Exhibit 99.1
[Logo]
Level 3 Communications, Inc.
1025 Eldorado Boulevard
Broomfield, CO 80021
www.Level3.com
NEWS RELEASE
FOR IMMEDIATE RELEASE
Level 3 Contacts:
Media: Josh Howell Investors: Robin Grey
720/888-2517 720/888-2518
LEVEL 3 REPORTS THIRD QUARTER RESULTS
Communications GAAP Services Revenue Increases 71 Percent Over Third
Quarter 2000
Communications Gross Margin Improves to 64 Percent
Additional Cost Cutting Initiatives Announced;
Include Work Force Reduction of 750
BROOMFIELD, CO, October 25, 2001 - Level 3 Communications, Inc. (Nasdaq:LVLT)
today announced its third quarter 2001 results. Communications GAAP revenue for
third quarter 2001 was $319 million, a 25 percent increase over third quarter
2000. Communications GAAP services revenue was $233 million, a 71 percent
increase over third quarter 2000. Communications cash revenue for the quarter
was $395 million. Consolidated revenue for the quarter was $375 million,
compared with $341 million for the third quarter 2000.
The net loss for the quarter was $437 million, or $1.17 per share. Excluding the
$94 million net gain primarily from previously announced debt for equity
exchanges completed during the third quarter, net loss was $531 million, or
$1.42 per share.
"Given the difficult economic environment, we believe our performance is a
demonstration of both our financial and operational strength," said James Q.
Crowe, CEO of Level 3.
Third Quarter Financial Highlights
Communications Cash Revenue and GAAP Revenue:
Communications cash revenue for the third quarter was $395 million.
Communications cash revenue is defined as communications revenue plus changes in
cash deferred revenue. Communications cash revenue includes upfront cash
received for dark fiber and other capacity sales that are recognized as GAAP
revenue over the life of the contract, generally ranging from 5 to 20 years.
Communications GAAP revenue for third quarter 2001 was $319 million, a 25
percent increase over the same period last year. The increase was a result of
existing customers purchasing additional services as well as new customer
contracts.
Included in total communications GAAP revenue was $233 million of communication
services revenue, $60 million of non-recurring revenue from dark fiber sales and
$26 million attributable to reciprocal compensation. Communications revenue,
excluding non-recurring dark fiber revenue, increased 69 percent to $259
million, up from $153 million for the same period last year.
In June 2001, the company announced its intent to focus sales efforts on more
established companies with substantial communication services needs. In line
with this initiative, the company had approximately 2,100 customers at the end
of the quarter down from 2,275 as of the end of the second quarter.
Approximately 77 percent of the customer base currently purchases more than one
Level 3 service.
Other Revenue: Other revenue of $56 million for the third quarter included $30
million from (i)Structure and $20 million from coal mining, versus (i)Structure
revenue of $30 million and coal mining revenue of $50 million for the same
period last year.
Expenses
Cost of Revenue: Consolidated cost of revenue for third quarter 2001 was $150
million, representing a 25 percent decrease from the third quarter 2000 and a 29
percent decrease from the second quarter 2001. Gross margin for the
communications business was 64 percent for the quarter, up from 38 percent for
the same period last year and 47 percent for the second quarter.
"Our gross margins, which we believe are among the best in the industry, are
clear evidence of the efficiency of our network infrastructure," said Kevin
O'Hara, president and COO of Level 3. "Over the next several quarters we expect
continued improvements in this key measure of performance."
Selling, General and Administrative Expenses (SG&A): SG&A expenses were $249
million for the third quarter, versus $260 million for the second quarter, which
excludes $101 million of restructuring charges, and versus $237 million for the
same period last year.
EBITDA and Adjusted EBITDA: Consolidated EBITDA, excluding stock-based
compensation expense was negative $24 million for the third quarter, compared to
negative $82 million, excluding charges, last quarter, and negative $95 million
for the same period last year. Consolidated Adjusted EBITDA was positive $73
million for the third quarter, compared to positive $57 million for the same
period last year. Consolidated Adjusted EBITDA is defined as Consolidated EBITDA
plus the change in cash deferred revenue and excluding non-cash cost of goods
sold associated with certain capacity sales and dark fiber contracts.
Stock-Based Compensation Expense: The company recognized $82 million in
stock-based compensation expense during the quarter. The OSO Program represents
the principal component of the company's stock-based compensation. This expense
is accounted for in accordance with SFAS No. 123, "Accounting For Stock-Based
Compensation." Level 3 expenses the value of OSOs and its other stock-based
compensation over the respective vesting period. This approach is in contrast to
the current practice of most corporations under which conventional stock options
are not accounted for as an expense on the income statement.
Under Level 3's plan, OSOs are issued quarterly to all employees, with the value
of the options indexed to the performance of the company's common stock relative
to the performance of the Standard & Poor's 500 (S&P 500) Index.
Depreciation and Amortization: Depreciation and amortization expenses for the
quarter were $314 million, a 91 percent increase over the same period last year.
