EXHIBIT 99.1
[McLeodUSA logo] [MCLD: A Nasdaq-100
Company logo]
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW, PO Box 3177
Cedar Rapids, IA 52406-3177
Investor Contact: Bryce E. Nemitz
Press Contact: Bruce A. Tiemann
mcleodusa_ir@mcleodusa.com
Phone: (319) 790-7800
FAX: (319) 790-7767
McLeodUSA Strengthens Senior Management and Board,
Positioning Company for Future Growth
. Chris Davis Joins as Chief Operating and Financial Officer
. Steve Gray Becomes President & CEO; Clark McLeod Continues as Chairman
. Four Current and Former CEOs Named New Outside Directors
. Ted Forstmann Appointed Chairman of Executive Committee of Board
Forstmann Little Makes New $100 Million Equity Investment,
Eliminates Cash Dividend and Resets Conversion on B & C Preferred Shares
. Actions Substantially Improve Cash Position to Execute Focused Business
Plan
. Company Reports Strong Second Quarter 2001 Financial Results
. Company Updates 2001 Guidance and Provides Preliminary 2002 Targets
CEDAR RAPIDS, IA, August 1, 2001 -- McLeodUSA Incorporated (Nasdaq:MCLD), the
nation's largest independent competitive local exchange carrier, today announced
a series of actions to strengthen its senior management and Board of Directors
and substantially improve its cash position, allowing the company to implement
its long-term growth plans. The company also reported strong financial results
for the second quarter ended June 30, 2001.
Clark McLeod said, "Today's announcement reflects the strength of our long-term
partnership with Forstmann Little. With their increased investment and active
involvement, as well as our new Board leadership and the exceptional management
addition of Chris Davis, McLeodUSA is poised for the next stage of its growth."
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Ted Forstmann, Senior Partner of Forstmann Little, said, "This series of actions
is an important step for McLeodUSA. We now have the right capital structure and
the right people in the right places to maximize the company's potential."
Management
- ----------
The company is strengthening its operational and financial management by naming
Chris A. Davis Chief Operating and Financial Officer. She will also join the
McLeodUSA Board and the Executive Committee of the Board. Davis was most
recently EVP, Chief Financial and Administrative Officer for ONI Systems, a
leading optical networking equipment company. Previously, she spent seven years
from 1993 to 2000 as EVP, Chief Financial and Administrative Officer at
Gulfstream Aerospace. Prior to Gulfstream, Ms. Davis spent 17 years in
increasingly senior operational and financial management positions at General
Electric.
Steve Gray, who has served as President since 1997 and Co-CEO since early this
year, was named President and CEO. Clark McLeod will continue as Chairman,
recognizing the roles each has played for some time.
Steve Gray said, "I'm excited to work with Chris as we put in place the
processes, systems and discipline to create a strong foundation for a much
larger company. Chris Davis brings an ideal mix of talents and experience. She
was instrumental in the historic turnaround of Gulfstream Aerospace. She has a
keen understanding of the telecom sector from her recent successful experience
at ONI Systems as well as strong financial and operational skills developed at
General Electric."
Chris Davis said, "McLeodUSA is an entrepreneurial company with outstanding
opportunities to continue its dynamic growth. As the largest and most developed
CLEC, the company is poised to become the first fully established next-
generation telecommunications provider. I look forward to joining the strong
and capable management team at McLeodUSA."
Board of Directors
- ------------------
The Board is being strengthened with the election of four new outside directors:
Ed Breen, EVP and President of the Networks Sector of Motorola and former CEO of
General Instrument Corporation; Dale Frey, former Treasurer of General Electric
Company and CEO of GE Investment Corp.; Tom Bell, former Chairman and CEO of
Young and Rubicam; and Peter Ueberroth, Owner and Co-Chairman of The Pebble
Beach Company, who will join the Board effective August 2.
The Board also reconstituted its Executive Committee to focus on the key
strategic decisions and operational priorities of McLeodUSA. Ted Forstmann has
been named Chairman of the Executive Committee, which will also include Clark
McLeod, Steve Gray, Chris Davis, Dale Frey and Ed Breen.
