Exhibit 99.1
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FOR IMMEDIATE RELEASE
McLeodUSA Reports Second Quarter 2005 Results
o Continued strong operational performance and cash management
o Recorded non-cash charge of $202MM related to asset impairment review
o Company focused on capital restructuring with no recovery expected for
preferred or common stockholders
CEDAR RAPIDS, Iowa - August 9, 2005 - McLeodUSA Incorporated, one of the
nation's largest independent, competitive telecommunications services
providers, today reported financial and operating results for the quarter ended
June 30, 2005.
Total revenues for the quarter ended June 30, 2005 were $159.7 million compared
to $160.5 million in the first quarter of 2005 and $191.9 million in the second
quarter of 2004. In the second quarter of 2005, long distance and local revenue
per customer increased slightly due to higher wholesale volume and private line
and data revenue per customer increased by 1.2%, however, these increases were
offset by a reduction in total customers for the quarter.
Gross margin for the second quarter of 2005 was $67.5 million compared to $67.2
million in the first quarter of 2005 and $86.6 million in the second quarter of
2004. Gross margin as a percentage of revenue for the second quarter was 42.3%,
compared with 41.9% in the first quarter of 2005 and 45.1% in the second
quarter of 2004. Gross margin in the second quarter of 2004 included various
favorable settlements of approximately $6 million.
SG&A expenses for the second quarter of 2005 were $53.7 million compared to
$56.7 million in the first quarter of 2005 and $68.5 million in the second
quarter of 2004 as the Company continues to realize the benefits of its ongoing
process improvement programs and other actions taken to reduce non-essential
expenses. Adjusted EBITDA in the second quarter of 2005 was $13.8 million. This
amount included an unfavorable impact of approximately $4.0 million related to
various settlements, which were partially offset by higher access billings in
the second quarter. The $13.8 million Adjusted EBITDA in the second quarter
compared to $10.5 million in the first quarter of 2005 and $18.1 million in the
second quarter of 2004. In the second quarter, the Company incurred $4.8
million in restructuring charges related to financial and legal advisors
supporting the Company's pursuit of strategic alternatives or capital
restructuring.
Consistent with the Company's current focus on a capital restructuring and in
accordance with certain accounting standards and prescribed procedures, the
Company performed analyses related to the deemed recoverability of its property
and equipment and carrying value of selected intangible assets. As a result, a
non-cash impairment charge of $202.5 million was recorded in the second
quarter. Net loss for the second quarter of 2005, including the impairment
charge, was $(268.0) million, or a loss per common share of $(0.86), versus
$(97.5) million in the first quarter of 2005 and $(82.2) million in the second
quarter of 2004.
The Company's excellent operational performance continued in the second quarter
of 2005. The customer satisfaction rating for the quarter was 95%, billing
accuracy remained at 99.9% and the Company continued to consistently achieve
99.999% network reliability, all in line with Company goals.
Customer platform mix at the end of the second quarter was 74% UNE-L, 4% resale
and 22% UNE-P versus 69%, 4% and 27%, respectively, at the end of the second
quarter of 2004. Business customer line turnover was 2.2% in the second quarter
of 2005 compared to 2.0% in the first quarter of 2005 and 2.2% in the second
quarter of 2004. Total customer line turnover in the second quarter was 2.3%
versus 2.1% in the first quarter of 2005 and 2.5% in the second quarter of
2004.
The Company ended the quarter with $33.4 million of cash on hand. Total capital
expenditures for the second quarter of 2005 were $9.1 million principally in
support of the Company's VoIP Dynamic Integrated Access rollout and sustaining
the existing voice and data networks. The Company was in full compliance with
the terms of the forbearance agreement with its lenders in the second quarter
of 2005.
Capital Restructuring
- ---------------------
As recently announced, the Company and its lenders agreed to extend until
September 9, 2005 the forbearance agreement initially entered into on March 16,
2005 and previously extended to July 21, 2005. Under the terms of the
forbearance agreement, the lenders continue to agree not to take any action as
a result of non-payment by the Company of certain principal and interest
payments due on or before September 9, 2005 or any related events of default
that occur through September 9, 2005.
As previously announced, the Company is working with its lenders to effectuate
a capital restructuring where the lenders would convert a substantial portion
of their debt to equity and become the Company's stockholders. None of the
restructuring alternatives under evaluation provide any recovery for the
Company's current preferred or common stockholders. Therefore, the Company does
not expect holders of its preferred or common stock to receive any recovery in
a capital restructuring. In addition, there can be no assurance that the
Company will be able to reach an agreement with its lenders regarding a capital
restructuring on terms and conditions acceptable to the Company prior to the
end of the forbearance period on September 9, 2005.
The Company continues to believe that by not making principal and interest
payments on the credit facilities, cash on hand together with cash flows from
operations are sufficient to maintain operations in the ordinary course without
disruption of services or negative impact on its customers or suppliers.
McLeodUSA remains committed to continuing to provide the highest level of
service to its customers and to maintaining its strong supplier relationships.
