Exhibit 99.1
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Level 3 Communications, Inc.
1025 Eldorado Boulevard
Broomfield, Colorado 80021
www.Level3.com
NEWS RELEASE
FOR IMMEDIATE RELEASE
Level 3 Contacts:
Media: Josh Howell Investors: Robin Grey
720/888-2517 720/888-2518
Level 3 Reports Second Quarter Results
Company Increases Full Year Consolidated EBITDA Projections
Genuity Integration Remains on Plan
Company On Track to Turn Free Cash Flow Positive in Second Quarter of 2004
BROOMFIELD, Colo, July 24, 2003 - Level 3 Communications, Inc. (Nasdaq:LVLT)
today announced its second quarter results. Consolidated revenue was $941
million for the second quarter compared to $1.23 billion for the previous
quarter, which excludes $17 million and $20 million of revenue, respectively,
from Software Spectrum's contact services business which is included in
discontinued operations. Consolidated revenue for the second and first quarter
includes $7 million and $326 million of revenue respectively, associated with
customer terminations and settlements that had no cash impact. Consolidated
revenue for the current quarter includes a full quarter of revenue from the
Genuity transaction, which closed on February 4, 2003.
The net loss for the second quarter was $0.95 per share, or $462 million.
Included in the net loss was a $190 million expense, or $0.39 loss per share,
related to the premium that was paid for the full conversion of the company's 9%
Junior Convertible Subordinated Notes due 2012.
Consolidated Adjusted EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization) (see attached schedule of non-GAAP metrics) was $113 million for
the second quarter, versus $95 million for the previous quarter. Consolidated
EBITDA (see attached schedule of non-GAAP metrics) was $114 million in the
second quarter versus $403 million for the previous quarter. Consolidated EBITDA
for the previous quarter included $326 million in customer settlement and
termination revenue that had no associated costs or cash impact.
Overview
"We exceeded our projections for the second quarter and continue to make steady
progress. We saw modest improvements in our financial and operational metrics,
including sales, for the communications business," said James Crowe, CEO of
Level 3. "However, sales cycles continue to be longer than we would like. Level
3 continues to be a strong financial partner for its customers given our high
incremental margins and the financial strength of our balance sheet."
The company reports financial information based on three operating segments:
communications; information services; and other, which consists primarily of
coal mining operations.
Second Quarter Financial Results Compared to Projections (1)
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Metric Second Quarter Second Quarter
($ in millions) Actuals Projections (1)
Communications Services Revenue
(excluding Termination and Settlement Revenue) (2) $389 $380
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Reciprocal Compensation $38 $35
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Termination and Settlement Revenue $7 $10
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Communications Revenue $434 $425
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Information Services Revenue (3) $491 $500
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Other Revenue $16 $20
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Consolidated Revenue (3) $941 $945
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Consolidated EBITDA (4) $114 $89
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Capital Expenditures $65 $65
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Communications Gross Margin (5) 76% Mid 70% range
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(1) Projections issued April 24, 2003.
(2) Communications Services Revenue is communications revenue minus
reciprocal compensation revenue.
(3) Second quarter projections include Software Spectrum's contact
services business, which was sold in April 2003. Actual second quarter
results do not include revenue from the contact services business of
$17 million.
(4) Consolidated EBITDA includes $9 million in restructuring charges and
excludes $25 million in stock-based compensation expense.
(5) See attached schedule of non-GAAP metrics for definition.
2
Consolidated Cash Flow and Liquidity
During the second quarter, unlevered cash flow was positive $65 million, versus
negative $24 million for the first quarter (see attached schedule of non-GAAP
metrics). For the six months ended June 30, 2003, unlevered cash flow was $41
million. Consolidated free cash flow was negative $31 million, versus the
previous quarter of negative $128 million (see attached schedule of non-GAAP
metrics).
As of June 30, 2003, the company's cash and marketable securities balance was
$1.3 billion, including $400 million in restricted cash held as security under
the company's senior secured credit facility. The 2.875% Convertible Senior
Notes issued in July 2003 increased the company's cash and marketable securities
balance by approximately $362 million. Including $400 million in restricted cash
held as security under the company's senior secured credit facility, the
company's pro-forma cash and marketable securities balance was approximately
$1.7 billion.
