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 First Quarter Results
Reaffirms Full Year 2004 Business Outlook
Reports Communications Revenue of $389 Million For The First Quarter
Announced Launch of Consumer VoIP Services;
Acquired ICG's Dial Access Business
Expects Debt Reduction of Approximately $245 Million In Second Quarter
BROOMFIELD, Colo., April 29, 2004 - Level 3 Communications, Inc. (Nasdaq:LVLT)
today announced its first quarter results. Consolidated revenue was $899 million
for the first quarter compared to $988 million for the fourth quarter 2003.
Communications revenue was $389 million versus $399 million for the previous
quarter, and information services revenue was $494 million compared to the
seasonally strong fourth quarter revenue of $565 million.
Consolidated Adjusted OIBDA(1) was $128 million in the first quarter 2004, which
exceeded the projection of $110 million - $120 million and compares to $129
million for the previous quarter. The net loss for the first quarter 2004
increased to $147 million or $0.22 per share compared to a net loss for the
previous quarter of $121 million or $0.18 per share. Included in the net loss
for the first quarter 2004 was a $23 million gain on the sale of the company's
remaining investment in Commonwealth Telephone Enterprises, Inc., or $0.03 per
share. Included in the net loss for the previous quarter was a $37 million gain
on extinguishment of debt and a $38 million tax benefit.
Overview
"Despite a challenging market environment, we are pleased with our market share
gains and customer wins, including the government sector, as well as our
improved operating margins in the first quarter," said James Q. Crowe, CEO of
Level 3. "Consistent with the past few quarters, Level 3 continues to focus on
launching new services and is gaining momentum in our addressable markets. We
are encouraged by the initial response from our distribution partners and their
customers, and expect to benefit from the continued migration of voice from
traditional circuit-switched services to softswitch-based VoIP services."
First Quarter Financial Results Compared to Projections (1)
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Metric First Quarter Actuals First Quarter
($ in millions) Projections (1)
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Communications Services Revenue (2) (excluding termination $359
and settlement revenue)
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Reciprocal Compensation $23
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Termination and Settlement Revenue $7
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Communications Revenue $389 $380-$400
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Information Services Revenue $494
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Other Revenue $16
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Consolidated Revenue $899
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Consolidated Adjusted OIBDA (3)(4) $128 $110-$120
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Capital Expenditures (5) $48 $65
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Unlevered Cash Flow (4) $44
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Communications Gross Margin (4) 79%
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(1) Projections issued February 5, 2004
(2) Communications Services Revenue is GAAP communications revenue minus
reciprocal compensation revenue
(3) Consolidated Adjusted OIBDA includes $2 million in restructuring charges
and excludes $9 million in stock-based compensation expense
(4) See schedule of non-GAAP metrics for definition and reconciliation to GAAP
measures
(5) Gross capital expenditures were $52 million for the quarter and accrual
reversals were $4 million
Consolidated Cash Flow and Liquidity
During the first quarter 2004, unlevered cash flow(1) was $44 million, versus
$57 million during the fourth quarter. Consolidated free cash flow for the first
quarter was negative $40 million, versus negative $15 million for the previous
quarter.
As of March 31, 2004, the company had cash and cash equivalents of approximately
$1.1 billion, which was unchanged from December 31, 2003.
"Our consolidated free cash flow for the first quarter is in line with our
expected increase in capital expenditures to support previously won customer
contracts and working capital needs during the quarter," said Sunit Patel, CFO
of Level 3.
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Communications Business
Revenue
Communications revenue for the first quarter 2004 was $389 million, versus $399
million for the previous quarter. Total communications revenue for the first
quarter consisted of $366 million of communications services revenue and $23
million of reciprocal compensation revenue, compared to $376 million and $23
million in the fourth quarter.
Included in communications services revenue was $7 million and $3 million of
settlement and termination revenue for the first and fourth quarters,
respectively.
Communications services revenue, excluding settlement and termination revenue,
decreased by $14 million quarter over quarter. This decline is primarily a
result of expected, previously disclosed price decreases in managed modem
related revenue during the first quarter 2004.
The communications deferred revenue balance increased by $17 million from
December 31, 2003, primarily as a result of sales to the government sector and
systems integrators.