The year over year increase primarily reflects the additional network assets
placed in service over the past year to support the communications business.
Capital Expenditures: Capital expenditures for property, plant and equipment
were $370 million for the quarter, declining from $772 million during the second
quarter and $1.4 billion for the same period last year. This reduction in
capital expenditures reflects the completion of the network and the company's
previously announced cost management initiatives.
"The substantial decrease in capital expenditures is a significant contributor
to our confidence in our financial strength," said O'Hara. "These decreases in
spending reflect our ability to successfully implement cost controls in this
area."
Debt Repurchase: The company retired approximately $1.9 billion face amount of
debt through a combination of debt for equity exchanges completed during the
third quarter and the tender offer which expired October 22. Pro forma for the
tender offer, long term debt outstanding at the end of the third quarter is $6.2
billion.
Network Highlights
North American Intercity Network: The company has lit all 15,889 miles of its
North American intercity network. A fiber network is considered to be "lit" when
electronics are installed, thereby enabling the network to carry customer
traffic.
The company has migrated approximately 98 percent of the customer traffic to its
own network from its leased, long haul network, and the balance is expected to
be migrated by the end of the year.
Markets and Local Fiber Networks in Service: At the end of the third quarter,
Level 3 offered services in 68 markets, 57 North American markets, nine European
markets and two Asian markets.
The company has local fiber networks in 36 markets, 27 in North America and nine
in Europe. Level 3 has over 2,150 local route miles built in North America and
Europe, and 1,740 of those route miles are lit. Additionally, the company has
constructed approximately 850,000 local fiber miles to date.
Business Outlook
On June 18, 2001 the company provided an updated business outlook and associated
financial projections. This outlook was based, in part, on two assumptions:
o The companys rate of growth would be negatively impacted by cancellation of
backlogged sales and disconnects of existing service by lower credit
quality customers. The company stated that it expected these disconnects
and cancellations to occur primarily over the balance of 2001.
o The slowdown in the economy generally and in the communications services
industry specifically would begin to reverse late in 2001 or early 2002.
While subject to many factors that are difficult to forecast, the company
expects that the negative effects of cancellations and disconnects will be
generally in line with its earlier assumption. However, the September 11 attacks
and subsequent events have altered the company's views concerning the severity
and duration of the slowdown in the economy broadly and in the communications
services industry market.
"Like many observers, we no longer believe that it is possible to predict the
duration of the economic slowdown with any degree of precision," said Crowe.
"The wide range of possible outcomes, over even the short term, may be
unprecedented in recent history. Given these circumstances, we do not believe it
is realistic to provide reliable longer-term projections at this time.
"While we cannot supply a longer term projection at this time, we are providing
an estimate of key financial metrics for the fourth quarter of this year. We
expect to continue to provide quarterly projections one quarter in advance."
The company will continue to review its practices with respect to providing a
business outlook and projections and will make appropriate changes in light of
future conditions.
Cost Management Initiatives
In light of the economic uncertainty, the company is implementing certain cost
management initiatives in the area of SG&A and continuing its efforts focused on
further reducing capital and network expenditures. These actions are intended to
bring expenses in line with revenue levels resulting from performance that does
not improve over current levels.
"We certainly expect our sales and rate of installs to increase over time," said
O'Hara. "However, given the volatile economic environment, the timing of the
improvement is uncertain.
We therefore believe it is prudent to reduce our non-sales related expenses to
levels commensurate with today's level of performance. We are continuing to
invest in sales and marketing efforts to ensure we are positioned to benefit
from opportunities as they arise. We expect to rapidly increase our other
expenditures when increases in sales activity make it appropriate to do so."
The company expects to reduce its annual SG&A expense run-rate by approximately
$150 million. These savings are expected to result from a number of cost
management initiatives, including a work force reduction.
The company currently employs approximately 4,500 people, including
approximately 3,950 in the communications business. The company plans to reduce
its global work force by approximately 750 employees, primarily non-sales
related positions in the communications business. These reductions are expected
to occur mainly during the fourth quarter through the combination of a work
force reduction and attrition. The company expects to recognize a significant
charge during the fourth quarter associated with the work force reduction.
In addition, the company expects to continue to benefit from its previously
announced capital expenditure reduction initiatives. As a result of these
efforts, capital expenditures for 2001 are expected to be $2.7 billion versus a
previously announced amount of $3.0 billion.
Quarterly Projections
Level 3 expects communications cash revenue for the fourth quarter of $405
million and communications GAAP revenue of $270 million. Approximately $230
million of the communications GAAP revenue is expected to be derived from
services revenue, approximately $25 million from reciprocal compensation and $15
million from non-recurring dark fiber sales.
The company expects consolidated Adjusted EBITDA of $50 million and Consolidated
EBITDA of negative $60 million for the fourth quarter. Incorporating the effects
of the recently completed debt repurchase, the company expects fourth quarter
earnings of $.75 per share, or a loss of $1.70 per share excluding the effects
of the debt repurchase. These Adjusted EBITDA, EBITDA and per share estimates
exclude the anticipated charge related to the company's cost reduction
initiatives. Capital expenditures for the fourth quarter are expected to be
approximately $375 million.
