UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): MARCH 31, 2000
DELAWARE 0-24061 56-2065535
(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification Number)
US LEC CORP.
(Exact name of registrant as specified in its charter)
401 NORTH TRYON STREET, SUITE 1000
CHARLOTTE, NORTH CAROLINA 28202
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (704) 319-1000
NOT APPLICABLE
(Former Name or Former Address, If Changed Since Last Report)
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ITEM 5. OTHER EVENTS
On March 31, 2000, the North Carolina Utilities Commission issued an
order relieving BellSouth Telecommunications, Inc., of any obligation to pay
reciprocal compensation to US LEC Corp. (the "Company") for minutes of use
attributable to a network operated by Metacomm, LLC. This order will result in a
material charge to earnings in the first quarter 2000. The Company's press
release, dated April 3, 2000, included as Exhibit 20 to this report, is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following exhibit is being furnished with this report.
EXHIBIT
NUMBER DESCRIPTION
20 US LEC Corp. press release dated April 3, 2000.
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 hereunto duly authorized.
US LEC Corp.
April 3, 2000 By: /s/ Michael K. Robinson
-----------------------
Name: Michael K. Robinson
Title: Executive Vice President and Chief
Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
20 US LEC Corp. press release dated April 3, 2000.
FOR IMMEDIATE RELEASE
Contact: Michael K. Robinson
Executive Vice President & Chief Financial Officer
704-319-1000
[email protected]
NORTH CAROLINA UTILITIES COMMISSION ISSUES ORDER
DENYING PAYMENT TO US LEC FOR METACOMM TRAFFIC
CHARLOTTE, NC (April 3, 2000)-US LEC Corp.(Nasdaq: CLEC), a leading
provider of integrated telecommunications services, today issued the following
statement. As US LEC Corp. has previously reported, BellSouth Telecommunications
Inc. ("BellSouth") began a proceeding in September 1998 before the North
Carolina Utilities Commission ("NCUC") seeking to be relieved of any obligation
under its interconnection agreements with the Company to pay reciprocal
compensation for traffic related to the network operated by Metacomm, LLC
("Metacomm"), a customer of both US LEC and BellSouth. After the close of the
securities markets on March 31, 2000, the NCUC issued an order in this
proceeding that relieves BellSouth from paying reciprocal compensation to US LEC
for any minutes of use attributable to Metacomm network traffic and requires US
LEC to cease billing BellSouth reciprocal compensation for minutes of use
attributable to the Metacomm or any similar network (the "March 31 Order").
The March 31 Order does not affect in any way the NCUC's order of
February 1998 requiring BellSouth to pay reciprocal compensation to the Company
for Internet service provider ("ISP") traffic in North Carolina. It relates
solely to traffic on Metacomm's "always-on" network in North Carolina (the only
state in which Metacomm operates and the only state in which US LEC provides
service to such a network). As previously announced, the Company received a
payment of $11.2 million from BellSouth on July 16, 1999, representing a portion
of
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the amounts due to the Company for non-Metacomm reciprocal compensation for
ISP traffic in North Carolina. The March 31 Order also has no effect on US LEC's
operations in any other state or its pending claims against BellSouth for
reciprocal compensation for ISP traffic in Florida, Georgia and Tennessee.
Aaron D. Cowell, Jr., the Company's President, said: "While we are
extremely disappointed with the unexpected outcome of this decision, including
the failure of the NCUC to require BellSouth to pay reciprocal compensation to
us for usage of the Metacomm network by its customers, US LEC will comply fully
with the March 31 Order. We believe it is in the best interests of the Company
and all our constituencies, including our employees, customers and stockholders,
to move forward and focus US LEC's resources on the continued expansion of our
core business. It is important to stress that this decision will not affect our
ongoing business strategy, expansion plans or operating environment."
As reported in the Company's Form 10-K for the year ended December 31,
1999 (the "10-K"), filed with the Securities and Exchange Commission on March
30, 2000, the Company recorded approximately $50 million and $98 million of
reciprocal compensation revenue related to Metacomm network traffic, before
allowances of $12 million and $27 million, for the fiscal year ended 1998 and
1999, respectively.
The Company estimates that the March 31 Order will result in a pre-tax,
nonrecurring charge of approximately $55 million (which will be reduced by
income taxes of approximately $20 million) in the first quarter 2000. The
charge, which is noncash, is composed of the write-off of approximately $153
million in receivables related to reciprocal compensation revenue offset by
previously established reserves of $39 million and a reduction of $59 million in
commissions owed to Metacomm. Also, the Company had previously recorded $21
million of
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advances to Metacomm and a $15 million receivable for services provided to
Metacomm. Richard T. Aab, Chairman of US LEC, indirectly controls Metacomm, and
has assured the Company that these amounts will be paid.
