Exhibit 99.1
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
Reports Communications Revenue of $423 Million
Continued Success With Customer Contracts During Quarter;
Increasing Investment in Network
BROOMFIELD, Colo., October 27, 2004 - Level 3 Communications, Inc. (Nasdaq:LVLT)
today announced its third quarter results. Consolidated revenue was $840 million
for the third quarter compared to $918 million for the second quarter 2004.
Communications revenue was $423 million versus $391 million for the previous
quarter, and information services revenue was $392 million compared to $503
million for the previous quarter.
The net loss for the third quarter 2004 increased to $171 million, or $0.25 per
share, compared to a net loss for the previous quarter of $63 million, or $0.09
per share. Included in the net loss for the previous quarter was a $147 million
gain associated with the elimination of a capital lease obligation due to the
termination of a vendor contract. Consolidated Adjusted OIBDA(1) was $129
million in the third quarter 2004, which exceeded the projection of $100 million
to $120 million and compares to $94 million for the previous quarter.
Approximately $67 million in reciprocal compensation and $4 million of
communications service revenue was recognized in the third quarter as a result
of an agreement signed with a local carrier.
Overview
"During the third quarter, we experienced rising demand and new contract awards
for our communications services offerings, particularly for VoIP services," said
James Q. Crowe, CEO of Level 3.
Third Quarter Financial Results Compared to Projections (1)
Metric Third Quarter Actuals Third Quarter
($ in millions) Projections (1)
Communications Services Revenue (2) (excluding termination $344
and settlement revenue)
Reciprocal Compensation $78
Termination and Settlement Revenue $1
Communications Revenue $423 $400-$420
Information Services Revenue $392
Other Revenue $25
Consolidated Revenue $840
Consolidated Adjusted OIBDA (3)(4) $129 $100-$120
Capital Expenditures (5) $82 $85
Unlevered Cash Flow (4) ($14)
Free Cash Flow (4) ($98)
Communications Gross Margin (4) 72%
(1) Projections issued July 28, 2004
(2) Communications Services Revenue is GAAP communications revenue minus
reciprocal compensation revenue
(3) Consolidated Adjusted OIBDA excludes $10 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 $84 million for the quarter and accrual
reversals were $2 million
Consolidated Cash Flow and Liquidity
During the third quarter 2004, unlevered cash flow(1) was negative $14 million,
versus positive $15 million during the second quarter. Consolidated free cash
flow for the third quarter was negative $98 million, versus negative $109
million for the previous quarter.
As of September 30, 2004, the company had cash and marketable securities of $856
million compared to $957 million at June 30, 2004.
"Our unlevered cash flow declined quarter over quarter primarily due to working
capital fluctuations in the information services business, lower managed modem
revenue and increased capital expenditures in our communications business," said
Sunit Patel, CFO of Level 3. "Our consolidated free cash flow improved primarily
due to a decrease in cash interest payments. Additionally, we saw the benefit of
decreased network expense associated with the integration of the ICG, Allegiance
and KMC dial-up networks. We expect to see further benefits from decreases in
network expense in future periods."
2
Communications Business
Revenue
Communications revenue for the third quarter 2004 was $423 million, versus $391
million for the previous quarter. Total communications revenue for the third
quarter consisted of $345 million of communications services revenue and $78
million of reciprocal compensation revenue, compared to $365 million and $26
million in the second quarter. Approximately $67 million of reciprocal
compensation and $4 million of communications services revenue was recognized in
the third quarter as a result of an agreement signed with a local phone company,
of which $48 million in cash had been received in prior periods.
Included in communications services revenue was $1 million and $2 million of
termination revenue for the third and second quarters, respectively.
Communications services revenue decreased by $20 million quarter over quarter
primarily due to an expected reduction in revenue from one large dial-up access
customer partially offset by increases in voice and IP & Data services revenue.
Quarter ended Quarter ended June Percent
Communications Revenue ($ in millions) September 30, 2004 30, 2004 Change
Transport and Infrastructure $115 $118 (2.5%)
Softswitch $124 $146 (15.1%)
IP & Data Services $106 $101 5.0%
Communications Services Revenue $345 $365 (5.5%)
Reciprocal Compensation $78 $26 200.0%
Communications Revenue $423 $391 8.2%
The communications deferred revenue balance increased by $15 million during the
quarter.
