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 Valerie Finberg
720-888-2292 720-888-2501
Level 3 Reports Fourth Quarter and Full Year 2006 Results
Continued Strong Core Communications Services Organic Growth
Company Expects Significant Communications Revenue and
Consolidated Adjusted OIBDA Growth in 2007
Financial and Business Highlights
o Consolidated Revenue of $846 million
o Net Loss of $237 million, or $0.20 per share o Consolidated Adjusted OIBDA
of $189 million
o Consolidated Free Cash Flow of negative $29 million
o Organic core communications services revenue growth of 8 percent quarter
over quarter and 25 percent in 2006
BROOMFIELD, Colo., February 8, 2007 -- Level 3 Communications, Inc. (Nasdaq:
LVLT) reported consolidated revenue of $846 million for the fourth quarter 2006,
compared to consolidated revenue of $875 million for the third quarter 2006. For
the full year 2006, consolidated revenue was $3.38 billion, compared to $1.72
billion in 2005.
The net loss for the fourth quarter 2006 was $237 million, or $0.20 per share,
compared to a net loss of $138 million, or $0.12 per share, for the previous
quarter. Included in the net loss for the fourth quarter was a $54 million loss
on the extinguishment of debt, or $0.05 per share. Included in the net loss for
the third quarter was a gain of $33 million associated with the sale of Software
Spectrum, or $0.03 per share.
"Level 3 had a strong fourth quarter," said James Q. Crowe, CEO of Level 3.
"Organic core revenue growth was 8 percent during the quarter and 25 percent
annualized for the full year 2006, which excludes the benefits of acquisition
and termination revenue. This growth is a result of ongoing customer demand and
a healthy industry operating environment. We expect these positive trends to
continue in 2007."
Consolidated Adjusted OIBDA(1) defined as Adjusted Operating Income Before
Depreciation and Amortization was $189 million in the fourth quarter 2006,
compared to $176 million for the third quarter 2006. Consolidated Adjusted OIBDA
for 2006 was $682 million, compared to $471 million in 2005.
Fourth Quarter 2006 and Full Year 2006 and 2005 Financial Results
Consolidated
Metric Fourth Quarter Fourth Quarter Consolidated Consolidated
Revenue 2006 2006 Full Year 2006 Full Year 2006 Full Year 2005
($ in millions) Results Projections(1) Results Projections(1) Results
Core Communications Services(2) $619 $595 - $605 $1,973 $1,950- $1,960 $962
Other Communications Services $95 $90 - $95 $445 $440 - $445 $658
SBC Contract Services $116 $100 - $130 $893 $875 - $905 $25
Total Communications Revenue $830 $785 - $830 $3,311 $3,265 - $3,310 $1,645
Other Revenue $16 $67 $74
Total Consolidated Revenue $846 $3,378 $1,719
Consolidated Adjusted OIBDA (3) (4) $189 $180 - $200 $682 $670 - $690 $471
Capital Expenditures $141 $392 $390 - $410 $300
Unlevered Cash Flow (4) $65 $324 $(2)
Free Cash Flow (4) $(29) $(171) $(418)
Communications Gross Margin (4) 63% 56% 72%
Communications Adjusted OIBDA Margin (4) 22% ~23% 20% ~21% 28%
(1) Projections issued October 24, 2006
(2) Includes termination revenue of $8 million in the fourth quarter 2006, $11
million for the full year 2006, and $133 million for the full year 2005
(3) Consolidated Adjusted OIBDA excludes $32 million in non-cash compensation
expense for the fourth quarter 2006, $84 million for the full year 2006,
and $51 million for the full year 2005. Consolidated Adjusted OIBDA also
excludes $8 million of non-cash impairment charges for 2006 and $9 million
for 2005
(4) See schedule of non-GAAP metrics for definition and reconciliation to GAAP
measures
Communications Business
Revenue
Communications revenue for the fourth quarter 2006 was $830 million, versus $858
million for the previous quarter. Communications revenue decreased as a result
of declines in Other Communications Services revenue and SBC Contract Services.