Communications Business
Revenue
Communications revenue for the second quarter was $434 million, versus $708
million for the previous quarter. The previous quarter included $326 million in
customer settlement and termination revenue. Total communications revenue for
the second quarter consisted of $396 million of communications services revenue
and $38 million of reciprocal compensation revenue. Included in communications
services revenue for the second quarter was $7 million of settlement and
termination revenue. Communications services revenue, excluding settlement and
termination revenue, increased by $48 million in the second quarter as compared
to the previous quarter, primarily due to a full quarter of revenue from the
Genuity transaction in the second quarter, versus the first quarter, which
included approximately two months of Genuity revenue.
Cost of Revenue
Communications cost of revenue for the second quarter was $103 million,
resulting in a 76 percent communications gross margin (see attached schedule of
non-GAAP metrics), versus cost of revenue of $89 million for the previous
quarter, which resulted in an 87 percent communications gross margin. Excluding
termination and settlement revenue of $7 million in the second quarter and $326
million in the first quarter, communications gross margin declined by one
percent from the first quarter to the second quarter.
Communications cost of revenue increased in the second quarter due to a full
quarter of expenses associated with the Genuity transaction, partially offset by
lower circuit expenses as a result of further optimization of the Genuity
network.
Selling, General and Administrative Expenses (SG&A)
Communications SG&A expenses were $238 million for the second quarter, versus
$231 million for the previous quarter. For the same periods, communications SG&A
expenses include $24 million and $21 million of non-cash stock compensation
expenses. The total number of employees in the communications business decreased
to approximately 3,650 at the end of the second quarter from approximately 4,000
at the end of the previous quarter.
3
Communications SG&A expenses increased in the second quarter due to a full
quarter of expenses associated with the Genuity transaction, partially offset by
a reduction in costs associated with the Genuity integration, such as the
elimination of duplicate facilities and reduction in headcount, and an $8
million reduction in property tax expense.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Communications EBITDA (see attached schedule of non-GAAP metrics) was $112
million for the second quarter, including a restructuring charge of $5 million,
versus $398 million for the previous quarter, which included $326 million of
customer termination and settlement revenue and $11 million in restructuring
charges. Communications EBITDA margin (see attached schedule of non-GAAP
metrics) was 26 percent for the second quarter. For the six months ended June
30, 2003, communications EBITDA was $510 million.
Genuity Integration
"We have made good progress on the integration of the acquired Genuity
operations into Level 3," said Kevin O'Hara, president and COO of Level 3. "With
five months of integration behind us, we are increasingly confident about our
integration timeline. We continue to eliminate duplicative network capacity and
facilities, combine our network operating centers, and migrate customer traffic
onto the Level 3 network."
Information Services Business
Results for the information services business include the Software Spectrum and
(i)Structure subsidiaries. During the second quarter, the company sold Software
Spectrum's contact services business, and the results for this business are
reflected as discontinued operations in the statement of operations. For the
first six months of 2003, the contact services business generated approximately
$37 million in revenue.
"Given the softness in sales we began to experience at the beginning of the
year, we have taken steps to reduce overall expenses through ongoing cost
cutting and restructuring activities," said Charles Miller, vice chairman of
Level 3. "We expect to be able to reduce our operating expense run rate by
approximately 15 percent to 20 percent by the end of the year."
Revenue and EBITDA
Information services revenue was $491 million for the second quarter, versus
$506 million for the previous quarter. The decline in revenue for the second
quarter was primarily the result of softness in sales and the continued adoption
by Software Spectrum customers of Microsoft's new software licensing program.
Microsoft's new software licensing program continues to result in a decline in
revenue, but has no significant impact to profitability levels.
EBITDA (see attached schedule of non-GAAP metrics) from the information services
business was $0.4 million for the second quarter, including $4 million in
restructuring charges, compared to $3 million for the previous quarter. The
restructuring charges recognized in the second quarter are a result of the
ongoing integration and restructuring of Software Spectrum, as well as the
closure of (i)Structure's operations in Ireland.
Primarily as a result of the sale of the contact services business, the total
number of employees in the information services business decreased to
approximately 1,800 at the end of the second quarter from approximately 3,500 at
the end of the previous quarter.
4
Other Businesses
The company's other businesses consist primarily of coal mining operations.
