Company Sees Continued Strong Demand and Growth in the Business
First Quarter Financial Highlights
- Consolidated Revenue of $929 million, an increase of 1 percent sequentially and 2 percent year-over-year
- Continued Core Network Services revenue growth; 1 percent sequentially and 4 percent year-over-year
- Consolidated Adjusted EBITDA of $225 million
- Communications Adjusted EBITDA increased 1 percent sequentially and 11 percent year-over-year to $225 million
- Net loss of $0.12 per share, or $0.09 adjusted for income tax charge and loss on debt extinguishment
BROOMFIELD, Colo.–(BUSINESS WIRE)– Level 3 Communications, Inc. (NYSE:LVLT, news, filings) reported consolidated revenue of $929 million for the first quarter 2011, compared to consolidated revenue of $921 million for the fourth quarter 2010 and $910 million for the first quarter 2010.
The net loss for the first quarter 2011 was $205 million, or $0.12 per share which included charges totaling $0.03 per share, for income tax expense of $27 million, primarily related to deferred tax liabilities attributable to certain indefinite-lived intangible assets, and a loss of $20 million on the extinguishment of debt. The net loss for the fourth quarter 2010 was $52 million, or $0.03 per share, which included an income tax benefit of $93 million, or $0.06 per share. For the first quarter 2010, the net loss was $238 million or $0.14 per share, which included a loss on the extinguishment of debt of $54 million, or $0.03 per share.
Consolidated Adjusted EBITDA was $225 million in the first quarter 2011, compared to $226 million in the fourth quarter 2010 and $200 million in the first quarter 2010.
“We are pleased to report a solid quarter, giving us a strong start to 2011,” said James Q. Crowe, CEO of Level 3. “We see many opportunities across our customer base to continue growing our business throughout the year. Our customers require more and more bandwidth to support the continued adoption of video over the Internet, the continued growth in wireless broadband, and the rising demand for bandwidth in the enterprise market. Our mix of network assets, our service capabilities and our focus on customer service excellence are making Level 3 a top choice for wholesale and enterprise customers in the U.S. and Europe.”
“Demand for bandwidth is becoming increasingly global in nature, which is one of the many reasons why we believe our agreement to acquire Global Crossing, announced in April, will be transformational for Level 3,” said Crowe. “We expect the strategic and financial benefits to be significant for our customers, employees and investors. Since the announcement, we have moved forward with a number of regulatory filings and have continued with integration planning as appropriate and consistent with regulatory limitations.”
Financial Results
| First | Fourth | First | |||||||||||||
| Metric | Quarter | Quarter | Quarter | ||||||||||||
| ($ in millions) | 2011 | 2010 | 2010 | ||||||||||||
| Total Communications Revenue | $ | 914 | $ | 904 | $ | 900 | |||||||||
| Other Revenue | $ | 15 | $ | 17 | $ | 10 | |||||||||
| Total Consolidated Revenue | $ | 929 | $ | 921 | $ | 910 | |||||||||
| Consolidated Adjusted EBITDA(1) | $ | 225 | $ | 226 | $ | 200 | |||||||||
| Capital Expenditures | $ | 115 | $ | 117 | $ | 82 | |||||||||
| Unlevered Cash Flow(1) | $ | 41 | $ | 183 | $ | 51 | |||||||||
| Free Cash Flow(1) | ($115 | ) | $ | 73 | ($90 | ) | |||||||||
| Communications Gross Margin(1) | 60.9 | % | 61.1 | % | 58.8 | % | |||||||||
| Communications Adjusted EBITDA Margin(1) | 24.6 | % | 24.6 | % | 22.4 | % | |||||||||
(1) See schedule of non-GAAP metrics for definition and reconciliation to GAAP measures.