"This action allows us to leverage the extraordinary talent of the outside Board
members and maximize our access to Ted's leadership and expertise," said Clark
McLeod.
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Financing
- ---------
Forstmann Little has agreed to invest an additional $100 million in the company
in the form of 36.4 million shares of common stock issued at a price of $2.75
per share, a 12 percent premium over the last five-day average to the current
share price. Forstmann Little has also agreed to exchange the convertible
preferred stock the firm acquired in 1999 for new convertible preferred stock
that has no dividend, which will save McLeodUSA approximately $175 million of
cash over the next five years. In addition, the conversion price of Forstmann
Little's preferred security will be reduced to $6.10 per share from the $12.17
price of its current stock. The transaction is subject to customary closing
conditions and is expected to be completed by the end of the third quarter.
Upon completion, Forstmann Little will own approximately 20 percent of the
company's fully diluted equity.
Ted Forstmann said, "Our additional investment reflects our confidence that
McLeodUSA now has the management, business model and balance sheet to take full
advantage of the extraordinary opportunity in the years ahead. With the
additional Board strength, this company is clearly positioned for the next stage
of growth."
Second Quarter Results
- ----------------------
McLeodUSA Incorporated today reported results for second quarter 2001. Revenues
were $473.6 million for the quarter ended June 30, 2001, compared to $331.8
million for the same period one year ago, an increase of 43 percent. EBITDA
(earnings before interest, taxes, depreciation and amortization) for the quarter
was a positive $34.2 million, excluding one-time events, up from $1.1 million
for second quarter 2000.
President and CEO Steve Gray stated, "We are very pleased with our quarterly
results. In addition, we saw improvements in our leading revenue indicators of
sales productivity, new data services sales and revenue per new customer.
McLeodUSA is now electronically bonded on 100 percent of all line-level
conversions and new order processing with Qwest and Ameritech in their
respective states. We are already seeing improvements in our customer
provisioning intervals."
The company recorded a one-time gain on the sale of certain assets of $80
million, primarily its PCS licenses, that is partially offset by a one-time
restructuring charge of about $28 million associated with the company's
reduction in force and a reduction in its leased facilities.
Additionally, our Network Services team made solid progress by increasing the
scope of collocations, DSLAMs, long distance and data facilities. "These
efforts will produce improving margins and a better value proposition for our
customers," said Roy Wilkens, President and CEO of Network Services at
McLeodUSA.
The company also announced newly expanded metrics related to key growth
indicators including: customers, access units per customer, revenue per
customer per month, and platform distribution.
Gray continued, "Last quarter we committed to the market that we would provide a
more detailed and meaningful set of growth metrics. We believe these metrics
will serve as a simpler yet more effective measurement of our company growth as
we focus on our top priorities, customers and profitability."
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Recent Announcements
- --------------------
. On May 2, McLeodUSA announced that it had sold two of its PCS licenses and
entered into agreements to sell the remainder of its PCS licenses by year
end. This action is part of the company's overall plan to monetize non-
core business assets. As of August 1, McLeodUSA has received over $125
million in cash for the sale of its PCS licenses.
. At its Annual Meeting of Stockholders on May 30, McLeodUSA announced that
its core construction plan is on track, and outlined a number of cash
management initiatives including a reduction of its 11,500 person work
force. This action has been completed.
. On May 31, 2001, McLeodUSA announced the completion of its acquisition of
Intelispan, Inc., strengthening its data services product portfolio
through Intelispan's superior Virtual Private Network (VPN) products and
services.
. On July 10, the company announced that it had accessed an additional $175
million of its $1.3 billion Secured Credit Facility, leaving an undrawn
committed balance of $550 million.
2001 Guidance and 2002 Preliminary Targets
- ------------------------------------------
McLeodUSA announced today that it expects its 2001 EBITDA to be $150 to $155
million, excluding one-time events, on revenues of approximately $1.9 billion.
For 2002, the company has set initial revenue and EBITDA targets of
approximately $2.1 to $2.3 billion and $300 to $325 million, respectively.