Revenue and EBITDA
Revenue and EBITDA from other businesses were $16 million and $2 million for the
second quarter, unchanged from the previous quarter.
Corporate Transactions
Capital Structure Changes
During the second quarter, Level 3 reduced its outstanding debt by $580 million.
The company converted $480 million of its 9% Junior Convertible Subordinated
Notes due 2012 into approximately 168 million shares of Level 3 common stock and
retired $100 million of 9.125% senior notes for approximately 13 million shares
of Level 3 common stock. Level 3 had approximately 641.5 million outstanding
shares of common stock as of June 30, 2003.
In July 2003, Level 3 completed an offering of approximately $374 million
aggregate principal amount of its 2.875% Convertible Senior Notes due 2010 in an
underwritten public offering. Net cash proceeds from the offering were $362
million.
"We're pleased with the improvement in our balance sheet," said Sunit Patel, CFO
of Level 3. "We converted $580 million of high-coupon debt into equity and
accessed the capital markets for the first time in over three years to issue
low-coupon convertible debt."
Business Transactions
In May 2003, Level 3 exited the managed web hosting business it acquired in the
Genuity transaction through an agreement with Computer Sciences Corporation
(CSC). As part of the transaction, CSC agreed to use Level 3's network services
to serve hosting customers.
In June 2003, Level 3 announced the sale of Software Spectrum's contact services
business to H.I.G Capital, a Miami-based private equity firm. This business had
revenue of approximately $37 million for the six months ended June 30, 2003.
Historical results for this business, including the second quarter, are
reflected as discontinued operations in the statement of operations.
Subsequent to the end of the second quarter, the company acquired Telverse
Communications Inc., a provider of IP-based voice and data services
headquartered in Dulles, VA. Consideration for the acquisition was approximately
$30 million in Level 3 common stock.
"Telverse is an important building block in our ongoing effort to build a more
significant presence in the voice-over-IP market," said Jack Waters, group vice
president and president of softswitch services.
Subsequent to the end of the second quarter, Level 3 sold the former Genuity,
Inc. headquarters building for approximately $20 million in cash.
5
Business Outlook
"We are realizing cost benefits as a result of our ongoing integration of the
Genuity business," said James Crowe. "We expect to see further improvements in
cash flow, particularly as we look toward the fourth quarter 2003. We are
focused on long-term value creation by improving consolidated free cash flow
through recurring revenue growth and new product development, as well as
opportunistic acquisition activity."
Quarterly and Full Year Projections
Sunit Patel said, "For the full year 2003, we are tightening our range for
communications revenue from $1.94 billion - $2.04 billion to $1.98 billion -
$2.0 billion. We are comfortable with our previously issued full year
projections for information services revenue and other revenue, communications
gross margin, and unlevered cash flow, and we are increasing our projection for
consolidated EBITDA by $20 million."
"Our third quarter projections show a decrease in communications revenue. This
decrease is primarily a result of lower reciprocal compensation revenue, which
decreases from $38 million in the second quarter to $25 million in the third
quarter. The decrease is being driven by the expiration of existing
interconnection agreements, which have either been renegotiated or by the
adoption of the Federal Communication Commission's (FCC) mandated rates for
dial-up traffic," said Patel. "Our recurring communications revenue continues to
show modest growth. Our projected Consolidated EBITDA for the third quarter
decreases due to the reduction in reciprocal compensation, restructuring charges
in the information services business and the benefit of a reduction in property
tax expenses in the second quarter, which increased Consolidated EBITDA by
approximately $8 million."
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Metric Third Quarter Full Year 2003
($ in millions) Projections Projections
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Communications Services Revenue
(excluding Termination and Settlement Revenue) $390 Not Provided
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Reciprocal Compensation $25 Not Provided
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Termination and Settlement Revenue $5 Not Provided
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Communications Revenue $420 $1,980-$2,000
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Information Services Revenue $490 $2,000-$2,200
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Other Revenue $20 $70-$80
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Consolidated Revenue $930 $4,050-$4,280
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Consolidated EBITDA $100 $725-$775
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Capital Expenditures $70 Not Provided
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Unlevered Cash Flow Not Provided $100-$125
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Communications Gross Margin 76%-78% high 70% range
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The company expects cash and marketable securities, including $400 million in
restricted cash held as security under the company's senior secured credit
facility, of approximately $1.6 billion at year-end.