Summary Comments
"While it is difficult to predict the timing with any certainty, we expect both
the economy and our company's performance to markedly improve in the future.
Communications is a central pillar of information technology and demand is
certain to grow rapidly over time. Level 3's continuously upgradeable network
and cost efficient, broadband services place us in the forefront of companies
that will benefit from this certain outcome," said Crowe. "While we do not
believe it is feasible to provide long-term guidance at this time, we believe it
is important to tell our investors why we continue to have confidence in our
financial strength. This confidence stems from many positive factors, including:
o Our current performance, even in these difficult economic times;
o Our improving gross margins, as clearly demonstrated by this quarter's
results;
o Our success in tightly managing expenses; and
o The shift in capital spending from network construction, which is now
essentially complete, to expenditures made only when tied directly to
sales.
Given the cost management initiatives we have announced, we believe that Level 3
remains prefunded to free cash flow breakeven, even if market activity remains
at today's depressed levels."
About Level 3 Communications
Level 3 (Nasdaq:LVLT) is a global communications and information services
company offering a wide selection of services including IP services, broadband
transport services, colocation services, and the industry's first Softswitch
based services. Level 3 offers services primarily to communications intensive
companies, which deliver their services over the Level 3 Network. Its Web
address is www.Level3.com.
Some of the statements made by Level 3 in this press release are forward-looking
in nature. Actual results may differ materially from those projected in
forward-looking statements. Level 3 believes that its primary risk factors
include, but are not limited to: changes in the overall economy relating to,
among other things, the September 11 attacks and subsequent events, substantial
capital requirements; development of effective internal processes and systems;
the ability to attract and retain high quality employees; technology; the number
and size of competitors in its markets; law and regulatory policy; and the mix
of products and services offered in the company's target markets. Additional
information concerning these and other important factors can be found within
Level 3's filings with the Securities and Exchange Commission. Statements in
this release should be evaluated in light of these important factors.
Attachment 1
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
September 30, June 30,
(dollars in millions) 2001 2001
Assets
Current Assets
Cash and cash equivalents $ 1,491 $ 1,418
Marketable securities 1,077 1,743
Restricted securities 152 148
Accounts receivable, less allowances of $34 and $34, respectively 326 484
Other 102 103
--- ---
Total Current Assets 3,148 3,896
Property, Plant and Equipment, net 10,604 10,480
Other Assets, net 499 512
--- ---
$ 14,251 $ 14,888
========== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 989 $ 1,380
Current portion of long-term debt 7 9
Accrued payroll and employee benefits 131 114
Accrued interest 95 124
Deferred revenue 170 87
Other 179 174
--- ---
Total Current Liabilities 1,571 1,888
Long-Term Debt, less current portion 7,910 7,959
Deferred Revenue 1,167 1,168
Accrued Reclamation Costs 95 94
Other Liabilities 385 394
Stockholders' Equity 3,123 3,385
----- -----
$ 14,251 $ 14,888
========== ========
Attachment 2
LEVEL 3 COMMUNICATIONS, INC.
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
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(dollars in millions) 2001 2000 2001 2000
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Revenue:
Communications $ 319 $ 255 $ 1,035 $ 505
Information Services & Other 56 86 178 247
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Total Revenue 375 341 1,213 752
Costs and Expenses:
Cost of Revenue 150 199 629 483
Depreciation and Amortization 314 164 882 391
Selling, General and Administrative 249 237 794 625
Stock-Based Compensation 82 61 244 158
Restructuring & Impairment Charges - - 111 -
--------------------------------------------------------------------------------
Total Costs and Expenses 795 661 2,660 1,657
--------------------------------------------------------------------------------
Loss from Operations (420) (320) (1,447) (905)
Other Loss, net (111) (41) (350) (28)
--------------------------------------------------------------------------------
Loss before Income Taxes (531) (361) (1,797) (933)
Income Tax Benefit - 10 - 30
--------------------------------------------------------------------------------
Net Loss Before Extraordinary Item (531) (351) (1,797) (903)
Extraordinary Gain on Debt Extinguishment 94 - 94 -
--------------------------------------------------------------------------------
Net Loss $ (437) $ (351) $ (1,703) $ (903)
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Loss per Share:
Basic and Diluted
Net Loss before Extraordinary Item $ (1.42) $ (0.96) $ (4.85) $ (2.50)
Extraordinary Gain on Debt Extinguishment 0.25 - 0.25 -
--------------------------------------------------------------------------------
Net Loss $ (1.17) $ (0.96) $ (4.60) $ (2.50)
================================================================================
Loss per Share excluding Restructuring
& Impairment Charges
Basic and Diluted
Net Loss before Extraordinary item $ (4.46) $ (2.50)
==========================================
Net Loss $ (4.20) $ (2.50)
==========================================
Weighted Average Shares Outstanding
(in thousands):
Basic and Diluted 375,638 366,788 370,582 360,956
================================================================================