Pro forma EBITDA (earnings before interest, taxes, depreciation and amortization), excluding one-time non-cash charges, was $25.7 million for the quarter versus $15.1 million for the same period one year ago.
President and Chief Executive Officer Steve Gray said, Since Chris Davis joined us 90 days ago, we have developed and begun implementing a strategic business plan designed to refocus our business on customers in our core areas of expertise while maximizing operating cash flow and profitability. We continue to make substantial progress, and are particularly pleased with the fact that our long distance and local migration projects, both integral in improving profitability, are on track for completion early in the first quarter of 2002.
The initiatives we announced in early October are well underway and have already begun to positively impact our performance, Chief Operating and Financial Officer Chris Davis stated. We are particularly pleased with the progress of the business process teams, which have identified substantial opportunities for operational improvement. Actions underway include:
Implementation of a more focused sales strategy for the Company’s voice and data services to small and medium size business and residential customers in its 25-state region;
A 15 percent reduction in employment, saving $75 million annually;
The consolidation of 11 facilities to 3, saving $30 million annually;
Finalization of a plan that reduces 2002 capital expenditures from $400 million to not more than $350 million;
Divestiture of non-core assets and surplus inventory, including those associated with the discontinuation of a national network, that are expected to generate $400 to $450 million of cash;
Implementation of dedicated business process teams focused on strengthening processes and driving improvements in the areas of sales efficiencies, provisioning and customer installation, billing and revenue assurance, cash management and business forecasting and planning;
Undertaking a central office profitability study identifying actions to improve margin performance, including enhanced pricing, platform optimization and improved customer targeting, as well as certain market expansions and contractions.
McLeodUSA continued to make substantial progress lighting its in-region 24,000 mile fiber optic network and implementing its on-switch strategy within its 25-state footprint. This progress is integral in driving customer traffic from resale platforms to on-switch platforms that generate significantly improved margins. Approximately 73% of the Company’s intracity fiber has now been lit and supports 74 metro network rings, substantially reducing network infrastructure service costs. Additional key steps taken during the quarter within our 25 states include:
Increased installed voice switches from 49 to 58, increasing switching port capacity 32% to nearly 2 million ports. The Company now has operational voice switches in 21 states within its 25 state footprint.
Increased in-region operational data switches from 210 to 220. The Company now has operational data switches in all 25 states.
Increased collocations from 372 to 437, including 39 new collocations in cities where the Company previously had none. The Company now has collocations in 240 cities.
Increased operational DSLAMs from 512 to 520. The Company now has DSLAM equipment to provide local connectivity to offer DSL services in 263 cities.
As previously announced on October 3, the Company took a one-time, non-cash charge of $2.9 billion representing write-downs of goodwill, other long-lived assets, inventory associated with discontinuing operations, restructuring charges associated with a reduction in force and facilities consolidation. The Company also took a non-cash charge to operating income of $35 million in the third quarter associated with balance sheet adjustments to various accounts such as prepaid expenses, receivables and bad debt reserves. In addition, the Company recorded a one-time gain as Forstmann Little & Co. exchanged its Series B and C Preferred Stock for Series D and E Preferred Stock, eliminating the cash dividend and saving the Company $175 million over the next five years. Reported net loss per diluted share including the one-time non-cash items was $(3.62) compared with $(0.28) a year ago.
The Company continued efforts to reduce costs and conserve cash, investing $126 million in capital expenditures in the third quarter, down from $230 million and $223 million, respectively, in the first two quarters of the year. McLeodUSA ended the quarter with $609 million of available cash including availability under its credit facility. After the close of the third quarter, the Company drew down $200 million from its credit facility, leaving approximately $342 million available. As part of implementing its revised corporate strategy, McLeodUSA is reviewing its current capital structure and has discussed various long-term capital alternatives with its senior banks. The Company has also, as part of its revised corporate strategy, discussed the possible sale of certain assets with potential buyers. The Company has not reached any final decisions with respect to such matters.
