BROOMFIELD, Colo., Oct. 24, 2012 /PRNewswire/ -- Level 3
Communications, Inc. (NYSE: LVLT) reported total revenue of
$1.590 billion for the third quarter
2012, compared to $1.586 billion for
the second quarter 2012.
(Logo:
http://photos.prnewswire.com/prnh/20111004/LA77008LOGO)
The net loss for the third quarter 2012 was $166 million, or $57
million excluding losses of $60
million related to interest rate swap agreements and
$49 million related to the
extinguishment of debt. This compared to a net loss of
$62 million in the second quarter
2012. On a per share basis, for the third quarter 2012, the net
loss was $0.76, or $0.26 excluding the losses related to the
interest rate swap agreements and the extinguishment of debt,
compared to $0.29 for the second
quarter 2012.
Consolidated Adjusted EBITDA increased to $372 million in the third quarter 2012, compared
to $353 million in the second quarter
2012.
"We continue to see strong demand from enterprise customers,"
said James Crowe, CEO of Level 3.
"Our local to global network reach and broad portfolio of services
position us for continued growth."
Financial Results
Metric
($ in
millions)
|
Third
Quarter
2012
|
Second
Quarter
2012
|
Third
Quarter
2011
Pro
Forma(1)(3)
|
Core Network Services Revenue
|
$1,395
|
$1,386
|
$1,381
|
Wholesale Voice Services and Other Revenue
|
$195
|
$200
|
$225
|
Total
Revenue
|
$1,590
|
$1,586
|
$1,606
|
Adjusted
EBITDA(1)
|
$372
|
$353
|
$331
|
Capital
Expenditures
|
$227
|
$180
|
$157
|
Unlevered
Cash Flow(1)
|
$77
|
$112
|
$141
|
Free Cash
Flow(1)
|
($157)
|
$3
|
($55)
|
Gross
Margin(1)
|
59.6%
|
59.1%
|
58.8%
|
Adjusted
EBITDA Margin(1)
|
23.4%
|
22.3%
|
20.6%
|
Net
Loss(2)
|
$166
|
$62
|
$225
|
Net Loss
Per Share(2)
|
$0.76
|
$0.29
|
$1.09
|
(1)
|
See
schedule of non-GAAP metrics for definition and reconciliation to
GAAP measures.
|
(2)
|
Net
loss includes losses on the extinguishment of debt for the third
quarter 2012 and third quarter 2011 and excludes the results
attributable to the discontinued coal business in the third quarter
2011.
|
(3)
|
References to "pro forma" figures assume the
Global Crossing acquisition took place on January 1,
2011.
|
Revenue
Core
Network Services (CNS) Revenue
($ in
millions)
|
Third
Quarter
2012
|
Second
Quarter
2012
|
Percent
Change,
As
Reported
|
Percent
Change,
Constant
Currency
|
Third
Quarter
2011
Pro
Forma(1)(3)
|
Percent
Change,
As
Reported(4)
|
North
America
|
$1,008
|
$1,003
|
--
|
1%
|
$968
|
4%
|
Wholesale
|
$381
|
$382
|
--
|
--
|
$394
|
(3%)
|
Enterprise
|
$627
|
$621
|
1%
|
1%
|
$574
|
9%
|
|
|
|
|
|
|
|
EMEA
|
$210
|
$214
|
(2%)
|
(1%)
|
$240
|
(13%)
|
Wholesale
|
$89
|
$91
|
(2%)
|
(2%)
|
$102
|
(13%)
|
Enterprise
|
$80
|
$81
|
(1%)
|
1%
|
$81
|
(1%)
|
UK Government
|
$41
|
$42
|
(2%)
|
(2%)
|
$57
|
(28%)
|
|
|
|
|
|
|
|
Latin
America
|
$177
|
$169
|
5%
|
6%
|
$173
|
2%
|
Wholesale
|
$36
|
$33
|
9%
|
11%
|
$39
|
(8%)
|
Enterprise
|
$141
|
$136
|
4%
|
5%
|
$134
|
5%
|
|
|
|
|
|
|
|
Total
CNS Revenue
|
$1,395
|
$1,386
|
1%
|
1%
|
$1,381
|
1%
|
Wholesale
|
$506
|
$506
|
--
|
--
|
$535
|
(5%)
|
Enterprise(2)
|
$889
|
$880
|
1%
|
2%
|
$846
|
5%
|
(1)
|
See
schedule of non-GAAP metrics for definition and reconciliation to
GAAP measures.
