Exhibit 99.1
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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 First Quarter 2007 Results
Integration of Acquired Companies on Track
Continued Core Services Revenue Growth
Financial and Business Highlights
o Consolidated Revenue of $1.056 billion
o Net Loss of $647 million, or $0.44 per share
o Consolidated Adjusted EBITDA of $170 million
o Completed acquisitions of Broadwing Corporation and the SAVVIS CDN business
BROOMFIELD, Colo., April 26, 2007 -- Level 3 Communications, Inc. (NASDAQ: LVLT)
reported consolidated revenue of $1.056 billion for the first quarter 2007,
compared to consolidated revenue of $846 million for the fourth quarter 2006.
The net loss for the first quarter 2007 was $647 million, or $0.44 per share,
compared to a net loss of $237 million, or $0.20 per share, for the previous
quarter. Included in the net loss for the first quarter 2007 was a $427 million
loss or $0.29 per share on the extinguishment or refinancing of approximately
$3.0 billion of long-term debt during the quarter. Included in the net loss for
the fourth quarter 2006 was a $54 million loss on the extinguishment or
refinancing of $497 million of long-term debt, or $0.05 per share.
"We are pleased with our results for the first quarter, particularly with the
substantial progress we made in reducing and restructuring our long-term debt
and the integration of our acquired businesses, as well as the continued revenue
growth from our core services," said James Q.
Crowe, CEO of Level 3. "We met or exceeded all guidance measures this quarter,
and believe we will see continued revenue and EBITDA growth as a result of
customer demand, strong sales and the benefit of our integration activities
going forward."
Consolidated Adjusted EBITDA(1) was $170 million in the first quarter 2007,
compared to $189 million for the fourth quarter 2006.
First Quarter 2007 Financial Results
Metric Consolidated First Quarter
($ in millions) First Quarter Projections(1)
Revenue Results
Core Communications $870 $860-$880
Other Communications $84 $80-$85
SBC Contract Services $83 $60-$80
Total Communications Revenue $1,037 $1,000-$1,045
Other Revenue $19
Total Consolidated Revenue $1,056
Consolidated Adjusted EBITDA (2)(3) $170 $150-$170
Capital Expenditures $155
Unlevered Cash Flow (3) $(69)
Free Cash Flow (3) $(248)
Communications Gross Margin (3) 57%
Communications Adjusted EBITDA Margin (3) 16%
(1) Projections issued February 8, 2007
(2) Consolidated Adjusted EBITDA excludes $24 million in non-cash
compensation expense for the first quarter 2007 and includes $4
million of cash restructuring charges.
(3) See schedule of non-GAAP metrics for definition and reconciliation to
GAAP measures
Communications Business
Revenue
Communications revenue for the first quarter 2007 increased 25 percent to $1.037
billion, versus $830 million for the previous quarter. Communications revenue
increased primarily as a result of the inclusion of the results of the Broadwing
Corporation acquisition and growth in Core Services revenue, offset by declines
in Other Communications Services revenues and SBC Contract Services revenue. The
company recognized less than $1 million in termination revenue in its Core
Communications Services revenue during the first quarter 2007, compared to $8
million in termination revenue during the fourth quarter 2006.
2
Communications Revenue Quarter ended Quarter ended Percent
($ in millions) March 31, 2007 December 31, 2006 Change
Transport and Infrastructure $406 $315 29%
IP and Data $144 $92 57%
Voice $289 $178 62%
Vyvx $31 $34 (9%)
Total Core Communications Services $870 $ 619 41%
Other Communications Services $84 $95 (12%)
SBC Contract Services $83 $116 (28%)
Total Communications Revenue $1,037 $830 25%
(1) Communications revenue for the first quarter includes approximately
$236 million from Broadwing and $3 million from the SAVVIS CDN
business.