Cost of Revenue
Communications cost of revenue for the third quarter was $116 million versus
$119 million for the previous quarter. Communications gross margin(1) was 72
percent for the third quarter compared to 70 percent in the second quarter. The
improvement in communications gross margin is primarily attributable to the
increase in reciprocal compensation revenue in the third quarter. Communications
cost of revenue decreased in the third quarter primarily due to expected
decreases in network expenses associated with the ICG acquisition and the
termination and renegotiation of vendor agreements with Allegiance and KMC
Telecom.
Selling, General and Administrative Expenses (SG&A)
Communications SG&A expenses were $204 million for the third quarter, versus
$202 million for the previous quarter. Communications SG&A expenses include $10
million of non-cash stock compensation expense in the third quarter and $9
million in the second quarter. For both periods, SG&A expenses include a $4
million reduction associated with property taxes.
The total number of employees in the communications business increased to
approximately 3,540 during the third quarter from approximately 3,500 in the
second quarter.
3
Adjusted Operating Income Before Depreciation and Amortization (OIBDA)
Adjusted OIBDA(1) for the communications business increased to $113 million for
the third quarter from $79 million for the previous quarter. Communications
Adjusted OIBDA margin(1) was 27 percent for the third quarter versus 20 percent
in the previous quarter. This increase in Communications Adjusted OIBDA was
primarily the result of the expected increase in revenue from reciprocal
compensation as previously described.
Communications Adjusted OIBDA excludes non-cash stock compensation expense of
$10 million in the third quarter and $9 million in the second quarter.
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 $392 million for the third quarter. This
compares to revenue of $503 million for the previous quarter and $437 million
for the same period last year. An increase in agency-type sales in the third
quarter of 2004 resulted in the decline from the same period in 2003. The value
of software sold in the third quarter of 2004 was consistent with that sold in
the same period last year, but in accordance with GAAP treatment of agency sales
agreements, the company recognizes a service fee as revenue instead of the full
value of the software sold.
Adjusted OIBDA(1) for the information services business was $9 million for the
third quarter, compared to $11 million for the previous quarter which excluded
$1 million in non-cash stock compensation expense. For the same period last
year, Adjusted OIBDA was negative $8 million, which included $11 million in
restructuring charges and excluded $1 million in non-cash stock compensation
expense.
"We are pleased with the performance of our information services business and
the continued strength in the global software market," said Charles C. Miller,
vice chairman of Level 3. "The reduction in third quarter revenue compared to
the previous quarter is a result of normal seasonality."
The total number of employees in the information services business increased to
approximately 1,325 at the end of the third quarter from approximately 1,300 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 $25 million and $7
million in the third quarter compared to $24 million and $4 million for the
previous quarter. Adjusted OIBDA for the third quarter includes approximately $5
million in insurance proceeds from environmental claim payments.
4
New Customer Contracts
"We signed and announced a number of new customer contracts during the quarter,
and are particularly encouraged by the strong interest we're seeing for our new
wholesale and consumer VoIP services, and for our IP VPN services," said Kevin
O'Hara, president and COO. "In addition, Level 3 has recently been awarded
several large unannounced transport and infrastructure and VoIP service
contracts by cable operators, wireless companies and local and long-haul
carriers."
Among the more significant announcements made during the quarter were a major IP
VPN agreement with CSC, VoIP agreements with Charter and Skype, transport
agreements with Chunghwa Telecom and Adelphia, and a colocation agreement with
EarthLink. More recently, Level 3 announced a major IP VPN contract with
Northrop Grumman and a significant IP transit agreement with NTL.
"We are pleased that we've seen strong interest in our services from customers
and that our capabilities are being included in their service offerings," said
O'Hara. "As we have mentioned previously, there is a fair amount of
interconnection work and systems integration between Level 3 and our partners
that must be accomplished before we begin to generate revenue under these
contracts. Revenue growth from new customer contracts will also be a function of
our customers' success in the marketplace and their overall rollout schedules."
Corporate Transactions
As previously announced, the company acquired Sprint's wholesale dial-up
business on October 1, 2004, for $34 million in cash. Most customer contracts
were not assigned at closing, and the company expects assumption or assignment
of these contracts for a majority of customers before the end of the year. Until
such time as a customer contract is assumed or assigned, amounts received for
services provided by Sprint are accounted for as a reduction in purchase price.