|
(2)
|
Includes EMEA UK Government
|
(3)
|
References to "pro forma" figures assume the
Global Crossing acquisition took place on January 1,
2011.
|
(4)
|
As
Reported comparison measures current period results against pro
forma results from the third quarter 2011
|
Core Network Services (CNS)
CNS revenue grew
sequentially to $1.395 billion in the
third quarter 2012, increasing approximately 1.1 percent on a
constant currency basis.
"Strong growth in Latin America CNS revenue and continued growth
in our enterprise business led to improved overall revenue
performance this quarter," said Sunit
Patel, executive vice president and CFO of Level 3. "On a
constant currency basis, total CNS revenue grew 1.1 percent
compared to 0.7 percent in the second quarter."
Deferred Revenue
The deferred revenue balance was
$1.101 billion at the end of the
third quarter 2012, compared to $1.118
billion at the end of the second quarter 2012.
Cost of Revenue
Cost of revenue decreased to
$642 million in the third quarter
2012, compared to $648 million in the
second quarter 2012.
Gross margin improved to 59.6 percent for the third quarter
2012, compared to 59.1 percent in the second quarter 2012.
Selling, General and Administrative Expenses
(SG&A)
Excluding non-cash compensation expense, SG&A
was $576 million in the third quarter
2012, compared to $585 million in the
second quarter 2012. Utility costs were seasonally higher during
the third quarter 2012 compared to the second quarter 2012.
SG&A included $18 million of
integration costs in the third quarter 2012, compared to
$17 million of integration costs in
the second quarter 2012.
SG&A, including non-cash compensation expense, was
$625 million for the third quarter
2012, compared to $614 million for
the second quarter 2012. Non-cash compensation expense was higher
in the third quarter 2012 at $49
million, compared to $29
million in the second quarter 2012.
Adjusted EBITDA
Adjusted EBITDA grew 5 percent
sequentially to $372 million for the
third quarter 2012, compared to $353
million for the second quarter 2012, including integration
expenses in both periods. Pro forma Adjusted EBITDA for the third
quarter 2011, assuming the Global Crossing acquisition was
completed on January 1, 2011, was
$331 million. The year over year
growth rate of pro forma Adjusted EBITDA was 12 percent.
Adjusted EBITDA margin increased to 23.4 percent for the third
quarter 2012, compared to 22.3 percent for the second quarter
2012.
Consolidated Cash Flow and Liquidity
During the third
quarter 2012, Unlevered Cash Flow was $77
million, compared to $112
million in the second quarter 2012.
Free Cash Flow was negative $157
million for the third quarter 2012, compared to positive
$3 million in the second quarter
2012. "Net Cash Interest expense was approximately $120 million higher in the third quarter 2012,
compared to the second quarter 2012, and working capital was a use
of cash during the quarter," said Patel. "In the fourth quarter, we
expect Net Cash Interest expense to decline by approximately
$110 million."
The company and its wholly owned subsidiary, Level 3 Financing,
Inc., completed the following transactions during the quarter:
- The company issued $300 million
aggregate principal amount of 8.875% Senior Notes due 2019, with
the net proceeds from the offering being used for general corporate
purposes;
- Level 3 Financing borrowed $1.415
billion in two tranches of term loans, with the first
tranche of $600 million maturing in
2016 and the second tranche of $815
million maturing in 2019, to refinance its existing
$1.4 billion Tranche A Term Loan
maturing in 2014 and approximately $15
million of other vendor financing obligations;
- Level 3 Financing issued $775
million aggregate principal amount of its 7% Senior Notes
due 2020, and along with cash on hand, redeemed the $700 million of the Company's outstanding 8.75%
Senior Notes due 2017, including the payment of accrued interest,
applicable premiums and fees; and
- The company used $63 million to
fully repay its headquarters' Commercial Mortgage due 2015,
including the payment of accrued interest.
