-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P7JUP2F8Anc9P06+oFgF7bnc7rw3z2Gwo7ciql4p7pA7HiBC+Y+gmoHt3s+aScTC hkvKG3WdZdemPs8saHbOYA== 0000928385-99-001826.txt : 19990518 0000928385-99-001826.hdr.sgml : 19990518 ACCESSION NUMBER: 0000928385-99-001826 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCLEODUSA INC CENTRAL INDEX KEY: 0000919943 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 421407240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20763 FILM NUMBER: 99628157 BUSINESS ADDRESS: STREET 1: 6400 C ST SW STREET 2: PO BOX 3177 CITY: CEDAR RAPIDS STATE: IA ZIP: 52406-3177 BUSINESS PHONE: 3193640000 MAIL ADDRESS: STREET 1: 6400 C ST SW STREET 2: PO BOX 3177 CITY: CEDAR RAPIDS STATE: IA ZIP: 52406-3177 FORMER COMPANY: FORMER CONFORMED NAME: MCLEOD INC DATE OF NAME CHANGE: 19960403 10-Q 1 FORM 1O-Q - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ______________ to ________________ Commission file number 0-20763 McLEODUSA INCORPORATED (Exact name of registrant as specified in its charter) Delaware 42-1407240 (State of Incorporation) (IRS Employer Identification No.) McLeodUSA Technology Park 6400 C Street SW P.O. Box 3177 Cedar Rapids, Iowa 52406-3177 (Address of principal executive office) (Zip Code) 319-364-0000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of each class of the issuer's common stock as of May 10, 1999: Common Stock Class A: ($.01 par value).......... 74,801,022 shares Common Stock Class B: ($.01 par value).......... None - ------------------------------------------------------------------------------ INDEX
Page ---- PART I. Financial Information - ------ --------------------- Item 1. Financial Statements................................................................... 3 Consolidated Balance Sheets, March 31, 1999 (unaudited) and December 31, 1998.......... 3 Unaudited Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 1999 and 1998.................................. 4 Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998............................................................. 5 Notes to Consolidated Financial Statements (unaudited)................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 9 PART II. Other Information - -------- ----------------- Item 1. Legal Proceedings...................................................................... 15 Item 6. Exhibits and Reports on Form 8-K....................................................... 17 Signatures....................................................................................... 18
2 PART I FINANCIAL INFORMATION Item 1. Financial Statements McLEODUSA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except shares)
March 31, December 31, 1999 1998 ------------ ------------- (Unaudited) ASSETS Current Assets Cash and cash equivalents.............................................................. $ 415,343 $ 455,067 Investment in available-for-sale securities............................................ 278,676 136,585 Trade receivables, net................................................................. 168,539 116,369 Inventory.............................................................................. 19,670 12,824 Deferred expenses...................................................................... 35,294 26,693 Prepaid expenses and other............................................................. 56,696 45,654 ---------- ---------- TOTAL CURRENT ASSETS.................................................................. 974,218 793,192 ---------- ---------- Property and Equipment Land and building...................................................................... 92,381 60,325 Telecommunications networks............................................................ 399,746 307,310 Furniture, fixtures and equipment...................................................... 166,091 138,349 Networks in progress................................................................... 244,934 185,505 Building in progress................................................................... 17,029 12,567 ---------- ---------- 920,181 704,056 Less accumulated depreciation.......................................................... 91,590 74,310 ---------- ---------- 828,591 629,746 ---------- ---------- Investments, Intangible and Other Assets Other investments...................................................................... 38,937 35,870 Goodwill, net.......................................................................... 720,663 289,639 Other intangibles, net................................................................. 197,417 112,379 Other.................................................................................. 76,554 64,371 ---------- ---------- 1,033,571 502,259 ---------- ---------- $2,836,380 $1,925,197 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt................................................... $ 10,276 $ 8,236 Contracts and notes payable............................................................ 313 4,508 Accounts payable....................................................................... 95,293 62,000 Accrued payroll and payroll related expenses........................................... 13,904 13,579 Other accrued liabilities.............................................................. 77,634 63,849 Deferred revenue, current portion...................................................... 13,185 10,995 Customer deposits...................................................................... 23,422 16,789 ---------- ---------- TOTAL CURRENT LIABILITIES............................................................. 234,027 179,956 ---------- ---------- Long-term Debt, less current maturities................................................. 1,776,475 1,245,170 ---------- ---------- Deferred Revenue, less current portion.................................................. 16,464 16,798 ---------- ---------- Other long-term liabilities............................................................. 23,999 20,467 ---------- ---------- Stockholders' Equity Capital Stock: Common, Class A, $.01 par value; authorized 250,000,000 shares; issued and outstanding 1999 74,440,894 shares; 1998 63,679,175 shares............................................................................... 744 637 Common, Class B, convertible, $.01 par value; authorized 22,000,000 shares; issued and outstanding 1999 and 1998 none.................................... --- --- Additional paid-in capital............................................................. 1,078,307 716,475 Accumulated deficit.................................................................... (300,123) (252,647) Accumulated other comprehensive income................................................. 6,487 (1,659) ---------- ---------- 785,415 462,806 ---------- ---------- $2,836,380 $1,925,197 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements 3 McLEODUSA INCORPORATED AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except per share data)
