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 FOURTH QUARTER AND YEAR END RESULTS
Level 3 Exceeds Fourth Quarter and Full Year Projections for Revenue,
Cash Revenue and Adjusted EBITDA
Company Recognizes $3.2 Billion Asset Impairment Charge
2001 Communications Cash Revenue Increases 67 Percent Over Year 2000
2001 Communications GAAP Revenue Increases 52 Percent Over Year 2000
Level 3 Expects to Achieve EBITDA Positive in First Quarter 2002
BROOMFIELD, Colo., January 29, 2002 - Level 3 Communications, Inc.
(Nasdaq:LVLT) today announced its fourth quarter 2001 results. Communications
GAAP revenue for 2001 was $1.3 billion, a 52 percent increase from $857 million
in 2000. Communications Cash revenue for 2001 was $2.1 billion, a 67 percent
increase from $1.26 billion in 2000.
The net loss for the quarter including impairment and restructuring charges
of $3.2 billion was $3.3 billion, or $8.54 per share. This includes an asset
impairment charge of $3.2 billion, a $539 million loss from the disposal and
discontinued operations of the company's Asian business, as well as a $981
million gain from the previously announced tender offer and debt for equity
exchanges completed during the fourth quarter. Excluding restructuring and
impairment charges, discontinued Asian operations, and extraordinary items, the
net loss was $475 million, or a $1.24 loss per share versus previously announced
projections of a net loss per share of $1.70.
Fourth Quarter Financial Highlights Asset Impairment Charge: In light of
the continuing economic slowdown, the company has assessed the current book
value of its communications assets as of the end of 2001. In accordance with the
accounting guidelines prescribed by FAS 121 and FAS 144, the company recognized
an impairment charge of $3.2 billion during the fourth quarter. Forty-eight
percent of the impairment charge is associated with colocation assets, 39
percent is associated with conduits on Level 3's long haul and metropolitan
networks, 10 percent is associated with transoceanic assets and 3 percent is
associated with other assets. From a regional perspective, approximately 73
percent of the impairment charge is for North American assets, 17 percent for
European assets and 10 percent for transoceanic assets. Of the $3.2 billion
impairment charge, approximately $35 million is a cash charge associated with
the termination of real estate leases, and the balance is non-cash.
"Consistent with the difficult environment in which we are operating, we
have taken what we believe is an appropriate approach to estimating the future
cash flows associated with certain assets and, as a result, we have taken a
charge against those assets," said Chief Financial Officer Sureel Choksi.
Sale of Asian Operations: On December 19, 2001, Level 3 announced the sale
of its Asian operations to Reach LTD. Results for the fourth quarter reflect the
company's Asian business as discontinued operations. The projections provided on
October 25, 2001, included expected results for the company's Asian operations.
The following table provides a comparison of reported fourth quarter results,
pro forma fourth quarter results including Asia and previously provided fourth
quarter projections.
Metric Pro Forma Fourth
($ in Millions) Reported Fourth Quarter Results Fourth Quarter
Quarter Results (1) Including Asia Projections (2)
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Communications Cash Revenue $415 $422 $405
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Communications GAAP Revenue $269 $276 $270
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Communications Services Revenue $226 $233 $230
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Reciprocal Compensation Revenue $31 $31 $25
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Non-recurring Dark Fiber Revenue $12 $12 $15
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Consolidated EBITDA $ (83) $ (95) $ (118)
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Consolidated Adjusted EBITDA $ 71 $ 60 $ (8)
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(1) Reported fourth quarter results exclude Asian operations. Consolidated
EBITDA and Consolidated Adjusted EBITDA include $58 million in one-time cash
restructuring and impairment charges but exclude the $3.2 billion impairment
charge.
(2) Fourth quarter projections include results from the Asian
operations. Fourth quarter projections for Consolidated EBITDA and Consolidated
Adjusted EBITDA exclude cash restructuring and impairment charges of $58
million. As a result, the appropriate comparison to pro forma fourth quarter
results would be a projection of negative $118 million for Consolidated EBITDA
and negative $8 million for Consolidated Adjusted EBITDA.
Communications Cash Revenue and GAAP Revenue: Communications cash revenue
for the fourth quarter was $415 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 the fourth quarter 2001 was $269 million, a
24 percent decrease over the same period last year. This decrease is primarily
the result of a $94 million previously announced sale of transatlantic capacity
in the fourth quarter 2000. Included in total communications GAAP revenue was
$226 million of communication services revenue, $31 million attributable to
reciprocal compensation revenue, and $12 million of non-recurring revenue from
dark fiber revenue.