After the close of the quarter, on Oct.
4, 2012, Level 3 Financing refinanced its existing
$650 million Tranche B II and
$550 million Tranche B III Term
Loans, maturing in 2018, through the creation of a new Tranche B II
Term Loan of $1.2 billion, maturing
in 2019.
The company recognized a loss on extinguishment of debt of
$49 million during the third quarter
2012 and expects to recognize a loss of approximately $50 million in the fourth quarter 2012 as a
result of these transactions.
The company has reduced the average interest rate on its
outstanding maturities to 7.5 percent, from 7.9 percent at the end
of the second quarter 2012, including the change in the accounting
treatment associated with the interest rate swap
agreements.
As of Sept. 30, 2012, the company
had cash and cash equivalents of approximately $793 million.
Integration Update
"Looking back over the year since
closing the Global Crossing acquisition, we are pleased with the
progress we have made integrating the two companies," said
Jeff Storey, president and COO of
Level 3. "We continue to rationalize our product portfolio, while
also augmenting our capabilities, such as the broad range of
managed security services we announced earlier this month."
"Our efforts to closely monitor all customer touch points have
proven effective, and we believe our customers continue to be
pleased with the consistently high level of service they receive
from us," said Storey.
Business Outlook
"We are reiterating the guidance we
provided earlier this year," said Patel. "We expect CNS revenue to
continue to grow in the fourth quarter 2012, and we remain
confident in our expectations for 20 to 25 percent Adjusted EBITDA
growth for the full year 2012, from the starting point of
$1.216 billion of pro forma Adjusted
EBITDA for 2011. We continue to expect capital expenditures for the
full year 2012 to be approximately 12 percent of total revenue, and
we continue to expect, in the aggregate, to generate positive Free
Cash Flow for the second through fourth quarters of 2012.
"Given the capital markets transactions we completed in the
third quarter and at the beginning of the fourth quarter, we are
updating our interest expense guidance for the full year 2012, and
now expect GAAP interest expense of $740
million and net cash interest expense of approximately
$695 million."
Conference Call and Web Site Information
Level 3 will
hold a conference call to discuss the company's third quarter 2012
results today at 10:30 a.m. ET. The
conference call will be broadcast live on Level 3's Investor
Relations website at http://lvlt.client.shareholder.com/events.cfm.
Additional information regarding the third quarter 2012 results,
including the presentation that management will review on the
conference call, will be available on Level 3's Investor Relations
website. If you are unable to join the call via the Web, the call
can be accessed live at 1 877-283-5145 (U.S. Domestic) or 1
312-281-1200 (International). Questions can also be sent to
Investor.Relations@Level3.com.
The call will be archived and available on Level 3's Investor
Relations website or can be accessed as an audio replay starting at
2 p.m. ET on Oct. 24 until noon
ET on Dec. 24. The replay can
be accessed by dialing 1 800-633-8284 (U.S. Domestic) or 1
402-977-9140 (International), conference code 21605016.
For additional information, please call 720-888-2502.
About Level 3 Communications
Level 3 Communications,
Inc. (NYSE: LVLT) provides local, national and global
communications services to enterprise, government and carrier
customers. Level 3's comprehensive portfolio of secure, managed
solutions includes fiber and infrastructure solutions; IP-based
voice and data communications; wide-area Ethernet services; video
and content distribution; data center and cloud-based solutions.
Level 3 serves customers in more than 450 markets in 45 countries
over a global services platform anchored by owned fiber networks on
three continents and connected by extensive undersea facilities.