Core Communications Services
Core Communications Services revenue, which includes transport and
infrastructure, IP and Data, Voice and Vyvx services, increased quarter over
quarter by 41 percent. The increase was due to the benefit of revenue from
Broadwing and the Content Distribution Network (CDN) business and growth in
voice, colocation and IP services. Excluding the benefit of revenue from
Broadwing and the acquired CDN business in the first quarter and $8 million of
termination revenue in the fourth quarter 2006, Core Communications Services
revenue increased approximately 3 percent in the first quarter.
In the first quarter 2007, the percent of Core Communications Services revenue
by each market group was as follows:
o Wholesale Markets Group - 58 percent, with strong customer demand coming
primarily from cable and wireless service providers.
o Business Markets Group - 26 percent, with a focus on selling on-net core
services to enterprise customers with advanced network needs.
o Content Markets Group - 10 percent, including the benefit of acquired CDN
revenues, as well as continued demand from internet and portal customers,
broadcast service providers and satellite companies.
o European Markets Group - 6 percent, with continuing demand from content,
cable and carrier customer segments.
Other Communications Services
Other Communications Services revenue declined 12 percent to $84 million during
the quarter, primarily as a result of expected declines in managed modem
services.
SBC Contract Services
SBC Contract Services revenue declined by 28 percent to $83 million quarter over
quarter. Fourth quarter 2006 revenue included a year-end performance bonus of
$12.5 million.
As previously disclosed, SBC has announced its intention to migrate the services
provided under the agreement to its own network facilities in accordance with
terms previously negotiated by
3
WilTel Communications, LLC (WilTel), a company subsequently acquired by Level 3.
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.
Accordingly, while the company expects future SBC Contract Services quarterly
revenue will be difficult to predict, the gross margin contribution over time is
fixed. As of the end of the first quarter, there was approximately $37 million
of gross margin commitment remaining on the contract through 2007 and an
additional $75 million for 2008 through 2009.
Deferred Revenue
The communications deferred revenue balance increased to $939 million at the end
of the first quarter 2007, compared to $895 million at the end of the fourth
quarter 2006. More than 70 percent of the increase was from new indefeasible
rights of use (IRU) sales during the quarter primarily to government and
wireless customers. The remainder of the increase came from the acquisition of
Broadwing.
Cost of Revenue
Communications cost of revenue for the first quarter 2007 increased to $450
million, versus $311 million in the previous quarter. Cost of revenue increased
during the quarter primarily due to the addition of Broadwing network expenses,
partially offset by a reduction in third-party lease costs due to the benefit of
integration efforts and a reduction in expenses associated with supporting the
SBC contract.
Communications Gross Margin(1) was 57 percent for the first quarter 2007, versus
63 percent for the fourth quarter 2006. The decrease in communications gross
margin is primarily attributable to the lower margin revenue from Broadwing,
partially offset by the reduction in lower margin SBC Contract Services revenue.
Selling, General and Administrative (SG&A) Expenses
Communications SG&A expenses were $439 million for the first quarter 2007,
versus $365 million for the previous quarter. The first quarter 2007 and fourth
quarter 2006 Communications SG&A expenses include $24 million and $32 million,
respectively, of non-cash compensation expense. SG&A expenses increased in the
first quarter 2007 primarily due the addition of expenses associated with
Broadwing and the acquired CDN business.
Adjusted EBITDA
Adjusted EBITDA(1) for the communications business decreased to $168 million for
the first quarter 2007, compared to $186 million for the previous quarter.
Communications Adjusted EBITDA declined in the period primarily due to the
absence of the annual SBC performance bonus of $12.5 million and termination
revenue of $8 million each of which were recognized in the fourth quarter 2006,
the decline of Other Communications Services revenue and SBC Contract Service
revenue, as well as the increase in SG&A expenses related to planned integration
activities in the first quarter 2007. This decline was partially offset by the
benefit of Adjusted EBITDA from Broadwing and growth in Core Communications
Services revenue.
First quarter Communications Adjusted EBITDA excludes $24 million of non-cash
compensation expense and includes a $4 million restructuring charge associated
with reductions in workforce as part of the company's integration efforts.
Fourth quarter 2006 Communications Adjusted EBITDA excludes $32 million of
non-cash compensation expense.
