Exhibit 99.1
[Logo]
1025 Eldorado Boulevard
Broomfield, Colorado 80021
www.Level3.com
NEWS RELEASE
Level 3 contacts:
Media: Josh Howell Investors: Robin Grey
720/888-2517 720/888-2518
Paul Lonnegren
720/888-6099
Level 3 Updates Third Quarter Projections
in Conjunction with Senior Note
Offering
Company Reaffirms Full Year 2003 Projections
BROOMFIELD, Colo., September 22, 2003 -- Level 3 Communications, Inc.
(Nasdaq:LVLT) today announced that in conjunction with a private offering of
senior notes by one of its subsidiaries, the company is updating its projections
for the third quarter and reaffirming full year 2003 projections, both of which
have been adjusted for discontinued operations.
"As we have said in the past, there continues to be economic weakness in the
telecommunications sector," said James Crowe, CEO of Level 3. "As a result,
top-line growth and visibility remain challenging. However, we have confidence
in our ability to project and deliver improving cash flows from our business."
"For the communications business, we are updating our third quarter and full
year projections to reflect the previously announced sale of Midwest Fiber Optic
Network (MFON), which was acquired in connection with the Genuity acquisition,"
said Sunit Patel, CFO of Level 3. "We also anticipate slightly lower than
projected revenue in our communications business for the third quarter due to
lower than expected usage in our softswitch and IP businesses. At the same time,
we are increasing our third quarter Consolidated EBITDA projection from $97
million, adjusted for discontinued operations,
to $97 million-$102 million based on our cost management initiatives.
Additionally, we are lowering our third quarter capital expenditures
projection."
"We are lowering our information services revenue projection for the third
quarter versus the projections that had been previously issued on July 24,
2003," said Patel. "This is a result of additional contract renewals falling
under agency-type licensing programs that we have previously discussed, as well
as softer sales in the third quarter."
Adjusted Third Third Quarter
Quarter Projections Projections Issued
Metric July 24, 2003
($ in millions)
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Communications Services Revenue
(excluding Termination and Settlement Revenue)(1) $372 - $382 $390
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Reciprocal Compensation $26 $25
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Termination and Settlement Revenue $7 $5
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Communications Revenue $405-$415 $420
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Information Services Revenue $440-$465 $490
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Other Revenue $20 $20
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Consolidated Revenue $865-$900 $930
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Consolidated EBITDA (2) $97 -$102 $100
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Capital Expenditures $60 $70
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Communications Gross Margin 76%-78% 76%-78%
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(1) Includes a reduction of $5 million for sale of MFON and a decrease for lower
than expected usage revenue.
(2) Includes a reduction of $3 million for the sale of MFON and a potential
increase for better than expected operating performance.
Adjusted for the discontinued MFON operations, which will impact full year
revenue projections by $16 million and Consolidated EBITDA by $10 million, Level
3 is reaffirming its full year 2003 projections that were issued on July 24,
2003.
The company continues to expect to turn consolidated free cash flow positive
during the second quarter 2004.
About Level 3 Communications
Level 3 (Nasdaq:LVLT) is an international communications and information
services company. The company operates one of the largest Internet backbones in
the world, is one of the largest providers of wholesale dial-up service to ISPs
in North America and is the primary provider of Internet connectivity for
millions of broadband subscribers, through its cable and DSL partners. The
company offers a wide range of communications services over its 22,500 mile
broadband fiber optic network including Internet Protocol (IP) services,
broadband transport, colocation services, Genuity managed services, and
patented Softswitch-based managed modem and voice services. Its Web address is
www.Level3.com.
The company offers information services through its subsidiaries, (i)Structure
and Software Spectrum. For additional information, visit their respective web
sites at www.softwarespectrum.com, and www.i-structure.com.
The Level 3 logo is a registered service mark of Level 3 Communications, Inc. in
the United States and/or other countries.
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, the
challenges of integration, 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.
Schedule to Reconcile non-GAAP Financial Metrics
Pursuant to Regulation G, the company is hereby providing a reconciliation of
non-GAAP financial metrics to the most directly comparable GAAP measure.