Communications Business
Revenue
Total Communications Revenue for the first quarter 2011 was $914 million, compared to $904 million for the fourth quarter 2010 and $900 million for the first quarter 2010.
| First | Fourth | First | ||||||||||||||||||
| Communications Revenue | Quarter | Quarter | Percent | Quarter | Percent | |||||||||||||||
| ($ in millions) | 2011 | 2010 | Change | 2010 | Change | |||||||||||||||
| Wholesale | $ | 351 | $ | 347 | 1 | % | $ | 343 | 2 | % | ||||||||||
| Large Enterprise and Federal | $ | 144 | $ | 144 | — | $ | 136 | 6 | % | |||||||||||
| Mid-Market | $ | 155 | $ | 151 | 3 | % | $ | 151 | 3 | % | ||||||||||
| Europe | $ | 79 | $ | 78 | 1 | % | $ | 71 | 11 | % | ||||||||||
| Core Network Services | $ | 729 | $ | 720 | 1 | % | $ | 701 | 4 | % | ||||||||||
| Wholesale Voice Services | $ | 164 | $ | 161 | 2 | % | $ | 165 | (1 | %) | ||||||||||
| Other Communications Services | $ | 21 | $ | 23 | (9 | %) | $ | 34 | (38 | %) | ||||||||||
| Total Communications Services | $ | 914 | $ | 904 | 1 | % | $ | 900 | 2 | % | ||||||||||
Core Network Services
Core Network Services revenue was $729 million in the first quarter 2011, an increase of approximately 1 percent compared to $720 million in the fourth quarter 2010, and an increase of approximately 4 percent compared to $701 million in the first quarter 2010. On a constant currency basis, European revenue increased slightly sequentially and increased 10 percent year-over-year.
“We are pleased to see strong sequential growth in Core Network Services revenue in a quarter that typically shows a sequential decline due to the seasonal decline in broadcast services in the first quarter,” said Sunit Patel, executive vice president and CFO of Level 3.
Deferred Revenue
The communications deferred revenue balance was $888 million at the end of the first quarter 2011, compared to $887 million at the end of the fourth quarter 2010 and $880 million at the end of the first quarter 2010.
Cost of Revenue
Communications cost of revenue was $357 million in the first quarter 2011, compared to $352 million in the fourth quarter 2010 and $371 million in the first quarter 2010.
Communications gross margin was 60.9 percent for the first quarter 2011, compared to 61.1 percent in the fourth quarter 2010. Communications gross margin was 58.8 percent in the first quarter 2010.
Selling, General and Administrative Expenses (SG&A)
Excluding non-cash compensation expense, Communications SG&A was $332 million in the first quarter 2011, compared to $330 million in the fourth quarter 2010 and $327 million in the first quarter 2010.
Communications SG&A, including non-cash compensation expense was $357 million for the first quarter 2011, compared to $347 million for the fourth quarter 2010 and $343 million for the first quarter 2010. Non-cash compensation expense was $25 million, $17 million, and $16 million for the first quarter 2011, fourth quarter 2010, and first quarter 2010, respectively.
Adjusted EBITDA
Communications Adjusted EBITDA increased to $225 million for the first quarter 2011, compared to $222 million for the fourth quarter 2010 and $202 million for the first quarter 2010.
Communications Adjusted EBITDA margin was 24.6 percent for the first quarter 2011, flat compared to 24.6 percent for the fourth quarter 2010, but an increase compared to 22.4 percent in the first quarter 2010.
Communications Adjusted EBITDA excludes non-cash compensation expense and includes restructuring charges. The company incurred less than $1 million of restructuring charges for the first quarter 2011, the fourth quarter 2010 and first quarter 2010.
Consolidated Cash Flow and Liquidity
During the first quarter 2011, Unlevered Cash Flow was $41 million, versus $183 million in the fourth quarter 2010, and $51 million for the first quarter 2010.
Consolidated Free Cash Flow was negative $115 million for the first quarter 2011, compared to positive $73 million in the fourth quarter 2010 and negative $90 million for the first quarter 2010.
The first quarter 2011 Free Cash Flow loss is due to a $45 million increase in net cash interest payments over the fourth quarter of 2010 and a $71 million use of cash for working capital within the quarter. The working capital use of cash in 2011 resulted from an increase in DSOs from about 26 days to 28 days for about a $30 million use of cash, a $25 million use of cash from bonus payments and accrued payroll, and a $10 million use of cash from an increase in prepaid expenses. The latter two items are timing-related and will be offset over the remainder of the year.
As of March 31, 2011, the company had cash and cash equivalents of approximately $1,079 million, or $616 million on a pro forma basis after the partial redemption of the company’s 9.25% Senior Notes due 2014 that was completed after the close of the first quarter 2011.