The company recognized $8 million in termination revenue during the fourth
quarter 2006 and less than $1 million in termination revenue during the third
quarter 2006.
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Communications revenue for 2006 was $3.31 billion, compared to $1.6 billion in
2005.
Full Year Full Year
Communications Revenue Percent
($ in millions) Fourth Quarter 2006(1) Third Quarter 2006 (2) Change 2006 2005
Transport and Infrastructure $315 $284 11% $1,014 $653
IP and Data $92 $78 18% $301 $186
Voice $178 $153 16% $536 $120
Vyvx $34 $29 17% $122 $3
Total Core Communications Services $619 $544 14% $1,973 $962
Other Communications Services $95 $107 (11%) $445 $658
SBC Contract Services $116 $207 (44%) $893 $25
Total Communications Revenue $830 $858 (3%) $3,311 $1,645
(1) Communications revenue for the fourth quarter includes approximately $37
million from Progress Telecom and ICG Communications and $116 million from
TelCove and Looking Glass Networks
(2) Communications revenue for the third quarter includes approximately $37
million from Progress Telecom and ICG Communications and $83 million from
TelCove and Looking Glass Networks, which closed in the third quarter on
July 24, 2006 and August 2, 2006, respectively
Core Communications Services
Core Communications Services revenue, which includes transport and
infrastructure, IP and Data, Voice and Vyvx, increased quarter over quarter by
14 percent due to 8 percent organic growth in core communications services and
the benefit of a full quarter's revenue from the acquisitions of TelCove and
Looking Glass Networks. Organic growth came from the company's voice services,
transport and infrastructure services, seasonal growth in Vyvx revenue and
growth in IP services, and excludes termination revenue of $8 million. All
organic growth calculations exclude revenue associated with new contracts or
with the expansion of existing contracts from companies that were acquired in
2006.
For the full year 2006, Core Communications Services revenue was approximately
$2.0 billion, an increase of 105 percent from 2005. Growth was primarily due to
acquisition revenue and organic growth in the company's core communications
services.
Other Communications Services
Other Communications Services revenue declined 11 percent to $95 million during
the quarter as a result of expected declines in managed modem and managed
services.
SBC Contract Services
SBC Contract Services declined by 44 percent to $116 million from the previous
quarter, and includes a $12.5 million quality of service performance bonus for
the year that was earned in the fourth quarter. As previously disclosed, SBC
intends to migrate the services provided under the agreement to its own network
facilities in accordance with terms previously negotiated by WilTel. Under the
terms of this agreement, SBC agreed to pay WilTel a minimum amount of gross
margin regardless of the actual revenue generated under the contract, of which
$67 million remains outstanding through 2007 and an additional $75 million for
2008 through 2009.
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Deferred Revenue
The communications deferred revenue balance was $895 million at the end of the
fourth quarter 2006, compared to $896 million at the end of the third quarter.
Amortization of revenue from existing customer contracts was offset by new IRU
sales during the quarter.
Cost of Revenue
Communications cost of revenue for the fourth quarter 2006 declined to $311
million, versus $368 million in the previous quarter. Cost of revenue decreased
during the quarter primarily due to lower expenses associated with SBC Contract
Services revenue, partially offset by increases from a full quarter of costs
associated with TelCove and Looking Glass.
Communications gross margin(1) was 63 percent for the fourth quarter, versus 57
percent for the third quarter. The increase in communications gross margin is
primarily attributable to the higher margin revenue from TelCove and Looking
Glass for a full quarter, a reduction in lower margin SBC Contract Services
revenue and the benefit of the SBC contract services performance bonus.
For the full year 2006, communications cost of revenue was $1.5 billion.
Selling, General and Administrative Expenses (SG&A)
Communications SG&A expenses were $365 million for the fourth quarter 2006,
versus $333 million for the previous quarter. The fourth and third quarter 2006
Communications SG&A expenses include $32 million and $18 million, respectively,
of non-cash compensation expense. SG&A expenses increased in the fourth quarter
primarily due to a full quarter of expenses associated with TelCove and Looking
Glass. The company also accelerated integration-related expenses associated with
2006 acquisitions. The company expects the benefits of this acceleration will
result in improved efficiency over the course of 2007.
