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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 28, 1998
MCLEODUSA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-20763 42-1407240
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION)
MCLEODUSA TECHNOLOGY PARK 52406-3177
6400 C STREET, S.W., P.O. BOX 3177, CEDAR RAPIDS, IA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (319) 364-0000
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
THIRD QUARTER RESULTS FOR 1998
On October 28, 1998, the Company issued a press release announcing its third
quarter results for 1998. Revenues were $148.6 million for the quarter ended
September 30, 1998, an increase of 201 percent compared to revenues of $49.3
million for the third quarter of 1997. Net loss for the quarter was $33.0
million or $(0.52) per share compared to a net loss of $23.7 million or
$(0.45) per share for the third quarter of 1997. EBITDA (earnings before
interest, taxes, depreciation and amortization) for the quarter was a positive
$3.7 million compared with EBITDA loss of $13.6 million a year ago. Enclosed
as Exhibit 99.1 to this Current Report on Form 8-K, and incorporated by
reference herein, is the text of the press release issued by the Company on
October 28, 1998.
* * * * *
Certain statements contained in this Current Report on Form 8-K are forward-
looking statements that involve risks and uncertainties, including, but not
limited to revision of expansion plans, availability of financing and
regulatory approvals, the number of potential customers in a target market,
the existence of strategic alliances or relationships, technological,
regulatory or other developments in the Company's business, changes in the
competitive climate in which the Company operates and the emergence of future
opportunities, all of which could cause actual results and experiences of
McLeodUSA Incorporated to differ materially from anticipated results and
expectations expressed in the forward-looking statements contained herein.
These and other applicable risks are summarized under the caption "Business-
Risk Factors" and elsewhere in the Company's Annual Report on Form 10-K for
its fiscal year ended December 31, 1997, which is filed with the Securities
and Exchange Commission.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
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<C> <S>
99.1 Press Release, dated October 28, 1998, announcing the Company's third
quarter results for 1998.
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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.
McLeodUSA Incorporated
Date: October 29, 1998
By: /s/ Randall Rings
---------------------------------
RANDALL RINGS
VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
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EXHIBIT INDEX
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99.1 Press Release, dated October 28, 1998,
announcing the Company's third quarter
results for 1998.
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EXHIBIT 99.1
[MCLEODUSA LOGO APPEARS HERE]
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW, PO Box 3177
Cedar Rapids, IA 52406-3177
Press and Investor Contact: Bryce E. Nemitz
[email protected]
Phone: (319) 298-7800
FAX: (319) 298-7767
FOR IMMEDIATE RELEASE
MCLEODUSA REPORTS CONTINUED GROWTH IN REVENUES AND EBITDA FOR THIRD QUARTER
1998
Cedar Rapids, Iowa, October 28, 1998 -- McLeodUSA Incorporated
(NASDAQ/NMS:MCLD), a provider of integrated telecommunications services in
Midwest and Rocky Mountain states, today reported third quarter results for
1998. Revenues were $148.6 million for the quarter ended September 30, 1998,
an increase of 201 percent compared to revenues of $49.3 million for the third
quarter of 1997. Net loss for the quarter was $33.0 million or $(0.52) per
share compared to a net loss of $23.7 million or $(0.45) per share for the
third quarter of 1997. EBITDA (earnings before interest, taxes, depreciation
and amortization) for the quarter was a positive $3.7 million compared with
EBITDA loss of $13.6 million a year ago.
Steve Gray, President and COO, commented, "I continue to be pleased with our
performance, both operationally and financially. Our quarterly achievements
more than met market expectations, due to lower expenses and higher margin
revenues associated with our continuing emphasis on business sales, and the
continuing migration of services onto our network."
Competitive telecommunications revenue for the quarter increased by 9
percent over the most recent quarter, contributing $89.0 million to total
telecommunications revenues of $112.8 million. The anticipated cyclical
variations of the publishing business resulted in a third quarter contribution
of $30.6 million from advertising sales in directories, 33 percent lower than
second quarter which is traditionally its strongest quarter of the year.
McLeodUSA reported a record number of lines sold for the quarter of 42,600.
Of that total, business lines accounted for nearly 80 percent. Gray: "This
80/20 split for business over residential line sales is consistent with the
shift in sales emphasis we announced early this year."
The Company reported an increase in CLEC local lines in service from 253,600
lines at the end of second quarter to 275,100 lines as of September 30, an
increase of 8 percent for the quarter and 78 percent over the third quarter
total in 1997. Total local lines in service increased 50 percent year over
year.
