UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 12b-25
NOTIFICATION OF LATE FILING
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| SEC File Number |
| 000-20763 |
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(Check One): [X] Form 10-K [ ] Form 11-K [ ] Form 20-F [ ] Form 10-Q
[ ] Form N-SAR
For Period Ended: December 31, 2004
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[ ] Transition Report on Form 10-K
[ ] Transition Report on Form 10-Q
[ ] Transition Report on Form 20-F
[ ] Transition Report on form N-SAR
[ ] Transition Report on Form 11-K
For the Transition Period Ended: _______________
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Read Instruction (on back page) Before Preparing Form. Please print or Type.
NOTHING IN THIS FORM SHALL BE CONSTRUED TO IMPLY THAT THE COMMISSION HAS
VERIFIED ANY INFORMATION CONTAINED HEREIN.
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If the notification relates to a portion of the filing checked above, identify
the Item(s) to which the notification relates:
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PART I -- REGISTRANT INFORMATION
MCLEODUSA INCORPORATED
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Full Name of Registrant
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Former Name if Applicable
McLeodUSA Technology Park
6400 C Street SW, P.O. Box 3177
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Address of Principal Executive Office (Street and Number)
Cedar Rapids, IA 52406-3177
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City, State and Zip Code
PART II -- RULES 12b-25(b) AND (c)
If the subject report could not be filed without unreasonable effort or expense
and the registrant seeks relief pursuant to Rule 12b-25(b), the following
should be completed. (Check box if appropriate)
| (a) The reason described in reasonable detail in Part III of this
| form could not be eliminated without unreasonable effort or
| expense;
|
[X] | (b) The subject annual report, semi-annual report, transition
| report on Form 10-K, Form 20-F, 11-K, Form N-SAR, or portion
| thereof, will be filed on or before the fifteenth calendar
| day following the prescribed due date; or the subject
| quarterly report or transition report on Form 10-Q, or
| portion thereof will be filed on or before the fifth calendar
| day following the prescribed due date; and
|
| (c) The accountant's statement or other exhibit required by Rule
| 12b-25(c) has been attached if applicable.
PART III -- NARRATIVE
State below in reasonable detail why forms 10-K, 20-F, 11-K, 10-Q, N-SAR,
or the transition report or portion thereof, could not be filed within the
prescribed time period. (Attach Extra Sheets if Needed)
On March 16, 2005, McLeodUSA Incorporated (the "Company") announced
unaudited 2004 financial information and receipt of a forbearance agreement
with lenders under the Company's credit facilities, as described in Part IV
below. The extension for the filing by the Company of its Annual Report on Form
10-K for the fiscal year ended December 31, 2004 is necessary for the Company
to appropriately consider the disclosures required in the Form 10-K and assess
the potential capital restructuring being considered by the Company. The
conclusions that will result from the Company's ongoing assessment of this
issue are not yet complete. Accordingly, for these reasons, the Company is
unable to provide the information required by the Form 10-K in the prescribed
time without unreasonable effort or expense.
PART IV -- OTHER INFORMATION
(1) Name and telephone number of person to contact in regard to this
notification
G. Kenneth Burckhardt (319) 364-0000
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(Name) (Area Code) (Telephone Number)
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(2) Have all other periodic reports required under Section 13 or 15(d) of
the Securities Exchange Act of 1934 or Section 30 of the Investment
Company Act of 1940 during the preceding 12 months or for such shorter
period that the registrant was required to file such report(s) been
filed? If answer is no, identify report(s). [X] Yes [ ] No
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(3) Is it anticipated that any significant change in results of operations
from the corresponding period for the last fiscal year will be reflected
by the earnings statements to be included in the subject report or
portion thereof? [X] Yes [ ] No
If so, attach an explanation of the anticipated change, both narratively
and quantitatively, and, if appropriate, state the reasons why a
reasonable estimate of the results cannot be made.
