SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): April 24, 2003
______________
McLEODUSA INCORPORATED
______________
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-20763 42-1407240
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(State or Other Jurisdiction of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
McLeodUSA Technology Park, 6400 C Street SW, P.O. Box 3177,
Cedar Rapids, IA 52406-3177
__________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (319) 790-7800
______________
_____________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
99.1 Press Release, dated April 24, 2003
ITEM 12. Results of Operations and Financial Condition.
On April 24, 2003, we announced our financial results for the fiscal quarter
ended March 31, 2003, and certain other information, in a press release, which
is filed as Exhibit 99.1 to this report on Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 24, 2003 McLEODUSA INCORPORATED
By: /s/ G. Kenneth Burckhardt
-----------------------------
G. Kenneth Burckhardt
Chief Financial Officer
Exhibit Index
Exhibit
No. Exhibits
99.1 Press Release, dated April 24, 2003
Exhibit 99.1
McLeodUSA Reports First Quarter 2003 Results
o Reported Net Loss Improves to $(84.1) million from $(186.4) in 1Q'02
o Continued Positive Telco EBITDA of $6.8 million versus $(4.9) in 1Q'02
o On-switch Platform Mix Increases to 56% from 39% in 1Q'02
o Customer Turnover Decreases to 2.4% from 2.7% in 1Q'02
CEDAR RAPIDS, Iowa - April 24, 2003 - McLeodUSA Incorporated (Nasdaq: MCLD), one
of the nation's largest independent, competitive telecommunications service
providers, today reported financial and operating results for the quarter ended
March 31, 2003.
Total revenues for the quarter were $225.9 million and gross margin was $88.5
million. SG&A expenses for the quarter were $81.7 million. EBITDA1 (earnings
before interest, taxes, depreciation and amortization) for the competitive
telecommunications ("Telco") business for the period was $6.8 million. Reported
net loss for the quarter was $(84.1) million, or a loss per common share of
$(0.31).
"We continue to see the benefits of the significant operational improvements we
made in 2002 to enhance the customer experience, reduce service delivery
intervals, streamline billing processes, optimize our network, and reduce
overall cost. While the Company's first quarter revenues declined slightly from
the fourth quarter of 2002, our continued emphasis on profitable customers,
operational efficiencies and margin performance resulted in positive Telco
EBITDA for the fourth consecutive quarter," said Chris A. Davis, Chairman and
Chief Executive Officer. "Despite the current economic environment, we remain
committed to execution of our growth strategy. This includes strong focus on the
customer, the quality and reliability of our network and capitalizing on the
substantial opportunities in our markets. To this end, in the quarter, we
completed our rigorous StarQualitySM training and certification program and
announced the expansion of our residential product offerings into eight
additional states in our 25-state footprint."
The Company's first quarter reported revenues, cost of sales and operating
expenses contain Telco operations, which are the ongoing business operations of
McLeodUSA after the successful completion in 2002 of the Company's non-core
asset disposition plan. Therefore, for comparative purposes, the financial
results for the competitive Telco business for prior year quarters are detailed
in the attached Comparison of Selected Competitive Telco Operations Statement
and the following comments are based on that information.
1 EBITDA is a non-GAAP industry convention or standard measure portraying cash
operating earnings. It is included in the Company's discussion of its 2003 and
2002 financial results because the Company believes it is a meaningful measure
of actual operating performance. EBITDA excludes reorganization charges, gains
and losses on disposals and results of discontinued operations. Use of EBITDA is
not intended to replace measures of financial performance that are reported in
accordance with U.S. generally accepted accounting principles.
