Exhibit 99.1
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Level 3 Communications, Inc.
1025 Eldorado Boulevard
Broomfield, Colorado 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
Company Launches New Services
Level 3 Raises $374 Million In Senior Convertible Notes;
Raises $500 Million In Senior Notes;
Repays $1.125 Billion Senior Secured Credit Facility in Full
Company Achieves Positive Free Cash Flow(1)
BROOMFIELD, Colo, October 23, 2003 - Level 3 Communications, Inc. (Nasdaq:LVLT)
today announced its third quarter results. Consolidated free cash flow(1)
increased to positive $40 million for the third quarter compared to negative $34
million for the second quarter. Consolidated revenue was $874 million for the
third quarter compared to a projection of $865 million to $900 million.
The net loss for the third quarter was $0.38 per share, or $247 million. As a
result of the company's pending sale of the Midwest Fiber Optic Network, a
non-core network asset acquired in the Genuity transaction, those operating
results are included in discontinued operations.
Consolidated EBITDA(1) was $116 million in the third quarter versus $111 million
for the previous quarter and compared to a projection of $97 million to $102
million.
Overview
"I am pleased with our cash flow performance this quarter and think it is
noteworthy that Level 3 turned free cash flow positive for the first time this
quarter," said James Q. Crowe, CEO of Level 3. "In addition, given our recent
overall reductions in debt and capital markets activities, we have further
strengthened our financial position and credit profile."
The company reports financial information based on three operating segments:
communications; information services; and other, which consists primarily of
coal mining operations.
Third Quarter Financial Results Compared to Projections (1)
Metric Third Quarter Actuals Third Quarter
($ in millions) Projections (1)
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- ------------------------------------------------------------- ------------------------ ------------------------
Communications Services Revenue(2) $378 $372-$382
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Reciprocal Compensation $25 $26
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Termination and Settlement Revenue $10 $7
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Communications Revenue $413 $405-$415
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Information Services Revenue $437 $440-$465
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Other Revenue $24 $20
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Consolidated Revenue $874 $865-$900
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Consolidated EBITDA (3)(4) $116 $97-$102
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Capital Expenditures $52 $60
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Communications Gross Margin (4) 78% 76%-78%
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(1) Projections issued September 22, 2003.
(2) Communications Services Revenue is GAAP communications revenue minus
reciprocal compensation revenue.
(3) Consolidated EBITDA includes $14 million in restructuring charges and
excludes $15 million in stock-based compensation expense.
(4) See schedule of non-GAAP metrics for definition.
Consolidated Cash Flow and Liquidity
During the third quarter, unlevered cash flow(1) was $144 million, versus $62
million for the second quarter. For the nine months ended September 30, 2003,
unlevered cash flow was $180 million. Consolidated free cash flow for the third
quarter was positive $40 million, versus negative $34 million for the previous
quarter.
As of September 30, 2003, the company had cash and cash equivalents of
approximately $1.7 billion, which included $400 million of restricted cash held
as security under the company's senior secured credit facility and excluded the
issuance of $500 million aggregate principal amount of 10.75% Senior Notes due
2011 and the repayment of the company's senior secured credit facility which
occurred on October 1, 2003.
"Of significance this quarter is that the company achieved positive consolidated
free cash flow for the first time," said Sunit Patel, CFO of Level 3. "The
improvement in our cash flow during the quarter is a result of our ongoing
efforts to manage expenses and capital expenditures, as well
as better than expected working capital performance. While we expect some
quarter over quarter volatility in cash flow as a result of working capital
changes and the timing of cash interest payments, we expect the positive trend
seen over the past several quarters to continue."
Communications Business Revenue
Communications revenue for the third quarter was $413 million, versus $430
million for the previous quarter. Total communications revenue for the third
quarter consisted of $388 million of communications services revenue and $25
million of reciprocal compensation revenue.