On March 16, 2005, the Company announced the following financial
information for the year ended December 31, 2004:
McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(UNAUDITED)
Three months ended
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December 31, 2004 December 31, 2003
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Revenue $ 162.6 $ 209.5
Operating expenses:
Cost of service (exclusive of depreciation and amortization
shown separately below) 86.8 116.0
Selling, general and administrative 61.7 77.0
Depreciation and amortization 89.4 86.6
Restructuring adjustment - (0.2)
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Total operating expenses 237.9 279.4
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Operating loss (75.3) (69.9)
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Nonoperating (expense) income:
Interest expense, net of amounts capitalized (13.6) (9.8)
Other (expense) income (9.2) 23.1
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Total nonoperating (expense) income (22.8) 13.3
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Net loss $ $
(98.1) (56.6)
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Preferred stock dividend (0.5) (1.0)
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Net loss applicable to common shares $ (98.6) $ (57.6)
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Basic and diluted loss per common share $ (0.32) $ (0.20)
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Weighted average common shares outstanding 304.9 287.7
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McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Statements Operations
(In millions, except per share data)
Year ended
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December 31, 2004 December 31, 2003
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(unaudited)
Revenue $ 716.2 $ 869.0
Operating expenses:
Cost of service (exclusive of depreciation and amortization
shown separately below) 393.8 498.9
Selling, general and administrative 268.4 312.2
Depreciation and amortization 356.8 340.5
Impairment charge 263.1 -
Restructuring adjustment (0.2) (0.2)
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Total operating expenses 1,281.9 1,151.4
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Operating loss (565.7) (282.4)
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Nonoperating expense:
Interest expense, net of amounts capitalized (48.2) (35.8)
Other (expense) income (10.6) 22.5
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Total nonoperating expense (58.8) (13.3)
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Net loss $ (624.5) $ (295.7)
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Preferred stock dividend (2.9) (4.6)
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Net loss applicable to common shares $ (627.4) $ (300.3)
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Basic and diluted loss per common share $ (2.12) $ (1.07)
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Weighted average common shares outstanding 296.2 280.4
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McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
December 31, 2004 December 31, 2003
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(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 50.0 $ 56.5
Trade receivables, net 58.6 65.6
Prepaid expense and other 19.9 22.4
Assets held for sale - 2.0
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Total Current Assets 128.5 146.5
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Non-current Assets
Property and equipment, net 728.7 1,007.7
Goodwill and other intangibles, net 144.9 446.9
Other non-current assets 23.7 29.5
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Total Non-current Assets 897.3 1,484.1
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Total Assets $ 1,025.8 $ 1,630.6
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LIABILITIES AND EQUITY
Current Liabilities
Current maturities of long-term debt $ 49.5 $ 27.1
Accounts payable 39.6 30.5
Deferred revenue, current portion 6.8 6.9
Other current liabilities 95.1 121.5
Liabilities related to discontinued operations - 1.1
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Total Current Liabilities 191.0 187.1
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Long-term Liabilities
Long-term debt, excluding current maturities 727.8 717.3
Deferred revenue less current portion 17.0 15.1
Other long-term liabilities 61.4 58.3
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Total Long-term Liabilities 806.2 790.7
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Redeemable Convertible Preferred Stock 75.4 131.1
Stockholders' (Deficiency) Equity (46.8) 521.7
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Total Liabilities and Stockholders' (Deficiency) Equity $ 1,025.8 $ 1,630.6
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Total revenues for the quarter ended December 31, 2004 were $162.6
million compared to $209.5 million in the fourth quarter of 2003. Revenues were
down from the fourth quarter of 2003 due to a reduction in total access lines
as new retail sales did not offset existing customer turnover, the mandated FCC
reduction in access rates, as well as lower IRU sales and lower pricing on
local and long distance products.
SG&A expenses for the fourth quarter of 2004 were $61.7 million
compared to $77.0 million in the fourth quarter of 2003 as the Company
continued to realize the benefit of its ongoing expense reduction programs. Net
loss from continuing operations for the quarter was $(98.1) million, or a loss
per common share of $(0.32), versus $(56.6) million in the fourth quarter of
2003.