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Consolidated Cash Flow and Liquidity
During the first quarter 2007, Unlevered Cash Flow(1) was negative $69 million,
versus positive $65 million for the previous quarter. Consolidated Free Cash
Flow for the first quarter 2007 was negative $248 million, versus negative $29
million for the previous quarter, resulting primarily from higher net cash
interest expense, higher working capital uses, lower Consolidated Adjusted
EBITDA, and higher capital expenditures. Net cash interest expense for the first
quarter 2007 was $179 million.
Working capital uses increased in the first quarter primarily due to prepayments
of software maintenance and contractual prepayments to equipment vendors, bonus
payments, payments against purchase price liabilities associated with
acquisitions, and reductions in accounts payable. Increases in accounts
receivable were offset by increases in deferred revenue. The company expects
Consolidated Free Cash Flow to improve significantly in the remaining three
quarters of 2007 versus the first quarter of 2007 as a result of lower cash
interest expense, sharply lower working capital needs, improving Consolidated
Adjusted EBITDA and cost efficiencies resulting from ongoing integration of
acquired companies.
As of March 31, 2007, the company had cash and marketable securities of
approximately $892 million.
Integration Update
"In the first quarter, we made significant progress on our integration of
acquired companies, with our primary focus of maintaining sales and revenue
growth momentum," said Kevin O'Hara, president and COO of Level 3. "We are
slightly ahead of schedule in terms of overall integration work to be completed
this year, including overall integration-related reductions in workforce. We are
also on track to deliver overall integration related expense reductions, which
earlier in the year we disclosed would be $200 million of network and operating
expenses on an annualized basis.
"We have completed the reorganization of our combined sales force and have
trained the sales force on the full portfolio of our services. From a network
perspective, we have completed the majority of the metro company and Broadwing
transport and IP interconnects and expect to be substantially complete with this
activity in the third quarter of 2007. Network operations center consolidation
is ahead of schedule, and we expect to be complete with the activity during the
second quarter. We made good progress in rationalizing certain network and
operational processes and systems and retired numerous duplicative acquired
applications. Data center consolidation is also progressing according to plan,
with much of the work on track to be completed in 2008."
Corporate Transactions
Acquisitions
On January 3, 2007, Level 3 completed the purchase of Broadwing. 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 123 million shares of common stock. In addition,
during the first quarter, $179 million of Broadwing's outstanding debentures
were converted by the holders thereof pursuant to their terms into approximately
17
5
million shares of Level 3 common stock and $105 million in cash. The
remaining $1 million of debentures was tendered to Level 3 pursuant to the
change of control offer made by Level 3 after completion of the acquisition
On January 23, 2007, Level 3 completed the acquisition of the CDN business
assets from SAVVIS. Level 3 paid $132.5 million in cash to acquire certain
assets, including network elements, customer contracts, and intellectual
property used in the SAVVIS' CDN business.
On April 4, 2007, Level 3 purchased certain assets from AT&T Corporation that
were ordered divested as a result of the merger between AT&T and SBC
Communications Inc. The acquired assets consist of IRUs for dark fiber
connections to over 200 buildings and more than 1,600 metro route miles in six
markets where AT&T was required to divest certain assets. Level 3 will acquire
the divested fiber assets in Detroit, Hartford, Kansas City, Milwaukee, San
Francisco and St. Louis. Under the terms of the agreement, Level 3 has the right
to add new buildings to the acquired assets.
Capital Markets Activity
In January 2007, in two separate transactions, Level 3 exchanged a total of $605
million in aggregate principal amount of its 10% Convertible Senior Notes due
2011 for approximately 196.8 million shares of Level 3's common stock. The
company recorded a $177 million loss in the first quarter on these transactions.
In February 2007, Level 3's wholly owned subsidiary, Level 3 Financing, Inc.
issued $700 million aggregate principal amount of its 8.75% Senior Notes due
2017 and $300 million aggregate principal amount of its Floating Rate Senior
Notes at LIBOR + 375 bps due 2015, in private transactions.