Gray: "Our telecommunications revenues were up as a result of our continued
success in capturing business line share from the incumbent providers. Total
business lines sold increased 27 percent over the most recent quarter and 70
percent over third quarter a year ago. As expected, our net new lines in
service total for the quarter was affected by the US West strike. We expect to
complete all strike-delayed installations during fourth quarter."
During 1998, McLeodUSA continues to focus on building facilities to prepare
for the 1999 and 2000 migration of customers onto the Company's network.
Consistent with this strategy, Gray stated, "We are on track to reach our goal
of an additional 2,000 route miles of fiber optic network by year end." Of the
Company's 6,329 route miles constructed, approximately 60 percent are in
operation.
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On October 27, McLeodUSA announced the signing of a definitive agreement to
merge with Dakota Telecommunications Group, Inc. Gray: "Once we receive
regulatory and DTG stockholder approvals and close this deal, DTG will operate
as a subsidiary of McLeodUSA representing our MainStreet initiative in the
Dakotas. Our presence in the region will be strengthened considerably by an
additional 300 miles of network, 7,300 facility-based local access lines,
5,900 cable subscribers and 6,800 Internet accounts." For the nine months
ended September 30, DTG recorded revenues of approximately $25 million and
positive EBITDA of $2.5 million.
Summarizing the quarter, Clark McLeod, Chairman and CEO, stated, "I remain
pleased with our fundamental results. Our quarterly performance demonstrates
once again that our strategy is sound; we are steadily increasing our positive
EBITDA performance; we have acquired an additional $300 million in cash to
fund our expansion plan through a debt offering which is expected to close
this week; and we continue to meet or exceed expectations on a consistent
basis."
McLeodUSA, founded in June of 1991, is a provider of integrated
telecommunications services to business and residential customers. The
Company's telecommunications customers are located in ten Midwest and Rocky
Mountain states; future expansion will add 4 additional states. McLeodUSA is a
facilities-oriented telecommunications provider with 7 switches, 366,800 local
lines, 5,000 employees, and over 6,300 route miles of fiber optic network. In
the next 12 months, the Company's publishing subsidiaries will distribute
nearly 16 million copies of competitive directories in 20 states, reaching 28
million people or 10 percent of the nation's population.
The statements contained in this release are forward-looking statements that
involve risks and uncertainties, including, but not limited to revision of
expansion plans, availability of financing and regulatory approvals, the
number of potential customers in a target market, the existence of strategic
alliances or relationships, technological, regulatory or other developments in
the Company's business, changes in the competitive climate in which the
Company operates and the emergence of future opportunities, all of which could
cause actual results and experiences of McLeodUSA Incorporated to differ
materially from anticipated results and expectations expressed in the forward-
looking statements contained herein. These and other applicable risks are
summarized under the caption "Business-Risk Factors" and elsewhere in the
Company's Annual Report on Form 10-K for its fiscal year ended December 31,
1997, which is filed with the Securities and Exchange Commission.
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MCLEODUSA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except for per share data)
(UNAUDITED)
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THREE MONTHS
ENDED NINE MONTHS ENDED
------------------ ------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998* 1997 1998* 1997
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Revenues:
Telecommunications:
Local and long distance............. $ 68,835 $ 26,783 $194,151 $ 60,182
Local exchange services (ICTC)...... 16,791 -- 49,344 --
Private line and data............... 11,158 2,848 31,127 7,517
Network maintenance and equipment... 8,964 6,396 24,049 11,815
Other telecommunications............ 7,099 -- 20,875 --
-------- -------- -------- --------
Total telecommunications revenue... 112,847 36,027 319,546 79,514
Directory............................ 30,613 11,073 104,091 45,560
Telemarketing........................ 5,156 2,225 15,005 6,521
-------- -------- -------- --------
TOTAL REVENUES.................. 148,616 49,325 438,642 131,595
Operating expenses:
Cost of service...................... 81,082 31,917 239,195 80,680
Selling, general and administrative.. 63,830 31,045 189,579 83,428
Depreciation and amortization........ 23,186 6,355 63,663 15,708
Other................................ 1,775 82 5,575 2,689
-------- -------- -------- --------
TOTAL OPERATING EXPENSES............ 169,873 69,399 498,012 182,505
-------- -------- -------- --------
OPERATING LOSS...................... (21,257) (20,074) (59,370) (50,910)
Non-operating income (expense):
Interest income...................... 6,640 7,618 19,074 18,070
Interest (expense)................... (19,429) (11,270) (54,593) (20,756)
Other................................ 1,004 21 1,789 40
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TOTAL NON-OPERATING INCOME
(EXPENSE).......................... (11,785) (3,631) (33,730) (2,646)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES............ (33,042) (23,705) (93,100) (53,556)