Communications SG&A expenses were $1.3 billion for 2006, versus $761 million for
2005. SG&A expenses increased during 2006 due to additional headcount and other
expenses as a result of the acquisition of WilTel Communications, Progress
Telecom, ICG Communications, Looking Glass Networks and TelCove.
Adjusted OIBDA
Adjusted OIBDA(1) for the communications business increased to $186 million for
the fourth quarter 2006, compared to $174 million for the previous quarter.
Communications Adjusted OIBDA margin(1) was 22 percent for the fourth quarter
2006, versus 20 percent in the previous quarter.
Fourth quarter Communications Adjusted OIBDA excludes $32 million of non-cash
compensation expense. Third quarter Communications Adjusted OIBDA includes $1
million in cash restructuring charges associated with reductions in workforce
resulting from the integration of acquired businesses and excludes a $1 million
non-cash asset impairment charge and $18 million of non-cash compensation
expense.
Communications Adjusted OIBDA increased to $677 million in 2006, compared to
$458 million for 2005.
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Consolidated Cash Flow and Liquidity
During the fourth quarter 2006, Unlevered Cash Flow(1) was positive $65 million,
versus positive $121 million for the previous quarter. This decrease was a
result of increased capital expenditures and working capital timing.
Consolidated Free Cash Flow for the fourth quarter was negative $29 million,
versus negative $64 million for the previous quarter.
For the full year 2006, unlevered cash flow was positive $324 million compared
to negative $2 million in 2005, and consolidated free cash flow was negative
$171 million in 2006 compared to negative $418 million last year. Consolidated
capital expenditures for the company totaled $392 million for the full year
2006.
As of December 31, 2006, the company had cash and marketable securities of
approximately $1.9 billion. Pro forma for the Broadwing and SAVVIS Content
Delivery Network (CDN) business acquisition transactions completed in January
2007, the company had cash and marketable securities of approximately $1.3
billion, including cash acquired.
Corporate Transactions
Acquisitions
On January 3, 2007, Level 3 completed the purchase of Broadwing Corporation.
Under the terms of the agreement, Level 3 paid Broadwing stockholders $8.18 of
cash plus 1.3411 shares of Level 3 common stock for each share of Broadwing
common stock outstanding at closing. In total, Level 3 paid approximately $744
million of cash and issued approximately 122 million shares of common stock.
On January 23, 2007, Level 3 closed on the purchase of SAVVIS's CDN business.
Level 3 paid $132.5 million in cash to acquire certain assets, including network
elements, customer contracts and intellectual property used in SAVVIS's CDN
business.
Integration Update
"During 2006, we successfully completed the majority of the WilTel integration,"
said Kevin O'Hara, president and COO of Level 3. "We also made significant
progress with our ICG, Looking Glass, Progress and TelCove integrations. We
expect to complete the majority of the integration work for our 2006
acquisitions by the end of 2007. We have begun the integration of Broadwing and
are looking forward to the opportunity to further expand in the enterprise
market with the Broadwing portfolio of business services."
Capital Markets Activity
The company is also announcing that its wholly owned subsidiary, Level 3
Financing, Inc. is seeking to refinance its $730 million amended and restated
senior secured credit agreement. The company is seeking, among other things, to
increase principal to $1 billion, reduce the interest rate payable under the
agreement, and extend the maturity from 2011 to 2014.
During the fourth quarter, Level 3 Financing repurchased $497 million of its
outstanding 10.75% Senior Notes due 2011 and amended the indenture pursuant to
which those senior notes were issued. Level 3 Financing also completed two
separate private offerings of $600 million and $650 million aggregate principal
amount of 9.25% Senior Notes due 2014.
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In January 2007, in two separate transactions, Level 3 announced exchanges of
$605 million in aggregate principal amount outstanding of its 10% Convertible
Senior Notes due 2011 for approximately 196.8 million shares of Level 3's common
stock. The company expects to reduce interest expense in 2007 by $58 million as
a result of these exchanges. The company expects to recognize a $177 million
loss associated with these exchanges in the first quarter 2007.