While dependent upon the timing of the assumption or assignment of customer
contracts, the company expects to recognize approximately $5 million in revenue
from this transaction in the fourth quarter 2004 and approximately $35 million
in revenue in 2005. The company expects to migrate customers to the Level 3
network by mid-2005.
Regulatory Events/Reciprocal Compensation
The company recognizes reciprocal compensation revenue for compensable minutes
of ISP-bound traffic that is terminated on Level 3's network for its dial-up
internet access customers. Reciprocal compensation is collected either under a
negotiated interconnection agreement signed with a carrier, or under the FCC's
mandated regime.
FCC Regime
In October 2004, the FCC approved certain aspects of a forbearance petition
filed by Core Communications in July 2003. Specifically, the FCC lifted
ISP-bound traffic growth caps and new market exclusion. The FCC rate cap of
$.0007 did not change in this order. Certain of the company's interconnection
agreements contain language that supersedes this order.
5
Certain ISP-bound traffic that is terminated on the Level 3 network is expected
to be subject to the FCC's ISP Remand Order, which has been pending at the FCC
for two years. The FCC has indicated that it will rule on the ISP Remand Order
soon. The ruling is expected to address, among other things, the FCC's basis for
asserting jurisdiction over ISP-bound traffic.
Once the FCC has ruled on the ISP Remand Order, the company will determine the
impact of that decision on its current interconnection agreements. If an
agreement contains a change-of-law provision, a party can invoke the
change-of-law clauses to modify the terms of that agreement. If there is no
change-of-law provision in the agreement, the previously negotiated terms will
stay in place until expiration of the agreement. When an agreement expires, the
parties would default to the FCC rules on ISP-bound traffic.
Verizon Interconnection Agreement
During the quarter, the company signed an amendment to its existing
Interconnection Agreement with Verizon Communications. Under the amendment,
which was retroactive to April 1, 2004, the intercarrier compensation rate for
local, ISP-bound traffic was set at $.0005 for year 2004, $0.00045 for year
2005, and $.0004 for year 2006. The amendment expires in December 2006 and is
not subject to change in law.
In general, Level 3 prefers negotiated interconnection agreements to arbitrated
agreements given the uncertainty in the regulatory environment. The company
believes that negotiated agreements can provide the company with more
predictable inter-carrier relationships including interconnection and
compensation arrangements.
"Importantly, interconnection agreements with local carriers, including the
recently signed Verizon agreement, allow us to further leverage our existing
Softswitch infrastructure for our VoIP services," said Sureel Choksi, executive
vice president and president, Softswitch Services.
As previously announced, the company has also negotiated interconnection
agreements with Bellsouth and SBC which expire December 2006 and December 2004
respectively.
"While subject to future regulatory changes, we believe the company will
recognize approximately $100 million to $125 million in reciprocal compensation
revenue in 2005," said Patel.
Business Outlook
Revenue
"Given our performance and new customer contracts signed year to date, we are
updating our previously issued projection for communications revenue, including
reciprocal compensation revenue but excluding termination revenue, from a
high-single digit percent reduction to a low single-digit percent decline in
2004 versus 2003," said Patel. "This includes approximately $40 million in
revenue from managed modem acquisitions in 2004."
Adjusted OIBDA
"We are reaffirming our previously issued projection for Consolidated Adjusted
OIBDA for 2004. This projection was that 2004 Consolidated Adjusted OIBDA,
excluding termination and settlement revenue, will be consistent with 2003,"
Patel said.
6
Free Cash Flow
"We are increasing our expected use of cash in 2004 as a result of business
activity during the third quarter," said Patel. "First, we are increasing our
capital expenditures in the fourth quarter to support our traffic growth and new
customer contracts won in the third and fourth quarters. Second, we have seen an
increase in integration expenses associated with our acquisition activity.
Finally, while revenue from new services continues to grow, we are receiving
lower-than-expected cash payments from IRU sales. As a result, we expect
full-year Consolidated Free Cash Flow to be negative $280 million to $310
million versus our previous expectation of negative $200 million to $250
million."