The noncash charge in the first quarter 2000 is not expected to affect
the Company's growth plans for its core business. At March 31, 2000, the Company
had approximately $8 million in cash and $58 million of borrowing availability
under its senior credit facility. In addition, both Bain Capital Inc. ("Bain")
and Thomas H. Lee Partners, L.P. ("THL") have confirmed that their affiliates
intend to finalize the transaction for their investments of $200 million in a
new series of the Company's convertible preferred stock and an option to invest
up to an additional $100 million in another series of convertible preferred
stock. A letter of intent for this transaction was originally announced by the
Company on February 25, 2000. With the Company's borrowing availability under
its senior credit facility and the amounts to be invested by affiliates of Bain
and THL, the Company believes that it has the necessary capital resources to
implement its business strategy over the next several years.
Michael K. Robinson, the Company's Chief Financial Officer, commented:
"US LEC has continued to execute and demonstrate strong sequential growth in our
core business, exclusive of reciprocal compensation. For the year ended December
31, 1999, gross revenue minus reciprocal compensation and related revenue grew
by approximately 125% compared with 1998. As previously announced, the Company
has not included in its business plan any Metacomm related revenue for 2000 and
beyond. We expect that our core local business and data services will continue
to drive the Company's growth in 2000, and we believe that US LEC is well
positioned for future success as a full service telecommunications provider."
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US LEC currently offers local, long distance, data, Internet and
enhanced services to customers in selected markets in North Carolina, Georgia,
Tennessee, Florida, Virginia, Alabama, Pennsylvania, Mississippi, South
Carolina, Kentucky, Washington, D.C. and Maryland. In addition, US LEC is
currently certified to provide telecommunications services in Delaware, New
Jersey, Texas, Massachusetts, New York and Ohio. US LEC's network is comprised
of seventeen Lucent 5ESS(R) AnyMedia(TM) digital switches in Charlotte,
Raleigh/Durham, Greensboro/Winston-Salem, Atlanta, Memphis, Nashville,
Knoxville, Orlando, Miami, Tampa/St. Petersburg, Jacksonville, Norfolk/Virginia
Beach, Richmond, Birmingham, Philadelphia, Northern Virginia/Washington, D.C.,
and Baltimore, in addition to its Alcatel MegaHub(R) 600ES switch in Charlotte.
The Company primarily serves telecommunications-intensive customers including
businesses, universities, financial institutions, professional service firms and
practices, hospitals, enhanced service providers, Internet service providers,
hotels, and government agencies. As of February 29, 2000, US LEC reported its
Customer Connections* in the following terms: Over 52,000 business trunks, over
20,000 ISP/ESP trunks (excluding Metacomm) and over 15,000 business lines. US
LEC can be found on the World Wide Web at www.uslec.com.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS NEWS RELEASE
CONTAINS FORWARD-LOOKING STATEMENTS, SUBJECT TO UNCERTAINTIES AND RISKS,
INCLUDING THE RISK THAT THE PLANNED INVESTMENTS BY AFFILIATES OF BAIN AND THL
MAY NOT CLOSE, THE DEMAND FOR US LEC'S SERVICES, THE ABILITY OF THE COMPANY TO
INTRODUCE ADDITIONAL PRODUCTS, THE ABILITY OF THE COMPANY TO SUCCESSFULLY
ATTRACT AND RETAIN PERSONNEL, COMPETITION, UNCERTAINTIES REGARDING ITS DEALINGS
WITH ILECS AND OTHER TELECOMMUNICATIONS CARRIERS AND FACILITIES PROVIDERS,
REGULATORY UNCERTAINTIES, AND THE POSSIBILITY OF AN ADVERSE DECISION RELATED TO
RECIPROCAL COMPENSATION OWING TO THE
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COMPANY BY BELLSOUTH FOR ISP TRAFFIC, AS WELL AS THE COMPANY'S ABILITY TO BEGIN
OPERATIONS IN ADDITIONAL MARKETS. THESE AND OTHER APPLICABLE RISKS ARE
SUMMARIZED IN THE "FORWARD-LOOKING STATEMENTS AND RISK FACTORS" SECTION AND
ELSEWHERE IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED
DECEMBER 31, 1999, AND IN OTHER REPORTS WHICH ARE ON FILE WITH THE SECURITIES
AND EXCHANGE COMMISSION.
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