For more information, please visit www.level3.com
© Level 3 Communications, LLC. All Rights Reserved. Level 3,
Level 3 Communications, Level (3), Think Ahead, the Level 3 Logo
and the Level 3 Think Ahead 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. Any other service
names, product names, company names or logos included herein are
the trademarks or service marks of their respective owners. Level 3
services are provided by subsidiaries of Level 3 Communications,
Inc.
Website Access to Company Information
Level 3
maintains a corporate website at www.level3.com, and you can find
additional information about the company through the Investors
pages on that website at http://lvlt.client.shareholder.com/.
Level 3 uses its website as a channel of distribution of important
information about the company. Level 3 routinely posts financial
and other important information regarding the company and its
business, financial condition and operations on the Investor
Relations web pages.
Visitors to the Investors Relations web pages can view and print
copies of Level 3's SEC filings, including periodic and current
reports on Forms 10-K, 10-Q, 8-K, as soon as reasonably practicable
after those filings are made with the SEC.
Copies of the charters for each of the Audit, Compensation and
Nominating and Governance committees of Level 3's Board of
Directors, its Corporate Governance Guidelines, Code of Ethics,
press releases and analysts and investor conference presentations
are all available through the Investor Relations web pages.
Please note that the information contained on any of Level 3's
web sites is not incorporated by reference in, or considered to be
a part of, any document unless expressly incorporated by reference
in that document.
Forward-Looking Statement
Some statements
made in this press release are forward-looking in nature and are
based on management's current expectations or beliefs. 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 Level 3's control, which could cause actual
events to differ materially from those expressed or implied by the
statements. Important factors that could prevent Level 3 from
achieving its stated goals include, but are not limited
to, the company's ability to: successfully integrate the
Global Crossing acquisition or otherwise realize the anticipated
benefits thereof; manage risks associated with continued
uncertainty in the global economy; obtain additional financing,
particularly in the event of disruptions in the financial markets;
manage continued or accelerated decreases in market pricing for
communications services; maintain and increase traffic on its
network; develop and maintain effective business support systems;
manage system and network failures or disruptions; develop new
services that meet customer demands and generate acceptable
margins; adapt to rapid technological changes that could adversely
affect the company's competitiveness; defend intellectual property
and proprietary rights; obtain capacity for its network from other
providers and interconnect its network with other networks on
favorable terms; attract and retain qualified management and other
personnel; successfully integrate future acquisitions; effectively
manage political, legal, regulatory, foreign currency and other
risks it is exposed to due to its substantial international
operations; mitigate its exposure to contingent liabilities; and
meet all of the terms and conditions of its 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. Level 3 is under no
obligation to, and expressly disclaims any such obligation to,
update or alter its forward-looking statements, whether as a result
of new information, future events, or otherwise.
Contact
Information
|
|
Media:
|
Investors:
|
Monica
Martinez
|
Mark
Stoutenberg
|
720-888-3991
|
720-888-2518
|
Monica.Martinez@Level3.com
|
Mark.Stoutenberg@Level3.com
|
Level 3 Communications:
Non-GAAP Metrics
Pursuant to Regulation G, the company is hereby providing
definitions of non-GAAP financial metrics and reconciliations to
the most directly comparable GAAP measures.
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.
In addition, measures referred to in the accompanying news
release as being calculated "on a constant currency basis" or "in
constant currency terms" are non-GAAP metrics intended to present
the relevant information assuming a constant exchange rate between
the two periods being compared. Such metrics are calculated by
applying the currency exchange rates used in the preparation of the
prior period financial results to the subsequent period
results.
Consolidated Revenue is defined as
total revenue from the Consolidated Statements of
Operations.
Core Network Services Revenue
includes revenue from colocation and datacenter
services, transport and fiber, IP and data services, and voice
services (local and enterprise).
Gross Margin ($) is defined as
total revenue less cost of revenue from the Consolidated Statements
of Operations.
Gross Margin (%) is defined as gross
margin ($) divided by total 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, non-cash stock compensation
expense, and discontinued operations.
Adjusted EBITDA Margin is defined as
Adjusted EBITDA divided by total revenue.