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 2,000 customers at the
end of the quarter - down from 2,100 as of the end of the third quarter.
Approximately 77 percent of the customer base currently purchases more than one
Level 3 service.
Recently announced customer agreements include AOL, AT&T Wireless, Cox
Communications, Lehman Brothers, Prodigy, SBC, and Sony.
Other Revenue: Other revenue of $57 million for the fourth quarter included
$29 million from (i)Structure and $21 million from coal mining, versus
(i)Structure revenue of $31 million and coal mining revenue of $44 million for
the same period last year.
Expenses Cost of Revenue: Consolidated cost of revenue for the fourth
quarter 2001 was $122 million, representing a 61 percent decrease from the
fourth quarter 2000 and a 16 percent decrease from the third quarter 2001. Gross
margin for the communications business was 67 percent for the quarter, up from
25 percent for the same period last year and 65 percent for the previous
quarter.
For 2001, communications gross margin was 54 percent, an increase from 27
percent in 2000. Consolidated gross margin for the year 2001 was 52 percent, an
increase from 33 percent in 2000.
Selling, General and Administrative Expenses (SG&A): SG&A expenses were
$229 million for fourth quarter, versus $236 million for the third quarter, and
versus $272 million for the same period last year. Adjusted for the disposition
of the Asian operations, the total number of Level 3 employees was approximately
3,700 as of the end of the fourth quarter, including approximately 3,200 in the
communications business.
Consolidated EBITDA and Consolidated Adjusted EBITDA: Consolidated EBITDA,
excluding stock-based compensation expense, and the $3.2 billion asset
impairment charge was negative $83 million for the fourth quarter. Excluding
one-time charges of $58 million in cash restructuring and impairment charges,
Consolidated EBITDA was negative $25 million. Consolidated EBITDA was negative
$10 million for the prior period, and negative $149 million for the same period
last year. Consolidated Adjusted EBITDA was positive $71 million for the fourth
quarter 2001, compared to positive $81 million for the third quarter 2001 and
positive $120 million for the fourth quarter 2000. 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 $75 million in
non-cash expense for stock-based compensation 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 $258 million, a 37 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 $173 million for the quarter, declining from $292 million during
the third quarter. Total capital expenditures for 2001 were approximately $2.3
billion, or $2.5 billion pro forma for inclusion of the Asian operations. Full
year capital expenditures were approximately $200 million lower than the
previously issued projection of $2.7 billion. This reduction in capital
expenditures reflects the company's successful implementation of previously
announced cost management initiatives.
"The substantial decrease in capital expenditures is a significant
contributor to our confidence in our financial strength," said Kevin O'Hara,
president and chief operating officer. "These decreases in spending reflect both
our ability to successfully implement cost controls in this area and the
increasingly success-based nature of capital expenditures."
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 100 percent of the customer traffic to its own
network from its leased, long haul network.
Markets and Local Fiber Networks in Service: At the end of the fourth
quarter, Level 3 offered services in 66 markets, 57 North American markets and
nine European markets.
The company has local fiber networks in 36 markets, 27 in North America and
nine in Europe. Level 3 has over 2,185 local route miles built in North America
and Europe, and 1,830 of those route miles are lit. Additionally, the company
has constructed approximately 930,000 local fiber miles to date.
As previously announced, the company plans to expand its network in Europe
and to begin offering services in eight additional markets across Western Europe
in 2002. Level 3 plans to acquire wavelengths or other existing lit capacity
from other carriers in the region and offer a full range of communications
services.
Operational Highlights Level 3 has received the Frost & Sullivan 2002
Market Engineering Award in recognition of its On-Net Transport Activation
Process ("ONTAP"). The award is given each year to the company that has
demonstrated excellence in customer service innovation within the industry.
Level 3 launched ONTAP in 2001. ONTAP is an automated activation process
that provides Level 3 and its customers with a real time view of network
capacity. This system has allowed Level 3 to guarantee on-net provisioning for
its customers in 5 to 10 business days, versus the industry average of
approximately 60 days.