The company provides projections that include non-GAAP metrics that the company
deems relevant to management and investors. These non-GAAP metrics are EBITDA,
consolidated Adjusted EBITDA, communications gross margin, communications EBITDA
margin, unlevered cash flow and consolidated free cash flow. The following
reconciliation of these non-GAAP financial metrics to GAAP includes
forward-looking statements with respect to the information identified as a
projection. Level 3 has made a number of assumptions in preparing our
projections, including assumptions as to the components of financial metrics.
These assumptions, including dollar amounts of the various components that
comprise a financial metric, may or may not prove to be correct. We caution you
that these forward-looking statements are only predictions, which are subject to
risks and uncertainties including technological uncertainty, financial
variations, changes in the regulatory environment, industry growth and trend
predictions. Please see the company's Annual Report on Form 10-K/A-1 for a
description of these risks and uncertainties.
In order to provide projections with respect to non-GAAP measures, we are
required to indicate a range for GAAP measures that are components of the
reconciliation of the non-GAAP metric. The provision of these ranges is in no
way meant to indicate that the company is explicitly or implicitly providing
projections on those GAAP components of the reconciliation. In order to
reconcile the non-GAAP financial metric to GAAP, the company has to use ranges
for the GAAP components that arithmetically add up to the non-GAAP financial
metric. While the company feels reasonably comfortable about the projections for
its non-GAAP financial metrics, it fully expects that the ranges used for the
GAAP components will vary from actual results. We will consider our projections
of non-GAAP financial metrics to be accurate if the specific non-GAAP metric is
met or exceeded, even if the GAAP components of the reconciliation are different
from those provided in an earlier reconciliation.
Communications Gross Margin ($) is defined as communications revenue less
communications cost of revenue from the consolidated condensed statements of
operations.
Cost of Revenue for the communications business includes leased capacity,
right-of-way costs, access charges and other third party circuit costs directly
attributable to the network, as well as costs of assets sold pursuant to
sales-type leases.
Communications Gross Margin (%) is defined as communications gross margin ($)
divided by communications revenue. Management believes that communications gross
margin is a relevant metric to provide to investors, as it is a metric that
management uses to measure the margin available to the company after it pays
third party network services costs; in essence, a measure of the efficiency of
the company's network.
EBITDA is defined by Level 3 as net income/(loss) from the consolidated
condensed statements of operations, less income/(loss) from discontinued
operations, less cumulative effect of change in accounting principle, less
interest income, less interest expense, less other income/expense, less
depreciation and amortization expense and less non-cash compensation expense
included within selling, general and administration expense on the consolidated
condensed statements of operations, and after reduction of operating expenses by
the non-cash portion of restructuring and impairment charges.
Communications EBITDA Margin is defined as communications EBITDA divided by
communications revenue.
EBITDA is not a measurement under accounting principles generally accepted in
the United States and may not be similar to EBITDA measures of other companies.
Management believes that EBITDA and EBITDA margin are relevant metrics to
provide to investors, as they are indicators of operating performance,
especially in a capital-intensive industry such as telecommunications, since it
excludes items that are not directly attributable to ongoing business
operations. The company excludes non-cash compensation due to its adoption of
the expense recognition provisions of SFAS No. 123.
Projected Consolidated EBITDA
Three Months Ended September 30, 2003
($ in millions)
Range
Low High
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Net Income (Loss) ($307) ($302)
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(Income) Loss from Discontinued Operations ($3) ($3)
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Other (Income)/Expense $157 $157
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Depreciation and Amortization Expense $225 $225
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Non-cash Compensation Expense $25 $25
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Non-cash Restructuring and Impairment -- --
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EBITDA $97 $102
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Unlevered Cash Flow is defined as net cash provided by (used in) operating
activities less capital expenditures offset by release of capital expenditure
accruals, and adding back cash interest paid, less interest income all as
disclosed in the consolidated condensed statements of cash flows or the
consolidated condensed statements of operations. Management believes that
unlevered cash flow is a relevant metric to provide to investors, as it is an
indicator of the operational strength and performance of the company and, over
time, provides management and investors with a sense of the growth pattern of
the business.
Consolidated Free Cash Flow is defined as net cash provided by (used in)
operating activities less capital expenditures offset by release of capital
expenditure accruals as disclosed in the consolidated condensed statements of
cash flows. Management believes that consolidated free cash flow is a relevant
metric to provide to investors, as it is an indicator of the company's ability
to generate cash to service its debt.