Included in communications services revenue was $10 million and $7 million of
settlement and termination revenue for the third and second quarters
respectively. Communications services revenue, excluding settlement and
termination revenue, decreased by $7 million in the third quarter compared to
the previous quarter, primarily due to declines in IP and softswitch revenue
partially offset by an increase in transport and infrastructure revenue.
During the quarter, the company announced new agreements with several customers
including Hughes Network Systems and SBC. Additionally, Level 3 announced that
Sony Electronics had successfully transferred digital video segments over the
Level 3 network using the company's new (3)FlexSM Ethernet service.
Cost of Revenue
Communications cost of revenue for the third quarter was $91 million, resulting
in a 78 percent communications gross margin(1), versus cost of revenue of $103
million for the previous quarter, which resulted in a 76 percent communications
gross margin. Communications cost of revenue decreased in the third quarter due
to lower circuit expenses as a result of continued migration of Genuity customer
traffic and decreases in third party network costs due primarily to a favorable
settlement recognized in the third quarter. Excluding the impact of the
favorable settlement in the third quarter and insignificant adjustments made to
third party network costs in the second quarter, communications gross margin was
flat quarter over quarter at 77 percent.
Selling, General and Administrative Expenses (SG&A)
Communications SG&A expenses were $213 million for the third quarter, versus
$237 million for the previous quarter. For the same periods, communications SG&A
expenses include $14 million and $24 million of non-cash stock compensation
expenses. The total number of employees in the communications business decreased
to approximately 3,500 at the end of the third quarter from 3,650 at the end of
the previous quarter.
Communications SG&A expenses decreased in the third quarter primarily due to the
reduction in costs associated with the Genuity integration, including the
elimination of duplicate facilities and reduction in headcount. Communications
SG&A for the third and second quarter included a $10 million and an $8 million
reduction associated with property taxes respectively.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Communications EBITDA(1) was $120 million for the third quarter, including a
restructuring charge of $3 million, versus $109 million for the previous
quarter, which included $5 million in restructuring charges. Communications
EBITDA margin(1) was 29 percent for the third quarter
versus 25 percent in the previous quarter. For the nine months ended September
30, 2003, communications EBITDA was $625 million.
"Our communications EBITDA margins are now among the best in the industry, and
we believe there is still substantial room for further improvement," said Patel.
New Service Offerings
The company continues to focus on developing new products that leverage Level
3's existing network infrastructure and address large, established markets for
communications services, particularly voice services.
Level 3 has recently launched a number of new products in keeping with that
strategy, including (3)ToneSM, a business voice service designed to augment or
replace legacy enterprise communications systems at substantial cost savings.
(3)Tone is an advanced version of the suite of services Level 3 obtained through
its recent acquisition of Telverse Communications, and it can be delivered to
customers across Level 3's extensive softswitch platform. Level 3 is marketing
the service to businesses through local phone companies, foreign carriers,
CLECs, and value-added resellers.
Other new services include:
o (3)FlexSM Ethernet, a wide area Ethernet data networking service;
o eRASSM, a remote access service for businesses in the U.S., and;
o (3)VoIP MARKETPLACESM, an enhanced voice service aimed at conferencing
providers, call center operators and other companies requiring IP-based
local-calling capability throughout North America.
"We are pleased that we have been able to accelerate product development at
Level 3, and we expect to be rolling out additional products that complement
these new services in coming quarters," said Kevin O'Hara, Level 3's president
and COO. "These recently launched services, particularly our new voice services,
significantly increase Level 3's addressable market. We expect they will begin
to make a real contribution to communications revenue in 2004."
Genuity Integration
"We now have a good deal of the integration work behind us, and we are pleased
that we are realizing the synergies we set out to achieve when we purchased this
business in February 2003," said O'Hara. "Overall progress on the integration
continues to exceed our expectations.