6
The company continues to expect to turn Consolidated Free Cash Flow positive
during the second quarter of 2004.
Summary
"I am encouraged by Level 3's ability to execute in this environment," said
Crowe. "I believe that our ability to successfully integrate the Genuity
transaction - coupled with our consistent financial and operating performance
and our industry-leading provisioning times and quality of service - will enable
Level 3 to continue to differentiate itself in the marketplace during 2003."
Conference Call Today
Level 3 will hold a conference call to discuss the company's second quarter
results at 11 a.m. Eastern Time today. To join the call, please dial
612-326-1003. A live broadcast of the call can also be heard on Level 3's web
site at www.level3.com. An audio replay of the call will be accessible through
the web site or by dialing 320-365-3844; access code 687821.
About Level 3 Communications
Level 3 (Nasdaq:LVLT) is an international communications and information
services company. The company operates one of the largest Internet backbones in
the world, is one of the largest providers of wholesale dial-up service to ISPs
in North America and is the primary provider of Internet connectivity for
millions of broadband subscribers, through its cable and DSL partners. The
company offers a wide range of communications services over its 22,500 mile
broadband fiber optic network including Internet Protocol (IP) services,
broadband transport and infrastructure services, colocation services, and
patented Softswitch managed modem and voice services. Its Web address is
www.Level3.com.
The company offers information services through its subsidiaries, (i)Structure
and Software Spectrum. For additional information, visit their respective web
sites at www.softwarespectrum.com and www.i-structure.com.
Forward Looking Statement
Some of the statements made by Level 3 in this press release are forward-looking
in nature. Actual results may differ materially from those projected in
forward-looking statements. Level 3 believes that its primary risk factors
include, but are not limited to: changes in the overall economy relating to,
among other things, the September 11 attacks and subsequent events, the
challenges of integration, substantial capital requirements; development of
effective internal processes and systems; the ability to attract and retain high
quality employees; technology; the number and size of competitors in its
markets; law and regulatory policy; and the mix of products and services offered
in the company's target markets. Additional information concerning these and
other important factors can be found within Level 3's filings with the
Securities and Exchange Commission. Statements in this release should be
evaluated in light of these important factors.
-30-
7
Schedule to Reconcile non-GAAP Financial 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 EBITDA,
consolidated Adjusted EBITDA, communications gross margin, communications EBITDA
margin, unlevered cash flow and consolidated free cash flow. The following
reconciliation of these non-GAAP financial metrics to GAAP includes
forward-looking statements with respect to the information identified as a
projection. Level 3 has made a number of assumptions in preparing our
projections, including assumptions as to the components of financial metrics.
These assumptions, including dollar amounts of the various components that
comprise a financial metric, may or may not prove to be correct. We caution you
that these forward-looking statements are only predictions, which are subject to
risks and uncertainties including technological uncertainty, financial
variations, changes in the regulatory environment, industry growth and trend
predictions. Please see the company's Annual Report on Form 10-K/A-1 for a
description of these risks and uncertainties.
In order to provide projections with respect to non-GAAP measures, we are
required to indicate a range for GAAP measures that are components of the
reconciliation of the non-GAAP metric. The provision of these ranges is in no
way meant to indicate that the company is explicitly or implicitly providing
projections on those GAAP components of the reconciliation. In order to
reconcile the non-GAAP financial metric to GAAP, the company has to use ranges
for the GAAP components that arithmetically add up to the non-GAAP financial
metric. While the company feels reasonably comfortable about the projections for
its non-GAAP financial metrics, it fully expects that the ranges used for the
GAAP components will vary from actual results. We will consider our projections
of non-GAAP financial metrics to be accurate if the specific non-GAAP metric is
met or exceeded, even if the GAAP components of the reconciliation are different
from those provided in an earlier reconciliation.
Communications Gross Margin ($) is defined as communications revenue less
communications cost of revenue from the consolidated condensed statements of
operations.
Cost of Revenue for the communications business includes leased
capacity, right-of-way costs, access charges and other third party circuit costs
directly attributable to the network, as well as costs of assets sold pursuant
to sales-type leases.
