McLeod to better inform investors

0 Comments | Deseret News (Salt Lake City), Sep 17, 2004 | by Siobhan Hughes Dow Jones Newswires

WASHINGTON -- Telephone company McLeod USA Inc. agreed to provide more complete information to investors, settling an informal Securities and Exchange Commission probe of its long-term leasing arrangements.

The SEC found that the Cedar Rapids, Iowa, company sold excess network capacity in the form of long-term leases known as "indefeasible rights of use" without disclosing that the arrangement was unlikely to generate recurring streams of income.

Revenue from network leases accounted for 30.8 percent of McLeodUSA's 2001 earnings when those earnings were reported in the form of EBITDA -- earnings before interest, taxes, depreciation and amortization, according to the SEC. McLeodUSA had presented EBITDA as an important measure of the company's financial picture, the SEC said.

EBIDTA doesn't conform to generally accepted accounting principles.

"What we are highlighting in this case is the need for transparent financials, particularly when the company is using non-GAAP measures such as EBIDTA to communicate their performance," said Tom Meier, a branch chief in the SEC's Midwest regional office.

The SEC found that McLeodUSA didn't generate much revenue or income from its long-term network leases before 2001 and did not project significant revenue from such leases for 2002 in its 2001 quarterly and annual reports, according to an administrative order.

The company agreed to the cease-and-desist order without admitting or denying the SEC's findings. The SEC announced the settlement on Wednesday.

"The company is pleased to put this matter behind us and is continuing to focus attention on growing its business and providing world-class service to its customers," said Bruce Tiemann, a McLeodUSA spokesman.

Class A shares of McLeodUSA closed Thursday at 36 cents, down 1 cent, on the Nasdaq Stock Market.