"Additionally, upon the successful completion of the pending Midwest Fiber Optic
Network sale, we will have sold approximately $35 million of non-core assets
acquired as part of the Genuity acquisition including the former Genuity, Inc.
headquarters building, its managed web hosting business, and MFON."
Information Services Business
Results for the information services business include the Software Spectrum and
(i)Structure subsidiaries.
"While we have seen general softness in IT spending during 2003, we are pleased
with our efforts to control costs in our information services business," said
Buddy Miller, vice chairman
of Level 3. "Our restructuring efforts are on track and are expected to reduce
our operating expense run rate at year end relative to mid-2003 by approximately
15 percent to 20 percent."
Revenue and EBITDA
Information services revenue was $437 million for the third quarter, versus $491
million for the previous quarter. The decline in revenue for the third quarter
was primarily the result of market softness, seasonality and the continued
adoption by Software Spectrum's customers of software publishers' new
agency-type software licensing programs. New agency-type software licensing
programs are expected to continue to result in a decline in information services
revenue, but are not expected to have a significant impact on profitability
levels of the information services business.
EBITDA(1) from the information services business was negative $8 million for the
third quarter, including $11 million in restructuring charges, compared to $0.4
million for the previous quarter which included $4 million in restructuring
charges. The restructuring charges recognized in the third quarter are a result
of the ongoing integration and restructuring of Software Spectrum, as well as
the closure of certain facilities and operations in the US and Europe.
The total number of employees in the information services business decreased to
approximately 1,420 at the end of the third quarter from approximately 1,800 at
the end of the previous quarter.
Other Businesses
The company's other businesses consist primarily of coal mining operations.
Revenue and EBITDA
Revenue and EBITDA(1) from other businesses were $24 million and $4 million for
the third quarter versus $16 million and $2 million, respectively, from the
previous quarter.
Corporate Transactions
Capital Structure Changes
In July 2003, Level 3 completed an offering of approximately $374 million
aggregate principal amount of its 2.875% Convertible Senior Notes due 2010 in an
underwritten public offering. Net cash proceeds from the offering were
approximately $361 million.
In October 2003, Level 3 Financing, Inc. completed an offering of $500 million
aggregate principal amount of its 10.75% Senior Notes due 2011 in a private
offering. Net cash proceeds from the offering were approximately $486 million,
which combined with $643 million of cash and restricted cash on hand, were used
to repay purchase money indebtedness and related expenses under the company's
$1.125 billion senior secured credit facility in full.
During the third quarter 2003, the company retired $57 million aggregate
principal amount through debt-for-equity transactions.
The company has entered into an agreement to exchange approximately $352 million
of book value of debt outstanding, as of September 30, 2003, including accrued
interest, for approximately 20 million shares of common stock and $208 million
of book value of 9% Convertible Senior Discount Notes due 2013. Interest will
accrue for one year, and at the company's option, interest may continue to
accrue during years two through four. The Notes are
convertible at $9.99 per share and the total number of shares issued upon
conversion will range from approximately 22 million shares to approximately 30
million shares, depending upon the total accretion prior to conversion. This
transaction is expected to close in October and will reduce the company's cash
interest expense by approximately $39 million through 2004.
"I am pleased with the results of our recent capital market activities and the
overall reduction in our debt. These actions have further strengthened our
financial position and credit profile," said Patel. "With the successful
completion of our capital market and debt reduction activities year to date, the
company will have reduced its debt by approximately $780 million to
approximately $5.3 billion and will not have any material debt principal
payments until 2008. Additionally, we have significantly reduced our cash
interest expense and eliminated financial covenants contained in the senior
secured credit facility."
Business Outlook
"While revenue growth for Level 3 and others in the industry remains challenging
in the near-term, we have completed a series of steps over the past few quarters
that positions us well," Crowe said. "We are not only able to take advantage of
future growth from increases in spending on communications services, but more
importantly, we are significantly increasing the size of Level 3's addressable
market from our new product launches, largely the voice market. As evidenced by
our results and activities this quarter, we are very focused on future growth
and current cash flow generation. I believe we have built a solid financial and
operational foundation upon which we can create significant value."