Cost of Revenue
Communications cost of revenue for the first quarter was $81 million versus cost
of revenue of $87 million for the previous quarter. Communications gross
margin(1) was 79 percent for the first quarter compared to 78 percent in the
fourth quarter. Communications cost of revenue decreased in the first quarter
primarily due to reduced network expenses associated with the Genuity
integration.
Selling, General and Administrative Expenses (SG&A)
Communications SG&A expenses decreased to $201 million for the first quarter,
versus $214 million for the previous quarter. For the same periods,
communications SG&A expenses include $9 million and $19 million of non-cash
stock compensation expenses respectively.
The total number of employees in the communications business increased by
approximately 100 during the first quarter to approximately 3,380 primarily as a
result of the hiring of additional sales personnel during the quarter.
Adjusted Operating Income Before Depreciation and Amortization (OIBDA)
Adjusted OIBDA(1) for the communications business increased to $116 million for
the first quarter from $110 million for the previous quarter. Communications
Adjusted OIBDA margin(1) was 30 percent for the first quarter versus 28 percent
in the previous quarter.
Communications Adjusted OIBDA for the first quarter excludes $9 million in
non-cash stock compensation expense. Communications Adjusted OIBDA for the
fourth quarter included $7 million in restructuring charges and excluded $19
million in non-cash stock compensation expense.
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Information Services Business
Results for the information services business include the Software Spectrum and
(i)Structure subsidiaries.
Revenue and Adjusted Operating Income before Depreciation and Amortization
(OIBDA)
Information services revenue was $494 million for the first quarter, versus $565
million for the previous quarter and included $4 million of termination revenue
at (i)Structure. The decrease in revenue for the first quarter is due to
seasonality in the company's Software Spectrum business.
Adjusted OIBDA(1) for the information services business was $11 million for the
first quarter, including $2 million in restructuring charges, compared to $15
million for the previous quarter, which included $4 million in restructuring
charges and excluded $4 million in non-cash stock compensation expense.
"As expected, revenue for our information services business declined due to
typical seasonality between the fourth and first quarter and continued adoption
of agency type agreements," said Charles C. Miller, vice chairman of Level 3.
"We continue to focus on improving operational efficiency and gaining the
benefits of integrating previous acquisitions."
The total number of employees in the information services business decreased to
approximately 1,310 at the end of the first quarter from approximately 1,375 at
the end of the previous quarter.
Other Businesses
The company's other businesses consist primarily of coal mining operations.
Revenue and Adjusted OIBDA
Revenue and Adjusted OIBDA(1) from other businesses were $16 million and $1
million in the first quarter compared to $24 million and $4 million for the
previous quarter.
Corporate Transactions
Acquisitions
As recently announced, Level 3 acquired the managed modem business of ICG
Communications, Inc. in April 2004 for approximately $35 million in cash. The
business provides dial-up Internet access to America Online, EarthLink, MSN,
United Online and other ISPs. The company expects the acquisition to add
incremental revenue of approximately $35 million in 2004.
Termination of Vendor Agreement
Subsequent to the end of the first quarter, the company closed its previously
announced settlement to terminate its vendor agreement with Allegiance Telecom.
The company paid $54 million in cash to terminate its obligation to use certain
managed modem assets through December 2006, including the use of operating
equipment. The termination of this contract eliminates $213 million in capital
lease obligations.
Debt Reduction
As a result of the company's termination of its vendor agreement with Allegiance
and expected principal payments on capital leases during the second quarter,
capital lease obligations are expected to decrease by approximately $245 million
during the second quarter from a balance of $268 million at March 31, 2004.
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"In addition to meeting the company's cash return criteria, both transactions
further expand the company's local interconnection footprint, which is key to
providing cost effective VoIP services," said Kevin O'Hara, president and COO of
Level 3.
New Service Offerings
"A primary focus for the company this year is deploying new services that
leverage Level 3's existing network infrastructure and address large,
established markets for communications services, particularly in the voice
market," said O'Hara. "With the addition of our consumer-oriented VoIP services
announced during the quarter, Level 3's overall addressable market has nearly
tripled over the last year to approximately $100 billion.