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 June 30,
2005, 38 ATM switches, 38 voice switches, 698 collocations, 432 DSLAMs and
approximately 2,072 employees. Visit the Company's Web site at
www.mcleodusa.com
(1)Non-GAAP Financial Measures
- ------------------------------
To provide further clarification, the Company has begun using the term Adjusted
EBITDA as a replacement for EBITDA. Adjusted EBITDA is a non-GAAP financial
measure used by management to evaluate the effectiveness of the Company's
operating performance and to enhance the comparability between periods. EBITDA
is an acronym for earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA, as defined by McLeodUSA, further removes the
effects of other income and expense, and restructuring and impairment charges.
Management removes the effects of other income and expense, and restructuring
and impairment charges from Adjusted EBITDA because it does not believe that
such items are representative of the core operating results of the Company's
ongoing competitive telecommunications activities. For a facilities-based
telecommunications services provider like McLeodUSA with high initial capital
investments required in order to gain entry to the industry, management
believes that omitting depreciation and amortization from Adjusted EBITDA
provides a relevant and useful measure of the Company's core operating
performance and enhances comparability between periods. Management believes
that non-GAAP measures such as Adjusted EBITDA are commonly reported and used
by analysts, investors and other interested parties in the telecommunications
industry. Adjusted EBITDA is reconciled to net loss, the most comparable GAAP
measure, within the table presented below. McLeodUSA's use of Adjusted EBITDA
may not be comparable to similarly titled measures used by other companies in
the telecommunications industry. The use of Adjusted EBITDA is not intended to
replace measures of financial performance reported in accordance with
accounting principles generally accepted in the United States.
Three months ended
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(In millions) June 30, 2005 Mar 31, 2005 June 30, 2004
------------------- ------------------- -------------------
Reconciliation of Adjusted EBITDA:
Net Loss............................................. $ (268.0) $ (97.5) $ (82.2)
Interest expense..................................... 19.5 14.4 11.6
Other non-operating expense.......................... 0.5 0.3 0.5
Restructuring charges (adjustment)................... 4.8 2.0 (0.2)
Impairment charge.................................... 202.5 - -
Depreciation and amortization........................ 54.5 91.3 88.4
------------------- ------------------- -------------------
Adjusted EBITDA.................................. $ 13.8 $ 10.5 $ 18.1
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Six months ended
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(In millions) June 30, 2005 June 30, 2004
--------------------- ---------------------
Reconciliation of Adjusted EBITDA:
Net loss...................................................... $ (365.6) $ (173.7)
Interest expense.............................................. 33.9 22.8
Other non-operating expense................................... 0.8 0.9
Restructuring charges (adjustment)............................ 6.9 (0.2)
Impairment charge............................................. 202.5 -
Depreciation and amortization................................. 145.8 178.6
--------------------- ---------------------
Adjusted EBITDA........................................... $ 24.3 $ 28.4
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Gross margin is another financial measure that management uses to evaluate
operating performance. Gross margin, which is calculated as revenues less cost
of service, excludes depreciation and amortization expenses. Cost of service
includes expenses directly associated with providing telecommunications
services to its customers. Costs classified as cost of service include, among
other items, the cost of connecting customers to the McLeodUSA network via
leased facilities, the costs paid to third party providers for interconnect
access and transport services, the costs of leasing components of network
facilities and the cost of fiber related to sales and leases of network
facilities. Gross margin is reconciled to net loss, the most comparable GAAP
measure, within the table presented below.
Three months ended
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(In millions) June 30, 2005 Mar 31, 2005 June 30, 2004
------------------- ------------------- -------------------
Reconciliation of Gross Margin:
Net loss............................................. $ (268.0) $ (97.5) $ (82.2)
Interest expense..................................... 19.5 14.4 11.6
Other non-operating expense.......................... 0.5 0.3 0.5
Restructuring charges................................ 4.8 2.0 (0.2)
Impairment charge.................................... 202.5 - -
Depreciation and amortization........................ 54.5 91.3 88.4
Selling, general and administrative.................. 53.7 56.7 68.5
------------------- ------------------- -------------------
Gross Margin..................................... $ 67.5 $ 67.2 $ 86.6
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Six months ended
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(In millions) June 30, 2005 June 30, 2004
--------------------- ---------------------
Reconciliation of Gross Margin:
Net loss...................................................... $ (365.6) $ (173.7)
Interest expense.............................................. 33.9 22.8
Other non-operating expense................................... 0.8 0.9
Restructuring charges (adjustment)............................ 6.9 (0.2)
Impairment charge............................................. 202.5 -
Depreciation and amortization................................. 145.8 178.6
Selling, general and administrative........................... 110.4 144.2
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Gross Margin.............................................. $ 134.7 $ 172.6
===================== =====================
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 may include projections of financial and operational results and