Corporate Transactions
Global Crossing
On April 11, 2011, Level 3 announced that it had entered into a definitive agreement to acquire Global Crossing Limited in a tax-free, stock-for-stock transaction. Under the terms and subject to conditions of the agreement, Global Crossing shareholders will receive 16 shares of Level 3 common stock for each share of Global Crossing common stock or preferred stock that is owned at closing. Based on Level 3’s closing stock price on April 8, 2011, the last trading day prior to the announcement of the transaction, the transaction is valued at $23.04 per Global Crossing common or preferred share, or approximately $3.0 billion, including the assumption of approximately $1.1 billion of net debt as of Dec. 31, 2010.
Financings
During the quarter, Level 3 Communications, Inc. issued $605 million aggregate principal amount of its 11.875% Senior Notes due 2019 in two separate transactions, of which $305 million was for cash, and approximately $300 million was in exchange for its 9% Convertible Senior Discount Notes due 2013. The company also redeemed in full its 5.25% Convertible Senior Notes due 2011.
Also during the quarter, Level 3 Financing, Inc. issued $500 million aggregate principal amount of its 9.375% Senior Notes due 2019. On April 4, 2011, the company completed the partial redemption of $443 million aggregate principal amount of its outstanding 9.25% Senior Notes due 2014. In the second quarter 2011, the company expects to recognize a $23 million loss on the extinguishment of debt related to the redemption of these notes.
Business Outlook
“We expect the sequential growth in Core Network Services Revenue to strengthen in the second quarter,” said Patel. “For the full year 2011, we generally expect stronger sequential revenue growth compared to 2010. Given our high incremental margins, we expect low double digit percentage growth in Consolidated Adjusted EBITDA in 2011.”
“In 2011, the company expects GAAP interest expense of approximately $625 million and net cash interest expense of approximately $555 million. We expect capital expenditures to be approximately 12 percent of Communications revenue. Free Cash Flow is expected to be roughly breakeven for the remainder of 2011 in aggregate.”
“With respect to the Global Crossing acquisition, we expect to incur some integration planning- and transaction-related costs between signing and closing, and will separately disclose those in our quarterly results,” added Patel.
Conference Call and Web Site Information
Level 3 will hold a conference call to discuss the company’s first quarter 2011 results at 10 a.m. ET today. To join the call, please dial 1 866-791-6248 (U.S. Domestic) or 1 913-312-1388 (International), conference code 9827710. A live broadcast of the call can also be heard on Level 3’s website at http://lvlt.client.shareholder.com. During the call, the company will review an earnings presentation that summarizes the financial results of the quarter. This presentation may be accessed at http://lvlt.client.shareholder.com/results.cfm.
The call will be archived and available on Level 3’s Investor Relations website or can be accessed as an audio replay starting at 1 p.m. ET on May 3 until 1 p.m. ET on May 13. The replay can be accessed by dialing 1 888- 203-1112 (U.S. Domestic) or 1 719-457-0820 (International), conference code 9827710.
For additional information, please call 720-888-2502.
About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT) is a leading international provider of fiber-based communications services. Enterprise, content, wholesale and government customers rely on Level 3 to deliver services with an industry-leading combination of scalability and value over an end-to-end fiber network. Level 3 offers a portfolio of metro and long-haul services, including transport, data, Internet, content delivery and voice. For more information, visit www.Level3.com.
© Level 3 Communications, LLC. All Rights Reserved. Level 3, Level 3 Communications and the Level 3 Communications Logo are either registered service marks or service marks of Level 3 Communications, LLC and/or one of its Affiliates in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service names, product names, company names or logos included herein are the trademarks or service marks of their respective owners.