In March 2007, Level 3 Financing refinanced its senior secured credit agreement.
The effect of this transaction was to increase the amount of senior secured debt
from $730 million to $1.4 billion, reduce the interest rate on that debt from
LIBOR + 300 bps to LIBOR + 225 bps and extend the final maturity from 2011 to
2014. The company recognized a $10 million loss on this transaction related to
unamortized debt issuance costs.
During the quarter, Level 3 also redeemed $722 million aggregate principal
amount and repurchased $941 million aggregate principal amount of debt due 2008
to 2011. The company recognized a $240 million loss associated with the
redemptions and repurchases in the first quarter. The cash portion of the loss
on redemptions and tenders in the first quarter totaled $165 million and the
remaining $75 million consisted of unamortized debt issuance costs and
discounts.
As of March 31, 2007, the company had long-term debt of approximately $6.8
billion.
"With the improvements in operating performance, we were able to refinance the
substantial majority of non-convertible senior notes outstanding at Level 3
Communications, Inc.," said Sunit Patel, CFO of Level 3. "The refinancing
materially reduced our average cost of debt and extended our debt maturity
profile."
6
2007 Business Outlook
"We are pleased with the continued growth in revenue and sales activity in the
first quarter," said Patel. "We expect continued strong Core Communications
Services revenue growth in the second quarter. As such, we are projecting Total
Communications Revenue of $1,000-$1,045 million in the second quarter. As we
begin to see additional benefits of merger-related synergies, we are projecting
Consolidated Adjusted EBITDA to increase to $180-$200 million in the quarter.
Additionally, we are reaffirming our previously disclosed full-year guidance for
2007 and 2008."
Second
Metric Quarter 2007 2007 Full Year Projections
($ in millions) Projections
Core Communications Services revenue $890-$910 $3,600-$3,800
Other Communications Services revenue $65-$70 $245-$285
SBC Contract Services $45-$65 $180-$220
Total Communications Revenue $1,000-$1,045 $4,025-$4,305
Consolidated Adjusted EBITDA $180-$200 $860-$920
Consolidated Capital Expenditures N/A $600-$650
Consolidated Capital Expenditures
Net Cash Interest Expense (1) N/A $500
(1) Includes approximately $45 million in interest income.
Summary
"We delivered a solid quarter, and our merger integration efforts are on
target," said Crowe. "We are encouraged by the continued strong industry
environment, and believe we are well-positioned to take advantage of the growing
demand for bandwidth and the rapid migration of applications and content to
Internet-based distribution."
Conference Call and Web Site Information
Level 3 will hold a conference call to discuss the company's first quarter
results at 10 a.m. EDT today. To join the call, please dial 612-332-0636. 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 code
868890. An archived webcast of the first 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 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.
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"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 that we make in this press release are forward looking in
nature. These forward looking statements are not a guarantee of performance and
are subject to a number of uncertainties and other factors, many of which are
outside our control, which could cause actual events to differ materially from
those expressed or implied by the statements. The most important factors that
could prevent us from achieving our stated goals include, but are not limited to
our ability to: successfully integrate acquisitions; increase the volume of
traffic on our network; defend our intellectual property and proprietary rights;
develop new products and services that meet customer demands and generate
acceptable margins; successfully complete commercial testing of new technology
and information systems to support new products and services; attract and retain
qualified management and other personnel; and 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 press 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 EBITDA, Communications Gross Margin, Communications
Adjusted EBITDA 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 metrics, 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 ($)
divided by communications revenue. Management believes that communications gross
margin is a relevant metric to provide to investors, as it is a metric that
management uses to measure the margin available to the company after it pays
third party network services costs; in essence, a measure of the efficiency of
the company's network.
9
Communications Gross Margin Q107 Q406
($ in millions)
Communications Revenue $1,037 $830
Communications Cost of Revenue $450 $311
Communications Gross Margin ($) $587 $519
Communications Gross Margin (%) 57% 63%
Consolidated Adjusted EBITDA is defined as net income/(loss) from the
consolidated condensed statements of operations before gain/(loss) from
discontinued operations, income taxes, total other income/(expense), non-cash
impairment charges, depreciation and amortization and non-cash stock
compensation expense.