"Given the continued adoption of broadband, as well as the continued
improvements in VoIP technology, the voice market is moving from traditional
circuit-switched voice services to softswitch-based voice services, or VoIP. We
believe this is a great opportunity for Level 3 as we offer high-quality,
cost-effective VoIP services with enhanced functionality over our extensive
softswitch platform and local interconnections that reach over 93 percent of the
U.S. population."
Softswitch Services
The company currently offers wholesale VoIP services aimed at service providers
and businesses, and recently announced two new wholesale services aimed at
residential users. These new services are expected to serve more than 300 of the
largest U.S. markets by the end of 2004.
(3)VoIPSM Enhanced Local Service is targeted towards cable operators, enhanced
service providers, IXCs and others who currently operate their own switching
infrastructure, but want to deploy residential voice services cost effectively
with minimal involvement in local interconnection issues.
The service enables VoIP providers the flexibility to select from a number of
functionalities, including: local and long distance calling, access to the
traditional telephone network (PSTN), local phone numbers, operator assistance,
directory listings, E911 emergency and local number portability.
HomeToneSM is a turnkey VoIP residential service offering local and long
distance capabilities. Along with the features of (3)VoIP Enhanced Local
Service, HomeTone also includes additional features such as voice mail, call
waiting, caller ID, three-way conferencing, unified messaging, personal locator
service, and end-user Web-based account management. HomeTone will be sold
through distribution partners including ISPs, cable operators, and enhanced
service providers.
"We believe that VoIP represents a significant opportunity for Level 3," said
O'Hara. "Our extensive softswitch platform, which handles over 25 billion
minutes of traffic per month, is a significant competitive advantage."
Transport and Infrastructure Services During the first quarter, the company
launched two new metropolitan transport services, (3)Link(R) Metro Wavelength
and (3)Link(R) Metro Ethernet, in its 36 metropolitan cities. These new services
are complementary to the company's existing metropolitan offerings including
private line and dark fiber.
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Business Outlook
"In our fourth quarter earnings release, we announced that our largest managed
modem customer, AOL, had preliminarily notified the company of its intent to
significantly reduce overall purchases of dial-up capacity ports and to
proportionately reduce purchases from the company," said Crowe. "We have now
finalized the terms of the reduction in ports and pricing modifications and
agreed to related amendments to our agreements with AOL. Based on these
agreements we expect, beginning in the third quarter, to reduce ports provided
to AOL by approximately one-third.
"The expected decline in 2004 managed modem revenue is a function of reduced
pricing and a greater than proportionate decline in our dial-up capacity
relative to the subscriber declines in the U.S. narrowband market. Over time,
the company continues to expect its managed modem business to decline in line
with the ongoing consumer shift from narrowband to broadband as well as
continued pricing compression. "Including the expected effects of all port
reductions and price compression in our managed modem business, but excluding
the positive effect of revenue from the acquisition of ICG's managed modem
business, the company is reaffirming its business outlook for 2004."
"This quarter, we are pleased to report industry leading Communications Adjusted
OIBDA margins of 30 percent," Crowe said. "We expect second quarter
Communications Adjusted OIBDA margins to decline to approximately 20 percent
primarily as a result of network and integration expenses associated with the
acquisition of ICG's managed modem business.
"Additionally, in accordance with GAAP, the addition of Allegiance's managed
modem assets result in a reduction of debt and an increase in our network
expenses, and therefore does not result in an improvement in our operating
results until the integration is complete.
"Taking into account expected overall operational performance, including the
effects of both transactions, we expect Communications Adjusted OIBDA margins to
improve to the mid-20 percent range for the third quarter and to the high-20
percent range by year-end.
"These expected improvements in margins, together with our previously announced
projection that we will experience a return to growth in communications revenue
in the latter part of this year, are a result of the company's new service
initiatives and the tripling of our addressable market to approximately $100
billion."
Page 6
Second Quarter 2004
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Metric Second Quarter
($ in millions) Projections
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Communications Revenue $375-$395
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Consolidated Adjusted OIBDA $80-$90
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Capital Expenditures $70
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"Our projection for second quarter communications revenue reflects the benefit
of additional revenue from the ICG acquisition offset by expected reductions in
revenue from our existing managed modem business from pricing and other
factors," said Patel.