Important Information For Investors And Stockholders
This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. The proposed transaction will be submitted to the stockholders of Level 3 Communications, Inc. (“Level 3”) and the stockholders of Global Crossing Limited (“Global Crossing”) for their consideration. Level 3 and Global Crossing will file a registration statement on Form S-4, a joint proxy statement/prospectus and other relevant documents concerning the proposed transaction with the SEC. Level 3 and Global Crossing will each provide the final joint proxy statement/prospectus to its respective stockholders. Investors and security holders are urged to read the registration statement and the joint proxy statement/prospectus and any other relevant documents filed with the SEC when they become available, as well as any amendments or supplements to those documents, because they will contain important information about Level 3, Global Crossing and the proposed transaction. Investors and security holders will be able to obtain a free copy of the registration statement and joint proxy statement/prospectus, as well as other filings containing information about Level 3 and Global Crossing free of charge at the SEC’s Web Site at http://www.sec.gov. In addition, the joint proxy statement/prospectus, the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus and the other documents filed with the SEC by Level 3 may be obtained free of charge by directing such request to: Investor Relations, Level 3 Communications, Inc., 1025 Eldorado Boulevard, Broomfield, Colorado 80021 or from Level 3’s Investor Relations page on its corporate website at http://www.level3.com and the joint proxy statement/prospectus, the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus and the other documents filed with the SEC by Global Crossing be obtained free of charge by directing such request to: Global Crossing by telephone at (800) 836-0342 or by submitting a request by e-mail to glbc@globalcrossing.com or a written request to the Secretary, Wessex House, 45 Reid Street, Hamilton HM12 Bermuda or from Global Crossing’s Investor Relations page on its corporate website at http://www.globalcrossing.com.
Level 3, Global Crossing and their respective directors, executive officers, and certain other members of management and employees may be deemed to be participants in the solicitation of proxies in favor of the proposed transactions from the stockholders of Level 3 and from the stockholders of Global Crossing, respectively. Information about the directors and executive officers of Level 3 is set forth in the proxy statement on Schedule 14A for Level 3’s 2011 Annual Meeting of Stockholders, which was filed with the SEC on April 4, 2011 and information about the directors and executive officers of Global Crossing is set forth in the proxy statement for Global Crossing’s 2010 Annual Meeting of Stockholders, which was filed with the SEC on May 19, 2010. Additional information regarding participants in the proxy solicitation may be obtained by reading the joint proxy statement/prospectus regarding the proposed transaction when it becomes available.
Forward Looking Statements About Global Crossing
This press release contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties that could cause the actual results to differ materially, including: the failure to occur of any condition to the closing of the acquisition of Global Crossing by Level 3, including the failure to obtain a required approval or the experiencing of a material adverse effect by either company; the failure to achieve expected synergies from the acquisition; Global Crossing’s history of substantial operating losses and the fact that, in the near term, funds from operations will not satisfy cash requirements; the availability of future borrowings in an amount sufficient to pay Global Crossing’s indebtedness and to fund its other liquidity needs; legal and contractual restrictions on the inter-company transfer of funds by Global Crossing’s subsidiaries; Global Crossing’s ability to continue to connect its network to incumbent carriers’ networks or maintain Internet peering arrangements on favorable terms; the consequences of any inadvertent violation of Global Crossing’s Network Security Agreement with the U.S. Government; increased competition and pricing pressures resulting from technology advances and regulatory changes; competitive disadvantages relative to competitors with superior resources; political, legal and other risks due to Global Crossing’s substantial international operations; risks associated with movements in foreign currency exchange rates; risks related to restrictions on the conversion of the Venezuelan bolivar into U.S. dollars and to the resultant buildup of a material excess bolivar cash balance, which is carried on Global Crossing’s books at the official exchange rate, attributing to the bolivar a value that is significantly greater than the value that would prevail on an open market; potential weaknesses in internal controls of acquired businesses, and difficulties in integrating internal controls of those businesses with Global Crossing’s own internal controls; exposure to contingent liabilities; and other risks referenced from time to time in Global Crossing’s filings with the Securities and Exchange Commission. Global Crossing undertakes no duty to update information contained in this press release or in other public disclosures at any time.
Cautionary Notice Regarding Forward-Looking Statements
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, (i) statements about the benefits of the acquisition of Global Crossing by Level 3, including financial and operating results and synergy benefits that may be realized from the acquisition and the timeframe for realizing those benefits; Level 3’s and Global Crossing’s plans, objectives, expectations and intentions and other statements contained in this communication that are not historical facts; and (ii) other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning.