Quarterly and Full Year Projections
Sunit Patel said, "Our fourth quarter communications services revenue projection
reflects a continuation of recent revenue trends. Excluding a $10 million
benefit to SG&A in the third quarter, we expect to see an improvement in our
Consolidated EBITDA. Additionally, given the improvement in our cash flow
performance in the third quarter, we are projecting unlevered cash flow for the
full year 2003 of $125 million to $150 million, an increase of $25 million
relative to previous projections."
"In future quarters, we will not be issuing revenue projections for our
information services business given the continuing adoption of agency-type
licensing programs that make revenue trends less relevant in evaluating the
performance of this business. Now that the majority of our restructuring efforts
are completed, our overall focus in this business is on improving its EBITDA
performance," Patel continued.
"Additionally, we will be providing financial projections which emphasize GAAP
metrics in keeping with industry practice that has resulted from recently
enacted legislation."
Metric Fourth Quarter Full Year 2003(1)
($ in millions) Projections
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Communications Services Revenue $378-$388 $1,479-$1,489
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Reciprocal Compensation Revenue $28-$32 $132-$136
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Termination and Settlement Revenue $10-$16 $353-$359
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Communications Revenue $416-$436 $1,964-$1,984
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Information Services Revenue $450-$550 $1,884-$1,984
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Other Revenue $20 $76
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Consolidated Revenue $886-$1,006 $3,924-$4,044
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Consolidated EBITDA $110-$120 $738-$748
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Capital Expenditures $55 $197
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Unlevered Cash Flow ($30)-($55) $125-$150
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Communications Gross Margin 77%-79% 80%-82%
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(1) Full year is the sum of actual results through September 30, 2003 plus
fourth quarter projections.
Summary
"I am pleased with the continued improvement in our cash flows in the third
quarter," said Crowe. "I believe the new services we have launched and our
quarterly financial results demonstrate the competitive advantages inherent in
our network and the valuable service proposition we offer to our customer base."
Conference Call Information
Level 3 will hold a conference call to discuss the company's third quarter
results at 11 a.m. Eastern Time today. To join the call, please dial
612-326-1003. A live broadcast of the call can also be heard on Level 3's web
site at www.level3.com. An audio replay of the call will be accessible on the
company's web site or by dialing 320-365-3844; access code 696685.
(1) Non-GAAP 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,
communications gross margin, communications EBITDA margin, unlevered cash flow
and consolidated free cash flow. Management believes that Consolidated Adjusted
EBITDA is no longer a relevant metric to provide investors as the company has
repaid its credit facility in full and no longer has a total leverage covenant
based on Consolidated Adjusted EBITDA. As a result, the company will no longer
report Consolidated Adjusted EBITDA. 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 ($) divided by communications revenue. Management believes that
communications gross margin is a relevant metric to provide to investors, as it
is a metric that management uses to measure the margin available to the company
after it pays third party network services costs; in essence, a measure of the
efficiency of the company's network.
COMMUNICATIONS GROSS MARGIN ($ in millions)
Q203 Q303
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Communications Revenue $430 $413
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Communications Cost of Revenue $103 $91
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Communications Gross Margin ($) $327 $322
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Communications Gross Margin (%) 76% 78%
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EBITDA is defined by Level 3 as net income/(loss) from the consolidated
condensed statements of operations, less income/(loss) from discontinued
operations, less cumulative effect of change in accounting principle, less
income tax benefit, less interest income, less interest expense, less other
income/expense, less depreciation and amortization expense and less non-cash
compensation expense included within selling, general and administration expense
on the consolidated condensed statements of operations, and after reduction of
operating expenses by the non-cash portion of restructuring and impairment
charges.
Communications EBITDA Margin is defined as communications EBITDA divided by
communications revenue.
