[Logo] Exhibit 99.1
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 First Quarter Results
Level 3 Reports Consolidated EBITDA of $51 Million
Company Has Signed Over $450 Million in (3)Connect Modem Contracts Year to Date
Company Reports Communications Gross Margin of 76 Percent
BROOMFIELD, Colo., April 23, 2002 - Level 3 Communications, Inc. (Nasdaq:LVLT)
today announced its first quarter 2002 results. Consolidated revenue increased
to $386 million from $326 million in the fourth quarter 2001. Consolidated
EBITDA, excluding stock-based compensation expense, increased to positive $51
million from negative $83 million for the previous quarter and negative $101
million for the same period last year. Consolidated Adjusted EBITDA was $124
million for the first quarter, an increase from $71 million in the fourth
quarter 2001.
The net loss for the quarter was $0.23 per share, or $90 million, including a
$130 million gain from previously announced debt repurchases and a tax refund of
$119 million. Excluding these items, the net loss was $339 million, or $0.87 per
share versus previously announced projections of a net loss per share of $1.10.
"We significantly exceeded our previous projection of $10 million of
Consolidated EBITDA, which underscores our ability to tightly control costs and
to meet our customers' needs, despite the challenging times our industry faces,"
said James Q. Crowe, CEO of Level 3.
Overview
The company's core business consists of communications and information services.
The company's non-core businesses include coal mining and toll road operations.
On March 13, 2002, the company completed its acquisition of CorpSoft, Inc., a
software manager, marketer and reseller whose customers include many of the
world's largest corporations. CorpSoft conducts business under the name
Corporate SoftwareSM. For financial reporting purposes, the company combines the
financial results of Corporate Software with the results of the company's
existing (i)Structure information services business. Beginning with this
release, the company will report separately the financial results of the
company's communications business, information services business and other
businesses.
Results from 2001 exclude the company's Asian operations, which were sold in the
first quarter 2002.
Communications Business Segment
First Quarter Communications Business Financial Highlights
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Metric
($ in millions) First Quarter First Quarter
Actuals Projections(1)
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Communications Cash Revenue $349 $350
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Communications GAAP Revenue $278 $270
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Communications Services Revenue $246 $235
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Reciprocal Compensation Revenue $32 $35
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Communications Cost of Revenue $66 NA
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Communications SG&A $170 NA
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Communications EBITDA $42 NA
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(1) Projections issued January 29, 2002.
Communications Cash Revenue and GAAP Revenue
Communications cash revenue for the first quarter was $349 million.
Communications cash revenue is defined as communications GAAP revenue plus
changes in cash deferred revenue ($71 million for the first quarter).
Communications cash revenue includes upfront cash received for dark fiber and
other capacity IRU 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 first quarter was $278 million, a 3 percent
increase from $269 million for the previous quarter. Included in total
communications GAAP revenue was $246 million of communication services revenue
and $32 million attributable to reciprocal compensation revenue.
Consistent with the company's focus on more established companies with
substantial communications services needs, the company had approximately 1,775
customers at the end of the quarter - down from approximately 2,000 as of the
end of the fourth quarter. Approximately 70 percent of the customer base
currently purchases more than one Level 3 service.
The company's recently announced customer agreements include AOL Time Warner,
BELNET, SBC Communications, Triumph Communications and United Online.
"Although we experienced weakness in our optical transport business, it was more
than offset by increases in revenue from (3)Connect Modem, the company's dial-up
Internet access service and (3)CrossRoads Internet Access, the company's
dedicated Internet access service," said Kevin O'Hara, president and COO of
Level 3. "We continue to be especially encouraged by Level 3's ability to take
advantage of its strong position in the dial-up Internet access business. We
have signed over $450 million in (3)Connect Modem contracts year to date. We
believe we are well positioned to continue to increase market share as a result
of our quality of service, our expansive geographic coverage and our low cost
position, which is based on the most advanced softswitch platform in the
industry."
Cost of Revenue
Communications cost of revenue for the first quarter 2002 was $66 million,
resulting in a 76 percent gross margin, an increase from 67 percent in the
fourth quarter 2001 and 42 percent in the same period last year.