Communications Adjusted EBITDA Margin is defined as Communications Adjusted
EBITDA divided by communications revenue.
Management believes that Consolidated Adjusted EBITDA and Communications
Adjusted EBITDA Margins are relevant and useful metrics to provide to investors,
as they are an important part of the Company's internal reporting and are key
measures used by Management to evaluate profitability and operating performance
of the Company and to make resource allocation decisions. Management believes
such measures are especially important in a capital-intensive industry such as
telecommunications. Management also uses Consolidated Adjusted EBITDA and
Communications Adjusted EBITDA Margin to compare the company's performance to
that of its competitors. Management has adjusted consolidated EBITDA to
eliminate certain non-cash and non-operating items in order to consistently
measure from period to period its ability to fund capital expenditures, fund
growth, service debt and determine bonuses. Consolidated Adjusted EBITDA
excludes non-cash impairment charges and non-cash stock compensation expense
because of the non-cash nature of these items. Consolidated Adjusted EBITDA also
excludes interest income, interest expense, income taxes and gain (loss) on
extinguishment of debt because these items are associated with the company's
capitalization and tax structures. Consolidated Adjusted EBITDA also excludes
depreciation and amortization expense because these non-cash expenses reflect
the impact of capital investments which management believes should be evaluated
through consolidated free cash flow. Consolidated Adjusted EBITDA excludes
other, net because these items are not related to the primary operations of the
Company.
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 interest income, interest expense, income taxes, depreciation and
amortization, non-cash impairment charges, non-cash stock compensation expense,
gain/(loss) on early extinguishment of debt and net other income/(expense).
Consolidated Adjusted EBITDA and Communications Adjusted EBITDA Margin should
not be considered a substitute for other measures of financial performance
reported in accordance with GAAP.
10
Consolidated Adjusted EBITDA
Three Months Ended March 31, 2007 Comm- Information
($ in millions) unications Services Other Consolidated
Net Earnings (Loss) ($647) $-- $-- ($647)
(Income) Loss from Discontinued Operations $-- $-- $-- $--
Income Tax (Benefit) Expense $1 $-- $1 $2
Total Other (Income) Expense $570 $-- $-- $570
Non-Cash Impairment Charge $-- $-- $-- $--
Depreciation and Amortization Expense $220 $-- $1 $221
Non-Cash Stock Compensation Expense $24 $-- $-- $24
Consolidated Adjusted EBITDA $168 $-- $2 $170
Consolidated Adjusted EBITDA
Three Months Ended December 31, 2006 Communications Information Con-
($ in millions) Services Other solidated
Net Earnings (Loss) ($243) $-- $6 ($237)
(Income) Loss from Discontinued Operations $-- $-- $-- $--
Income Tax (Benefit) Expense $4 $-- $-- $4
Total Other (Income) Expense $194 $-- ($1) $193
Non-Cash Impairment Charge $-- $-- $-- $--
Depreciation and Amortization Expense $199 $-- ($2) $197
Non-Cash Stock Compensation Expense $32 $-- $-- $32
Consolidated Adjusted EBITDA $186 $-- $3 $189
Consolidated Adjusted EBITDA
Three Months Ended March 31, 2006 Comm-unications Information Con-
($ in millions) Services Other solidated
Net Earnings (Loss) ($166) ($2) $-- ($168)
(Income) Loss from Discontinued Operations $-- $2 $-- $2
Income Tax (Benefit) Expense ($1) $-- $-- ($1)
Total Other (Income) Expense $111 $-- ($1) $110
Non-Cash Impairment Charge $3 $-- $-- $3
Depreciation and Amortization Expense $186 $-- $1 $187
Non-Cash Stock Compensation Expense $14 $-- $-- $14