"The senior management and Executive Committee of the Board will evaluate the
details of our 2002 targets over the next quarter and provide more specificity
around those figures after that review. Chris and I believe there is
substantial opportunity for McLeodUSA financially and operationally," said Steve
Gray. "McLeodUSA has a powerful platform for growth in our 25-state footprint.
With the new Forstmann Little investment and the elimination of cash dividends,
together with sales of certain non-core assets, we will have substantially
improved the cash position of the company, remaining more than fully funded."
The company has already taken several steps to increase its cash position and
has $550 million in undrawn committed capacity under its bank facility. The
company has:
. focused on developing network assets in the McLeodUSA 25-state footprint,
and has reduced its capital spending to $750 million in 2001 and targeted
less than $400 million in 2002;
. completed the sale of its PCS licenses; and
. reduced and restructured its workforce.
Biographies of New Directors
- ----------------------------
Ed Breen is Executive Vice President of Motorola and President of its Networks
Sector. From 1997 to 2000, Breen served as Chairman, President and Chief
Executive Officer of General Instrument Corporation, which was acquired by
Motorola last year. He is a director of CommScope, Inc.
Dale Frey is the former Treasurer of General Electric Company. He served as
Chairman of the Board and President of General Electric Investment Corporation,
where he oversaw $75 billion in GE investments, for 13 years until his
retirement in 1997. He serves on the Boards of Yankee Candle Company,
Aftermarket Technology Corp., Community Health Systems, Praxair, Inc., and
Roadway Express Inc.
Tom Bell is the former Chairman and CEO of Young & Rubicam, a leading global
marketing services firm. Earlier in his career he was President and CEO of
Burson-Marsteller, a leading public relations firm, and
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Executive Vice President of Ball Corporation. He serves on the boards of the
U.S. Chamber of Commerce, Lincoln Financial Group and Cousins Properties Inc.
Peter Ueberroth is the Managing Director of Contrarian Group, Inc., and Owner
and Co-Chairman of The Pebble Beach Company. Previously, he was Commissioner of
Major League Baseball and President of the Los Angeles Olympic Organizing
Committee. He serves on the boards of Ambassadors International, BankAmerica
Corporation, The Coca-Cola Company and Hilton Hotels Corporation.
Conference Call
- ---------------
McLeodUSA will host a conference call on Thursday, August 2 at 10 a.m. EDT to
discuss second quarter results and the information in this release.
The call may be accessed at 877-381-6511 (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 Call ID No.
1308135. The audio replay will be available through midnight EDT on August 7.
The call will also be Webcast live and available via replay at:
http://www.mcleodusa.com/ir/streamingmedia.php3.
- -----------------------------------------------
About McLeodUSA
- ---------------
McLeodUSA provides integrated communications services, including local services,
in 25 Midwest, Southwest, Northwest and Rocky Mountain states. The company also
provides data and voice services in all 50 states. McLeodUSA is a facilities-
based telecommunications provider with, as of June 30, 2001, 383 ATM switches,
49 voice switches, 372 collocations, 512 DSLAMs, nearly 31,000 route miles of
fiber optic network and 10,600 employees. The company's fiber optic network is
capable of transmitting integrated next-generation data, Internet, video and
voice services, reaching 800 cities and approximately 90% of the U.S.
population. In the next 12 months, McLeodUSA plans to distribute 35 million
telephone directories in 26 states, serving a population of 59 million.
McLeodUSA is a Nasdaq-100 company traded under the symbol MCLD. Visit the
company's web site at www.mcleodusa.com.
-----------------
Some of the statements contained in this press release discuss future
expectations, contain projections of results of operations or financial
condition, cash position, revenue and EBITDA or state other forward-looking
information. Those statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The "forward-looking"
information is based on various factors and was derived using numerous
assumptions. In some cases, you can identify these so-called "forward-looking
statements" by our use of words such as "may," "will," "should," "expect,"
"plan," "anticipate," "believe," "estimate," "predict," "project," "intend,"
"continue" or "potential" or the negative of those words and other comparable
words. You should be aware that those statements only reflect our predictions.