These forward-looking statements are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies and third-party approvals, many of which are beyond our control. The following factors, among others, could cause actual results to differ materially from those expressed or implied in the forward-looking statements: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Amalgamation among Level 3, Global Crossing and Apollo Amalgamation Sub, Ltd. (the “Amalgamation Agreement”); (2) the inability to complete the transactions contemplated by the Amalgamation Agreement due to the failure to obtain the required stockholder approvals, (3) the inability to satisfy the other conditions specified in the Amalgamation Agreement, including without limitation the receipt of necessary governmental or regulatory approvals required to complete the transactions contemplated by the Amalgamation Agreement; (4) the inability to successfully integrate the businesses of Level 3 and Global Crossing or to integrate the businesses within the anticipated timeframe; (5) the risk that the proposed transactions disrupt current plans and operations, increase operating costs and the potential difficulties in customer loss and employee retention as a result of the announcement and consummation of such transactions; (6) the ability to recognize the anticipated benefits of the combination of Level 3 and Global Crossing, including the realization of revenue and cost synergy benefits and to recognize such benefits within the anticipated timeframe; (7) the outcome of any legal proceedings that may be instituted against Level 3, Global Crossing or others following announcement of the Amalgamation Agreement and transactions contemplated therein; and (8) the possibility that Level 3 or Global Crossing may be adversely affected by other economic, business, and/or competitive factors.
Other important factors that may affect Level 3’s and the combined business’ results of operations and financial condition include, but are not limited to: the current uncertainty in the global financial markets and the global economy; a discontinuation of the development and expansion of the Internet as a communications medium and marketplace for the distribution and consumption of data and video; disruptions in the financial markets that could affect Level 3’s ability to obtain additional financing, and the company’s ability to: increase and maintain the volume of traffic on its network; develop effective business support systems; manage system and network failures or disruptions; develop new services that meet customer demands and generate acceptable margins; defend intellectual property and proprietary rights; adapt to rapid technological changes that lead to further competition; attract and retain qualified management and other personnel; successfully integrate acquisitions; and meet all of the terms and conditions of debt obligations.
Additional information concerning these and other important factors can be found within Level 3’s and Global Crossing’s respective filings with the SEC, which discuss the foregoing risks as well as other important risk factors that could contribute to such differences or otherwise affect our business, results of operations and financial condition. Statements in this communication should be evaluated in light of these important factors. The forward-looking statements in this communication speak only as of the date they are made. Except for the ongoing obligations of Level 3 and Global Crossing to disclose material information under the federal securities laws, neither Level 3 nor Global Crossing undertakes any obligation to, and expressly disclaim any such obligation to, update or alter any forward-looking statement to reflect new information, circumstances or events that occur after the date such forward-looking statement is made unless required by law.
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 following describes and reconciles those financial measures as reported under accounting principles generally accepted in the United States (GAAP) with those financial measures as adjusted by the items detailed below and presented in the accompanying news release. These calculations are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP. In keeping with its historical financial reporting practices, the company believes that the supplemental presentation of these calculations provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis, independently of regularly reported non-cash charges and infrequent or unusual events.
Consolidated Revenue is defined as total revenue from the Consolidated Statements of Operations.
Communications Revenue is defined as communications revenue from the Consolidated Statements of Operations.
Core Network Services Revenue includes revenue from transport, infrastructure, data and local and enterprise voice communications services.
Communications Gross Margin ($) is defined as communications revenue less communications cost of revenue from the Consolidated Statements of Operations.
Communications Gross Margin (%) is defined as communications gross margin ($) divided by communications revenue. Management believes that gross margin is a relevant metric to provide to investors, as it is a metric that management uses to measure the margin available to the company after it pays third party network services costs; in essence, a measure of the efficiency of the company’s network.
Adjusted EBITDA is defined as net income (loss) from the Consolidated Statements of Operations before income taxes, total other income (expense), non-cash impairment charges, depreciation and amortization and non-cash stock compensation expense.
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by total revenue.