Income Taxes.......................... -- -- -- --
-------- -------- -------- --------
NET LOSS............................ $(33,042) $(23,705) $(93,100) $(53,556)
======== ======== ======== ========
Loss per common share................. $ (0.52) $ (0.45) $ (1.49) $ (1.02)
======== ======== ======== ========
Weighted average common shares
outstanding.......................... 62,955 53,335 62,620 52,752
======== ======== ======== ========
EBITDA................................ $ 3,704 $(13,637) $ 9,868 $(32,513)
======== ======== ======== ========
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* CCI merger completed September 1997
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MCLEODUSA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except for per share data)
(UNAUDITED)
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THREE MONTHS ENDED
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12/31/97* 3/31/98* 6/30/98* 9/30/98*
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Revenues:
Telecommunications:
Local and long distance............ $ 52,607 $ 61,658 $ 63,658 $ 68,835
Local exchange services (ICTC)..... 16,117 15,943 16,610 16,791
Private line and data.............. 9,657 9,385 10,584 11,158
Network maintenance and equipment.. 9,150 7,481 7,604 8,964
Other telecommunications........... 7,141 6,884 6,892 7,099
-------- -------- -------- --------
Total telecommunications revenue.. 94,672 101,351 105,348 112,847
Directory........................... 35,495 27,964 45,514 30,613
Telemarketing....................... 6,124 5,016 4,833 5,156
-------- -------- -------- --------
TOTAL REVENUES................... $136,291 $134,331 $155,695 $148,616
Operating expenses:
Cost of service..................... 73,445 75,045 83,068 81,082
Selling, general and
administrative..................... 61,795 58,768 66,981 63,830
Depreciation and amortization....... 17,567 19,431 21,046 23,186
Other............................... 1,943 1,900 1,900 1,775
-------- -------- -------- --------
TOTAL OPERATING EXPENSES........... 154,750 155,144 172,995 169,873
-------- -------- -------- --------
OPERATING LOSS..................... (18,459) (20,813) (17,300) (21,257)
Non-operating income (expense):
Interest income..................... 4,590 4,613 7,821 6,640
Interest (expense).................. (13,871) (14,754) (20,410) (19,429)
Other............................... 1,386 687 98 1,004
-------- -------- -------- --------
TOTAL NON-OPERATING INCOME
(EXPENSE)........................ (7,895) (9,454) (12,491) (11,785)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES.......... (26,354) (30,267) (29,791) (33,042)
Income Taxes......................... -- -- -- --
-------- -------- -------- --------
NET LOSS.......................... $(26,354) $(30,267) $(29,791) $(33,042)
======== ======== ======== ========
Loss per common share................ $ (0.43) $ (0.49) $ (0.48) $ (0.52)
======== ======== ======== ========
Weighted average common shares
outstanding......................... 61,567 62,227 62,644 62,955
======== ======== ======== ========
EBITDA............................... $ 1,051 $ 518 $ 5,646 $ 3,704
======== ======== ======== ========
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MCLEODUSA SELECTED STATISTICAL DATA:
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3/31/98 6/30/98 9/30/98
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Sales cities............................................ 63 64 66
Central offices / switches.............................. 376 380 382
Cities served........................................... 259 266 267
Route miles............................................. 5,086 5,573 6,329
Total local lines in service............................ 313,900 344,300 366,800
Business............................................... 174,000 201,300 223,200
Residential............................................ 139,900 143,000 143,600
Total local customers................................... 166,400 174,600 179,400
Business............................................... 32,300 37,600 42,500
Residential............................................ 134,100 137,000 136,900
CLEC Local lines in service............................. 223,200 253,600 275,100
Business............................................... 149,200 176,200 197,700
Residential............................................ 74,000 77,400 77,400
CLEC Local line customers............................... 94,700 103,200 107,300
Business............................................... 25,200 30,400 35,200
Residential............................................ 69,500 72,800 72,100
CLEC Lines per business customer........................ 5.9 5.8 5.6
CLEC Lines sold during quarter.......................... 37,500 32,700 42,600
Business............................................... 21,600 26,400 33,600
Residential............................................ 15,900 6,300 9,000
Net new CLEC Lines in service during quarter............ 30,200 30,400 21,500
Business............................................... 24,300 27,000 21,500
Residential............................................ 5,900 3,400 --
ILEC Local lines in service............................. 90,700 90,700 91,700
Business............................................... 24,800 25,100 25,500
Residential............................................ 65,900 65,600 66,200
ILEC Local line customers............................... 71,700 71,400 72,100
Business............................................... 7,100 7,200 7,300
Residential............................................. 64,600 64,200 64,800
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