For the quarter ended March 31, 2003, total Telco revenues were $225.9 million
and gross margin was $88.5 million versus $259.4 million and $86.2 million,
respectively, in the first quarter of 2002. Gross margin as a percent of revenue
improved from 33.2% to 39.2%. The reduction in revenue was driven primarily by
fewer customers, including the Company's efforts to eliminate non-profitable
customers, as well as, lower average long distance revenue per customer. The
improvement in gross margin reflects network cost reductions, migration of
customers to the McLeodUSA network and the elimination of non-profitable
customers. Customer platform mix at the end of the first quarter was 56% UNE-L,
13% resale and 31% UNE M/P versus 39%, 23% and 38% respectively at the end of
the first quarter 2002.
For the first quarter of 2003, SG&A was $81.7 million versus $91.1 million in
the first quarter of 2002 reflecting the continuing actions taken to improve
processes and reduce infrastructure. Telco EBITDA in the first quarter of 2003
was $6.8 million compared to a loss of $(4.9) million in the first quarter of
2002. This $11.7 million improvement was driven by the results of the Company's
cost reduction and productivity initiatives, as well as its continued strong
focus on profitable selling.
Telco revenues of $225.9 million for the quarter compare to $230.0 million in
the fourth quarter of 2002. Overall, an increase in average revenue per customer
was offset by a slight reduction in the customer base. Gross margin in the first
quarter of 2003 was $88.5 million or 39.2% of revenue, as compared to $93.2
million or 40.5% of revenue in the fourth quarter of 2002. UNE-L platform mix
increased to 56% versus 52% at the end of the prior quarter as the Company
continued to migrate customers on-switch in order to further reduce cost and
streamline operations. First quarter SG&A expenses of $81.7 million remained
flat with the fourth quarter of 2002. First quarter EBITDA of $6.8 million
compared to $11.4 million in the fourth quarter.
The Company ended the quarter with $115.5 million of cash on hand. Total capital
expenditures for the first quarter of 2003 were $14 million.
Other highlights in the quarter included:
o Announced the expansion of residential Preferred AdvantageSM local, long
distance and Internet services into eight additional states, within the
Company's 25-state footprint, including Washington, Texas, Utah, Oregon,
Missouri, Arizona, New Mexico and Ohio. The new residential services are
being implemented in stages, as tariffs are approved by state regulatory
commissions, and are expected to all be completed by June 2003.
o Completed StarQuality certification program of all employees who interact
with customers or the network. As of April 11, 2003 approximately 22,000
individual assessments were completed, 307 new training modules developed
and 100 percent of the required 3,000 employees had earned their
StarQuality certifications.
Conference Call
McLeodUSA will host a conference call on Thursday, April 24 2003, at 10 a.m.
Eastern Time to discuss first quarter results, 2003 goals and the information
contained in this release. The call may be accessed at 888-271-9098 (U.S.) or
706-634-6027 (International). A replay will be available approximately 2 hours
after completion of the call at 800-642-1687 (U.S.) or 706-645-9291
(International), Conference ID No. 9774338. The audio replay will be available
through midnight ET on Thursday, May 1, 2003. The call will also be Webcast live
and available via replay at:
http://www.mcleodusa.com/html/ir/streamingmedia.php3
# # #
About McLeodUSA
McLeodUSA provides integrated communications services, including local services,
in 25 Midwest, Southwest, Northwest and Rocky Mountain states. The Company is a
facilities-based telecommunications provider with, as of March 31, 2003, 38 ATM
switches, 46 voice switches, 567 collocations, 433 DSLAMs and 3,720 employees.
As of April 16, 2002, Forstmann Little & Co. became a 58% shareholder in the
Company. Visit the Company's Web site at www.mcleodusa.com.
Some of the statements in this press release include statements about our future
expectations. Statements that are not historical facts are "forward-looking
statements" for the purpose of the safe harbor provided by Section 21E of the
Exchange Act and Section 27A of the Securities Act. Such statements include
projections of financial and operational results and goals, including revenue,
EBITDA, profitability, savings and cash. These forward-looking statements are
subject to known as well as unknown risks and uncertainties that may cause
actual results to differ materially from our expectations. Our expectations are
based on various factors and assumptions and reflect only our predictions.
