Exhibit 99.1
[Logo]
1025 Eldorado Boulevard
Broomfield, Colorado 80021
www.Level3.com
NEWS RELEASE
Level 3 contacts:
Media: Josh Howell Investors: Robin Grey
720-888-2517 720-888-2518
Chris Hardman Sandra Curlander
720-888-2292 720-888-2501
Level 3 Expects to Meet or Exceed
First Quarter 2006 Projections
Company Increases Estimates for First Quarter and Full Year 2006
Consolidated Adjusted OIBDA
BROOMFIELD, Colo., March 28, 2006 -- Level 3 Communications, Inc. (Nasdaq:LVLT)
announced today that it expects to meet and, for certain metrics, exceed its
first quarter 2006 projections issued on February 7, 2006. The company increased
its first quarter 2006 Consolidated Adjusted OIBDA projection from $105-125
million to $140-150 million. For full year 2006, Level 3 also increased its
Consolidated Adjusted OIBDA projection from $550-600 million to $600-650 million
and its 2006 Net Cash Interest Expense projection from $505 million to $520
million.
"The improvements to our OIBDA projections are a result of better than expected
performance in our communications business," said Sunit S. Patel, Level 3's
chief financial officer. "Our higher margin core communications services results
are stronger than anticipated. Additionally, the progress we've made integrating
WilTel Communications has also led to our improved forecast." As previously
announced, the company is holding its 2006 Analyst and Investor Day today
beginning at 8:30 a.m. EST, at the Grand Hyatt in New York City. A webcast and
an archive of the event will be available on Level 3's investor relations Web
site at www.Level3.com/582.html.
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 through its customers, is the primary provider of Internet
connectivity for millions of broadband subscribers. The company offers a wide
range of communications services over its 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 subsidiary, Software
Spectrum, and fiber-optic and satellite video delivery and advertising
distribution solutions through its subsidiary, Vyvx. For additional information,
visit their respective Web sites at www.softwarespectrum.com and www.vyvx.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 provided by a
wholly owned subsidiary 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: increasing the volume of traffic on Level 3's
network; developing new products and services that meet customer demands and
generate acceptable margins; successfully completing commercial testing of new
technology and information systems to support new products and services,
including voice transmission services; stabilizing or reducing the rate of price
compression on certain of our communications services; integrating strategic
acquisitions; attracting and retaining qualified management and other personnel;
ability to meet all of the terms and conditions of our debt obligations;
overcoming Software Spectrum's reliance on financial incentives, volume
discounts and marketing funds from software publishers; and reducing downward
pressure of Software Spectrum's margins as a result of the use of volume
licensing and maintenance agreements. 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.
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 historical results and 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 reconciliations of these non-GAAP financial metrics to
GAAP include 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, and 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 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.
Consolidated Adjusted OIBDA is defined as operating income from the consolidated
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, prepared for each of its
reporting segments, 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.
- --------------------------------------------------------------------------------
Projected Consolidated Adjusted OIBDA
Three Months Ended March 31, 2006 Consolidated
($ in millions) Range
- --------------------------------------------------------------------------------
- --------------------------------------------------------------- ----------------
Low High
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Net Earnings/(Loss) $(185) $(165)
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Plus Other (Income)/Expense $110 $105
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Operating Income/(Loss) $(75) $(60)
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Plus Depreciation and Amortization Expense $200 $190
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Plus Non-Cash Stock Compensation Expense $15 $20
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Consolidated Adjusted OIBDA $140 $150
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------------------------
Projected Consolidated Adjusted OIBDA
Twelve Months Ended December 31, 2006 Consolidated
($ in millions) Range
- --------------------------------------------------------------------------------
- --------------------------------------------------------------- ----------------
Low High
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Net Earnings/(Loss) $(840) $(780)
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Plus Other (Income)/Expense $555 $545
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Operating Income/(Loss) $(285) $(235)
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Plus Depreciation and Amortization Expense $825 $805
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Plus Non-Cash Stock Compensation Expense $60 $80
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Consolidated Adjusted OIBDA $600 $650
- --------------------------------------------------------------- ----------------
Unlevered Cash Flow is defined as net cash provided by (used in) operating
activities less net capital expenditures, and adding back cash interest paid,
less interest income all as disclosed in the consolidated statements of cash
flows or the consolidated 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 a significant amount of 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 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 a
significant amount of 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.
Net cash interest expense is defined as cash interest paid from the consolidated
statements of cash flows, less interest income from the consolidated statements
of operations. Cash interest paid for 2006 is expected to be approximately $525
million, and Interest Income is expected to be approximately $20 million for net
cash interest expense of $505 million.