Actual events or results may differ substantially. Important factors that could
cause actual events or results of McLeodUSA to be materially different from the
forward-looking statements include availability of financing and regulatory
approvals; the number of potential customers in a target market; the existence
of strategic alliances or relationships; technological, regulatory or other
developments in the industry; changes in the competitive climate in which
McLeodUSA operates; and the emergence of future opportunities. These and other
applicable risks are summarized under the caption "Risk Factors" in the
McLeodUSA Annual Report on Form 10-K for the fiscal year ended December 31,
2000, which is filed with the Securities and Exchange Commission.
# # #
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McLeodUSA Incorporated and Subsidiaries
Consolidated Statement of Operations
(In thousands except for per share data)
(UNAUDITED)
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30 June 30
------------------------------- -------------------------------
2001 2000 2001 2000
--------- --------- ---------- ---------
Revenues:
Telecommunications $ 367,436 $ 246,157 $ 702,892 $ 443,468
Local exchange services 21,554 20,507 42,912 42,116
Directory 79,482 59,762 151,234 124,564
Other 5,131 5,357 9,581 9,934
--------- --------- ---------- ---------
Total revenues 473,603 331,783 906,619 620,082
Operating expenses:
Cost of service 274,066 196,367 520,114 344,426
Selling, general and administrative 165,384 134,345 330,000 256,563
Depreciation and amortization 162,270 102,561 304,228 163,193
Restructuring expenses 28,152 -- 28,152 --
--------- --------- ---------- ---------
Total operating expenses 629,872 433,273 1,182,494 764,182
--------- --------- ---------- ---------
Operating loss (156,269) (101,490) (275,875) (144,100)
Non-operating income (expense):
Interest income 2,115 15,542 8,854 30,863
Interest (expense) (57,945) (41,970) (114,626) (72,940)
Gain on sale of Assets 80,413 -- 80,413 --
Other 13 2,170 (3,613) 1,971
--------- --------- ---------- ---------
Total non-operating income (expense) 24,596 (24,258) (28,972) (40,106)
--------- --------- ---------- ---------
Loss before income taxes (131,673) (125,748) (304,847) (184,206)
Income taxes -- -- -- --
--------- --------- ---------- ---------
Net loss (131,673) (125,748) (304,847) (184,206)
Preferred stock dividend (13,602) (13,602) (27,204) (27,204)
--------- --------- ---------- ---------
Net loss applicable to common shares $(145,275) $(139,350) $ (332,051) $(211,410)
========= ========= ========== =========
Net loss per common share $(0.24) $(0.24) $(0.54) $(0.40)
========= ========= ========== =========
Weighted average common shares outstanding 617,228 578,572 613,806 529,109
========= ========= ========== =========
EBITDA * $34,153 $ 1,071 * $56,505 $19,093
========= ========= ========== =========
* Excludes one-time events
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McLeodUSA Incorporated and Subsidiaries
Consolidated Statement of Operations
(In thousands except for per share data)
(UNAUDITED)
Three Months Ended
-----------------------------------------------------------
9/30/00 12/31/00 3/31/01 6/30/01
--------- --------- --------- ---------
Revenues:
Telecommunications $ 278,168 $ 314,077 $ 335,456 $ 367,436
Local exchange services 21,646 25,118 21,358 21,554
Directory 60,766 64,618 71,752 79,482
Other 6,065 6,164 4,450 5,131
--------- --------- --------- ---------
Total revenues 366,645 409,977 433,016 473,603
Operating expenses:
Cost of service 204,186 224,139 246,048 274,066
Selling, general and administrative 147,342 159,284 164,616 165,384
Depreciation and amortization 113,641 132,789 141,958 162,270
Restructuring expenses -- -- -- 28,152
--------- --------- --------- ---------
Total operating expenses 465,169 516,212 552,622 629,872
--------- --------- --------- ---------