Communications Gross Margin (%) is defined as communications gross margin ($)
divided by communications revenue. Management believes that communications gross
margin is a relevant metric to provide to investors, as it is a metric that
management uses to measure the margin available to the company after it pays
third party network services costs; in essence, a measure of the efficiency of
the company's network.
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COMMUNICATIONS GROSS MARGIN
($ in millions) Q103 Q203
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Communications Revenue $708 $434
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Communications Cost of Revenue $89 $103
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Communications Gross Margin ($) $619 $331
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Communications Gross Margin (%) 87% 76%
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8
EBITDA is defined by Level 3 as net income/(loss) from the consolidated
condensed statements of operations, less income/(loss) from discontinued
operations, less cumulative effect of change in accounting principle, less
interest income, less interest expense, less other income/expense, less
depreciation and amortization expense and less non-cash compensation expense
included within selling, general and administration expense on the consolidated
condensed statements of operations, and after reduction of operating expenses by
the non-cash portion of restructuring and impairment charges. Communications
EBITDA Margin is defined as communications EBITDA divided by communications
revenue.
EBITDA is not a measurement under accounting principles generally accepted in
the United States and may not be similar to EBITDA measures of other companies.
Management believes that EBITDA and EBITDA margin are relevant metrics to
provide to investors, as they are indicators of operating performance,
especially in a capital-intensive industry such as telecommunications, since it
excludes items that are not directly attributable to ongoing business
operations. The company excludes non-cash compensation due to its adoption of
the expense recognition provisions of SFAS No. 123.
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Consolidated EBITDA
Three Months Ended June 30, 2003 Comm- Information Con-
($ in millions) unications Services Other solidated
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Net Income (Loss) ($455) ($17) $10 ($462)
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(Income) Loss from Discontinued Operations -- $9 -- $9
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Other (Income)/Expense $325 ($2) ($9) $314
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Depreciation and Amortization Expense $218 $9 $1 $228
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Non-cash Compensation Expense $24 $1 -- $25
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Non-cash Restructuring and Impairment -- -- -- --
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EBITDA $112 -- $2 $114
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COMMUNICATIONS EBITDA MARGIN
Three Months Ended June 30, 2003 Q203
($ in millions)
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Communications Revenue $434
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Communications EBITDA $112
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Communications EBITDA Margin 26%
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Consolidated EBITDA
Three Months Ended March 31, 2003 Comm- Information Con-
($ in millions) unications Services Other solidated
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Net Income (Loss) $47 ($4) $76 $119
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(Income) Loss from Discontinued Operations -- ($2) -- ($2)
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Cumulative Effect of Change in Accounting Principle -- -- ($5) ($5)
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Other (Income)/Expense $131 -- ($70) $61
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Depreciation and Amortization Expense $199 $7 $1 $207
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9
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Non-cash Compensation Expense $21 $2 -- $23
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Non-cash Restructuring and Impairment -- -- -- --
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EBITDA $398 $3 $2 $403
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Projected Consolidated EBITDA
Three Months Ended September 30, 2003 Comm- Information Con-
($ in millions) unications Services Other solidated
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Net Income (Loss) ($268) ($11) $1 ($278)
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Other (Income)/Expense $129 $2 -- $131
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Depreciation and Amortization Expense $217 $7 $1 $225
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Non-cash Compensation Expense $20 $2 -- $22
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Non-cash Restructuring and Impairment -- -- -- --
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EBITDA $98 -- $2 $100
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Projected Consolidated EBITDA
Twelve Months Ended December 31, 2003
($ in millions)
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Range
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Low High
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Net Income (Loss) ($895) ($815)
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(Income) Loss from Discontinued Operations $10 $10
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Cumulative Effect of Change in Accounting Principle ($5) ($5)
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Other (Income)/Expense $640 $630
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Depreciation and Amortization Expense $880 $870
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Non-cash Compensation Expense $95 $85
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Non-cash Restructuring and Impairment -- --
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EBITDA $725 $775
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Adjusted EBITDA is defined as consolidated EBITDA plus non-cash cost of
revenue plus/minus the change in communications cash deferred revenue
plus/minus the change in deferred revenue not collected. Management
believes that Adjusted EBITDA is a relevant metric to provide to investors,
as it is a metric that is used to calculate the company's total leverage
covenant contained in its senior secured credit facility.