Total revenues for the year ended December 31, 2004, were $716.2
million versus $869.0 million for the year 2003 primarily driven by the
federally mandated access rate reductions of $43.3 million, lower long distance
rates and volume of $40.1 million, and the decline in price and volume of local
services of $48.0 million. Total SG&A expenses for the year were $268.4 million
and $312.2 million in 2004 and 2003, respectively, as the Company successfully
executed its expense reduction and productivity improvement plans. Net loss for
the year ended December 31, 2004 was $(624.5) million versus $(295.7) million
for the year ended December 31, 2003. Net loss for 2004 included a non-cash
impairment charge of $263.1 million to recognize full impairment of goodwill
and a partial impairment of the McLeodUSA trade name.
The Company ended the year with $50.0 million of cash on hand which
included a planned $20 million withdrawal from the exit credit facility in the
fourth quarter. At December 31, 2004 the Company had withdrawn a total of $100
million and had issued approximately $8 million of letters of credit of the
$110 million funded exit credit facility. The Company was in compliance with
all financial covenants at December 31, 2004. The Company's cash balance was
approximately $45 million as of March 15, 2005.
The foregoing financial information is derived from unaudited
financial statements and is subject to adjustment based upon the completion of
an audit by the Company's independent auditors. The Company expects that the
Independent Registered Public Accounting Firm Report that will be issued in
connection with the filing of Form 10-K will include comments with respect to
the Company's ability to continue as a going concern.
In light of the current level of cash held by the Company and the
upcoming required payments under its credit facilities, the Company has begun
discussions with its agent bank and a group of lenders acting as a steering
committee for the lenders under its credit facilities. The Company has entered
a forbearance agreement with its Lenders with respect to scheduled principal
and interest payments on its loans whereby the Lenders agree not to take any
action as a result of non-payment by the Company of approximately $18.1 million
of scheduled principal amortization and interest payments due on or before
March 31, 2005 and any related events of default through May 23, 2005.
The Company's Board of Directors has also authorized the Company to
pursue strategic alternatives. In support of these initiatives the Company has
hired Miller Buckfire Ying & Co., LLC and Gleacher Partners, LLC as its
financial advisors. The Company is now actively pursuing a strategic partner or
a sale of the Company while also taking steps to maintain future liquidity,
including evaluating a capital restructuring to reduce the current debt level
enabling the Company to achieve positive cash flow going forward.
In light of the revenue outlook and the Company's on-going cash
requirements, the Company has also begun discussions related to a capital
restructuring with its agent bank and a group of lenders acting as a steering
committee for the lenders under its credit facilities. The Company and this
committee are in negotiations related to terms of a capital restructuring which
includes the conversion of a significant portion of the Company's current
outstanding debt into equity. Under such a restructuring, the holders of the
Company's current debt would become equity shareholders of the Company with the
current holders of the preferred and common stock unlikely to receive any
recovery.
There can be no assurance that the Company will be able to reach an
agreement with its lenders regarding a capital restructuring or continued
forbearance and covenant relief prior to the end of the initial forbearance
period on May 23, 2005. There also can be no assurance that the Company will be
able to identify a suitable strategic partner or buyer or reach agreement with
any such strategic partner or buyer on terms and conditions acceptable to the
Company prior to the end of the initial forbearance period. In the event these
alternatives are not available to the Company, it is likely that the Company
will elect to forgo making future principal and interest payments to its
lenders while it continues to seek an extended forbearance period or permanent
capital restructuring from its lenders, or alternatively, the Company could be
forced to seek protection from its creditors.
While the Company continues to explore a variety of options with a
view toward maximizing value for all of its stakeholders, none of the options
presented to date have suggested that there will be any meaningful recovery for
the Company's current preferred stock or common stock holders. Accordingly, it
is unlikely that holders of the Company's preferred stock or common stock will
receive any recovery in a capital restructuring or other strategic transaction.
The Company believes that by not making principal and interest
payments on the credit facilities, cash on hand together with cash flows from
operations is sufficient to maintain operations in the ordinary course without
disruption of services. The Company does not expect that the exploration of the
alternatives described above will negatively impact its customers or vendors.
The Company remains committed to continuing to provide the highest level of
service to its customers and to maintaining its strong supplier relationships.
MCLEODUSA INCORPORATED
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(Name of Registrant as Specified in Charter)
has caused this notification to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: March 16, 2005 By: /s/ G. Kenneth Burckhardt
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Name: G. Kenneth Burckhardt
Title: Executive Vice President and
Chief Financial Officer
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