Operating loss (98,524) (106,235) (119,606) (156,269)
Non-operating income (expense):
Interest income 12,197 4,711 6,739 2,115
Interest (expense) (40,657) (37,754) (56,681) (57,945)
Gain on sale of Assets -- -- -- 80,413
Other (744) (1,652) (3,626) 13
--------- --------- --------- ---------
Total non-operating income (expense) (29,204) (34,695) (53,568) 24,596
--------- --------- --------- ---------
Loss before income taxes and extraordinary
charge (127,728) (140,930) (173,174) (131,673)
Income taxes -- -- -- --
--------- --------- --------- ---------
Net loss before extraordinary charge (127,728) (140,930) (173,174) (131,673)
Extraordinary charge for early retirement of debt (24,446) -- -- --
--------- --------- --------- ---------
Net loss (152,174) (140,930) (173,174) (131,673)
Preferred stock dividend (13,602) (13,600) (13,602) (13,602)
--------- --------- --------- ---------
Net loss applicable to common shares $(165,776) $(154,530) $(186,776) $(145,275)
========= ========= ========= =========
Net loss per common share:
Loss before extraordinary charge $(0.24) $(0.26) $(0.31) $(0.24)
Extraordinary charge $(0.04) -- -- --
--------- --------- --------- ---------
Net loss per common share $(0.28) $(0.26) $(0.31) $(0.24)
========= ========= ========= =========
Weighted average common shares outstanding 583,326 590,647 610,425 617,228
========= ========= ========= =========
EBITDA $15,117 $26,554 $22,352 * $34,153
========= ========= ========= =========
* Excludes one-time events
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McLeodUSA Selected Statistical Data:
6/30/00 3/31/01 6/30/01
------- -------- --------
Sales cities 115 150 154
Central offices leased 530 1,501 1,740
Collocations 230 342 372
Switches owned
CO/LD 37 50 49
ATM/Frame Relay 361 380 383
DSLAMs installed 110 376 512
Route miles 12,827 29,825 30,978
Intracity route miles 2,950 5,299 5,302
Intercity route miles 9,877 24,526 25,676
Buildings connected 1,229 1,336 1,451
Sales headcount 1,189 1,784 1,800
Total Competitive:
Customers 295,165 389,377 419,133
Access Units/Customer 2.5 2.9 2.8
Revenue per Customer/Month
Local $ 105.19 $ 119.23 $ 116.05
Long distance 81.31 74.00 67.52
Private line & data 23.03 25.89 25.30
-------- -------- --------
Total $ 209.53 $ 219.12 $ 208.87
======== ======== ========
Platform Distribution
Resale 71% 33% 30%
UNE-P 0% 42% 45%
UNE-L 29% 25% 25%
-------- -------- --------
Total 100% 100% 100%
======== ======== ========
Competitive Business:
Customers 136,162 195,929 208,839
Access Units/Customer 4.2 4.7 4.7
Revenue per Customer/Month
Local $ 171.40 $ 185.87 $ 182.46
Long distance 144.44 123.49 114.51
Private line & data 44.96 46.84 46.73
-------- -------- --------
Total $ 360.80 $ 356.20 $ 343.70
======== ======== ========
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6/30/00 3/31/01 6/30/01
-------- -------- --------
Competitive Residential:
Customers 159,003 193,448 210,294
Access Units/Customer 1.0 1.0 1.0
Revenue per Customer/Month
Local $35.84 $37.59 $38.81
Long distance 15.18 13.36 12.86
Private line & data 0.07 0.22 0.36
------ ------ ------
Total $51.09 $51.17 $52.03
====== ====== ======
ILEC:
Customers 77,400 77,900 77,000
Business 8,700 8,800 8,700
Residential 68,700 69,100 68,300
Access Units/Customer 1.3 1.3 1.3
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Frequently Asked Questions:
(Note: Numbers are preliminary and unaudited; in millions)
What are the second quarter numbers for:
. Cash and Available Cash $ 867
Includes Secured Bank Facility of $725 million from which
$175 million was drawn after quarter close
. PP&E
Gross $3,781
Net $3,220
. Long Term Debt $3,508
. Outstanding shares 624
. Fully diluted shares 870
. CAPEX $ 238
What is the quarterly EBITDA breakout by category?
Competitive $15.763
Publishing $17.425
ILEC $ 8.496
Corporate $(7.531)
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