Consolidated Adjusted OIBDA is expected to decline to $80 million - $90 million
in the second quarter primarily as a result of additional network expense
related to the termination of the Allegiance vendor agreement, which shifts
approximately $9 million of capital lease principal payments and interest
expense to network expenses, as well as expenses associated with the integration
of ICG managed modem traffic, and an expected increase in sales, marketing and
promotion expenses. The company expects to achieve network expense synergies
from both the Allegiance and ICG transactions in the second half of 2004, with
corresponding improvements in Communications Adjusted OIBDA margins back to
recently reported levels. Revenue from the ICG acquisition in the second quarter
is expected to be offset by an equal amount of network expense and therefore
does not contribute to Communications Adjusted OIBDA until the latter half of
2004.
Capital expenditures are expected to increase to approximately $70 million in
the second quarter as the company continues investing in previously announced
service initiatives and network build-out related to previously awarded
contracts.
Summary
"I am pleased with our successes in the marketplace during the first quarter,
including our government channel, and the increased pace of new services
introduction," said Crowe. "We remain encouraged by the discussions and market
trials we are having with our customers for VoIP services.
"While the communications marketplace certainly remains challenging, we continue
to believe the combination of our new services and increased addressable market,
together with our strong liquidity and solid balance sheet, put us in a strong
competitive position."
Conference Call Information
Level 3 will hold a conference call to discuss the company's first quarter
results at 11 a.m. Eastern Time today. To join the call, please dial
612-326-1011. 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 724885.
Page 7
(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
Consolidated Adjusted OIBDA, communications gross margin, Communications
Adjusted OIBDA 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 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)
Q403 Q104
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Communications revenue $399 $389
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Communications cost of revenue $87 $81
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Communications Gross Margin ($) $312 $308
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Communications Gross Margin (%) 78% 79%
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Consolidated Adjusted OIBDA is defined as operating income from the consolidated
condensed statements of operations, plus depreciation and amortization plus
non-cash impairment charges plus non-cash stock compensation expense.
Communications Adjusted OIBDA Margin is defined as Communications Adjusted OIBDA
divided by communications revenue.
Management believes that Consolidated Adjusted OIBDA and Communications Adjusted
OIBDA Margins are relevant and useful metrics to provide to investors, as they
are an important part of the company's internal reporting and are indicators of
profitability and operating performance, especially in a capital-intensive
industry such as telecommunications. Management also uses Consolidated Adjusted
OIBDA and Communications Adjusted OIBDA Margins to compare the company's
performance to that of its competitors. Consolidated Adjusted OIBDA excludes
non-cash impairment charges and non-cash stock compensation expense due to the
company's adoption of the expense recognition provisions of SFAS No. 123.
Additionally, Consolidated Adjusted OIBDA excludes interest expense and income
tax expense and other gains/losses not included in operating income. Excluding
these items eliminates the expenses associated with the company's capitalization
and tax structures. Consolidated Adjusted OIBDA excludes depreciation and
amortization expense in order to eliminate the impact of capital investments
which management believes should be evaluated through consolidated free cash
flow.
There are limitations to using non-GAAP financial measures, including the
difficulty associated with comparing companies that use similar performance
measures whose calculations may differ from the company's calculations.
Additionally, this financial measure does not include certain significant items
such as depreciation and amortization, interest expense and non-cash impairment
charges. Consolidated Adjusted OIBDA and Communications Adjusted OIBDA Margin
should not be considered a substitute for other measures of financial
performance reported in accordance with GAAP.