goals, including revenue, EBITDA, Adjusted EBITDA, profitability, savings and
cash. 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" or
"potential" or the negative of those words and other comparable words. 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 statements include technological,
regulatory, public policy or other developments in our industry, availability
and adequacy of capital resources, our ability to continue as a going concern,
our ability to implement a strategic transaction or a capital restructuring,
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 filed with the SEC. 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 Nemitz
Press Contact: Bruce Tiemann
Phone: (319) 790-7800
McLeodUSA Incorporated and Subsidiaries Condensed Consolidated Statements of
Operations (In millions, except per share data) (UNAUDITED)
Three months ended Three months ended
June 30, 2005 June 30, 2004
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Revenue $ 159.7 $ 191.9
Operating expenses:
Cost of service (exclusive of depreciation and amortization
shown separately below) 92.2 105.3
Selling, general and administrative 53.7 68.5
Depreciation and amortization 54.5 88.4
Impairment charge 202.5 -
Restructuring charges (adjustment) 4.8 (0.2)
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Total operating expenses 407.7 262.0
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Operating loss (248.0) (70.1)
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Nonoperating expense:
Interest expense, net of amounts capitalized (19.5) (11.6)
Other expense (0.5) (0.5)
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Total nonoperating (expense) income (20.0) (12.1)
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Net loss $ (268.0) $ (82.2)
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Preferred stock dividend (0.4) (0.8)
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Net loss applicable to common shares $ (268.4) $ (83.0)
====================== =======================
Basic and diluted loss per common share $ (0.86) $ (0.28)
====================== =======================
Weighted average common shares outstanding 313.2 292.2
====================== =======================
McLeodUSA Incorporated and Subsidiaries Condensed Consolidated Statements of
Operations (In millions, except per share data) (UNAUDITED)
Three months ended Three months ended
June 30, 2005 June 30, 2004
----------------------------------------------
Revenue $ 320.2 $ 385.5
Operating expenses:
Cost of service (exclusive of depreciation and amortization
shown separately below) 185.5 212.9
Selling, general and administrative 110.4 144.2
Depreciation and amortization 145.8 178.6
Impairment charge 202.5 -
Restructuring charges (adjustment) 6.9 (0.2)
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Total operating expenses 651.1 535.5
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Operating loss (330.9) (150.0)
---------------------- -----------------------
Nonoperating expense:
Interest expense, net of amounts capitalized (33.9) (22.8)
Other expense (0.8) (0.9)
---------------------- -----------------------
Total nonoperating expense (34.7) (23.7)
---------------------- -----------------------
Net loss $ (365.6) $ (173.7)
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Preferred stock dividend (0.8) (1.6)
---------------------- -----------------------
Net loss applicable to common shares $ (366.4) $ (175.3)
====================== =======================
Basic and diluted loss per common share $ (1.18) $ (0.60)
====================== =======================
Weighted average common shares outstanding 310.8 291.6
====================== =======================
McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
June 30, 2005 December 31, 2004
----------------------- -----------------------
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 33.4 $ 50.0
Trade receivables, net 54.9 58.6
Prepaid expense and other 14.7 19.9
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Total Current Assets 103.0 128.5
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Non-current Assets
Property and equipment, net 454.4 728.7
Other intangibles, net 98.2 144.9
Other non-current assets 18.4 23.7
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Total Non-current Assets 571.0 897.3
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Total Assets
$ 674.0 $ 1,025.8
======================= =======================
LIABILITIES AND EQUITY
Current Liabilities
Current maturities of long-term debt $ 777.3 49.5
Accounts payable 36.7 39.6
Deferred revenue, current portion 6.8 6.8
Other current liabilities 110.0 95.1
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Total Current Liabilities 930.8 191.0
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Long-term Liabilities
Long-term debt, excluding current maturities - 727.8
Deferred revenue less current portion 17.9 17.0
Other long-term liabilities 62.3 61.4
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Total Long-term Liabilities 80.2 806.2
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Redeemable Convertible Preferred Stock 43.0 75.4
Stockholders' Equity (380.0) (46.8)
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Total Liabilities and Equity
$ 674.0 $ 1,025.8
======================= =======================
McLeodUSA Incorporated and Subsidiaries
Selected Telecommunications Statistical Data
------------------ ------------------- -------------------
6/30/04 3/31/05 6/30/05
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Active central offices 1,692 1,647 1,608
Collocations 696 699 698
Switches owned
CO / LD 39 39 38
ATM / Frame Relay 38 38 38
DSLAMs installed 435 432 432
Total Competitive:
Customers 369,282 337,358 332,461
Access Units / Customer 2.8 2.8 2.8
Revenue per Customer / Month
Local $ 111.97* $ 100.51 $ 101.15
Long distance 30.11 33.29 33.50
Private line & data 32.11 32.49 32.88
------------------ ------------------- -------------------
Total $ 174.19 $ 166.29 $ 167.53
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Platform Distribution
Resale 4% 4% 4%
UNE-M/P 27% 24% 22%
UNE-L 69% 72% 74%
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Total 100% 100% 100%
================== =================== ===================
*Excluding second quarter rate settlement, local revenue per customer was
$105.67.