| Adjusted EBITDA Metrics | Q1 2011 | ||||||||||||||
| ($ in millions) | Communications | Other | Consolidated | ||||||||||||
| Net Loss | ($201) | $(4) | ($205) | ||||||||||||
| Income Tax Expense | 27 | – | 27 | ||||||||||||
| Total Other (Income) Expense | 171 | 3 | 174 | ||||||||||||
| Depreciation and Amortization | 203 | 1 | 204 | ||||||||||||
| Non-cash Stock Compensation | 25 | – | 25 | ||||||||||||
| Adjusted EBITDA | $225 | $0 | $225 | ||||||||||||
| Revenue | $914 | ||||||||||||||
| Adjusted EBITDA Margin | 24.6% | ||||||||||||||
| Adjusted EBITDA Metrics | Q4 2010 | ||||||||||||||
| ($ in millions) | Communications | Other | Consolidated | ||||||||||||
| Net Loss | ($52) | $- | ($52) | ||||||||||||
| Income Tax Benefit | (93) | – | (93) | ||||||||||||
| Total Other (Income) Expense | 140 | 1 | 141 | ||||||||||||
| Depreciation and Amortization | 210 | 3 | 213 | ||||||||||||
| Non-cash Stock Compensation | 17 | – | 17 | ||||||||||||
| Adjusted EBITDA | $222 | $4 | $226 | ||||||||||||
| Revenue | $904 | ||||||||||||||
| Adjusted EBITDA Margin | 24.6% | ||||||||||||||
| Adjusted EBITDA Metrics | Q1 2010 | ||||||||||||||
| ($ in millions) | Communications | Other | Consolidated | ||||||||||||
| Net Loss | ($235) | ($3) | ($238) | ||||||||||||
| Income Tax Expense | 1 | – | 1 | ||||||||||||
| Total Other (Income) Expense | 196 | – | 196 | ||||||||||||
| Depreciation and Amortization | 224 | 1 | 225 | ||||||||||||
| Non-cash Stock Compensation | 16 | – | 16 | ||||||||||||
| Adjusted EBITDA | $202 | ($2) | $200 | ||||||||||||
| Revenue | $900 | ||||||||||||||
| Adjusted EBITDA Margin | 22.4% | ||||||||||||||
Management believes that Adjusted EBITDA and Adjusted EBITDA Margin 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 Adjusted EBITDA and Adjusted EBITDA Margin to compare the company’s performance to that of its competitors and 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. Adjusted EBITDA excludes non-cash impairment charges and non-cash stock compensation expense because of the non-cash nature of these items. Adjusted EBITDA also excludes interest income, interest expense and income taxes because these items are associated with the company’s capitalization and tax structures. 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 free cash flow. Adjusted EBITDA excludes the gain (or loss) on extinguishment of debt and 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, the gain (or loss) on extinguishment of debt and net other income (expense). Adjusted EBITDA and Adjusted EBITDA Margin should not be considered a substitute for other measures of financial performance reported in accordance with GAAP.
Unlevered Cash Flow is defined as net cash provided by (used in) operating activities less capital expenditures, plus cash interest paid and less interest income all as disclosed in the Consolidated Statements of Cash Flows or the Consolidated Statements of Operations. Management believes that Unlevered Cash Flow is a relevant metric to provide to investors, as it is an indicator of the operational strength and performance of the company and, measured over time, provides management and investors with a sense of the growth pattern of the business.
There are material limitations to using Unlevered Cash Flow to measure the company against some of its competitors as it excludes certain material items such as payments on and repurchases of long-term debt, interest income and cash 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 and capital expenditures. 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.
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 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. Free Cash Flow excludes cash used for acquisitions and principal repayments.
There are material limitations to using 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 and capital expenditures. 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 Free Cash Flow | ||||||||||
| Three Months Ended March 31, 2011 | Unlevered | |||||||||