"As evidenced by the transactions we conducted in January of this year, we
intend to continue pursuing refinancing efforts to lower our interest expense,"
said Sunit S. Patel, CFO of Level 3.
2007 Business Outlook
Based on 2006 results and the acquisition of Broadwing, Level 3 has updated its
projections for 2007 and is providing certain projections for 2008. For the
first quarter 2007, the company projects total communications revenue of $1.0
billion to $1.045 billion and consolidated adjusted OIBDA of $150 million to
$170 million, compared to total communications revenue of $830 million and
Consolidated Adjusted OIBDA of $189 million in the fourth quarter of 2006. The
decline in Consolidated Adjusted OIBDA from the fourth quarter 2006 to the first
quarter 2007 reflects the absence of the SBC quality of service payment of $12.5
million and termination revenue of $8 million, an expected decline in Other
Revenue and SBC Contract Services revenue, and integration expenses associated
with the company's acquisitions, including Broadwing. In addition, Consolidated
Adjusted OIBDA includes the benefit of increased revenue from the Broadwing
acquisition and expected organic growth in core services.
"As the company previously disclosed, growth in Level 3 Core Communications
Services revenue was projected to grow more than 20 percent annually, the metro
acquisitions would grow 10 to 12 percent annually, and Broadwing was growing at
4 to 5 percent annually," said Patel. "On a revenue weighted basis, this would
imply a 15 percent annual growth rate for core services. During 2007, we now
expect to see growth in our Core Communication Services revenue of approximately
17 percent. We believe this increase is an indication of the potential created
by selling a broad range of advanced services over an integrated metro and long
distance backbone network."
First
Metric Quarter 2007 2007 Full Year Projections
($ in millions) Projections
Core Communications Services revenue $860-$880 $3,600-$3,800
Other Communications Services revenue $80-$85 $245-$285
SBC Contract Services $60-$80 $180-$220
Total Communications Revenue $1,000-$1,045 $4,025-$4,305
Consolidated Adjusted OIBDA $150-$170 $860-$920
N/A $600-$650
Consolidated Capital Expenditures
Net Cash Interest Expense (1) N/A $545
(1) Includes approximately $45 million in interest income
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"Consolidated Adjusted OIBDA was $682 million in 2006," said Patel. "We expect
Consolidated Adjusted OIBDA to increase to $860 million to $920 million in 2007.
The company's Consolidated Adjusted OIBDA projection for 2007 includes
integration costs associated with the Broadwing and SAVVIS CDN business
acquisitions of approximately $80 million in operating expenses, $20 million in
network expenses and $75 million to $100 million in capital expenditures. The
company expects to reduce headcount in 2007 as part of its integration efforts
by approximately 1,000, which will result in about a $120 million reduction in
annualized operating expenses. In addition, during 2007, Level 3 expects to
reduce network expenses by approximately $80 million on an annualized basis.
"After 2007, we expect the substantial majority of integration related costs
will be behind us and that we will have reduced network and operating expenses
by about $200 million on an annualized basis. In addition, we expect the strong
revenue growth we have been experiencing will continue. As a result, we expect
Consolidated Adjusted OIBDA to increase to $1.15 billion to $1.3 billion in
2008."
Financial Disclosure
Beginning with its first quarter 2007 results, and in line with industry
practices, the company will report Communications Adjusted EBITDA and
Consolidated Adjusted EBITDA, replacing the current Adjusted OIBDA metrics. The
calculation of Adjusted EBITDA will be completed with the same methodology as
the calculation used for Adjusted OIBDA.
Summary
"We are pleased with the continued demand we are seeing from our customers, and
we believe our performance this quarter continues to demonstrate that our
business and industry dynamics are strong," said Crowe. "Our acquisition
strategy over the past 18 months has added to the improved results we have
experienced in our core communications business, and positions us well for the
future. We remain focused on integration and execution of our business plan."
Analyst and Investor Conference
Level 3 will hold an analyst and investor conference in New York City on March
14, 2007. Presentations are scheduled to begin at 8:30 a.m. EST. The meeting
will be webcast in a listen-only mode. Additional information will be available
on Level 3's Web site on February 14, 2007.