Consolidated Adjusted OIBDA
Three Months Ended March 31, 2004 Communications Information Con-
($ in millions) Services Other solidated
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Net Earnings/(Loss) ($175) $5 $23 ($147)
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Income Tax (Benefit)/Expense -- -- $1 $1
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Plus Other (Income)/Expense $111 ($1) ($24) $86
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Operating Income/(Loss) ($64) $4 -- ($60)
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Plus Depreciation and Amortization Expense $171 $7 $1 $179
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Plus Non-Cash Stock Compensation Expense $9 -- -- $9
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Consolidated Adjusted OIBDA $116 $11 $1 $128
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Consolidated Adjusted OIBDA
Three Months Ended December 31, 2003 Communications Information Con-
($ in millions) Services Other solidated
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Net Earnings/(Loss) ($166) $4 $41 ($121)
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Income from Discontinued Operations ($4) -- -- ($4)
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Income Tax (Benefit)/Expense -- $1 ($39) ($38)
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Plus Other (Income)/Expense $87 -- -- $87
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Operating Income/(Loss) ($83) $5 $2 ($76)
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Plus Depreciation and Amortization Expense $174 $6 $2 $182
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Plus Non-Cash Stock Compensation Expense $19 $4 -- $23
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Consolidated Adjusted OIBDA $110 $15 $4 $129
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Communications Adjusted OIBDA Margin
($ in millions) Q403 Q104
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Communications revenue $399 $389
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Communications Adjusted OIBDA $110 $116
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Communications Adjusted OIBDA Margin 28% 30%
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Consolidated
Projected Consolidated Adjusted OIBDA Range
Three Months Ended June 30, 2004
($ in millions)
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Low High
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Net Earnings/(Loss) ($230) ($205)
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Plus Other (Income)/Expense $120 $110
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Operating Income/(Loss) ($110) ($95)
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Plus Depreciation and Amortization Expense $180 $175
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Plus Non-Cash Stock Compensation Expense $10 $10
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Consolidated Adjusted OIBDA $80 $90
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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,
measured over time, provides management and investors with a sense of the growth
pattern of the business.
There are material limitations to using unlevered cash flow to measure the
company against some of its competitors as it excludes certain material items
such as cash spent on merger and
Page 10
acquisition activity and interest expense. Level 3 does not currently pay income
taxes due to net operating losses, and therefore, generates higher cash flow
than a comparable business that does pay income taxes. Additionally, this
financial measure is subject to variability quarter over quarter as a result of
the timing of payments related to accounts receivable and accounts payable.
Unlevered cash flow should not be used as a substitute for net change in cash
and cash equivalents on the consolidated condensed statements of cash flows.
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.
There are material limitations to using consolidated free cash flow to measure
the company against some of its competitors as Level 3 does not currently pay
income taxes due to net operating losses, and therefore, generates higher cash
flow than a comparable business that does pay income taxes. Additionally, this
financial measure is subject to variability quarter over quarter as a result of
the timing of payments related to accounts receivable and accounts payable. This
financial measure should not be used as a substitute for net change in cash and
cash equivalents on the consolidated condensed statements of cash flows.
UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended March 31, 2004 Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
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Net Cash Provided by Continuing Operations $8 $8
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Gross Capital Expenditures ($52) ($52)
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Release of Capital Expenditure Accruals $4 $4
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Cash Interest Paid $87 N/A
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Interest Income ($3) N/A
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Total $44 ($40)
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UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended December 31, 2003 Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
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Net Cash Provided by Continuing Operations $29 $29
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Gross Capital Expenditures ($49) ($49)
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Release of Capital Expenditure Accruals $5 $5
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Cash Interest Paid $75 N/A
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Interest Income ($3) N/A
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Total $57 ($15)
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Consolidated
PROJECTED CONSOLIDATED FREE CASH FLOW Range
Twelve Months Ended December 31, 2004
($ in millions)
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Low High
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Net Cash Provided by Continuing Operations $70 $100
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Gross Capital Expenditures ($254) ($304)
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Release of Capital Accruals $4 $4
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Total ($180) ($200)
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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, (3)Link Metro Wavelength and (3)Link Metro Ethernet are
registered service marks and (3)VoIP Enhanced Local Service and HomeTone 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.