| ($ in millions) | Cash Flow | Free Cash Flow | ||||||||
| Net Cash Provided by Operating Activities | $0 | $0 | ||||||||
| Capital Expenditures | ($115) | ($115) | ||||||||
| Cash Interest Paid | $156 | N/A | ||||||||
| Interest Income | ($-) | N/A | ||||||||
| Total | $41 | ($115) |
| Unlevered Cash Flow and Free Cash Flow | ||||||||||
| Three Months Ended December 31, 2010 | Unlevered | |||||||||
| ($ in millions) | Cash Flow | Free Cash Flow | ||||||||
| Net Cash Provided by Operating Activities | $190 | $190 | ||||||||
| Capital Expenditures | ($117) | ($117) | ||||||||
| Cash Interest Paid | $111 | N/A | ||||||||
| Interest Income | ($1) | N/A | ||||||||
| Total | $183 | $73 |
| Unlevered Cash Flow and Free Cash Flow | ||||||||||
| Three Months Ended March 31, 2010 | Unlevered | |||||||||
| ($ in millions) | Cash Flow | Free Cash Flow | ||||||||
| Net Cash Used in Operating Activities | ($8) | ($8) | ||||||||
| Capital Expenditures | ($82) | ($82) | ||||||||
| Cash Interest Paid | $141 | N/A | ||||||||
| Interest Income | ($-) | N/A | ||||||||
| Total | $51 | ($90) | ||||||||
| Attachment #1 | ||||||||||||||||||
| LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES | ||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||
| (unaudited) | ||||||||||||||||||
| Three Months Ended | ||||||||||||||||||
| March 31, | December 31, | March 31, | ||||||||||||||||
| (dollars in millions, except per share data) | 2011 | 2010 | 2010 | |||||||||||||||
| Revenue: | ||||||||||||||||||
| Communications | $ | 914 | $ | 904 | $ | 900 | ||||||||||||
| Coal Mining | 15 | 17 | 10 | |||||||||||||||
| Total Revenue | 929 | 921 | 910 | |||||||||||||||
| Costs and Expenses (exclusive of depreciation and | ||||||||||||||||||
| amortization shown separately below): | ||||||||||||||||||
| Cost of Revenue: | ||||||||||||||||||
| Communications | 357 | 352 | 371 | |||||||||||||||
| Coal Mining | 15 | 13 | 12 | |||||||||||||||
| Total Cost of Revenue | 372 | 365 | 383 | |||||||||||||||
| Depreciation and Amortization | 204 | 213 | 225 | |||||||||||||||
| Selling, General and Administrative | 357 | 347 | 343 | |||||||||||||||
| Restructuring Charges | – | – | – | |||||||||||||||
| Total Costs and Expenses | 933 | 925 | 951 | |||||||||||||||
| Operating Loss | (4 | ) | (4 | ) | (41 | ) | ||||||||||||
| Other Income (Expense): | ||||||||||||||||||
| Interest income | – | 1 | – | |||||||||||||||
| Interest expense | (157 | ) | (148 | ) | (149 | ) | ||||||||||||
| Loss on extinguishment of debt | (20 | ) | – | (54 | ) | |||||||||||||
| Other, net | 3 | 6 | 7 | |||||||||||||||
| Total Other Expense | (174 | ) | (141 | ) | (196 | ) | ||||||||||||
| Loss Before Income Taxes | (178 | ) | (145 | ) | (237 | ) | ||||||||||||
| Income Tax (Expense) Benefit | (27 | ) | 93 | (1 | ) | |||||||||||||
| Net Loss | $ | (205 | ) | $ | (52 | ) | $ | (238 | ) | |||||||||
| Basic and Diluted Loss per Share | $ | (0.12 | ) | $ | (0.03 | ) | $ | (0.14 | ) | |||||||||
| Shares Used to Compute Basic and Diluted Loss per Share | ||||||||||||||||||
| (in thousands) | 1,681,184 | 1,668,682 | 1,647,407 | |||||||||||||||
| Attachment #2 | ||||||||||||
| LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES | ||||||||||||
| Consolidated Balance Sheets | ||||||||||||
| (unaudited) | ||||||||||||
| March 31, | December 31, | |||||||||||
| (dollars in millions) | 2011 | 2010 | ||||||||||
| Assets | ||||||||||||
| Current Assets: | ||||||||||||
| Cash and cash equivalents | $ | 1,079 | $ | 616 | ||||||||
| Restricted cash and securities | 3 | 2 | ||||||||||
| Receivables, less allowances for doubtful accounts | ||||||||||||
| of $18 and $17, respectively | 295 | 264 | ||||||||||
| Other | 109 | 90 | ||||||||||
| Total Current Assets | 1,486 | 972 | ||||||||||
| Property, Plant and Equipment, net | 5,276 | 5,302 | ||||||||||
| Restricted Cash and Securities | 120 | 120 | ||||||||||
| Goodwill | 1,429 | 1,427 | ||||||||||
| Other Intangibles, net | 347 | 371 | ||||||||||
| Other Assets | 144 | 163 | ||||||||||