EBITDA is not a measurement under accounting principles generally accepted in
the United States and may not be similar to EBITDA measures of other companies.
Management believes that EBITDA and EBITDA margin are relevant metrics to
provide to investors, as they are indicators of operating performance,
especially in a capital-intensive industry such as telecommunications, since it
excludes items that are not directly attributable to ongoing business
operations. The company excludes non-cash compensation due to its adoption of
the expense recognition provisions of SFAS No. 123.
Consolidated EBITDA
Three Months Ended September 30, 2003
Communications Information Con-
($ in millions) Services Other solidated
- ---------------------------------------------------- ---------------- ---------------- ---------------- -----------------
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Net Income (Loss) ($246) ($16) $15 ($247)
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(Income) Loss from Discontinued Operations ($3) -- -- ($3)
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Income Tax Benefit -- -- ($12) ($12)
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Other (Income)/Expense $154 -- ($1) $153
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Depreciation and Amortization Expense $201 $7 $2 $210
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Non-cash Compensation Expense $14 $1 -- $15
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Non-cash Restructuring and Impairment -- -- -- --
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EBITDA $120 ($8) $4 $116
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Consolidated EBITDA
Three Months Ended June 30, 2003
Communications Information Con-
($ in millions) Services Other solidated
- --------------------------------------------------- ------------------ ---------------- ---------------- ----------------
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Net Income (Loss) ($455) ($17) $10 ($462)
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(Income) Loss from Discontinued Operations ($3) $9 -- $6
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Other (Income)/Expense $325 ($2) ($9) $314
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Depreciation and Amortization Expense $218 $9 $1 $228
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Non-cash Compensation Expense $24 $1 -- $25
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Non-cash Restructuring and Impairment -- -- -- --
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EBITDA $109 -- $2 $111
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Consolidated EBITDA
Three Months Ended March 31, 2003
Communications Information Con-
($ in millions) Services Other solidated
- ---------------------------------------------------- ---------------- ---------------- ---------------- -----------------
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Net Income (Loss) $47 ($4) $76 $119
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(Income) Loss from Discontinued Operations
($2) ($2) -- ($4)
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Cumulative Effect of Change in Accounting Principle
-- -- ($5) ($5)
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Other (Income)/Expense $131 -- ($70) $61
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Depreciation and Amortization Expense $199 $7 $1 $207
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Non-cash Compensation Expense $21 $2 -- $23
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Non-cash Restructuring and Impairment -- -- -- --
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EBITDA $396 $3 $2 $401
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Consolidated EBITDA
Nine Months Ended September 30, 2003
Communications Information Con-
($ in millions) Services Other solidated
- ---------------------------------------------------- ---------------- ---------------- ---------------- -----------------
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Net Income (Loss) ($654) ($37) $101 ($590)
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(Income) Loss from Discontinued Operations ($8) $7 -- ($1)
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Cumulative Effect of Change in Accounting Principle -- -- ($5) ($5)
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Income Tax Benefit -- -- ($12) ($12)
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Other (Income)/Expense $610 ($2) ($80) $528
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Depreciation and Amortization Expense $618 $23 $4 $645
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Non-cash Compensation Expense $59 $4 -- $63
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Non-cash Restructuring and Impairment -- -- -- --
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EBITDA $625 ($5) $8 $628
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COMMUNICATIONS EBITDA MARGIN
Q203 Q303
($ in millions)
- -------------------------------------------------------------- ------------- -------------
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Communications Revenue $430 $413
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Communications EBITDA $109 $120
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Communications EBITDA Margin 25% 29%
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Consolidated
Projected Consolidated EBITDA Range
Three Months Ended December 31, 2003
($ in millions)
- ---------------------------------------------------- -----------------------------------
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Low High
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Net Income (Loss) ($210) ($200)
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Other (Income)/Expense $95 $95
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Depreciation and Amortization Expense $205 $205
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Non-cash Compensation Expense $20 $20
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Non-cash Restructuring and Impairment -- --
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EBITDA $110 $120
- ---------------------------------------------------- ------------------ ----------------
Unlevered Cash Flow is defined as net cash provided by (used in) operating
activities less capital expenditures offset by release of capital expenditure
accruals, and adding back cash interest paid, less interest income all as
disclosed in the consolidated condensed statements of cash flows or the
consolidated condensed statements of operations. Management believes that
unlevered cash flow is a relevant metric to provide to investors, as it is an
indicator of the operational strength and performance of the company and, over
time, provides management and investors with a sense of the growth pattern of
the business.