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[logo]
ATTACHMENT #1
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
Three Months Ended
March 31, December 31,
(dollars in millions) 2004 2003
Revenue:
Communications $ 389 $ 399
Information Services 494 565
Other 16 24
-- --
Total Revenue 899 988
Costs and Expenses:
Cost of Revenue 543 620
Depreciation and Amortization 179 182
Selling, General and Administrative, including non-cash
compensation of $9 and $23, respectively 235 251
Restructuring Charges, including noncash impairment
charges of $-, and $-, respectively 2 11
- --
Total Costs and Expenses 959 1,064
--- -----
Operating Income (Loss) (60) (76)
Other Income (Loss), net
Interest Income 3 3
Interest Expense (127) (128)
Other Income 38 38
-- --
Other Income (Loss) (86) (87)
--- ---
Loss Before Income Taxes (146) (163)
Income Tax (Expense) Benefit (1) 38
-- --
Loss Before Discontinued Operations (147) (125)
Income From Discontinued Operations - 4
- -
Net Loss $ (147) $ (121)
====== ======
Basic Earnings (Loss) per Share:
Loss Before Discontinued Operations $ (0.22) $ (0.19)
Income From Discontinued Operations - 0.01
---- ----
Net Loss $ (0.22) $ (0.18)
======= =======
Weighted Average Shares Outstanding (in thousands)
Basic 679,991 671,992
======= =======
(c) 2004 by Level 3 Communications, Inc. All rights reserved.
Page 13
[logo]
ATTACHMENT #2
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
March 31, December 31,
(dollars in millions) 2004 2003
Assets
Current Assets
Cash and cash equivalents $ 1,161 $ 1,129
Marketable securities - 42
Restricted securities 47 74
Accounts receivable, less allowances of $26 and $28, respectively 429 561
Other 110 140
--- ---
Total Current Assets 1,747 1,946
Property, Plant and Equipment, net 5,598 5,727
Restricted Securities 63 61
Intangibles, net and Goodwill 445 459
Other Assets, net 99 100
-- ---
$ 7,952 $ 8,293
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 510 $ 651
Current portion of long-term debt 103 125
Accrued payroll and employee benefits 94 135
Accrued interest 118 100
Deferred revenue 154 189
Other 220 231
--- ---
Total Current Liabilities 1,199 1,431
Long-Term Debt, less current portion 5,276 5,250
Deferred Revenue 970 954
Other Liabilities 476 477
Stockholders' Equity 31 181
-- ---
$ 7,952 $ 8,293
======= =======
(c) 2004 by Level 3 Communications, Inc. All rights reserved.
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[logo]
ATTACHMENT #3
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
March 31, December 31,
(dollars in millions) 2004 2003
Cash Flows from Operating Activities:
Net Loss $ (147) $ (121)
Income from discontinued operations - (4)
- --
Loss before discontinued operations (147) (125)
Adjustments to reconcile loss before discontinued operations to net cash
provided by continuing operations:
Depreciation and amortization 179 182
Gain on sale of property, plant and equipment, and other assets (32) (4)
Gain on debt extinguishments, net - (37)
Non-cash compensation expense attributable to stock awards 9 23
Deferred revenue (16) 82
Amortization of debt issuance costs 4 4
Accreted interest on discount debt 18 25
Accrued interest on long-term debt 18 24
Deferred income taxes - (45)
Changes in working capital items net of amounts acquired:
Receivables 121 (198)
Other current assets 30 (21)
Payables (136) 141
Other liabilities (35) (14)
Other (5) (8)
-- --
Net Cash Provided by Continuing Operations 8 29
Cash flows from Investing Activities:
Decrease in restricted cash and securities, net 25 18
Capital expenditures (52) (49)
Release of capital expenditure accruals 4 5
Proceeds from sale of Commonwealth Telephone 41 -
Proceeds from sale of property, plant and equipment 9 7
Genuity acquisition - 35
-- --
Net Cash Provided by Investing Activities 27 16
Cash Flows from Financing Activities:
Purchases of and payments on long-term debt, including current portion (1) (743)
Long-term debt borrowings, net of issuance costs - 487
-- ---
Net Cash Used in Financing Activities (1) (256)
Net Cash Provided by Discontinued Operations - 20
Effect of Exchange Rates on Cash (2) 3
-- -
Net Change in Cash and Cash Equivalents 32 (188)
Cash and Cash Equivalents at Beginning of Year 1,129 1,317
----- -----
Cash and Cash Equivalents at End of Period $ 1,161 $ 1,129
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash interest paid $ 87 $ 75
(c) 2004 by Level 3 Communications, Inc. All rights reserved.
Page 15