Three Months Ended March 31, -------------------- 1999 1998 --------- --------- Revenues: Telecommunications: Local and long distance................................................................... $ 79,261 $ 61,658 Local exchange services................................................................... 17,632 15,943 Private line and data..................................................................... 16,922 9,385 Network maintenance and equipment......................................................... 8,120 7,481 Other telecommunications.................................................................. 5,814 6,884 -------- -------- Total telecommunications revenue......................................................... 127,749 101,351 Directory.................................................................................. 49,634 27,964 Telemarketing.............................................................................. 3,726 5,016 -------- -------- TOTAL REVENUES............................................................................ 181,109 134,331 Operating expenses: Cost of service............................................................................ 92,459 75,045 Selling, general and administrative........................................................ 79,811 58,768 Depreciation and amortization.............................................................. 35,110 19,431 Other...................................................................................... --- 1,900 -------- -------- TOTAL OPERATING EXPENSES.................................................................. 207,380 155,144 -------- -------- OPERATING LOSS............................................................................ (26,271) (20,813) Nonoperating income (expense): Interest income............................................................................ 8,260 4,613 Interest (expense)......................................................................... (29,464) (14,754) Other income............................................................................... (1) 687 -------- -------- TOTAL NONOPERATING INCOME (EXPENSE)....................................................... (21,205) (9,454) -------- -------- LOSS BEFORE INCOME TAXES.................................................................. (47,476) (30,267) Income taxes................................................................................ --- --- -------- -------- NET LOSS.................................................................................. $(47,476) $(30,267) ======== ======== Loss per common share....................................................................... $ (0.72) $ (0.49) ======== ======== Weighted average common shares outstanding.................................................. 66,121 62,227 ======== ======== Other comprehensive income, net of tax: Unrealized gains on securities: Unrealized holding gains arising during the period........................................ 8,222 6,887 Less: reclassification adjustment for gains included in net income....................... (76) (812) -------- -------- TOTAL OTHER COMPREHENSIVE INCOME.......................................................... 8,146 6,075 -------- -------- COMPREHENSIVE LOSS........................................................................ $(39,330) $(24,192) ======== ========
The accompanying notes are an integral part of these consolidated financial statements 4 MCLEODUSA INCORPORATED AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three Months Ended March 31, --------------------------------------- 1999 1998 ---------------- ---------------- Cash Flows from Operating Activities Net Loss............................................................................... $ (47,476) $ (30,267) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation.......................................................................... 17,985 10,822 Amortization.......................................................................... 17,125 8,609 Accretion of interest on senior discount notes........................................ 9,323 8,418 Changes in assets and liabilities, net of effects of acquisitions: (Increase) in trade receivables....................................................... (17,031) (6,243) (Increase) in inventory............................................................... (4,961) (276) (Increase) in deferred expenses....................................................... (21) (1,189) Decrease (increase) in prepaid expenses and other..................................... 5,560 (3,167) (Increase) in deferred line installation costs........................................ (2,546) (3,439) Increase (decrease) in accounts payable and accrued expenses.......................... (29,452) 3,321 Increase (decrease) in deferred revenue............................................... 653 (121) Increase in customer deposits......................................................... 2,600 1,089 --------- --------- NET CASH (USED IN) OPERATING ACTIVITIES.............................................. (48,241) (12,443) --------- --------- Cash Flows from Investing Activities Purchases of property and equipment.................................................... (84,945) (41,458) Available-for-sale securities: Purchases............................................................................. (262,021) (390,483) Sales................................................................................. 72,793 142,936 Maturities............................................................................ 55,283 6,976 Acquisitions........................................................................... (128,101) (5,726) Other.................................................................................. (2,445) (1,223) --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES (349,436) (288,978) --------- --------- Cash Flows from Financing Activities Payments on contracts and notes payable................................................ (12,760) (2,563) Net proceeds from long-term debt....................................................... 487,740 292,517 Payments on long-term debt............................................................. (118,500) (2,289) Net proceeds from issuance of common stock............................................. 1,473 1,080 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES............................................ 357,953 288,745 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. (39,724) (12,676) Cash and cash equivalents: Beginning.............................................................................. 455,067 331,941 --------- --------- Ending................................................................................. $ 415,343 $ 319,265 ========= ========= Supplemental Disclosure of Cash Flow Information: Cash payment for interest, net of interest capitalized 1999 $4,247,000; 1998 $1,690,000....................................................................... $19,395 $ 362 ======= ====== Supplemental Schedule of Noncash Investing and Financing Activities Capital leases incurred for the acquisition of property and equipment.................. $ 2,017 $1,728 ======= ======
The accompanying notes are an integral part of these consolidated financial statements 5 McLEODUSA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information as of and for the Three Months Ended March 31, 1999 and 1998 is Unaudited) Note 1: Basis of Presentation Interim Financial Information (unaudited): The financial statements and notes related thereto as of March 31, 1999, and for the three month periods ended March 31, 1999 and 1998, are unaudited, but in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial position and results of operations. The operating results for the interim periods are not indicative of the operating results to be expected for a full year or for other interim periods. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the Securities and Exchange Commission (the "Commission"). Although the Company believes that the disclosures provided are adequate to make the information presented not misleading, it recommends that these consolidated condensed financial statements be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed with the Commission on March 24, 1999. Note 2: Supplemental Asset Data Cash and cash equivalents: For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less and all certificates of deposit, regardless of maturity, to be cash equivalents. Trade Receivables: The composition of trade receivables, net is as follows:
March 31, December 31, 1999 1998 ------------- ------------ (In thousands) Trade Receivables: Billed.................................................. $ 138,280 $110,587 Unbilled................................................ 57,793 21,350 ----------- --------- 196,073 131,937 Allowance for doubtful accounts and discounts.............. (27,534) (15,568) ----------- --------- $ 168,539 $ 116,369 =========== =========
Inventory: Inventory is carried principally at the lower of average cost or market and consists primarily of new and reusable parts required to maintain fiber optic networks and parts and equipment used in the maintenance and installation of telephone systems. Goodwill: Goodwill resulting from the Company's acquisitions is being amortized over a range of 15 to 30 years using the straight-line method and is periodically reviewed for impairment based upon an assessment of future operations to ensure that it is appropriately valued. Accumulated amortization on goodwill totaled $21,611,000 and $16,356,000, at March 31, 1999 and December 31, 1998, respectively. Other intangibles: Other intangibles consist of customer lists and noncompete agreements related to the Company's acquisitions, deferred line installation costs incurred in the establishment of local access lines for customers and franchise rights to provide cable services to customers in three Illinois counties and in a Michigan city. The customer lists and noncompete agreements are being amortized using the straight-line method over periods ranging from 3 to 15 years. The deferred line installation costs are being amortized using the straight-line method over 36 to 60 months, which approximates the average lives of 6 residential and business customer contracts. The franchise rights are being amortized using the straight-line method over periods ranging from 10 to 15 years. Accumulated amortization on the other intangibles totaled $32,498,000 and $25,066,000 at March 31, 1999 and December 31, 1998, respectively. Note 3: Long-Term Debt On February 22, 1999, the Company completed a private offering of $500 million aggregate principal amount of 8 1/8% Senior Notes due February 15, 2009 (the "Senior Notes"). The Company received net proceeds of approximately $487.8 million from the Senior Notes offering. Interest on the Senior Notes will be payable in cash semi-annually in arrears on August 15 and February 15 of each year at a rate of 8 1/8% per annum, commencing August 15, 1999. The Senior Notes rank pari passu in right of payment with all existing and future senior unsecured indebtedness of the Company and rank senior in right of payment to all existing and future subordinated indebtedness of the Company. As of March 31, 1999, the Company had no outstanding subordinated indebtedness and had $1.2 billion outstanding indebtedness that would rank pari passu with the Senior Notes. As of March 31, 1999, the Senior Notes had not been registered under the Securities Act of 1933 and therefore cannot be offered for resale, resold or otherwise transferred unless so registered or unless an applicable exemption from the registration requirements of the Securities Act is available. The Company has agreed to file a registration statement with the Commission for the registration of $500 million aggregate principal amount of 8 1/8% Senior Notes due February 15, 2009 in exchange for the Senior Notes. On April 23, 1999 such Registration Statement was filed. The indenture related to the Senior Notes contains certain covenants which, among other things, restrict the ability of the Company to incur additional indebtedness, pay dividends or make distributions of the Company's or its subsidiaries' stock, make other restricted payments, enter into sale and leaseback transactions, create liens, enter into transactions with affiliates or related persons, or consolidate, merge or sell all or substantially all of its assets. Note 4: Acquisitions F.D.S.D. Rapid City Directories, Inc. (F.D.S.D): On March 17, 1998, McLeodUSA Media Group acquired a telephone directory published by F.D.S.D. for a cash purchase price of approximately $2.2 million. Bi-Rite Directories, Inc. (Bi-Rite): On March 20, 1998, McLeodUSA Media Group acquired a telephone directory published by Bi-Rite for a cash purchase price of approximately $3.7 million. Frontier Directory Co. of Nebraska, Inc.(Frontier): On January 14, 1999, McLeodUSA Media Group acquired a telephone directory published by Frontier for a cash purchase price of approximately $6.8 million. Talking Directories, Inc. (Talking Directories) and Info America Phone Books, Inc. (Info America): On February 10, 1999, the Company acquired Talking Directories in exchange for 2.6 million shares of its Class A common stock. In a related and concurrent transaction, on February 10, 1999, the Company acquired Info America in exchange for 1.2 million shares of its Class A common stock. The Company also paid outstanding obligations of Talking Directories and Info America of approximately $27 million. Dakota Telecommunications Group, Inc. (DTG): On March 5, 1999, the Company acquired DTG in exchange for approximately one million shares of its Class A common stock and the assumption of approximately $31 million in DTG debt. Ovation Communications, Inc. (Ovation): On March 31, 1999, pursuant to the terms and conditions of an Agreement and Plan of Merger dated January 6, 1999 (the "Merger Agreement"), the Company issued approximately 5.6 million shares of its Class A common stock and paid approximately $121.3 million cash to the shareholders of Ovation in exchange for all of the outstanding capital stock of Ovation in a transaction accounted for using the purchase method of accounting. The total purchase price was approximately $310.2 million based on the average closing price of the Company's Class A common stock five days before and after the date of the Merger Agreement. The Company also assumed approximately $95 million in Ovation debt. 7 The following table summarizes the purchase price allocations for the Company's business acquisitions incurred in the three months ended March 31 1999 and 1998 (in thousands):
Transaction Year: 1999 1998 ---------------- ---- ---- Cash purchase price $128,101 $5,726 Promissory notes -- 190 Stock issued 347,108 -- -------- ------ $475,209 $5,916 Working capital acquired, net $(22,346) -- Fair value of other assets acquired 127,044 -- Intangibles 525,172 $5,916 Liabilities assumed (154,661) -- -------- ------ $475,209 $5,916 ======== ======
These acquisitions have been accounted for as purchases and the results of operations are included in the consolidated financial statements since the dates of acquisition. The unaudited consolidated results of operations for the three months ended March 31, 1999 on a pro forma basis as though the above entities had been acquired as of the beginning of the period is as follows (in thousands, except per share data):
1999 ---- Revenue...................................................................................... $ 208,889 Net loss..................................................................................... (53,627) Loss per common share........................................................................ (0.72)