Consolidated Adjusted EBITDA $147 $-- $-- $147
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Communications Adjusted EBITDA Margin
($ in millions) Q107 Q406
Communications Revenue $1,037 $830
Communications Adjusted EBITDA $168 $186
Communications Adjusted EBITDA Margin 16% 22%
Projected Consolidated Adjusted EBITDA Consolidated
Three Months Ended June 30, 2007 Range
($ in millions)
Low High
Net Earnings (Loss) ($205) ($165)
Total Other (Income) Expense $135 $125
Depreciation and Amortization Expense $230 $215
Non-Cash Stock Compensation Expense $20 $25
Consolidated Adjusted EBITDA $180 $200
Projected Consolidated Adjusted EBITDA Consolidated
Twelve Months Ended December 31, 2007 Range
($ in millions)
Low High
Net Earnings (Loss) ($1,120) ($1,020)
Total Other (Income) Expense $970 $950
Depreciation and Amortization Expense $915 $875
Non-Cash Stock Compensation Expense $95 $115
Consolidated Adjusted EBITDA $860 $920
Projected Consolidated Adjusted EBITDA Consolidated
Twelve Months Ended December 31, 2008 Range
($ in millions)
Low High
Net Earnings (Loss) ($395) ($195)
Total Other (Income) Expense $525 $495
Depreciation and Amortization Expense $915 $875
Non-Cash Stock Compensation Expense $105 $125
Consolidated Adjusted EBITDA $1,150 $1,300
Unlevered Cash Flow is defined as net cash provided by (used in) operating
activities less 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.
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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 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 March 31, 2007 Cash Flow
($ in millions)
Net Cash Used in Operating Activities ($93) ($93)
Capital Expenditures ($155) ($155)
Cash Interest Paid $200 N/A
Interest Income ($21) N/A
Total ($69) ($248)
Unlevered Cash Flow and Consolidated Free Cash Flow Three Months Unlevered Cash Flow Consolidated Free
Ended December 31, 2006 Cash Flow
($ in millions)
Net Cash Provided by Operating Activities $112 $112
Capital Expenditures ($141) ($141)
Cash Interest Paid $114 N/A
Interest Income ($20) N/A
Total $65 ($29)
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LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
Three Months Ended
March 31, December 31, March 31,
(dollars in millions, except per share data) 2007 2006 2006
Revenue:
Communications $ 1,037 $ 830 $ 804
Other 19 16 18
-- -- --
Total Revenue 1,056 846 822
Costs and Expenses:
Cost of Revenue 466 324 412
Depreciation and Amortization 221 197 187
Selling, General and Administrative, including non-cash
compensation of $24, $32, and $14, respectively 440 365 276
Restructuring Charges, including non-cash impairment
charges of $-, $-, and $3, respectively 4 - 4
-- -- --
Total Costs and Expenses 1,131 886 879
----- --- ---
Operating Income (Loss) (75) (40) (57)
Other Income (Loss), net:
Interest Income 21 20 9
Interest Expense (165) (167) (150)
Gain (Loss) on Extinguishment of Debt (427) (54) 27
Other Income (Expense) 1 8 4
-- -- --
Other Income (Loss) (570) (193) (110)
---- ---- ----
Loss from Continuing Operations Before Income Taxes (645) (233) (167)
Income Tax (Expense) Benefit (2) (4) 1
-- -- --
Loss from Continuing Operations (647) (237) (166)
Loss from Discontinued Operations - - (2)
-- -- --
Net Loss $ (647) $ (237) $ (168)
====== ====== ======
Basic and Diluted Loss per Share:
Loss from Continuing Operations $ (0.44) $ (0.20) $ (0.20)
Loss from Discontinued Operations - - -
-- -- --
Net Loss $ (0.44) $ (0.20) $ (0.20)
======= ======= =======
Weighted Average Shares Outstanding (in thousands):
Basic and Diluted 1,469,163 1,176,525 821,918
========= ========= =======
(c) 2007 by Level 3 Communications, Inc. All rights reserved.