Consolidated Free Cash Flow is defined as net cash provided by (used in)
operating activities less capital expenditures offset by release of capital
expenditure accruals as disclosed in the consolidated condensed statements of
cash flows. Management believes that consolidated free
cash flow is a relevant metric to provide to investors, as it is an indicator of
the company's ability to generate cash to service its debt.
UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended September 30, 2003
Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
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Net Change in Cash and Cash Equivalents $402 $402
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Effect of Exchange Rates on Cash ($2) ($2)
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Net Cash Used in Discontinued Operations $4 $4
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Net Cash Provided by Financing Activities ($346) ($346)
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Net Cash Used in Investing Activities $32 $32
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Net Cash Provided by Continuing Operations $90 $90
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Gross Capital Expenditures ($52) ($52)
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Release of Capital Expenditure Accruals $2 $2
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Cash Interest Paid $109 N/A
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Interest Income ($5) N/A
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Total $144 $40
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UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended June 30, 2003
Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
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Net Change in Cash and Cash Equivalents ($29) ($29)
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Effect of Exchange Rates on Cash ($1) ($1)
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Net Cash Provided by Discontinued Operations ($15) ($15)
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Net Cash Used in Financing Activities $10 $10
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Net Cash Used in Investing Activities $51 $51
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Net Cash Provided by Continuing Operations $16 $16
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Gross Capital Expenditures ($65) ($65)
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Release of Capital Expenditure Accruals $15 $15
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Cash Interest Paid $101 N/A
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Interest Income ($5) N/A
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Total $62 ($34)
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UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended March 31, 2003
Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
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Net Change in Cash and Cash Equivalents ($198) ($198)
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Effect of Exchange Rates on Cash ($2) ($2)
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Net Cash Provided by Discontinued Operations ($6) ($6)
- --------------------------------------------------------------------- -------------------- --------------------
- --------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Financing Activities $1 $1
- --------------------------------------------------------------------- -------------------- --------------------
- --------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Investing Activities $94 $94
- --------------------------------------------------------------------- -------------------- --------------------
- --------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Continuing Operations ($111) ($111)
- --------------------------------------------------------------------- -------------------- --------------------
- --------------------------------------------------------------------- -------------------- --------------------
Gross Capital Expenditures ($25) ($25)
- --------------------------------------------------------------------- -------------------- --------------------
- --------------------------------------------------------------------- -------------------- --------------------
Release of Capital Expenditure Accruals $6 $6
- --------------------------------------------------------------------- -------------------- --------------------
- --------------------------------------------------------------------- -------------------- --------------------
Cash Interest Paid $109 N/A
- --------------------------------------------------------------------- -------------------- --------------------
- --------------------------------------------------------------------- -------------------- --------------------
Interest Income ($5) N/A
- --------------------------------------------------------------------- -------------------- --------------------
- --------------------------------------------------------------------- -------------------- --------------------
Total ($26) ($130)
- --------------------------------------------------------------------- -------------------- --------------------
UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Nine Months Ended September 30, 2003