Adjusted EBITDA Metric
Q3 2012
|
(in
millions)
|
|
Net
Loss
|
($166)
|
Income Tax
Expense
|
13
|
Total
Other Expense
|
291
|
Depreciation and Amortization
|
185
|
Non-Cash
Stock Compensation
|
49
|
Adjusted EBITDA
|
$372
|
|
|
Adjusted EBITDA Margin
|
23.4%
|
|
|
Adjusted EBITDA Metric
Q2 2012
|
(in
millions)
|
|
Net
Loss
|
($62)
|
Income Tax
Expense
|
8
|
Total
Other Expense
|
187
|
Depreciation and Amortization
|
191
|
Non-Cash
Stock Compensation
|
29
|
Adjusted EBITDA
|
$353
|
|
|
Adjusted EBITDA Margin
|
22.3%
|
|
|
Adjusted EBITDA Metric*
Q3 2011
|
(in
millions)
|
|
|
Net Loss
|
($207)
|
Income Tax Expense
|
6
|
Total Other Expense
|
209
|
Depreciation and Amortization
|
203
|
Non-Cash Stock Compensation
|
26
|
Income from Discontinued Operations
|
(1)
|
Adjusted EBITDA
|
$236
|
|
|
Adjusted EBITDA Margin
|
25.5%
|
|
|
* Includes Level 3 Communications results
prior to the acquisition of Global Crossing on October 4, 2011.
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 primarily reflect the impact of historical
capital investments, as opposed to the cash impacts of capital
expenditures made in recent periods, which may be evaluated through
cash flow measures. 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 underlying business's growth pattern
and ability to generate cash. Unlevered Cash
Flow excludes cash used for acquisitions and debt service and the
impact of exchange rate changes on cash and cash equivalents
balances.
There are material limitations to using Unlevered Cash
Flow to measure the company's cash performance as it excludes
certain material items such as payments on and repurchases of
long-term debt, interest income, cash interest expense and cash
used to fund acquisitions including related cash transaction and
integration costs. Comparisons of Level 3's Unlevered Cash Flow to
that of some of its competitors may be of limited usefulness since
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 in 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, principal repayments and the
impact of exchange rate changes on cash and cash equivalents
balances.
There are material limitations to using Free Cash Flow to
measure the company's performance as it excludes certain material
items such as principal payments on and repurchases of long-term
debt and cash used to fund acquisitions. Comparisons of Level 3's
Free Cash Flow to that of some of its competitors may be of limited
usefulness since 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 interest expense, accounts receivable and
accounts payable and capital expenditures. Free Cash Flow 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 September 30, 2012
|
|
Unlevered
|
|
Free
Cash Flow
|
|
($ in
millions)
|
|
Cash
Flow
|
|
|
|
|
|
|
|
|
Net Cash
Provided by Operating Activities of Continuing
Operations
|
|
$
70
|
|
$70
|
|
Capital
Expenditures
|
|
($227)
|
|
($227)
|
|
Cash
Interest Paid
|
|
$234
|
|
N/A
|
|
Interest
Income
|
|
-
|
|
N/A
|
|
Total
|
|
$77
|
|
($157)
|
|
|
|
|
|
|
|
Unlevered Cash Flow and Free Cash
Flow
|
|
|
|
|
|
Three
Months Ended June 30, 2012
|
|
Unlevered
|
|
Free
Cash Flow
|
|
($ in
millions)
|
|
Cash
Flow
|
|
|
|
|
|
|
|
|
Net Cash
Provided by Operating Activities of Continuing
Operations
|
|
$183
|
|
$183
|
|
Capital
Expenditures
|
|
($180)
|
|
($180)
|
|
Cash
Interest Paid
|
|
$110
|
|
N/A
|
|
Interest
Income
|
|
($1)
|
|
N/A
|
|
Total
|
|
$112
|
|
$3
|
|
|
|
|
|
|
|
Unlevered Cash Flow and Free Cash
Flow*
|
|
|
|
|
|
Three
Months Ended September 30, 2011
|
|
Unlevered
|
|
Free
Cash Flow
|
|
($ in
millions)
|
|
Cash
Flow
|
|
|
|
|
|
|
|
|
Net Cash
Provided by Operating Activities of Continuing
Operations
|
|
$67
|
|
$67
|
|
Capital
Expenditures
|
|
($109)
|
|
($109)
|
|
Cash
Interest Paid
|
|
$147
|
|
N/A
|
|
Interest
Income
|
|
-
|
|
N/A
|
|
Total
|
|
$105
|
|
($42)
|
|
* Schedule has been updated for the removal of
Discontinued Operations.