14
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
March 31, December 31, March 31,
(dollars in millions) 2007 2006 2006
Assets
Current Assets:
Cash and cash equivalents $ 884 $ 1,681 $ 555
Marketable securities 8 235 412
Restricted securities 36 46 35
Accounts receivable, less allowances of $17, $17 and $19, respectively 450 326 402
Current assets of discontinued operations - - 398
Other 126 101 99
--- --- --
Total Current Assets 1,504 2,389 1,901
Property, Plant and Equipment, net 6,675 6,468 5,581
Restricted Securities 92 90 87
Goodwill and Other Intangibles, net 2,217 919 327
Noncurrent Assets of Discontinued Operations - - 267
Other Assets, net 147 128 121
--- --- ---
$ 10,635 $ 9,994 $ 8,284
======== ======= =======
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 462 $ 391 $ 370
Current portion of long-term debt 34 5 1
Accrued payroll and employee benefits 74 92 51
Accrued interest 94 143 120
Deferred revenue 163 142 184
Current liabilities of discontinued operations - - 329
Other 216 156 118
--- --- ---
Total Current Liabilities 1,043 929 1,173
Long-Term Debt, less current portion 6,823 7,357 6,357
Deferred Revenue 776 753 738
Other Liabilities 579 581 562
Stockholders' Equity (Deficit) 1,414 374 (546)
----- --- ----
$ 10,635 $ 9,994 $ 8,284
======== ======= =======
(c) 2007 by Level 3 Communications, Inc. All rights reserved.
15
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
March 31, December 31, March 31,
(dollars in millions) 2007 2006 2006
Cash Flows from Operating Activities:
Net loss $ (647) $ (237) $ (168)
Income from discontinued operations - - 2
-- -- --
Loss from continuing operations (647) (237) (166)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in)
operating activities of continuing operations:
Depreciation and amortization 221 197 187
Gain on sale of property, plant and equipment, and other assets (1) (2) (1)
(Gain) loss on extinguishment of long-term debt, net 427 54 (27)
Non-cash compensation expense attributable to stock awards 24 32 14
Deferred revenue 38 (4) (15)
Amortization of debt issuance costs 4 4 4
Accreted interest on discount debt 9 10 9
Accrued interest on long-term debt (48) 39 18
Changes in working capital items net of amounts acquired:
Receivables (35) 30 23
Other current assets (18) 10 (8)
Payables (13) (15) (1)
Other current liabilities (53) (9) (44)
Other (1) 3 -
-- -- --
Net Cash Provided by (Used in) Operating Activities of Continuing Operations (93) 112 (7)
Cash Flows from Investing Activities:
Capital expenditures (155) (141) (58)
Advances from discontinued operations, net - - (10)
Proceeds from sale and maturity of marketable securities 280 275 -
Proceeds from sale of property, plant and equipment 2 2 2
(Increase) decrease in restricted cash and securities, net 16 - (12)
Acquisitions, net of cash acquired (626) (3) (70)
---- -- ---
Net Cash Provided by (Used in) Investing Activities (483) 133 (148)
Cash Flows from Financing Activities:
Long-term debt borrowings, net of issuance costs 2,362 1,249 379
Proceeds from warrants and stock-based equity plans 23 - -
Payments on long-term debt, including current portion and refinancing costs (2,611) (543) (51)
------ ---- ---
Net Cash Provided by (Used in) Financing Activities (226) 706 328
Net Cash Used in Discontinued Operations - (3) (48)
Effect of Exchange Rates on Cash 5 2 3
-- -- --
Net Change in Cash and Cash Equivalents (797) 950 128
Cash and Cash Equivalents at Beginning of Period (including cash of discontinued operations) 1,681 731 452
----- --- ---
Cash and Cash Equivalents at End of Period (including cash of discontinued operations) $ 884 $ 1,681 $ 580
===== ======= =====
Supplemental Disclosure of Cash Flow Information:
Cash interest paid $ 200 $ 114 $ 119
Total Cash, Current Marketable Securities and Noncurrent Marketable Securities $ 892 $ 1,916 $ 967
(c) 2007 by Level 3 Communications, Inc. All rights reserved.
16