| Total Assets | $ | 8,802 | $ | 8,355 | ||||||||
| Liabilities and Stockholders’ Deficit | ||||||||||||
| Current Liabilities: | ||||||||||||
| Accounts payable | $ | 328 | $ | 329 | ||||||||
| Current portion of long-term debt | 449 | 180 | ||||||||||
| Accrued payroll and employee benefits | 39 | 84 | ||||||||||
| Accrued interest | 134 | 146 | ||||||||||
| Current portion of deferred revenue | 151 | 151 | ||||||||||
| Other | 79 | 66 | ||||||||||
| Total Current Liabilities | 1,180 | 956 | ||||||||||
| Long-Term Debt, less current portion | 6,618 | 6,268 | ||||||||||
| Deferred Revenue, less current portion | 737 | 736 | ||||||||||
| Other Liabilities | 532 | 552 | ||||||||||
| Total Liabilities | 9,067 | 8,512 | ||||||||||
| Stockholders’ Deficit | (265 | ) | (157 | ) | ||||||||
| Total Liabilities and Stockholders’ Deficit | $ | 8,802 | $ | 8,355 | ||||||||
| Attachment #3 | ||||||||||||||||||||
| LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES | ||||||||||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||
| March 31, | December 31, | March 31, | ||||||||||||||||||
| (dollars in millions) | 2011 | 2010 | 2010 | |||||||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||||||||
| Net loss | $ | (205 | ) | $ | (52 | ) | $ | (238 | ) | |||||||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 204 | 213 | 225 | |||||||||||||||||
| Non-cash compensation expense attributable to stock awards | 25 | 17 | 16 | |||||||||||||||||
| Loss on extinguishment of debt, net | 20 | – | 54 | |||||||||||||||||
| Accretion of debt discount and amortization of debt issuance costs | 13 | 15 | 14 | |||||||||||||||||
| Accrued interest on long-term debt | (12 | ) | 22 | (6 | ) | |||||||||||||||
| Deferred income taxes | 26 | (92 | ) | – | ||||||||||||||||
| Change in fair value of embedded derivative | – | – | (2 | ) | ||||||||||||||||
| Gain on sale of property, plant and equipment and other assets | (2 | ) | (2 | ) | – | |||||||||||||||
| Other, net | 2 | (2 | ) | (7 | ) | |||||||||||||||
| Changes in working capital items: | ||||||||||||||||||||
| Receivables | (29 | ) | 52 | 17 | ||||||||||||||||
| Other current assets | (13 | ) | 13 | (7 | ) | |||||||||||||||
| Payables | (4 | ) | (8 | ) | (17 | ) | ||||||||||||||
| Deferred revenue | (3 | ) | (1 | ) | (16 | ) | ||||||||||||||
| Other current liabilities | (22 | ) | 15 | (41 | ) | |||||||||||||||
| Net Cash Provided by (Used in) Operating Activities | – | 190 | (8 | ) | ||||||||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Capital expenditures | (115 | ) | (117 | ) | (82 | ) | ||||||||||||||
| Proceeds from sale of property, plant and equipment and other assets | 2 | 2 | – | |||||||||||||||||
| Increase in restricted cash and securities, net | (1 | ) | – | – | ||||||||||||||||
| Net Cash Used in Investing Activities | (114 | ) | (115 | ) | (82 | ) | ||||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Long term debt borrowings, net of issuance costs | 772 | 25 | 613 | |||||||||||||||||
| Payments on and repurchases of long-term debt | (198 | ) | (1 | ) | (714 | ) | ||||||||||||||
| Net Cash Provided by (Used in) Financing Activities | 574 | 24 | (101 | ) | ||||||||||||||||
| Effect of Exchange Rates on Cash and Cash Equivalents | 3 | (1 | ) | (6 | ) | |||||||||||||||
| Net Change in Cash and Cash Equivalents | 463 | 98 | (197 | ) | ||||||||||||||||
| Cash and Cash Equivalents at Beginning of Period | 616 | 518 | 836 | |||||||||||||||||
| Cash and Cash Equivalents at End of Period | $ | 1,079 | $ | 616 | $ | 639 | ||||||||||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||||||||||||||
| Cash interest paid | $ | 156 | $ | 111 | $ | 141 | ||||||||||||||
| Income taxes paid, net of refunds | $ | – | $ | – | $ | (2 | ) | |||||||||||||
Level 3 Communications
Media:
Monica Martinez, 720-888-3991
Monica.Martinez@Level3.com
or
Investors:
Valerie Finberg, 720-888-2501
Valerie.Finberg@Level3.com
Source: Level 3 Communications
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