Conference Call and Web Site Information
Level 3 will hold a conference call to discuss the company's fourth quarter
results at 10 a.m. EST today. To join the call, please dial 612-332-0107. A live
broadcast of the call can also be heard on Level 3's Web site at
www.level3.com/investor_relations/index.html. An audio replay of the call will
be accessible on the company's Web site or by dialing 320-365-3844; access
code858124. An archived webcast of the fourth quarter conference call together
with the press release, financial statements and non-GAAP reconciliations may
also be accessed at www.level3.com/investor_relations/index.html.
About Level 3 Communications
Level 3 Communications, Inc (Nasdaq: LVLT), an international communications
company, operates one of the largest Internet backbones in the world. Through
its customers, Level 3 is the primary provider of Internet connectivity for
millions of broadband subscribers. The company provides a comprehensive suite of
services over its broadband fiber optic network including Internet Protocol (IP)
services, broadband transport and infrastructure services, colocation
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services, voice services and voice over IP services. These services provide
building blocks that enable Level 3's customers to meet their growing demands
for advanced communications solutions. The company's Web address is
www.Level3.com.
"Level 3 Communications," "Level 3" and the Level 3 Communications logo are
registered service marks of Level 3 Communications, Inc. in the United States
and/or other countries. Any other product and company names herein may be
trademarks of their respective owners. Level 3 services are provided by 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: 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;
and the ability to meet all of the terms and conditions of our debt obligations.
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.
-30-
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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 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, 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. Cost of revenue also includes satellite transponder lease
costs, package delivery costs and blank tape media costs attributable to the
video business.
Communications Gross Margin (%) is defined as communications gross margin ($)
divided by communications revenue. Management believes that communications gross
margin is a relevant metric to provide to investors, as it is a metric that
management uses to measure the margin available to the company after it pays
third party network services costs; in essence, a measure of the efficiency of
the company's network.
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Communications Gross Margin Q306 Q406
($ in millions)
Communications Revenue $858 $830
Communications Cost of Revenue $368 $311
Communications Gross Margin ($) $490 $519
Communications Gross Margin (%) 57% 63%
Communications Gross Margin Year Ended December 31,
($ in millions)
2006 2005
Communications Revenue $3,311 $1,645
Communications Cost of Revenue $1,460 $463
Communications Gross Margin ($) $1,851 $1,182
Communications Gross Margin (%) 56% 72%
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. 123R.
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.
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Consolidated Adjusted OIBDA
Three Months Ended December 31, 2006 Comm- Information Consolidated
($ in millions) unications Services Other
Net Earnings (Loss) ($243) $-- $6 ($237)
(Income) Loss from Discontinued Operations $-- $-- $-- $--
Income Tax (Benefit) Expense $4 $-- $-- $4
Other (Income) Expense $194 $-- ($1) $193
Operating Income (Loss) ($45) $-- $5 ($40)
Non-Cash Impairment Charge $-- $-- $-- $--
Depreciation and Amortization Expense $199 $-- ($2) $197
Non-Cash Stock Compensation Expense $32 $-- $-- $32
Consolidated Adjusted OIBDA $186 $-- $3 $189
Consolidated Adjusted OIBDA
