval of the proposal required the affirmative vote of a majority of
the votes present in person or by proxy of our class A and class B common stock
and our series C, series D, series G and series H preferred stock, voting
together as a single class, with 1,216,383,651 votes for, 103,490,986 against,
and 301,440 abstentions.

Proposal 3: The stockholders ratified the appointment of Arthur Andersen
LLP as independent auditors to audit our consolidated financial statements for
the fiscal year ending December 31, 2001. Approval of the proposal required the
affirmative vote of a majority of the votes present in person or by proxy of
our class A and class B common stock and our series C, series D, series G and
series H preferred stock, voting together as a single class, with 1,319,293,328
votes for, 736,715 against, and 146,483 abstentions.

19



---



Action by Written Consent of Majority Stockholders

Effective April 25, 2001, our board of directors unanimously authorized,
subject to approval by the stockholders, an amendment to our certificate of
incorporation to reduce the conversion price of the shares of our Series C
Cumulative Convertible Participating Preferred Stock, Series D Convertible
Participating Preferred Stock, Series G Cumulative Convertible Participating
Preferred Stock and Series H Convertible Participating Preferred Stock from
$31.625 to $17.00 and make certain other changes. Following the boards action,
three stockholders, Eagle River Investments, LLC, Craig O. McCaw and Wendy P.
McCaw, that together hold shares of our common stock with a majority of the
voting power attributable to all shares of our outstanding capital stock
entitled to vote, approved the amendment. The proposed amendment to our
certificate of incorporation was made in connection with an additional
investment by Forstmann Little. Forstmann Little, as the holder of all of the
shares of convertible preferred stock affected by the amendment, also consented
to the amendment. Because we are a corporation organized under the laws of the
State of Delaware, our stockholders may take action by written consent without
a meeting. The Board did not solicit any proxies or consents from any other
stockholders in connection with this action. The amendments became effective 20
days after May 14, 2001, the date on which we mailed an information statement
describing the amendments to stockholders of XO, in accordance with rules of
the Securities and Exchange Commission.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits



|3.1  |  | Amended and Restated Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other Special Rights
of Series C Cumulative Convertible Participating Preferred Stock and
Qualifications, Limitations and Restrictions Thereof                                             
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|3.2  |  | Amended and Restated Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other Special Rights
of Series D Convertible Participating Preferred Stock and Qualifications,
Limitations and Restrictions Thereof                                                        
|    
|3.3  |  | Amended and Restated Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other Special Rights
of Series G Cumulative Convertible Participating Preferred Stock and
Qualifications, Limitations and Restrictions Thereof                                             
|    
|3.4  |  | Amended and Restated Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other Special Rights
of Series H Convertible Participating Preferred Stock and Qualifications,
Limitations and Restrictions Thereof                                                        
|    
|10.1 |  | Second Amended and Restated Registration Rights Agreement dated as of
June 5, 2000, between XO Communications, Inc. and the purchasers listed on
the signature pages thereto, relating to Class A common stock issuable
upon conversion of Series C, Series D, Series G and Series H convertible
preferred stock

(b) Reports on Form 8-K



| | (1) |  | Current report on Form 8-K, dated April 30, 2001, reporting
under Item 5 the agreement by Forstmann Little & Co. to make an
additional investment in XO Communications, Inc.                                                                                                       
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Current Report on Form 8-K dated July 6, 2001, reporting
under Item 5 that the Company may purchase its outstanding Senior
Notes, Subordinated Notes and Preferred Stock from time to time.                                                                                        
|
| | (3) |  | Current Report on Form 8-K dated July 19, 2001, reporting
under Item 2 an updated unaudited pro forma condensed combined
statement of operations for the year ended December 31, 2000 giving
effect to the Concentric Network Corporation merger as if it
occurred January 1, 2000.

20



---



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: August 13, 2001 |  | By: /s/ Wayne M. Rehberger
Wayne M. Rehberger
Senior Vice President and Chief Financial Officer
(Principal financial and accounting officer)
|                      |  |                                                                                                                                             
|                      |  | XO Capital, Inc.                                                                                                                            
|                      |  |                                                                                                                                             
|Date: August 13, 2001 |  | By: /s/ Wayne M. Rehberger
Wayne M. Rehberger
Senior Vice President and Chief Financial Officer
(Principal financial and accounting officer)

21



---



EXHIBIT INDEX

|           |  |                                                                                                                                                                                                                                                                                                                 
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Description of Exhibit                                                                                                                                                                                                                                                                                          
|          
|3.1        |  | Amended and Restated Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other Special Rights
of Series C Cumulative Convertible Participating Preferred Stock and
Qualifications, Limitations and Restrictions Thereof                                             
|          
|3.2        |  | Amended and Restated Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other Special Rights
of Series D Convertible Participating Preferred Stock and Qualifications,
Limitations and Restrictions Thereof                                                        
|          
|3.3        |  | Amended and Restated Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other Special Rights
of Series G Cumulative Convertible Participating Preferred Stock and
Qualifications, Limitations and Restrictions Thereof                                             
|          
|3.4        |  | Amended and Restated Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other Special Rights
of Series H Convertible Participating Preferred Stock and Qualifications,
Limitations and Restrictions Thereof                                                        
|          
|10.1       |  | Second Amended and Restated Registration Rights Agreement dated as of
June 5, 2000, between XO Communications, Inc. and the purchasers listed on
the signature pages thereto, relating to Class A common stock issuable
upon conversion of Series C, Series D, Series G and Series H convertible
preferred stock

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