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Adjusted EBITDA ($ in millions) Q103 Q203
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Consolidated EBITDA $403 $114
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Non-cash cost of revenue -- --
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Change in communications cash deferred revenue ($306) $17
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Change in deferred revenue not collected ($2) ($18)
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Adjusted EBITDA $95 $113
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Change in Communications Cash Deferred Revenue is the change in the total
of the current and noncurrent deferred revenue balances on the consolidated
condensed balance sheet between quarters from the communications business.
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CHANGE IN COMMUNICATIONS Q402 Q103 Q203
DEFERRED REVENUE
($ in millions)
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Deferred Revenue - Current $199 $117 $126
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Deferred Revenue - Noncurrent $1,264 $925 $938
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Deferred Revenue per Balance Sheet $1,463 $1,042 $1,064
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Communications $1,406 $1,030 $1,047
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Information Services $57 $12 $17
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Deferred Revenue per Balance Sheet $1,463 $1,042 $1,064
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Quarter over Quarter Change in ($376) $17
Communications Deferred Revenue
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Non-Cash Adjustments to Deferred Revenue (1) $70 ---
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Increase (decrease) in Communications Deferred Revenue ($306) $17
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(1) Non-Cash Adjustments to Deferred Revenue - This adjustment reverses the net
non-cash change in deferred revenue as a result of the Genuity acquisition
in the first quarter of 2003. Level 3 entered into certain transactions
with Genuity prior to the acquisition of Genuity by Level 3, whereby it
received cash for services to be provided in the future. As a result of the
acquisition, Level 3 can no longer amortize this deferred revenue into
earnings and accordingly, reduced the purchase price applied to the net
assets acquired in the Genuity transaction by the amount of the unamortized
deferred revenue balance. Level 3 also recorded at fair value certain
deferred revenue obligations in the Genuity acquisition.
Change in Deferred Revenue Not Collected is the change in the current and
noncurrent deferred revenue balances on the consolidated condensed balance sheet
between quarters, which has not been collected and is included in the accounts
receivable balance on the consolidated condensed balance sheet.
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CHANGE IN DEFERRED REVENUE NOT COLLECTED December 31, March 31, June 30,
($ in millions) 2002 2003 2003
- ------------------------------------------------------------------------- ----------------- -------------- ---------------
Unearned Communications Accounts Receivable related to Deferred Revenue $47 $49 $68
(1)
- ------------------------------------------------------------------------- ----------------- -------------- ---------------
Quarter over Quarter Change (a) ($2) ($19)
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Deferred Revenue Attributable to Equity Investments (2) $4 $4 $3
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Quarter over Quarter Change (b) --- $1
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Increase in Deferred Revenue not Collected (a+b) ($2) ($18)
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(1) Communications Accounts Receivable related to Deferred Revenue - A
component of accounts receivable representing amounts billed to a customer
for which the corresponding service/products have been delivered, but will
be recognized as revenue over future periods as the service/product is used
by the customer.
(2) Deferred Revenue Attributable to Equity Investees - The company previously
made investments in certain public and private companies in connection with
those entities agreeing to purchase various services from the company. The
company originally recorded these transactions as investments and deferred
revenue on the balance sheet. The company did not feel it was appropriate
to include these transactions in Adjusted EBITDA until services had been
provided to the investee. This adjustment to deferred revenue not collected
represents the deferred revenue obligations remaining under these
transactions.
Unlevered Cash Flow is defined as net cash provided by (used in) operating
activities less capital expenditures offset by release of capital expenditure
accruals, and adding back cash interest paid, less interest income all as
disclosed in the consolidated condensed statements of cash flows or the
consolidated condensed statements of operations. Management believes that
unlevered cash flow is a relevant metric to provide to investors, as it is an
indicator of the operational strength and performance of the company and, over
time, provides management and investors with a sense of the growth pattern of
the business.
Consolidated Free Cash Flow is defined as net cash provided by (used in)
operating activities less capital expenditures offset by release of capital
expenditure accruals as disclosed in the consolidated condensed statements of
cash flows. Management believes that consolidated free cash flow is a relevant
metric to provide to investors, as it is an indicator of the company's ability
to generate cash to service its debt.