"The ONTAP process for service activation is a major customer service
differentiation that offers a number of benefits to Level 3," says Frost &
Sullivan industry analyst Rod Woodward. "Through ONTAP, Level 3 is able to
immediately verify available capacity, confirm delivery dates, and rapidly
activate either wavelength or private line circuits for its customers. Both
Level 3 and its customers improve their time-to-revenue through ONTAP, a
critical capability in today's challenging market environment."
"We believe that Level 3 has the best operational capabilities in the
communications business based on the quality of our ubiquitous end-to-end
network and the efforts and resources we have dedicated to our processes and
operating systems," said O'Hara.
Level 3's goal is to continually introduce new commercial approaches to
simplify the purchasing process. In the fourth quarter, Level 3 introduced the
ONTAP capabilities to select customers in an on-line order entry interface which
gives customers the ability to check capacity, get pricing quotes, reserve and
order transport services from Level 3.
Strategic Transactions On December 19, 2001, the company announced the sale
of its Asian business to Reach LTD. This transaction subsequently closed on
January 18, 2002. The company estimates that the sale of its Asian operations
will reduce its future funding requirements by approximately $300 million.
On December 7, 2001, Level 3 announced the purchase of McLeodUSA's
wholesale dial-up Internet access business. This transaction subsequently closed
on January 24, 2002.
"We are pleased to have these transactions closed, and we believe both of
these strategic decisions will allow us to further focus all our resources and
time on expanding our presence in North America and Europe," said O'Hara.
Business Outlook Quarterly Projections: Level 3 expects communications cash
revenue for the first quarter 2002 of $350 million and communications GAAP
revenue of $270 million. Approximately $235 million of the communications GAAP
revenue is expected to be derived from services revenue and approximately $35
million from reciprocal compensation. Going forward, the company does not expect
to recognize any non-recurring dark fiber revenue from pre-June 1999 dark fiber
contracts.
The company expects Consolidated Adjusted EBITDA of $90 million and
Consolidated EBITDA of positive $10 million for the first quarter. Capital
expenditures for the first quarter are expected to be approximately $110
million. The company expects the net loss for the first quarter to be $1.10 per
share.
"Reaching positive Consolidated EBITDA for the first quarter is an
important milestone for the company," said Choksi. "Our positive Consolidated
EBITDA projection for the first quarter is the result of expected improvements
in our gross margins and our continuing cost management initiatives."
Credit Facility: Level 3 has a $1.775 billion Senior Secured Credit
Facility and is in compliance with all terms and conditions under this facility
as of December 31, 2001. Based on first quarter 2002 projections, the company
also expects to be in compliance as of the end of the first quarter. If the
current rate of sales, cancellations, and disconnects were to continue, the
company may violate a revenue-based financial covenant as early as the end of
the second quarter. To the extent the company's operational performance improves
or it completes acquisitions that generate additional revenue, a potential
violation of the covenant could be delayed beyond the second quarter of 2002 or
eliminated entirely.
"Recognizing that there is a risk we may violate a financial covenant later
this year, we have initiated discussions with the administrative agent for our
credit facility to find an appropriate solution prior to any potential covenant
violation," said Choksi.
Customer Credit Analysis: The company has updated and revised its customer
credit analysis. Based on this review, the company believes that customer
disconnects and cancellations will continue at levels similar to those
experienced during the second half of 2001 for approximately the first two
quarters of 2002. This level of cancellations and disconnects for the estimated
period represents approximately 20 percent of current recurring revenue. This
estimate has been incorporated in the company's estimate of its funding status,
as discussed in the Summary section which follows.
Summary: "All in all, it's been a productive quarter, particularly given
the difficult economy and market," said James Q. Crowe, CEO. "About a year ago,
we set as our goal not merely to survive the economic slowdown, but to position
ourselves to take advantage of opportunities that will arise in the inevitable
economic recovery. We have made significant progress toward that goal. We expect
to achieve positive Consolidated EBITDA in the first quarter, to see continuing
improvement in gross margins, and to continue our focus on cost reduction - even
as we continue to successfully sell our services in a difficult market. We have
reduced a significant portion of our debt, capital expenses, operating expenses
and headcount. We have strengthened our balance
sheet, and because of our strong financial position, we have been able to
capitalize on opportunities that have arisen in the market. Our acquisitions of
strategically valuable assets from Viatel, Navipath and McLeod are examples of
just such opportunities. As a consequence, we are able to reiterate that we
remain fully funded to free cash flow breakeven, with a substantial cushion, in
accordance with our business plan," said Crowe.