The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the above dates, nor are such operating results necessarily indicative of future operating results. Note 5: Information by Business Segment The Company operates predominantly in the business of providing local, long distance and related communications services to end users and the sale of advertising space in telephone directories. The two business segments have separate management teams and infrastructures that offer different products and services. The principal elements of these segments are to provide integrated communications services, provide outstanding customer service, expand fiber optic network, expand intra-city fiber network build, and publish and distribute directories to local area subscribers. The Company evaluates the performance of its operating segments based on earnings before interest, taxes, depreciation and amortization, excluding general corporate expenses ("EBITDA"). The accounting policies of the reportable segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements. Intersegment transfers are accounted for on an arm's length pricing basis. Identifiable assets (excluding intersegment receivables) are the Company's assets that are identified in each business segment. Corporate assets primarily include cash and cash equivalents, investments in available-for-sale securities, administrative headquarters and goodwill recorded primarily as a result of the acquisition of Consolidated Communications, Inc. in 1997 and the acquisition of DTG and Ovation in 1999. In the three months ended March 31, 1999 and 1998, no single customer or group under common control represented 10% or more of the Company's sales. Segment information for the three months ended March 31, 1999 and 1998 was as follows (in thousands): 8
Telecommunications Media Corporate Total ------------------ ----- --------- ----- 1999 Revenues $ 131,315 $ 49,794 $ -- $ 181,109 =============================================================== EBITDA 5,843 9,215 (6,219) 8,839 Depreciation and amortization (19,540) (9,574) (5,996) (35,110) Interest Revenue 346 9 7,905 8,260 Interest Expense (1,390) (13) (28,061) (29,464) Taxes and Other 276 (48) (229) (1) --------------------------------------------------------------- Net Income (Loss) (14,465) (411) (32,600) (47,476) =============================================================== Total assets 1,034,612 389,930 1,411,838 2,836,380 Capital expenditures 210,322 131,075 197,500 538,897 - ---------------------------------------------------------------------------------------------------------- 1998 Revenues $ 106,367 $ 27,964 $ -- $ 134,331 =============================================================== EBITDA 569 2,394 (2,445) 518 Depreciation and amortization (11,577) (2,284) (5,570) (19,431) Interest Revenue 156 16 4,441 4,613 Interest Expense (1,254) -- (13,500) (14,754) Taxes and Other 719 (20) (1,912) (1,213) --------------------------------------------------------------- Net Income (Loss) (11,387) 106 (18,986) (30,267) =============================================================== Total assets 410,915 180,319 1,042,982 1,634,216 Capital expenditures 35,053 8,986 4,891 48,930 - ----------------------------------------------------------------------------------------------------------
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Statements included in this discussion relating, but not limited to, future revenues, operating expenses, capital requirements, growth rates, cash flows, operational performance, sources and uses of funds, acquisitions, technological changes and development of a PCS system, are forward-looking statements that involve certain risks and uncertainties. Factors that may cause the actual results, performance, achievements or investments expressed or implied by such forward-looking statements to differ materially from any future results, performance, achievements or investments expressed or implied by such forward-looking statements include, among other things, the availability of financing and regulatory approvals, the number of potential customers in a target market, the existence of strategic alliances and relationships, technological, regulatory or other developments in the Company's business, changes in the competitive climate in which the Company operates and the emergence of future opportunities and other factors more fully described under the caption "Business--Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed with the Commission on March 24, 1999 and which section is incorporated herein by reference. Unless otherwise indicated, all dollar amounts in the following Management's Discussion and Analysis of Financial Condition and Results of Operations that exceed $1 million have been rounded to one decimal place and all dollar amounts less than $1 million have been rounded to the nearest thousand. Overview We derive our revenue from: . our core business of providing local, long distance and related communications services to end users, typically in a bundled package . the sale of advertising space in telephone directories . traditional local telephone company services in east central Illinois and southeast South Dakota . special access, private line and data services . communications network maintenance services and telephone equipment sales, leasing, service and installation . telemarketing services . other communications services, including video, computer networking, cellular, operator, payphone, mobile radio and paging services We began providing traditional local telephone company services and other communications services as a result of our acquisition of Consolidated Communications, Inc. in September 1997, telephone directory advertising as a result of our acquisition of Telecom*USA Publishing in September 1996, and telemarketing services as a result of our acquisition of Ruffalo Cody in July 1996. The table set forth below summarizes our percentage of revenues from these sources:
Quarter Ended March 31, ------------------------ 1999 1998 -------- -------- Local and long distance communications services............ 44% 46% Telephone directory advertising............................ 27 21 Traditional local telephone company services............... 10 12 Special access, private line and data services............. 9 7 Network maintenance and equipment services................. 5 5 Telemarketing services..................................... 2 4 Other communications services.............................. 3 5 ---- ---- 100% 100% === ===
10 We began offering local and long distance services to business customers in January 1994. At the end of 1995, we began offering, on a test basis, long distance services to residential customers. In June 1996, we began marketing and providing to residential customers in Cedar Rapids, Iowa and Iowa City, Iowa an integrated package of communications services that includes local and long distance service, voice mail, Internet access and travel card services. Since June 1996, we have expanded the states in which we offer service to business customers to include Iowa, Illinois, Indiana, Michigan, Minnesota, Nebraska, Wisconsin, North Dakota, South Dakota, Colorado, Missouri and Wyoming. We also expanded our residential service to additional cities in Iowa and Illinois and began offering the service to customers in North Dakota, South Dakota, Wisconsin, Wyoming, Colorado, Missouri and Michigan. We plan to continue our efforts to market and provide local, long distance and other communications services to business customers and market our service to residential customers. Our principal operating expenses consist of cost of service; selling, general and administrative expenses ("SG&A"); and depreciation and amortization. Cost of service primarily includes local services purchased from regional Bell operating companies, costs to terminate the long distance calls of our customers through long distance carriers, costs of printing and distributing telephone directories and costs associated with maintaining the Iowa Communications Network. The Iowa Communications Network is a fiber optic communications network that links many of the State of Iowa's schools, libraries and other public buildings. SG&A