Factors that could cause actual results to differ materially from the
forward-looking statement include technological, regulatory, public policy or
other developments in our industry, availability and adequacy of capital
resources, current and future economic conditions, the existence of strategic
alliances, our ability to generate cash, our ability to implement process and
network improvements, our ability to attract and retain customers, our ability
to migrate traffic to appropriate platforms and changes in the competitive
climate in which we operate. These and other risks are described in more detail
in our most recent Annual Report on Form 10-K and Form 10-K/A both filed with
the SEC. The information provided herein is intended to be considered in
conjunction with the information provided in our most recent Annual Report on
Form 10-K and 10-K/A. The Company undertakes no obligation to update publicly
any forward-looking statements, whether as a result of future events, new
information or otherwise.
Contact:
McLeodUSA Incorporated, Cedar Rapids, IA
Investor Contact: Bryce E. Nemitz
Press Contact: Bruce A. Tiemann
Phone: 319/790-7800
mcleodusa_ir@mcleodusa.com
McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Statements of
Operations (In millions, except per share data) (UNAUDITED)
(UNAUDITED)
Reorganized Predecessor
McLeodUSA McLeodUSA
------------------- ------------------
Three Three
months ended months ended
3/31/2003 3/31/2002
------------------- ------------------
Revenues $ 225.9 $ 264.1
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Operating expenses:
Cost of service (exclusive of depreciation shown separately below) 137.4 179.1
Selling, general and administrative 81.7 91.4
Depreciation and amortization 82.2 108.9
Reorganization charges, net -- 57.2
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Operating Loss (75.4) (172.5)
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Nonoperating income (expense):
Interest expense, net of amounts capitalized (8.7) (31.4)
Other income -- 3.0
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Total nonoperating expense (8.7) (28.4)
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Loss from continuing operations (84.1) (200.9)
Discontinued operations:
Income from discontinued operations -- 14.5
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Net loss (84.1) (186.4)
Preferred stock dividend (1.2) (4.8)
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Net loss applicable to common shares $ (85.3) (191.2)
======= =======
Basic and diluted (loss) income per common share:
Loss from continuing operations $ (0.31) $ (0.33)
Discontinued operations -- 0.02
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Loss per common share $ (0.31) $ (0.31)
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Weighted average common shares outstanding 276.3 627.7
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Reconciliation of EBITDA1:
Operating Loss $ (75.4) $(172.5)
Depreciation and amortization 82.2 108.9
Reorganization charges, net -- 57.2
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EBITDA $ 6.8 $ (6.4)
======= =======
1Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a
non-GAAP industry convention or standard measure portraying cash operating
earnings. It is included in the Company's discussion of its 2003 and 2002
financial results because the Company believes it is a meaningful measure of
actual operating performance. EBITDA excludes reorganization charges, gains and
losses on disposals and results of discontinued operations. Use of EBITDA is not
intended to replace measures of financial performance that are reported in
accordance with U.S. generally accepted accounting principles.
McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
March 31, 2003 December 31, 2002
(Unaudited)
------------------------ -----------------------
ASSETS
Current Assets
Cash and cash equivalents $ 115.5 $ 170.6
Trade receivables, net 92.1 93.1
Prepaid expense and other 26.3 26.2
Assets held for sale 10.8 11.1
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Total Current Assets 244.7 301.0
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Non-current Assets
Property and equipment, net 1,151.6 1,203.1
Goodwill and other intangibles, net 464.1 472.3
Other non-current assets 22.7 23.9
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Total Non-current Assets 1,638.4 1,699.3
------------------------ -----------------------
Total Assets $ 1,883.1 $ 2,000.3
======================== =======================
LIABILITIES AND EQUITY
Current Liabilities
Current maturities of long-term debt $ 19.9 $ 15.0
Accounts payable 68.4 71.1
Deferred revenue, current portion 9.8 9.8
Other current liabilities 152.3 176.4
Liabilities related to discontinued operations 1.0 6.3
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Total Current Liabilities 251.4 278.6
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Long-term Liabilities
Long-term debt, excluding current maturities 698.6 704.9
Deferred revenue less current portion 12.9 13.5
Other long-term liabilities 55.8 54.9
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Total Long-term Liabilities 767.3 773.3
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Redeemable Convertible Preferred Stock 173.9 172.6
Stockholders' Equity 690.5 775.8
------------------------ -----------------------
Total Liabilities and Equity $ 1,883.1 $ 2,000.3
======================== =======================
McLeodUSA Incorporated and Subsidiaries
Comparison of Selected Competitive Telco Operations
(In millions)
(UNAUDITED)
Q1 2003 Q4 2002 Q1 2002
Revenues
As reported $ 225.9 $ 230.0 $ 264.1
Non-core business dispositions* ---- ---- (4.7)
---------------------------------- ----------------
Ongoing Telco revenues $ 225.9 $ 230.0 $ 259.4
Cost of Service
As reported $ 137.4 $ 136.8 $ 179.1
Non-core business dispositions* ---- ---- (5.9)
---------------------------------- ----------------
Ongoing Telco cost of service $ 137.4 $ 136.8 $ 173.2
Margin
As reported $ 88.5 $ 93.2 $ 85.0
Non-core business dispositions* ---- ---- 1.2
---------------------------------- ----------------
Ongoing Telco margin $ 88.5 $ 93.2 $ 86.2
% Revenue 39.2% 40.5% 33.2%
Selling, General & Administrative Expenses
As reported $ 81.7 $ 81.8 $ 91.4
Non-core business dispositions* ---- ---- (0.3)
---------------------------------- ----------------
Ongoing Telco SG&A expenses $ 81.7 $ 81.8 $ 91.1
Depreciation & Amortization
As reported $ 82.2 $ 82.7 $ 108.9
Non-core business dispositions* ---- ---- (0.9)
---------------------------------- ----------------
Ongoing Telco depreciation and amortization $ 82.2 $ 82.7 $ 108.0
EBITDA1
As reported $ 6.8 $ 11.4 $ (6.4)
Non-core business dispositions* ---- ---- 1.5
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Ongoing Telco EBITDA $ 6.8 $ 11.4 $ (4.9)
% Revenue 3.0% 5.0% -1.9%
* Non-core business dispositions include Splitrock and Devise
1Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a
non-GAAP industry convention or standard measure portraying cash operating
earnings. It is included in the Company's discussion of its 2003 and 2002
financial results because the Company believes it is a meaningful measure of
actual operating performance. EBITDA excludes reorganization charges, gains and
losses on disposals and results of discontinued operations. Use of EBITDA is not
intended to replace measures of financial performance that are reported in
accordance with U.S. generally accepted accounting principles.
McLeodUSA Incorporated and Subsidiaries
Selected Telecommunications Statistical Data
------------------ ------------------- -------------------
3/31/02 12/31/02 3/31/03
------------------ ------------------- -------------------
Active central offices 1,809 1,738 1,684
Collocations 499 562 567
Switches owned
CO / LD 59 50 46
ATM / Frame Relay 43 38 38
DSLAMs installed 526 430 433
Total Competitive:
Customers 469,532 432,084 424,638
Access Units / Customer 2.7 2.8 2.8
Revenue per Customer / Month
Local $ 109.76 $ 109.19 $ 112.66
Long distance 46.20 39.06 38.14
Private line & data 26.23 28.46 27.03
------------------ ------------------- -------------------
Total $ 182.19 $ 176.71 $ 177.83
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Platform Distribution
Resale 23% 15% 13%
UNE-P 38% 33% 31%
UNE-L 39% 52% 56%
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Total 100% 100% 100%
================== =================== ===================