Consolidated
($ in millions) Unlevered Cash Flow Free Cash Flow
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Net Change in Cash and Cash Equivalents $175 $175
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Effect of Exchange Rates on Cash ($5) ($5)
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Net Cash Provided by Discontinued Operations ($17) ($17)
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Net Cash Provided by Financing Activities ($335) ($335)
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Net Cash Used in Investing Activities $177 $177
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Net Cash Used in Continuing Operations ($5) ($5)
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Gross Capital Expenditures ($142) ($142)
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Release of Capital Expenditure Accruals $23 $23
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Cash Interest Paid $319 N/A
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Interest Income ($15) N/A
- --------------------------------------------------------------------- --------------------- ------------------
- --------------------------------------------------------------------- --------------------- ------------------
Total $180 ($124)
- --------------------------------------------------------------------- --------------------- ------------------
PROJECTED CONSOLIDATED UNLEVERED CASH FLOW
Three Months Ended December 31, 2003
($ in millions)
Low High
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Change in Cash and Cash Equivalents ($356) ($343)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Effect of Exchange Rates on Cash -- --
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Provided by Discontinued Operations ($15) ($17)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Financing Activities $260 $265
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Investing Activities $35 $40
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Continuing Operations ($76) ($55)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Gross Capital Expenditures ($55) ($50)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Release of Capital Expenditure Accruals -- --
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Cash Interest Paid $80 $80
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Interest Income ($4) ($5)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Total ($55) ($30)
- -------------------------------------------------------------------- -------------------- --------------------
PROJECTED CONSOLIDATED UNLEVERED CASH FLOW
Twelve Months Ended December 31, 2003
($ in millions)
Low High
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Change in Cash and Cash Equivalents ($181) ($168)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Effect of Exchange Rates on Cash ($5) ($5)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Provided by Discontinued Operations ($32) ($34)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Provided by Financing Activities ($75) ($70)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Investing Activities $212 $217
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Continuing Operations ($81) ($60)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Gross Capital Expenditures ($197) ($192)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Release of Capital Expenditure Accruals $23 $23
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Cash Interest Paid $399 $399
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Interest Income ($19) ($20)
- -------------------------------------------------------------------- -------------------- --------------------
- -------------------------------------------------------------------- -------------------- --------------------
Total $125 $150
- -------------------------------------------------------------------- -------------------- --------------------
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 and infrastructure services, colocation services, and
patented Softswitch managed modem and voice services. Its Web address is
www.Level3.com.
The company offers information services through its subsidiaries, Software
Spectrum and (i)Structure. 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 and (3)Flex Ethernet, eRAS and
(3)VoIP MARKETPLACE are service marks 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.
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
September 30, June 30,
(dollars in millions) 2003 2003
Assets
Current Assets
Cash and cash equivalents $ 1,317 $ 915
Restricted cash 495 69
Accounts receivable, less allowances of $30 and $31, respectively 355 507
Other 119 139
--- ---
Total Current Assets 2,286 1,630
Property, Plant and Equipment, net 5,785 5,941
Restricted Cash 58 474
Intangibles and Goodwill 495 481
Other Assets, net 124 142
--- ---
$ 8,748 $ 8,668
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 497 $ 567
Current portion of long-term debt 750 125
Accrued payroll and employee benefits 148 146
Accrued interest 78 88
Deferred revenue 132 126
Other 205 214
--- ---
Total Current Liabilities 1,810 1,266
Long-Term Debt, less current portion 5,340 5,634
Deferred Revenue 919 938
Other Liabilities 529 548
Stockholders' Equity 150 282
--- ---
$ 8,748 $ 8,668
======= =======
LEVEL 3 COMMUNICATIONS, INC.