consists of sales and marketing, customer service and administrative expenses, including the costs associated with operating our communications network. Depreciation and amortization include depreciation of our telecommunications network and equipment; amortization of goodwill and other intangibles related to our acquisitions, amortization expense related to the excess of estimated fair market value in aggregate of options over the aggregate exercise price of such options granted to some of our officers, other employees and directors; and amortization of one-time installation costs associated with transferring customers' local line service from the regional Bell operating companies to our local telecommunications service. As we expand into new markets, both cost of service and SG&A will increase. We expect to incur cost of service and SG&A expenses before achieving significant revenues in new markets. Fixed costs related to leasing of central office facilities needed to provide telephone services must be incurred prior to generating revenue in new markets, while significant levels of marketing activity may be necessary in the new markets in order for us to build a customer base large enough to generate sufficient revenue to offset such fixed costs and marketing expenses. In January and February 1996, we granted options to purchase an aggregate of 965,166 and 688,502 shares of our Class A common stock, respectively, at an exercise price of $2.67 per share, to some of our directors, officers and other employees. The estimated fair market value of these options, in the aggregate, at the date of grant was later determined to exceed the aggregate exercise price by approximately $9.2 million. Additionally, in September 1997, we granted options to purchase an aggregate of 1,468,945 shares of our Class A common stock at an exercise price of $24.50 to some employees of CCI. The fair market value of these options, in the aggregate, at the date of grant exceeded the aggregate exercise price by approximately $15.8 million. These amounts are being amortized on a monthly basis over the four-year vesting period of the options. We have experienced operating losses since our inception as a result of efforts to build our customer base, develop and construct our communications network infrastructure, build our internal staffing, develop our systems and expand into new markets. We expect to continue to focus on increasing our customer base and geographic coverage and bringing our customer base onto our communications network. Accordingly, we expect that our cost of service, SG&A and capital expenditures will continue to increase significantly, all of which may have a negative impact on operating results. In addition, our projected increases in capital expenditures will continue to generate negative cash flows from construction activities during the next several years while we install and expand our fiber optic communications network and develop wireless services. We may also be forced to change our pricing policies to respond to a changing competitive environment, and we cannot assure you that we will be able to maintain our operating margin. We cannot assure you that growth in our revenue or customer base will continue or that we will be able to achieve or sustain profitability or positive cash flows. 11 We have generated net operating losses since our inception and, accordingly, have incurred no income tax expense. We have reduced the net deferred tax assets generated by these losses by a valuation allowance which offsets the net deferred tax asset due to the uncertainty of realizing the benefit of the tax loss carry forwards. We will reduce the valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will be realized. Three Months Ended March 31, 1999 Compared with Three Months Ended March 31, 1998 Total revenue increased from $134.3 million for the three months ended March 31, 1998 to $181.1 million for the three months ended March 31, 1999, representing an increase of $46.8 million or 35%. Revenue from the sale of local and long distance telecommunications services accounted for $17.6 million of the increase. Local exchange services generated $1.7 of additional revenues over 1998. Private line and data revenues accounted for $7.5 million of increased revenues over 1998. Network maintenance and equipment revenue increased $0.6 million over 1998. Other telecommunications revenue decreased $1.0 million when compared to the same period in 1998. Directory revenues increased $21.7 million from the first quarter of 1998 to the first quarter of 1999 due to revenues from new directories acquired in the last three-quarters of 1998 and the first quarter of 1999. Telemarketing revenues decreased $1.3 million in the first quarter of 1999 when compared to the first quarter of 1998. Cost of service increased from $75.0 million for the three months ended March 31, 1998, to $92.5 million for the three months ended March 31, 1999, representing an increase of $17.5 million or 23%. This increase in cost of service was due primarily to the growth in the Company's local and long distance telecommunications services. Cost of service as a percentage of revenue decreased from 56% for the three months ended March 31, 1998 to 51% for the three months ended March 31, 1999, primarily due to the realization of benefits associated with new wholesale line cost rate agreements with the regional Bell operating companies and reduced long distance costs resulting from migration of over 60% of customer long distance traffic to our fiber optic communications network. SG&A increased from $58.8 million for the three months ended March 31, 1998 to $79.8 million for the three months ended March 31, 1999, an increase of $21.0 million or 36%. The acquisitions of Talking Directories Inc. and Info America Phone Books, Inc. (collectively, "Talking Directories") and Dakota Telecommunications Group, Inc. contributed an aggregate of $7.9 million to the increase. Also contributing to this increase were increased costs of $13.1 million related primarily to expansion of selling, customer support and administration activities to support the Company's growth. Depreciation and amortization expenses increased from $19.4 million for the three months ended March 31, 1998 to $35.1 million for the three months ended March 31, 1999, representing an increase of $15.7 million or 81%. This increase consisted of $6.9 million related to the acquisitions of Talking Directories and DTG and $8.8 million due primarily to the growth of the Company's network. Interest income increased from $4.6 million for the three-month period ended March 31, 1998, to $8.3 million for the same period in 1999. This increase resulted from increased earnings on investments made with the remaining proceeds from the Company's debt offerings in March and October 1998 and the proceeds from the Company's private offering of $500 million aggregate principal amount of 8 1/8% Senior Notes due February 15, 2009 (the "8 1/8% Senior Notes") in February 1999. Gross interest expense increased from $14.8 million for the first quarter of 1998 to $29.5 million for the first quarter of 1999. This increase was primarily a result of an increase in the accretion of interest on our 10 1/2% senior discount notes of $0.9 million and an increase of interest of $16.3 million primarily as the result of the issuance of our 83/8% senior notes, 9 1/2% senior notes and 81/8% senior notes. Interest expense of approximately $4.2 and $1.7 million was capitalized as part of the Company's construction of fiber optic network during the first quarter of 1999 and 1998, respectively. Net loss increased from $30.3 million for the three months ended March 31, 1998 to $47.5 million for the three months ended March 31, 1999, an increase of $17.2 