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. 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.
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LEVEL 3 COMMUNICATIONS, INC.
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------------ -----------------------------
(dollars in millions) 2001 2000 2001 2000
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Revenue:
Communications $ 269 $ 352 $ 1,298 $ 857
Information Services & Other 57 80 235 327
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Total Revenue 326 432 1,533 1,184
Costs and Expenses:
Cost of Revenue 122 309 742 792
Depreciation and Amortization 258 189 1,122 579
Selling, General and Administrative 229 272 983 874
Stock-Based Compensation 75 81 314 236
Restructuring & Impairment Charges 3,242 -- 3,353 --
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Total Costs and Expenses 3,926 851 6,514 2,481
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Loss from Operations (3,600) (419) (4,981) (1,297)
Other Loss, net (117) (131) (467) (159)
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Loss from Continuing Operations
before Income Taxes (3,717) (550) (5,448) (1,456)
Income Tax Benefit -- 19 -- 49
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Net Loss from Continuing Operations (3,717) (531) (5,448) (1,407)
Loss from Discontinued Operations, net (539) (21) (605) (48)
(including loss on disposal of $516)
Extraordinary Gain on Debt Extinguishment, net 981 -- 1,075 --
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Net Loss $ (3,275) $ (552) $ (4,978) $ (1,455)
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Loss per Share:
Basic and Diluted
Net Loss from Continuing Operations $ (9.70) $(1.44) $ (14.58) $ (3.88)
Discontinued Operations, net (1.40) (0.06) (1.62) (0.13)
Extraordinary Gain on Debt Extinguishment, net 2.56 -- 2.88 --
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Net Loss $ (8.54) $(1.50) $ (13.32) $ (4.01)
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Weighted Average Shares Outstanding
(in thousands):
Basic and Diluted 383,319 367,256 373,792 362,539
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LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
December 31, September 30,
(dollars in millions) 2001 2001
Assets
Current Assets
Cash and cash equivalents $ 1,297 $ 1,440
Marketable securities 206 1,077
Restricted securities 155 135
Accounts receivable, less allowances of $46 and $34, respectively 239 314
Current assets of discontinued Asian operations 74 84
Other 63 98
-- --
Total Current Assets 2,034 3,148
Property, Plant and Equipment, net 6,890 10,153
Noncurrent Assets of Discontinued Asian Operations -- 483
Other Assets, net 392 468
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$ 9,316 $ 14,252
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Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 714 $ 892
Current portion of long-term debt 7 7
Accrued payroll and employee benefits 162 131
Accrued interest 86 95
Deferred revenue 124 129
Current liabilities of discontinued Asian operations 74 105
Other 225 177
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Total Current Liabilities 1,392 1,536
Long-Term Debt, less current portion 6,209 7,904
Deferred Revenue 1,335 1,202
Accrued Reclamation Costs 92 95
Noncurrent Liabilities of Discontinued Asian Operations -- 25
Other Liabilities 353 367
Stockholders' Equity (Deficit) (65) 3,123
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$ 9,316 $ 14,252
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Executive Officer Intended Transfers of Company Securities
The company has a policy that generally requires the members of its board
of directors and members of senior management that are "executive officers" for
purposes of the SEC's Section 16 rules to pre-announce their intention to make
transfers of the company's securities in the permitted period following each
earnings release, which policy the company reviews annually. In addition, this
policy applies only to an intent to transfer shares not previously announced,
and does not apply to certain transfers for estate planning purposes.
The following schedule shows the individuals that have expressed a current
intent to transfer, during the period, the maximum number of shares they propose
to transfer and the percentage of their holdings, that the intended transfer
amount represents.
None of the individuals are required to dispose of shares and the listed
individuals may choose to sell fewer, or none, of the shares described, but will
not, when combined with shares previously preannounced but not yet transferred,
sell more during the period. An individual's ultimate decision to transfer
shares of common stock will be made in compliance with applicable federal
securities laws.
Name and Title No. of Shares Percentage
Sureel A. Choksi 85,000 [1]
Group Vice President and CFO
[1] The number of shares indicated represents 10% of Mr. Choksi's: (a)
total shares of the Company's common stock held plus (b) all other shares of
common stock that may be acquired in the future through the exercise of vested
or unvested options, including outperform stock options. For purposes of this
calculation, each option, vested or unvested, was considered to be a single
share of common stock.