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UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended June 30, 2003 Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
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Net Change in Cash and Cash Equivalents ($29) ($29)
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Effect of Exchange Rates on Cash ($1) ($1)
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Net Cash Provided by Discontinued Operations ($12) ($12)
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Net Cash Used in Financing Activities $10 $10
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Net Cash Used in Investing Activities $51 $51
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Net Cash Provided by Continuing Operations $19 $19
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Gross Capital Expenditures ($65) ($65)
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Release of Capital Expenditure Accruals $15 $15
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Cash Interest Paid $101 N/A
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Interest Income ($5) N/A
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Total $65 ($31)
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UNLEVERED CASH FLOW AND CONSOLIDATED FREE CASH FLOW
Three Months Ended March 31, 2003 Consolidated Free
($ in millions) Unlevered Cash Flow Cash Flow
- --------------------------------------------------------------------- -------------------- --------------------
Net Change in Cash and Cash Equivalents ($198) ($198)
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Effect of Exchange Rates on Cash ($2) ($2)
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Net Cash Provided by Discontinued Operations ($4) ($4)
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Net Cash Used in Financing Activities $1 $1
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Net Cash Used in Investing Activities $94 $94
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Net Cash Used in Continuing Operations ($109) ($109)
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Gross Capital Expenditures ($25) ($25)
- --------------------------------------------------------------------- -------------------- --------------------
Release of Capital Expenditure Accruals $6 $6
- --------------------------------------------------------------------- -------------------- --------------------
Cash Interest Paid $109 N/A
- --------------------------------------------------------------------- -------------------- --------------------
Interest Income ($5) N/A
- --------------------------------------------------------------------- -------------------- --------------------
Total ($24) ($128)
- --------------------------------------------------------------------- -------------------- --------------------
- ---------------------------------------------------------------------------------------------------------------
PROJECTED CONSOLIDATED UNLEVERED CASH FLOW
Twelve Months Ended December 31, 2003
($ in millions)
Low High
- -------------------------------------------------------------------- -------------------- --------------------
Net Change in Cash and Cash Equivalents $15 $50
- -------------------------------------------------------------------- -------------------- --------------------
Effect of Exchange Rates on Cash ($3) ($3)
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Provided by Discontinued Operations ($10) ($10)
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Provided by Financing Activities ($320) ($330)
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Investing Activities $245 $212
- -------------------------------------------------------------------- -------------------- --------------------
Net Cash Used in Continuing Operations ($73) ($81)
- -------------------------------------------------------------------- -------------------- --------------------
Gross Capital Expenditures ($225) ($200)
- -------------------------------------------------------------------- -------------------- --------------------
Release of Capital Expenditure Accruals $21 $21
- -------------------------------------------------------------------- -------------------- --------------------
Cash Interest Paid $400 $405
- -------------------------------------------------------------------- -------------------- --------------------
Interest Income ($25) ($20)
- -------------------------------------------------------------------- -------------------- --------------------
Total $100 $125
- -------------------------------------------------------------------- -------------------- --------------------
LEVEL 3 COMMUNICATIONS, INC.
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- --------------------
(dollars in millions) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
Revenue:
Communications $ 434 $ 276 $ 1,142 $ 554
Information Services 491 447 997 527
Other 16 27 32 55
------- ------- ------- -------
Total Revenue 941 750 2,171 1,136
Costs and Expenses:
Cost of Revenue 567 484 1,135 630
Depreciation and Amortization 228 190 435 400
Selling, General and Administrative, including non-cash