million. This increase resulted primarily from the following three factors: the construction and expansion of the Company's network which require significant expenditures, a substantial portion of which is incurred before the realization of revenues; the increased depreciation expense related to the construction and expansion of our communications 12 networks and amortization of intangible related to acquisitions; and net interest expense on indebtedness to fund market expansion, network development and acquisitions. Liquidity and Capital Resources Our total assets increased from $1.9 billion at December 31, 1998 to $2.8 billion at March 31, 1999, primarily due to the net proceeds of approximately $487.8 million from our private offering of the 8 1/8% senior notes in February 1999 and to the net assets of approximately $475.2 million acquired from Talking Directories, DTG and Ovation Communications, Inc. ("Ovation"). At March 31, 1999, the Company's current assets of $974.2 million exceeded its current liabilities of $234.0 million, providing working capital of $740.2 million, which represents an increase of $127.0 million compared to December 31, 1998 primarily attributable to the net proceeds from the Senior Notes. At December 31, 1998, the Company's current assets of $793.2 million exceeded current liabilities of $180.0 million, providing working capital of $613.2 million. The net cash used in operating activities totaled $48.2 million for the three months ended March 31, 1999 and $12.4 million for the three months ended March 31, 1998. During the three months ended March 31, 1999, cash used in operating activities was used primarily to fund the Company's net loss of $47.5 million for such period. As a result of the expansion of our local and long distance communications services, we also required cash to fund: . growth in trade receivables of $17.0 million . growth in inventory of $5.0 million . deferred line installation costs of $2.5 million . decreases in accounts payable and accrued expenses of $29.5 million These amounts were partially offset by: . decreases in prepaid and other expenses of $5.6 million . increases in deferred revenue of $0.7 million . increases in customer deposits of $2.6 million . cumulative non-cash expenses of $44.4 million Net cash used in investing activities totaled $349.4 million during the three months ended March 31, 1999 and $289.0 million during the three months ended March 31, 1998. The expansion of our local and long distance communications services, development and construction of our fiber optic communications networks and other capital expenditures resulted in purchases of equipment and fiber optic cable and other property and equipment totaling $84.9 million and $41.5 million during the three months ended March 31, 1999 and 1998, respectively. We also used cash of $262.0 million to acquire available-for-sale securities during the three months ended March 31, 1999, offset by proceeds from sales and maturities of available-for-sale securities of $128.1 million during the period. During the three months ended March 31, 1998, the cash used in investing activities of $390.5 was partially offset by net proceeds of $149.9 million from the sales and maturities of available-for-sale securities. During the three months ended March 31, 1999, we used an aggregate of $128.1 million cash to acquire: . directories from Frontier Directory Co. of Nebraska, Inc. in January 1999 . the assets of Talking Directories in February 1999 . the assets of DTG in March 1999 . the assets of Ovation in March 1999 Net cash received from financing activities was $358.0 million during the three months ended March 31, 1999, primarily as a result of our private offering of our 8 1/8% senior notes in February 1999. Net cash received from financing activities during the three months ended March 31, 1998 was $288.7 million and was primarily obtained from our private offering of our 8 3/8% senior notes in March 1998. 13 On Februray 22, 1999, we completed a private offering of $500 million aggregate principal amount of our 8 1/8% senior notes in which we received net proceeds of approximately $487.7 million. Interest on the 8 1/8% senior notes accrues at the rate of 8 1/8% per annum and is payable in cash semi-annually in arrears on February 15 and August 15, starting August 15, 1999. The 8 1/8% senior notes are redeemable at our option, in whole or in part, at any time on or after February 15, 2004 at 104.063% of their principal amount at maturity, plus accrued and unpaid interest, declining to 100.000% of their principal amount at maturity, plus accrued and unpaid interest, on or after February 15, 2007. In the event of specified equity investments in McLeodUSA by specified strategic investors on or before February 15, 2002, we may, at our option, use all or a portion of the net proceeds from such sale to redeem up to 33 1/3% of the original principal amount of the 8 1/8% senior notes at a redemption price equal to 108.125% of their principal amount plus accrued and unpaid interest, if any, to but excluding the redemption date, provided that at least 66 2/3% of the original principal amount of the 8 1/8% senior notes would remain outstanding immediately after giving effect to such redemption. In addition, in the event of a "Change of Control" (as defined in the indenture governing the 8 1/8% senior notes) of McLeodUSA, each holder of 8 1/8% senior notes will have the right to require us to repurchase all or any part of such holder's 8 1/8% senior notes at a purchase price equal to 101% of the principal amount of the 8 1/8% senior notes tendered by such holder plus accrued and unpaid interest, if any, to any "Change of Control Payment Date" (as defined in the indenture governing the 8 1/8% senior notes). The 8 1/8% senior notes will mature on February 15, 2009. Our 10 1/2% senior discount notes, 9 1/4% senior notes, 8 3/8% senior notes, 9 1/2% senior notes and 8 1/8% senior notes are senior unsecured obligations of McLeodUSA ranking pari passu in right of payment with all other existing and future senior unsecured obligations of McLeodUSA and senior to all existing and future subordinated debt of McLeodUSA. The 10 1/2% senior discount notes, 9 1/4% senior notes, 8 3/8% senior notes, 9 1/2% senior notes and 8 1/8% senior notes are effectively subordinated to all existing and future secured indebtedness of McLeodUSA and our subsidiaries to the extent of the value of the assets securing such indebtedness. The 10 1/2% senior discount notes, 9 1/4% senior notes, 8 3/8% senior notes, 9 1/2% senior notes and 8 1/8% senior notes also are effectively subordinated to all existing and future third-party indebtedness and other liabilities of our subsidiaries. The indentures governing our 10 1/2% senior discount notes, 9 1/4% senior notes, 8 3/8% senior notes, 9 1/2% senior notes and 8 1/8% senior notes impose operating and financial restrictions on us and our subsidiaries. These restrictions affect, and in many cases significantly limit or prohibit, among other things, our and our subsidiaries' ability to: . incur additional indebtedness . pay dividends or make distributions in respect of our or our subsidiaries' capital stock . redeem capital stock . make other restricted payments . enter into sale and leaseback transactions . create liens upon assets . enter into transactions with affiliates or related persons . sell assets . consolidate, merge or sell all or substantially all of our assets We cannot assure you that such covenants will not adversely affect our ability to finance our future operations or capital needs or to engage in other business activities that may be in our interests. As of March 31, 1999 based on our business plan, capital requirements and growth projections as of that date, we