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(dollars in millions) 2003 2002 2003 2002
Revenue:
Communications $ 413 $ 274 $ 1,548 $ 828
Information Services 437 746 1,434 1,273
Other 24 29 56 84
Total Revenue 874 1,049 3,038 2,185
--- ----- ----- -----
Costs and Expenses:
Cost of Revenue 509 748 1,644 1,378
Depreciation and Amortization 210 200 645 600
Selling, General and Administrative, including non-cash
compensation of $15, $37, $63 and $154, respectively 250 228 795 721
Restructuring Charges, including noncash impairment
charges of $-, $-, $- and $44, respectively 14 3 34 50
-- - -- --
Total Costs and Expenses 983 1,179 3,118 2,749
Income (Loss) from Operations (109) (130) (80) (564)
Other Income (Loss), net
Interest Income 5 8 15 23
Interest Expense (156) (154) (439) (414)
Other Expense (2) (24) (104) 290
-- --- ---- ---
Other Income (Loss) (153) (170) (528) (101)
---- ---- ---- ----
Loss from Before Income Taxes (262) (300) (608) (665)
Income Tax Benefit 12 - 12 119
-- -- ---
Loss Before Change in Accounting Principle and Discontinued Operations
Discontinued Operations (250) (300) (596) (546)
Cumulative Effect of Change in Accounting Principle - - 5 -
Income from Discontinued Operations 3 1 1 1
- - - -
Net Loss $ (247) $ (299) $ (590) $ (545)
====== ====== ====== ======
Basic Earning (Loss) per Share:
Loss before Change in Accounting Principle and Discontinued Operations
Discontinued Operations $(0.38) $ (0.73) $ (1.12) $ (1.36)
Cumulative Effect of Change in Accounting Principle - - 0.01 -
Income from Discontinued Operations - - - -
---- ----- ----- -----
Net Loss $(0.38) $ (0.73) $ (1.11) $ (1.36)
======= ======= ======= =======
Weighted Average Shares Outstanding (in thousands)
Basic and Diluted 653,088 410,898 530,191 400,371
======= ======= ======= =======
LEVEL 3 COMMUNICATIONS, INC.
Consolidated State of Cash Flows
(dollars in millions)
(unaudited)
Three Months Ended Nine Months Ended
September 30, 2003 September 30, 2003
Cash Flows from Operating Activities:
Net Loss $ (247) $ (590)
Earnings from discontinued operations (3) (1)
Cumulative effect of change in accounting principle - (5)
-- --
Loss from continuing operations (250) (596)
Adjustments to reconcile loss from continuing operations to net
cash provided by operating activities:
Equity earnings, net (1) (3)
Depreciation and amortization 210 645
Induced conversion expense 10 200
Gain on debt extinguishments, net (2) (4)
Gain on sale of property, plant and equipment, toll-road operations
and other assets (3) (70)
Non-cash expense attributable to stock awards 15 63
Deferred revenue (13) (349)
Amortization of debt issuance costs 28 38
Accreted interest on long term discount debt 27 81
Accrued interest on long-term debt (8) 1
Changes in working capital items:
Receivables 151 172
Other current assets 3 50
Payables (70) (196)
Other liabilities (5) (34)
Other (2) (3)
-- --
Net Cash Provided by (Used in) Operating Activities 90 (5)
Cash Flows from Investing Activities:
Increase in restricted cash and securities, net (11) (9)
Capital expenditures (52) (142)
Release of capital expenditure accruals 2 23
Genuity acquisition - (144)
Investments and acquisitions (1) (2)
Proceeds from sale of toll-road operations - 46
Proceeds from sale of property, plant and equipment and other assets 30 51
-- --
Net Cash Used in Investing Activities (32) (177)
Cash Flows from Financing Activities:
Stock options exercised - 3
Long-term debt borrowings, net of issuance costs 361 361
Purchases of and payments on long-term debt, including current portion (15) (29)
--- ---
Net Cash Provided by Financing Activities 346 335
Net Cash Provided by (Used in) Discontinued Operations (4) 17
Effect of Exchange Rates on Cash 2 5
--- ---
Net Change in Cash and Cash Equivalents 402 175
Cash and Cash Equivalents at Beginning of Period 915 1,142
--- -----
Cash and Cash Equivalents at End of Period $ 1,317 $ 1,317
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash interest paid $ 109 $ 319