Three Months Ended September 30, 2006 Communications Information Con-
($ in millions) Services Other solidated
Net Earnings (Loss) ($167) $25 $4 ($138)
(Income) Loss from Discontinued Operations $-- ($25) $-- ($25)
Income Tax (Benefit) Expense $1 $-- ($3) ($2)
Other (Income) Expense $140 $-- $-- $140
Operating Income (Loss) ($26) $-- $1 ($25)
Non-Cash Impairment Charge $1 $-- $-- $1
Depreciation and Amortization Expense $181 $-- $1 $182
Non-Cash Stock Compensation Expense $18 $-- $-- $18
Consolidated Adjusted OIBDA $174 $-- $2 $176
Consolidated Adjusted OIBDA
Twelve Months Ended December 31, 2006 Communications Information Con-
($ in millions) Services Other solidated
Net Earnings (Loss) ($800) $46 $10 ($744)
(Income) Loss from Discontinued Operations $-- ($46) $-- ($46)
Income Tax (Benefit) Expense $4 $-- ($2) $2
Other (Income) Expense $652 $-- ($4) $648
Operating Income (Loss) ($144) $-- $4 ($140)
Non-Cash Impairment Charge $8 $-- $-- $8
Depreciation and Amortization Expense $729 $-- $1 $730
Non-Cash Stock Compensation Expense $84 $-- $-- $84
Consolidated Adjusted OIBDA $677 $-- $5 $682
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Consolidated Adjusted OIBDA
Twelve Months Ended December 31, 2005 Communications Information Con-
($ in millions) Services Other solidated
Net Earnings (Loss) ($720) $69 $13 ($638)
(Income) Loss from Discontinued Operations $-- ($69) $-- ($69)
Income Tax (Benefit) Expense $2 $-- $3 $5
Other (Income) Expense $474 $-- $(8) $466
Operating Income (Loss) ($244) $-- $8 ($236)
Non-Cash Impairment Charge $9 $-- $-- $9
Depreciation and Amortization Expense $642 $-- $5 $647
Non-Cash Stock Compensation Expense $51 $-- $-- $51
Consolidated Adjusted OIBDA $458 $-- $13 $471
Consolidated Adjusted OIBDA
Three Months Ended December 31, 2005 Communications Information Con-
($ in millions) Services Other solidated
Net Earnings (Loss) ($225) $57 ($1) ($169)
(Income) Loss from Discontinued Operations $-- ($57) $-- ($57)
Income Tax (Benefit) Expense $1 $-- $1 $2
Other (Income) Expense $127 $-- ($1) $126
Operating Income (Loss) ($97) $-- ($1) ($98)
Non-Cash Impairment Charge $3 $-- $-- $3
Depreciation and Amortization Expense $160 $-- $1 $161
Non-Cash Stock Compensation Expense $19 $-- $-- $19
Consolidated Adjusted OIBDA $85 $-- $-- $85
Communications Adjusted OIBDA Margin
($ in millions) Q306 Q406
Communications Revenue $858 $830
Communications Adjusted OIBDA $174 $186
Communications Adjusted OIBDA Margin 20% 22%
Communications Adjusted OIBDA Margin Year Ended December 31,
($ in millions)
2006 2005
Communications Revenue $3,311 $1,645
Communications Adjusted OIBDA $677 $458
Communications Adjusted OIBDA Margin 20% 28%
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Projected Consolidated Adjusted OIBDA Consolidated
Three Months Ended March 31, 2007 Range
($ in millions)
Low High
Net Earnings (Loss) ($440) ($400)
Other (Income) Expense $325 $315
Operating Income (Loss) ($115) ($85)
Depreciation and Amortization Expense $245 $230
Non-Cash Stock Compensation Expense $20 $25
Consolidated Adjusted OIBDA $150 $170
Projected Consolidated Adjusted OIBDA Consolidated
Twelve Months Ended December 31, 2007 Range
($ in millions)
Low High
Net Earnings (Loss) ($970) ($870)
Other (Income) Expense $770 $750
Operating Income (Loss) ($200) ($120)
Depreciation and Amortization Expense $970 $930
Non-Cash Stock Compensation Expense $90 $110
Consolidated Adjusted OIBDA $860 $920
Projected Consolidated Adjusted OIBDA Consolidated
Twelve Months Ended December 31, 2008 Range
($ in millions)
Low High
Net Earnings (Loss) ($510) ($310)
Other (Income) Expense $590 $560
Operating Income (Loss) $80 $250
Depreciation and Amortization Expense $970 $930
Non-Cash Stock Compensation Expense $100 $120
Consolidated Adjusted OIBDA $1,150 $1,300
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 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 a significant amount of
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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.