estimated that we would require approximately $1.3 billion through 2001. Our estimated aggregate capital requirements include the projected costs of: . building our fiber optic communications network, including intra- city fiber optic communications networks . expanding operations in existing and new markets . developing wireless services . funding general corporate expenses 14 . completing recent and pending acquisitions . constructing, acquiring, developing or improving telecommunications assets The estimated costs and incremental capital needs associated with the acquisitions of Talking Directories, DTG and Ovation are included in our estimated aggregate capital requirements. We expect to use the following to address our capital needs: . approximately $674.3 million of cash and investments on hand at March 31, 1999 . additional issuances of debt or equity securities . projected operating cash flow Our estimate of future capital requirements is a forward-looking statement within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The actual amount and timing of our future capital requirements may differ substantially from our estimate due to factors such as: . strategic acquisition costs and effects of acquisitions on our business plan, capital requirements and growth projections . unforeseen delays . cost overruns . engineering design changes . changes in demand for our services . regulatory, technological or competitive developments . new opportunities We also expect to evaluate potential acquisitions, joint ventures and strategic alliances on an ongoing basis. We may require additional financing if we pursue any of these opportunities. Accordingly, we may need additional capital to continue to expand our markets, operations, facilities, network and services. We may meet any additional capital needs by issuing additional debt or equity securities or borrowing funds from one or more lenders. We cannot assure you that we will have timely access to additional financing sources on acceptable terms. Failure to generate or raise sufficient funds may require us to delay or abandon some of our expansion plans or expenditures, which could have a material adverse effect on our business, results of operations or financial condition. See "Business--Risk Factors--Failure to Raise Necessary Capital Could Restrict Our Ability to Develop Our Network and Services and Engage in Strategic Acquisitions" in the Company's Annual Report on Form 10-K. Market Risk At March 31, 1999, we recorded the marketable equity securities that we hold at a fair value of $38.8 million. These securities have exposure to price risk. A hypothetical ten percent adverse change in quoted market prices would amount to a decrease in the recorded value of investments of approximately $4 million. We believe our exposure to market price fluctuations on all other investments is nominal due to the short-term nature of our investment portfolio. We have no material future earnings or cash flow exposures from changes in interest rates on our long-term debt obligations, as substantially all of our long-term debt obligations are fixed rate obligations. 15 Year 2000 Date Conversion We are currently verifying system readiness for the processing of date-sensitive information by our computerized information systems. The Year 2000 problem impacts computer programs and hardware timers using two digits (rather than four) to define the applicable year. Some of our programs and timers that have time-sensitive functions may recognize a date using "00" as the year 1900 rather than 2000, which could result in miscalculations or system failures. We are reviewing our IT and non-IT computer systems and programs to determine which are not capable of recognizing the Year 2000 and to verify system readiness for the millennium date. The review covers all of our operations and is centrally managed. The review includes: 1. increasing employee awareness and communication of Year 2000 issues 2. inventorying hardware, software and data interfaces and confirming Year 2000 readiness of key vendors 3. identifying mission-critical components for internal systems, vendor relations and other third parties 4. estimating costs for remediation 5. estimating completion dates 6. testing and verifying systems 7. remediating any identified problems by correcting or replacing systems or components 8. implementing the remediation plan 9. developing contingency plans 10. training for contingency plans We have completed more than 98% of the activities required for the first five of these steps, more than 70% of the activities required for the sixth, seventh and eighth steps and approximately 25% of the activities required for the ninth step. We are in the initial stages of performing the activities required to complete the remaining step and have begun to develop contingency plans to handle our most reasonably likely worst case Year 2000 scenarios. The completion percentages do not include information for pending or recently completed acquisitions. The review and related Year 2000 activities have not caused us to defer or forego, to any material degree, any other critical IT project. We estimate that our Year 2000 readiness costs will not exceed $8.2 million. We generally expense these costs as incurred. As of April 30, 1999, we had incurred costs of $3.2 million in connection with our Year 2000 readiness activities. Our estimate of our Year 2000 readiness costs is a forward-looking statement within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Costs, results, performance and effects of Year 2000 activities described in those forward-looking statements may differ materially from actual costs, results, performance and effects in the future due to the interrelationship and interdependence of our computer systems and those of our vendors, material service providers, customers and other third parties. We have not yet fully identified our most reasonably likely worst case Year 2000 scenarios. We continue to contact our vendors, suppliers and third parties with which we have material relationships, regarding their state of readiness. This activity is focused primarily on mission critical systems and key business suppliers. U S WEST, Ameritech and Southwestern Bell are our primary suppliers of local central office switching and local lines. Until we have received and analyzed substantial responses from them we will have difficulty determining our worst case scenarios. We have begun to develop contingency plans to handle worst case scenarios, to the extent they can be identified fully. We intend to complete our contingency planning after completing our determination of worst case scenarios. Completion of these activities depends upon the responses to the inquiries we have made of our major vendors, material service providers and third parties with which we have material 16 relationships. We have also begun work on contingency plans for some systems identified as critical to our operations. If we, our major vendors, our material service providers or our customers fail to address Year 2000 issues in a timely manner, such failure could have a material adverse effect on our business, results of operations and financial condition. We depend on local exchange carriers, primarily the regional Bell operating companies, to provide most of our local and some of our long distance services. To the extent U S WEST, Ameritech or Southwestern Bell fail to address Year 2000 issues which might interfere with their ability to fulfill their obligations to us, such interference could have a material adverse effect on our future operations. If other telecommunications carriers are unable to resolve Year 2000 issues, it is likely that we will be affected to a similar degree as others in the telecommunications industry. Effects of New Accounting Standards In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement SFAS 133 as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS 133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative instruments and (b) derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). We do not expect the impact of the adoption of SFAS 133 to be material to our results of operations as we do not currently hold any derivative instruments or engage in hedging activities. Inflation We do not believe that inflation has had a significant impact on our consolidated operations. 