compensation of $25, $53, $48 and $117, respectively 276 240 547 493
Restructuring Charges, including noncash impairment
charges of $-, $44, $- and $44, respectively 9 47 20 47
------- ------- ------- -------
Total Costs and Expenses 1,080 961 2,137 1,570
------- ------- ------- -------
Income (Loss) from Operations (139) (211) 34 (434)
Other Income (Expense), net
Interest Income 5 6 10 15
Interest Expense (143) (131) (283) (260)
Other Income (Expense) (176) 180 (102) 314
------- ------- ------- -------
Other Income (Expense) (314) 55 (375) 69
------- ------- ------- -------
Loss from Operations Before Income Taxes (453) (156) (341) (365)
Income Tax Benefit - - - 119
------- ------- ------- -------
Loss Before Change in Accounting Principle and Discontinued Operations
Discontinued Operations (453) (156) (341) (246)
Cumulative Effect of Change in Accounting Principle - - 5 -
Loss from Discontinued Operations (9) - (7) -
------- ------- ------- -------
Net Loss $ (462) $ (156) $ (343) $ (246)
======= ======= ======= =======
Basic Earning (Loss) per Share:
Loss before Change in Accounting Principle and Discontinued Operations
Discontinued Operations $ (0.93) $ (0.39) $ (0.73) $ (0.62)
Cumulative Effect of Change in Accounting Principle - - 0.01 -
Loss from Discontinued Operations (0.02) - (0.01) -
------- ------- ------- -------
Net Loss $ (0.95) $ (0.39) $ (0.73) $ (0.23)
======= ======= ======= =======
Weighted Average Shares Outstanding (in thousands)
Basic 484,436 398,721 467,724 395,020
======= ======= ======= =======
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
June 30, March 31,
(dollars in millions) 2003 2003
- -----------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 915 $ 944
Restricted securities 69 79
Accounts receivable, less allowances of $34 and $31, respectively 507 408
Other 138 133
--------------------------
Total Current Assets 1,629 1,564
Property, Plant and Equipment, net 5,941 6,039
Restricted Securities 474 469
Intangibles and Goodwill 481 505
Other Assets, net 143 186
--------------------------
$ 8,668 $ 8,763
==========================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 567 $ 492
Current portion of long-term debt 125 124
Accrued payroll and employee benefits 146 124
Accrued interest 88 88
Deferred revenue 126 117
Other 214 238
--------------------------
Total Current Liabilities 1,266 1,183
Long-Term Debt, less current portion 5,634 6,167
Deferred Revenue 938 925
Accrued Reclamation Costs 85 86
Other Liabilities 463 460
Stockholders' Equity (Deficit) 282 (58)
--------------------------
$ 8,668 $ 8,763
==========================
LEVEL 3 COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
(dollars in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, 2003 June 30, 2003
------------------ ----------------
Cash Flows from Operating Activities:
Net Loss $ (462) $ (343)
Loss from discontinued operations 9 7
Cumulative effect of change in accounting principle - (5)
------ ------
Loss from continuing operations (453) (341)
Adjustments to reconcile loss from continuing operations
to net cash provided by (used in) continuing operations:
Equity earnings, net (1) (2)
Depreciation and amortization 228 435
Induced conversion expense on convertible debt 190 190
Gain on debt extinguishments, net (2) (2)
(Gain) loss on sale of property, plant and equipment,
toll-road operations and other assets 2 (67)
Non-cash expense attributable to stock awards 25 48
Deferred revenue 12 (336)
Amortization of debt issuance costs 5 10
Accreted interest on long-term discount debt 28 54
Accrued interest on long-term debt 9 9
Changes in working capital items net of amounts acquired:
Receivables (97) 21
Other current assets (3) 47
Payables 73 (126)
Other liabilities 1 (29)
Other 2 (1)
------ ------
Net Cash Provided by (Used in) Continuing Operations 19 (90)
Cash flows from Investing Activities:
Decrease (increase) in restricted cash and securities, net (5) 2
Capital expenditures (65) (90)
Release of capital expenditure accruals 15 21
Genuity acquisition (1) (144)
Investments and acquisitions - (1)
Proceeds from sale of toll-road operations - 46
Proceeds from sale of property, plant and equipment, and other assets 5 21
------ ------
Net Cash Used in Investing Activities (51) (145)
Cash Flows from Financing Activities:
Stock options exercised 3 3
Purchases of and payments on long-term debt, including current portion (13) (14)
------ ------
Net Cash Used in Financing Activities (10) (11)
Net Cash Provided by Discontinued Operations 12 16
Effect of Exchange Rates on Cash 1 3
------ ------
Net Change in Cash and Cash Equivalents (29) (227)
Cash and Cash Equivalents at Beginning of Year 944 1,142
------ ------
Cash and Cash Equivalents at End of Period $ 915 $ 915
====== ======
Supplemental Disclosure of Cash Flow Information:
Cash interest paid $ 101 $ 210
Noncash Investing and Financing Activities:
Common stock issued in exchange for long term debt $ 754 $ 774
Interest on debt paid with common stock 9 9
Long-term debt principal retired by issuing common stock 580 600
Long-term debt extinguished due to sale of toll-road operations - 139