Unlevered Cash Flow and Consolidated Free Cash Flow Unlevered Cash Flow Consolidated Free
Three Months Ended December 31, 2006 Cash Flow
($ in millions)
Net Cash Provided by Operating Activities $112 $112
Capital Expenditures, net ($141) ($141)
Cash Interest Paid $114 N/A
Interest Income ($20) N/A
Total $65 ($29)
Unlevered Cash Flow and Consolidated Free Cash Flow Three Months Unlevered Cash Flow Consolidated Free
Ended September 30, 2006 Cash Flow
($ in millions)
Net Cash Provided by Operating Activities $56 $56
Capital Expenditures, net ($120) ($120)
Cash Interest Paid $204 N/A
Interest Income ($19) N/A
Total $121 ($64)
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Unlevered Cash Flow and Consolidated Free Cash Flow Twelve Months Unlevered Cash Flow Consolidated Free
Ended December 31, 2006 Cash Flow
($ in millions)
Net Cash Provided by Operating Activities $221 $221
Capital Expenditures, net ($392) ($392)
Cash Interest Paid $559 N/A
Interest Income ($64) N/A
Total $324 ($171)
Unlevered Cash Flow and Consolidated Free Cash Flow Unlevered Cash Flow Consolidated Free
Twelve Months Ended December 31, 2005 Cash Flow
($ in millions)
Net Cash Used in Operating Activities ($118) ($118)
Capital Expenditures, net ($300) ($300)
Cash Interest Paid $451 N/A
Interest Income ($35) N/A
Total ($2) ($418)
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LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
Three Months Ended Twelve Months Ended
December 31, September 30, December 31, December 31, December 31,
(dollars in millions, except per share data) 2006 2006 2005 2006 2005
Revenue:
Communications $ 830 $ 858 $ 400 $ 3,311 $ 1,645
Other 16 17 18 67 74
-- -- -- -- --
Total Revenue 846 875 418 3,378 1,719
Costs and Expenses:
Cost of Revenue 324 382 141 1,517 516
Depreciation and Amortization 197 182 161 730 647
Selling, General and Administrative, including non-cash
compensation of $32, $18, $19, $84 and $51 respectively 365 334 215 1,258 769
Restructuring Charges, including non-cash impairment
charges of $-, $1, $3, $8 and $9 respectively - 2 (1) 13 23
-- - -- -- --
Total Costs and Expenses 886 900 516 3,518 1,955
--- --- --- ----- -----
Operating Income (Loss) (40) (25) (98) (140) (236)
Other Income (Loss), net:
Interest Income 20 19 10 64 35
Interest Expense (167) (161) (139) (648) (530)
Other Income (Expense) (46) 2 3 (64) 29
--- - - --- --
Other Income (Loss) (193) (140) (126) (648) (466)
---- ---- ---- ---- ----
Loss from Continuing Operations Before Income Taxes (233) (165) (224) (788) (702)
Income Tax Benefit (Expense) (4) 2 (2) (2) (5)
-- - -- -- --
Loss from Continuing Operations (237) (163) (226) (790) (707)
Income (Loss) from Discontinued Operations - (8) 8 13 20
Gain on Sale of Discontinued Operations - 33 49 33 49
-- -- -- -- --
- 25 57 46 69
-- -- -- -- --
Net Loss $ (237) $ (138) $ (169) $ (744) $ (638)
====== ====== ====== ====== ======
Basic and Diluted Loss per Share:
Loss from Continuing Operations $ (0.20) $ (0.14) $ (0.32) $ (0.79) $ (1.01)
Income from Discontinued Operations - 0.02 0.08 0.05 0.10
-- ---- ---- ---- ----
Net Loss $ (0.20) $ (0.12) $ (0.24) $ (0.74) $ (0.91)
======= ======= ======= ======= =======
Weighted Average Shares Outstanding (in thousands):
Basic and Diluted 1,176,525 1,128,153 713,028 1,003,255 699,589
========= ========= ======= ========= =======
(c) 2007 by Level 3 Communications, Inc. All rights reserved.