"Our gross margins result from the success of our network in meeting our
customers' needs," said O'Hara. "We believe these gross margins result from our
offering the right set of services, to the right customers in the right
geographic locations."
Selling, General and Administrative Expenses (SG&A)
Communications SG&A expenses were $170 million for first quarter 2002, versus
$205 million for the fourth quarter 2001, and versus $263 million for the same
period last year. SG&A expenses exclude cash impairment and restructuring
charges of $10 million for the first quarter 2001 and $58 million for the fourth
quarter 2001. The total number of employees in the communications business was
approximately 3,025 at the end of the first quarter.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
EBITDA, excluding stock-based compensation expense, from the communications
business was positive $42 million for the first quarter, versus negative $76
million for the previous quarter and negative $112 million for the same period
last year.
Capital Expenditures
Consolidated capital expenditures for property, plant and equipment were $53
million for the quarter, declining from $173 million during the fourth quarter.
This reduction in capital expenditures reflects the company's successful
implementation of previously announced cost management initiatives, as well as
higher than expected use of pre-provisioned inventory. Capital expenditures for
the first quarter include approximately $6 million for the information services
and other businesses.
"Our ability to control overall expenditure levels is a significant contributor
to our financial strength," said Sureel Choksi, CFO of Level 3.
Network Highlights
At the end of the first 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 and has constructed approximately 932,000 local fiber
miles to date.
As previously announced, the company is expanding its network in Europe and
expects to begin to offer communications services in eight additional markets
across Western Europe during the third quarter of 2002. Level 3 has acquired
capacity and metropolitan facilities in order to complete the build out. The
eight new markets are Madrid, Geneva, Stockholm, Milan, Zurich, Cologne,
Karlsruhe and Stuttgart.
In addition, during the first quarter, the company completed its purchase of
McLeodUSA Incorporated's wholesale dial-up access business assets. As a result
of this acquisition, the company's (3)Connect Modem service is offered in areas
covering approximately 80 percent of the U.S. population, an increase from
approximately 60 percent at the end of the fourth quarter 2001. As a result of
continued network expansion, the company expects its (3)Connect Modem service to
be available to over 85 percent of the U.S. population by the end of 2002.
Information Services Business Segment
Revenue
Information services revenue was $80 million for the first quarter 2002,
representing a 176 percent increase over the previous quarter as a result of the
acquisition of Corporate Software. Information services revenue includes the
company's (i)Structure and Corporate Software subsidiaries. The results of
Corporate Software are consolidated with Level 3's results subsequent to March
13, 2002, when the company completed the purchase of Corporate Software.
The total number of employees in the information services business was
approximately 1,175 at the end of the first quarter.
EBITDA
EBITDA, excluding stock-based compensation expense, from the information
services business was positive $6 million for the first quarter, compared to
negative $3 million for the previous quarter and positive $1 million for the
same period last year.
"We are pleased to have completed our acquisition of Corporate Software during
the first quarter," said Crowe. "This transaction affords a number of distinct
advantages to Level 3. This acquisition will enable (i)Structure to attain scale
and to leverage Corporate Software's customer base, worldwide presence and IT
professional relationships as (i)Structure expands its portfolio of services. As
communications technology continues to improve at unprecedented rates, we see an
opportunity to change the way software is purchased and utilized. This evolution
should be a longer-term benefit for both our communications and information
services businesses."
Other Businesses
Revenue
Revenue from the company's coal mining business and its interest in California
Private Transportation Company (CPTC) was $28 million for the first quarter 2002
as well as for the fourth quarter 2001, and $31 million for the same period last
year.
EBITDA
EBITDA from the company's coal mining business and its interest in CPTC was
positive $3 million for the first quarter compared to negative $3 million last
quarter and positive $10 million for the same period last year.
Consolidated Expenses
Stock-Based Compensation Expense
The company recognized $64 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 $210 million, a 19
percent decrease over the previous quarter. The year over year decrease in
depreciation and amortization primarily is the result of the asset impairment
charge recognized in the fourth quarter 2001.
Business Outlook
Customer Credit Analysis
In late January, the company stated that approximately 25 percent of its
recurring communications revenue as of year end 2001 was from at-risk, or
financially weaker, customers. Of the 25 percent of its revenue from at-risk
customers, the company expected approximately 80 percent of that revenue to
disconnect during the first half of 2002. During the first quarter, customer
disconnects and cancellations from at-risk customers were in line with the
company's expectations.