17 PART II OTHER INFORMATION Item 1. Legal Proceedings We are not aware of any material litigation against McLeodUSA. We are involved in numerous regulatory proceedings before various public utility commissions and the FCC, particularly in connection with actions by the regional Bell operating companies. For example, on February 5, 1996, U S WEST filed tariffs and other notices with the public utility commissions in its fourteen-state service region to limit future Centrex access to its switches. Under the terms of these tariffs and other notices, U S WEST would permit us to use its central office switches until April 2005, but would not allow us to expand to new cities and would severely limit the number of new lines we could partition onto U S WEST's switches in cities we serve. We have challenged, or are challenging, this action by U S WEST in many of the states where we do business or plan to do business. We have succeeded in blocking this action in Iowa, Minnesota, South Dakota, North Dakota and Colorado, although U S WEST could take further legal action in some of these states. In Montana, Nebraska and Idaho, however, similar challenges to this action have not succeeded. In Wyoming and Utah, challenges to this action remain pending. U S WEST has introduced other measures that may make it more difficult or expensive for us to use Centrex service. In January 1997, U S WEST proposed interconnection surcharges in several of the states in its service region. In February 1997, we joined other parties in filing a petition with the FCC objecting to this proposal based on our belief that it violates several provisions of the Telecommunications Act of 1996. The matter remains pending before the FCC and various state public utility commissions. We anticipate that U S WEST will also pursue legislation in states within our target market area to reduce state regulatory oversight over its rates and operations. If adopted, these initiatives could make it more difficult for us to challenge U S WEST's actions in the future. We cannot assure you we will succeed in our challenges to these or other actions by U S WEST that would prevent or deter us from using U S WEST's Centrex service or network elements. If U S WEST successfully withdraws or limits our access to Centrex services in any jurisdiction, we may not be able to offer integrated communications services in that jurisdiction, which could have a material adverse effect on our business, results of operations and financial condition. See "Business--Risk Factors--Our Dependence on Regional Bell Operating Companies to Provide Most of Our Communications Services Could Make it Harder for Us to Offer Our Services at a Profit" and "Business--Risk Factors--Actions by U S WEST May Make it More Difficult for Us to Offer Our Communications Services" in the Company's Annual Report on Form 10-K. Item 2. Changes in Securities and Use of Proceeds On February 10, 1999, the Company acquired Talking Directories in exchange for 2,556,391 million shares of its Class A common stock. In a related and concurrent transaction, on February 10, 1999, the Company acquired Info America in exchange for 1,203,007 shares of its Class A common stock. The Company also paid outstanding obligations of Talking Directories and Info America of approximately $27 million. The issuance of securities described above was made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act or Regulation D promulgated thereunder for transactions by an issuer not involving any public offering. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for distribution in connection with such transactions. All recipients had adequate access to information about us through their relationship with us or through information about us made available to them. 18 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit ------- Number Exhibit Description ------ ------------------- 11.1 Statement regarding computation of loss per common share. 27.1 Financial Data Schedule. (b) Reports on Form 8-K On January 14, 1999, the Company filed a Current Report on Form 8-K announcing the Company entered into an Agreement and Plan of Merger with Ovation Communications, Inc., a Delaware Corporation. On February 3, 1999, the Company filed a Current Report on Form 8-K to report results for the fourth quarter and fiscal year 1998. On February 11, 1999, the Company filed a Current Report on Form 8-K to announce plans to raise approximately $250 million in a proposed private senior note offering. On February 16, 1999, the Company filed a Current Report on Form 8-K to announce an increase in the amount of debt to be raised from $250 million to approximately $500 million. On February 26, 1999, the Company filed a Current Report on Form 8-K to report the February 10, 1999, acquisition by merger of Talking Directories, Inc. and Info America Phone Books, Inc. 19 SIGNATURES 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 thereunto duly authorized. McLEODUSA INCORPORATED (registrant) Date: May 13, 1999 By: /s/ Stephen C. Gray ____________________________________ Stephen C. Gray President and Chief Operating Officer Date: May 13, 1999 By: /s/ J. Lyle Patrick ____________________________________ J. Lyle Patrick Chief Financial Officer 20 INDEX TO EXHIBITS
Sequentially Exhibit Numbered Number Exhibit Description Page ------- ------------------- ------------ 11.1 Statement regarding computation of loss per common share. 27.1 Financial Data Schedule.
EX-11 2 EXHIBIT 11.1 EXHIBIT 11.1 McLEODUSA INCORPORATED COMPUTATION OF LOSS PER COMMON SHARE (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31, ------------------------ 1999 1998 -------- -------- Computation of weighted average number of common shares outstanding: Common shares, Class A, outstanding at the beginning of the period.......................................................... 63,679 61,799 Common shares, Class B, outstanding at the beginning of the period (A)...................................................... --- --- Weighted average number of shares issued during the period................................................................ 2,442 428 -------- -------- Weighted average number of common shares........................................... 66,121 62,227 ======== ======== Net loss........................................................................... $(47,476) $(30,267) ======== ======== Loss per common share.............................................................. $ (0.72) $ (0.49) ======== ========
(A) The Class B common stock, $.01 par value per share is convertible on a one-for-one basis at any time at the option of the holder into Class A common stock. EX-27 3 EXHIBIT 27
5 This schedule contains summary financial information extracted from the unaudited consolidated financial statements of McLeodUSA Incorporated and subsidiaries for the three months ended March 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 415,343 278,676 196,073 27,534 19,670 974,218 920,181 91,590 2,836,380 234,027 1,776,475 0 0 744 784,671 2,836,380 181,109 181,109 92,459 92,459 110,870 4,051 29,464 (47,476) 0 (47,476) 0 0 0 (47,476) (0.72) (0.72)
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