Fourth Quarter 2004
Metric Fourth Quarter
($ in millions) Projections
Communications Revenue $455-$475
Consolidated Adjusted OIBDA $155-$170
Capital Expenditures $90
"We expect communications revenue to increase in the fourth quarter primarily as
a result of approximately $100 million in termination revenue as the result of
the expected termination of a customer dark fiber contract," said Patel.
"Additionally, we expect to see an increase in communications services revenue.
This increase is expected to come from a continued ramp in our voice business
and other services, as well as approximately $5 million in revenue from the
Sprint managed modem acquisition."
Consolidated Adjusted OIBDA is expected to increase to between $155 million and
$170 million in the fourth quarter primarily as a result of higher
communications revenue as described above. In addition, network expenses
associated with the ICG acquisition and the integration of Allegiance and KMC
are expected to continue to decline in the fourth quarter.
Capital expenditures are expected to increase to approximately $90 million in
the fourth quarter as the company continues investing in new service initiatives
and its network as a result of previously awarded contracts.
Summary
"We continued to make progress during the quarter on a number of fronts," Crowe
said. "We saw an increase in sales, particularly for VoIP services, as well as
increases in IP traffic across our network. Additionally, we have made
significant progress during the quarter in expanding our indirect sales channels
to help us take advantage of our growing opportunities. I believe this positive
momentum positions us well for continued growth and success in the marketplace."
Conference Call Information
Level 3 will hold a conference call to discuss the company's third quarter
results at 10:00 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 749593.
7
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 23,000-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 of Level 3 Communications, Inc. in
the United States and/or other countries. Level 3 services are offered through
wholly owned subsidiaries of Level 3 Communications, Inc.
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.
8
(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)
Q204 Q304
Communications Revenue $391 $423
Communications Cost of Revenue $119 $116
Communications Gross Margin ($) $272 $307
Communications Gross Margin (%) 70% 72%
9
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 September 30, 2004 Communications Information Con-
($ in millions) Services Other solidated
Net Earnings/(Loss) ($181) $4 $6 ($171)
Income Tax (Benefit)/Expense -- -- -- --
Plus Other (Income)/Expense $121 $-- $(1) $120
Operating Income/(Loss) ($60) $4 $5 ($51)
Plus Depreciation and Amortization Expense $163 $5 $2 $170
Plus Non-Cash Stock Compensation Expense $10 -- -- $10
Consolidated Adjusted OIBDA $113 $9 $7 $129
10
Consolidated Adjusted OIBDA
Three Months Ended June 30, 2004 Communications Information Con-
($ in millions) Services Other solidated
Net Earnings/(Loss) ($66) $1 $2 ($63)
Income Tax (Benefit)/Expense -- $1 -- $1
Plus Other (Income)/Expense ($33) $1 $1 ($31)
Operating Income/(Loss) ($99) $3 $3 ($93)
Plus Depreciation and Amortization Expense $169 $7 $1 $177
Plus Non-Cash Stock Compensation Expense $9 $1 -- $10
Consolidated Adjusted OIBDA $79 $11 $4 $94
Communications Adjusted OIBDA Margin
($ in millions) Q204 Q304
Communications Revenue $391 $423
Communications Adjusted OIBDA $79 $113
Communications Adjusted OIBDA Margin 20% 27%
Consolidated
Projected Consolidated Adjusted OIBDA Range
Three Months Ended December 31, 2004
($ in millions)
Low High
Net Earnings/(Loss) ($137) ($117)
Plus Other (Income)/Expense $117 $107
Operating Income/(Loss) ($20) ($10)
Plus Depreciation and Amortization Expense $165 $170
Plus Non-Cash Stock Compensation Expense $10 $10
Consolidated Adjusted OIBDA $155 $170
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 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 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
11
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 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 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. Consolidated Free Cash Flow excludes cash used for
acquisitions or principal repayments.
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 statements of cash flows.
UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended September 30, 2004 Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
Net Cash Used By Operating Activities ($16) ($16)
Gross Capital Expenditures ($84) ($84)
Release of Capital Expenditure Accruals $2 $2
Cash Interest Paid $87 N/A
Interest Income ($3) N/A
Total ($14) ($98)
UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended June 30, 2004 Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
Net Cash Used In Continuing Operations ($45) ($45)
Gross Capital Expenditures ($66) ($66)
Release of Capital Expenditure Accruals $2 $2
Cash Interest Paid $127 N/A
Interest Income ($3) N/A
Total $15 ($109)
12
Consolidated
PROJECTED CONSOLIDATED FREE CASH FLOW Range
Twelve Months Ended December 31, 2004
($ in millions)
Low High
Net Cash Used In Operating Activities ($18) ($8)
Gross Capital Expenditures ($300) ($280)
Release of Capital Accruals $8 $8
Total ($310) ($280)
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Attachment #1
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
Three Months Ended
September 30, June 30,
(dollars in millions) 2004 2004
Revenue:
Communications $ 423 $ 391
Information Services 392 503
Other 25 24
-- --
Total Revenue 840 918
Costs and Expenses:
Cost of Revenue 487 591
Depreciation and Amortization 170 177
Selling, General and Administrative, including non-cash
compensation of $10 and $10 respectively 234 243
Restructuring Charges, including noncash impairment
charges of $-, and $-, respectively - -
-- --
Total Costs and Expenses 891 1,011
--- -----
Operating Income (Loss) (51) (93)
Other Income (Loss), net:
Interest Income 3 3
Interest Expense (120) (118)
Other Income (Expense) (3) 146
-- ---
Other Income (Loss) (120) 31
---- --
Loss Before Income Taxes (171) (62)
Income Tax Expense - (1)
-- --
Net Loss $ (171) $ (63)
====== =====
Basic Loss per Share:
Net Loss $ (0.25) $ (0.09)
======= =======
Weighted Average Shares Outstanding (in thousands):
Basic 685,074 682,629
======= =======
Attachment #2
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
September 30, June 30,
(dollars in millions) 2004 2004
Assets
Current Assets:
Cash and cash equivalents $ 467 $ 547
Marketable securities 225 221
Restricted securities 50 52
Accounts receivable, less allowances of $27 and $26, respectively 375 476
Other 115 122
--- ---
Total Current Assets 1,232 1,418
Property, Plant and Equipment, net 5,402 5,466
Marketable Securities 164 189
Restricted Securities 65 62
Intangibles, net and Goodwill 448 463
Other Assets, net 84 90
-- --
$ 7,395 $ 7,688
======= =======
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 431 $ 549
Current portion of long-term debt 144 141
Accrued payroll and employee benefits 89 90
Accrued interest 97 87
Deferred revenue 158 164
Other 156 231
--- ---
Total Current Liabilities 1,075 1,262
Long-Term Debt, less current portion 5,032 5,008
Deferred Revenue 984 963
Other Liabilities 463 469
Stockholders' Deficit (159) (14)
---- ---
$ 7,395 $ 7,688
======= =======
Attachment #3
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
September 30, June 30,
(dollars in millions) 2004 2004
Cash Flows from Operating Activities:
Net loss $ (171) $ (63)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 170 177
(Gain) loss on sale of property, plant and equipment, and other assets 2 (2)
Gain on debt extinguishments, net - (147)
Non-cash compensation expense attributable to stock awards 10 10
Deferred revenue 15 1
Amortization of debt issuance costs 4 4
Accreted interest on discount debt 19 18
Accrued interest on long-term debt 10 (31)
Changes in working capital items net of amounts acquired:
Receivables 101 (46)
Other current assets 9 (8)
Payables (120) 52
Other liabilities (69) (8)
Other 4 (2)
-- --
Net Cash Used in Operating Activities (16) (45)
Cash Flows from Investing Activities:
Increase in restricted cash and securities, net (1) (4)
Capital expenditures (84) (66)
Release of capital expenditure accruals 2 2
Proceeds from sale of property, plant and equipment 3 7
Purchases of marketable securities - (410)
Maturity of marketable securities 20
ICG acquisition (5) (25)
-- ---
Net Cash Used in Investing Activities (65) (496)
Cash Flows from Financing Activities:
Payments on long-term debt, including current portion (1) (75)
-- ---
Net Cash Used in Financing Activities (1) (75)
Effect of Exchange Rates on Cash 2 2
-- --
Net Change in Cash and Cash Equivalents (80) (614)
Cash and Cash Equivalents at Beginning of Period 547 1,161
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Cash and Cash Equivalents at End of Period $ 467 $ 547
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Supplemental Disclosure of Cash Flow Information:
Cash interest paid $ 87 $ 127
Total Cash, Current Marketable Securities and Noncurrent Marketable Securities $ 856 $ 957