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LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
December 31, September 30, December 31,
(dollars in millions) 2006 2006 2005
Assets
Current Assets:
Cash and cash equivalents $ 1,681 $ 731 $ 379
Marketable securities 235 509 176
Restricted securities 46 45 34
Accounts receivable, less allowances of $17, $17 and $17 326 351 392
Current assets of discontinued operations - - 597
Other 101 105 92
--- --- --
Total Current Assets 2,389 1,741 1,670
Property, Plant and Equipment, net 6,468 6,418 5,632
Marketable Securities - - 234
Restricted Securities 90 91 75
Goodwill and Other Intangibles, net 919 976 291
Noncurrent Assets of Discontinued Operations - - 264
Other Assets, net 128 117 111
--- --- ---
$ 9,994 $ 9,343 $ 8,277
======= ======= =======
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 391 $ 406 $ 367
Current portion of long-term debt 5 5 -
Accrued payroll and employee benefits 92 91 78
Accrued interest 143 94 102
Deferred revenue 142 143 199
Current liabilities of discontinued operations - - 539
Other 156 159 138
--- --- ---
Total Current Liabilities 929 898 1,423
Long-Term Debt, less current portion 7,357 6,577 6,023
Deferred Revenue 753 754 737
Other Liabilities 581 552 570
Stockholders' Equity (Deficit) 374 562 (476)
--- --- ----
$ 9,994 $ 9,343 $ 8,277
======= ======= =======
(c) 2007 by Level 3 Communications, Inc. All rights reserved.
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LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
December 31, September 30, December 31,
(dollars in millions) 2006 2006 2005
Cash Flows from Operating Activities:
Net loss $ (237) $ (138) $ (169)
Income from discontinued operations - (25) (57)
--- --- ---
Loss from continuing operations (237) (163) (226)
Adjustments to reconcile loss from continuing operations to net cash
provided by (used in) operating activities of continuing operations:
Depreciation and amortization 197 182 161
Non-cash impairment expenses - 1 3
(Gain) loss on sale of property, plant and equipment, and other assets (2) (1) 1
Loss on extinguishment of long-term debt, net 54 1 -
Non-cash compensation expense attributable to stock awards 32 18 19
Deferred revenue (4) (20) 13
Amortization of debt issuance costs 4 8 4
Accreted interest on discount debt 10 8 5
Accrued interest on long-term debt 39 (59) (28)
Changes in working capital items net of amounts acquired:
Receivables 30 64 (4)
Other current assets 10 13 3
Payables (15) (8) (21)
Other current liabilities (9) 22 (18)
Other 3 (10) (2)
- --- --
Net Cash Provided by (Used in) Operating Activities of Continuing Operations 112 56 (90)
Cash Flows from Investing Activities:
Capital expenditures (141) (120) (67)
Net proceeds from sale of discontinued operations - 340 82
Advances from discontinued operations, net - 16 2
Proceeds from sale and maturity of marketable securities 275 - 405
Proceeds from sale of property, plant and equipment 2 3 -
Increase (decrease) in restricted cash and securities, net - (9) 4
Acquisitions, net of cash acquired (3) (664) (369)
-- ---- ----
Net Cash Provided by (Used in) Investing Activities 133 (434) 57
Cash Flows from Financing Activities:
Long-term debt borrowings, net of issuance costs 1,249 - (1)
Payments on long-term debt, including current portion and refinancing costs (543) (463) -
---- ---- --
Net Cash Provided by (Used in) Financing Activities 706 (463) (1)
Net Cash Used in Discontinued Operations (3) (87) (6)
Effect of Exchange Rates on Cash 2 1 2
- - -
Net Change in Cash and Cash Equivalents 950 (927) (38)
Cash and Cash Equivalents at Beginning of Period (including cash of discontinued operations) 731 1,658 490
--- ----- ---
Cash and Cash Equivalents at End of Period (including cash of discontinued operations) $ 1,681 $ 731 $ 452
======= ===== =====
Supplemental Disclosure of Cash Flow Information:
Cash interest paid $ 114 $ 204 $ 158
Total Cash, Current Marketable Securities and Noncurrent Marketable Securities $ 1,916 $ 1,240 $ 789
(c) 2007 by Level 3 Communications, Inc. All rights reserved.
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