The company continually updates its customer credit analysis. As of the end of
the first quarter, the company believes that approximately 15 percent of its
recurring communications revenue is derived from at-risk customers. During the
second quarter 2002, the company expects to see customer disconnects at levels
generally in line with those experienced during the first quarter 2002. As
previously announced, these actual and projected customer disconnects during the
first two quarters of 2002 are expected to represent approximately 20 percent of
current recurring revenue as of the end of 2001. This estimate has been
incorporated in the company's 2002 cash-flow projections, as described below.
The company continues to expect disconnects and
cancellations to trend down during the second half of 2002, as a result of the
improving credit quality of its customer base.
Asset Sales
In addition to the $166 million in net proceeds received from the recent sale of
common stock of Commonwealth Telephone Enterprises, Inc. (Commonwealth), the
company continues to evaluate the sale of other non-core assets to improve its
liquidity position.
The company has reached a non-binding letter of intent to sell its 65 percent
interest in CPTC. If this transaction is consummated, Level 3 would receive
approximately $45 million in cash proceeds upon the close of the transaction and
the company's consolidated long-term debt would decrease by approximately $140
million. A sale is subject to execution of definitive documentation and approval
by appropriate legislative and regulatory authorities. There can be no assurance
that the company will complete the sale of its interest in CPTC.
Second Quarter Projections
Level 3 expects consolidated revenue to be approximately $560 million, including
$270 million from the communications business, $260 million from information
services and $30 million of other revenue. Communications cash revenue for the
second quarter is expected to be $300 million. The quarter over quarter decline
in communications cash revenue is a result of lower dark fiber IRU sales.
Approximately $240 million of the communications GAAP revenue is expected to be
from services revenue and the balance from reciprocal compensation.
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Metric Second Quarter
($ in millions except net loss per share) Projections
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Communications Cash Revenue $300
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Communications GAAP Revenue $270
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Information Services Revenue $260
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Revenue from Other Businesses $30
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Consolidated GAAP Revenue $560
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Consolidated EBITDA $60
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Consolidated Adjusted EBITDA $90
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Capital Expenditures $50
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Net Loss per Share ($0.70)
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The company expects Consolidated Adjusted EBITDA of $90 million. The expected
decline in Consolidated Adjusted EBITDA quarter over quarter is the result of
lower communications cash revenue, offset partially by continued expense
reductions. Consolidated EBITDA, excluding stock-based compensation expense, is
expected to be positive $60 million for the second quarter, of which
approximately $45 million is anticipated to be generated by the communications
business, $5 million by the information services business and the balance by
other businesses.
Consolidated capital expenditures for the second quarter are expected to be
approximately $50 million. The company expects the net loss for the second
quarter to be $0.70 per share, including a $102 million gain, or $0.26 a share,
from the previously announced sale of Commonwealth common stock.
"Achieving positive Consolidated EBITDA for the first quarter was an important
milestone for the company," said Choksi. "As we continue to focus on managing
cash flow, we expect to continue to see improvements in our overall cost
structure. The quarterly cash consumption of our continuing operations, defined
as Consolidated Adjusted EBITDA minus working capital requirements, capital
expenditures and net interest expense, is expected to decrease to approximately
$100 million in the second quarter from approximately $180 million in the first
quarter. Including proceeds from the recently completed sale of Commonwealth
common stock, we expect our liquidity position to improve during the second
quarter of 2002."
2002 Projections "While we believe that the worst is behind us, there continues
to be uncertainty regarding the timing and effect of the economic recovery on
both the communications services industry and on enterprise information
technology budgets," said Choksi. "We believe, however, that Level 3 is well
positioned to benefit from the inevitable recovery. In the meantime, we remain
focused on managing cash flow and preserving our strong liquidity position.
"Given the volatility surrounding revenue projections and the company's focus on
cash flow management, we believe cash flow projections are currently the most
relevant metrics upon which to base projections. Consequently, we are providing
Consolidated Adjusted EBITDA, capital expenditure and working capital, as well
as year-end liquidity projections for 2002."
The company expects Consolidated Adjusted EBITDA of $400 million and
consolidated capital expenditures of $225 million for the full year 2002.
Working capital requirements are expected to be $225 million for the year. Total
cash and marketable securities, excluding restricted securities and the $650
million undrawn revolving credit facility, are expected to be approximately $1
billion at the end of 2002.
The company expects to generate positive Operating Cash Flow, defined as
Consolidated Adjusted EBITDA minus consolidated capital expenditures and working
capital requirements, during the fourth quarter 2002. For the full year 2002,
Operating Cash Flow is expected to be negative $50 million. "We believe that
turning Operating Cash Flow positive is a significant milestone towards
achieving positive free cash flow," said Choksi.
Summary
"Our existing liquidity position, our ongoing cost management effort and our
belief that we will turn Operating Cash Flow positive during the fourth quarter
2002, give us confidence in the strength of our financial position," said Crowe.
"We have taken steps during the first quarter to further strengthen our
financial position, and we continue to believe we are fully funded to free cash
flow breakeven with an adequate cushion, in accordance with our business plan.
We remain well positioned with our target customer base and believe we will
continue to increase our market share of their transport, IP, colocation and
dial-up access business needs."
About Level 3 Communications
Level 3 (Nasdaq:LVLT) is an international communications and information
services company offering a wide selection of services including IP services,
broadband transport, colocation services and the industry's first Softswitch
based services. Its Web address is www.Level3.com.
The company offers information services through its wholly-owned subsidiaries,
(i)Structure and Corporate Software. (i)Structure is an Application
Infrastructure Provider that provides managed IT infrastructure services and
enables businesses to outsource IT operations. Its Web address is
www.i-structure.com.
Corporate Software helps Fortune 500 companies acquire, implement, and manage
software. Its Web address is www.corporatesoftware.com.
(3)CrossRoads and (3)Connect Modem are service marks of Level 3 Communications.
Forward Looking Statement
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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Attachment No. 1
LEVEL 3 COMMUNICATIONS, INC.
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended
March 31,
(dollars in millions) 2002 2001
Revenue:
Communications $ 278 $ 384
Information Services 80 33
Other 28 31
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Total Revenue 386 448
Costs and Expenses:
Cost of Revenue 146 266
Depreciation and Amortization 210 236
Selling, General and Administrative 189 283
Stock-Based Compensation 64 76
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Total Costs and Expenses 609 861
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Loss from Operations (223) (413)
Other Loss, net (116) (105)
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Loss from Continuing Operations
before Income Taxes (339) (518)
Income Tax Benefit 119 -
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Net Loss from Continuing Operations (220) (518)
Loss from Discontinued Operations, net - (17)
Extraordinary Gain on Debt Extinguishment, net 130 -
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Net Loss $ (90) $ (535)
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Loss per Share:
Basic and Diluted
Net Loss from Continuing Operations $ (0.56) $ (1.41)
Discontinued Operations, net - (0.04)
Extraordinary Gain on Debt Extinguishment, net 0.33 -
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Net Loss $ (0.23) $ (1.45)
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Weighted Average Shares Outstanding
(in thousands):
Basic and Diluted 391,279 367,810
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Attachment No. 2
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
March 31, December 31,
(dollars in millions) 2002 2001
Assets
Current Assets
Cash and cash equivalents $ 1,110 $ 1,297
Marketable securities - 206
Restricted securities 136 155
Accounts receivable, less allowances of $45 and $46, respectively 351 239
Current assets of discontinued Asian operations - 74
Other 86 63
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Total Current Assets 1,683 2,034
Property, Plant and Equipment, net
6,746 6,890
Intangibles and Goodwill 252 28
Other Assets, net 370 364
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$ 9,051 $ 9,316
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Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 690 $ 714
Current portion of long-term debt 30 7
Accrued payroll and employee benefits 143 162
Accrued interest 65 86
Deferred revenue 127 124
Current liabilities of discontinued Asian operations - 74
Other 277 225
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Total Current Liabilities 1,332 1,392
Long-Term Debt, less current portion 5,981 6,209
Deferred Revenue 1,353 1,335
Accrued Reclamation Costs 92 92
Other Liabilities 358 353
Stockholders' Deficit (65) (65)
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$ 9,051 $ 9,316
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