Pro Forma Combined Company Results
The following tables reflect the pro forma combined
company results of Level 3 and Global Crossing for the three months
ended September 30, 2011. The tables
begin with the pre-acquisition historical results in the columns
labeled "Level 3" and "Global Crossing." The column labeled
"Intercompany Eliminations," includes adjustments to remove
transactions between Level 3 and Global Crossing. The column "Pro
Forma Adjustments," includes adjustments as a result of purchase
price accounting and changes in debt structure as a result of the
acquisition.
|
Pro
Forma Consolidated Statements of Operations
(unaudited)
|
|
|
Three
Months Ended September 30, 2011
|
|
(dollars
in millions)
|
Level
3
|
|
Global
Crossing (1)
|
|
Intercompany
Eliminations
|
|
Pro
Forma
Adjustments (3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$927
|
|
$697
|
|
($14)
|
|
($4)
|
|
$1,606
|
|
|
Costs and
Expenses (exclusive of depreciation and amortization shown
separately below):
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Revenue
|
342
|
|
327
|
|
(7)
|
|
-
|
|
662
|
|
|
Depreciation and Amortization
|
203
|
|
81
|
|
-
|
|
(16)
|
|
268
|
|
|
Selling,
General, and Administrative
|
375
|
|
268
|
|
(2)
|
|
2
|
|
643
|
|
|
Total
Costs and Expenses
|
920
|
|
676
|
|
(9)
|
|
(14)
|
|
1,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
7
|
|
21
|
|
(5)
|
|
10
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
(178)
|
|
(48)
|
|
-
|
|
31
|
|
(195)
|
|
|
Loss on
extinguishment of debt, net
|
(30)
|
|
-
|
|
-
|
|
-
|
|
(30)
|
|
|
Other,
net
|
(1)
|
|
(16)
|
|
-
|
|
-
|
|
(17)
|
|
|
Total
Other Expense
|
(209)
|
|
(64)
|
|
-
|
|
31
|
|
(242)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Income Taxes
|
(202)
|
|
(43)
|
|
(5)
|
|
41
|
|
(209)
|
|
|
Income Tax
Expense
|
(6)
|
|
(10)
|
|
-
|
|
-
|
|
(16)
|
|
|
Loss From
Continuing Operations
|
(208)
|
|
(53)
|
|
(5)
|
|
41
|
|
(225)
|
|
|
Income
from Discontinued Operations
|
1
|
|
-
|
|
-
|
|
-
|
|
1
|
|
|
Net
Loss
|
($207)
|
|
($53)
|
|
($5)
|
|
$41
|
|
($224)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
Diluted Loss per Share (2)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
continuing operations
|
($1.76)
|
|
|
|
|
|
|
|
($1.09)
|
|
|
Income
from discontinued operations
|
0.01
|
|
|
|
|
|
|
|
0.01
|
|
|
Loss per
share
|
($1.75)
|
|
|
|
|
|
|
|
($1.08)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used to compute loss per share (2)
|
118,067
|
|
|
|
|
|
88,530
|
|
206,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Certain reclassifications have been made to conform
to Level 3 reporting.
|
(2)
|
Basic and diluted loss per share have been updated to
reflect the one for fifteen reverse stock split that became
effective October 19, 2011.
|
(3)
|
Assumes an acquisition date of January 1,
2011.
|
|
Pro Forma Adjusted
EBITDA
|
|
Three Months Ended
September 30, 2011
|
(dollars in
millions)
|
Level
3
|
|
Global
Crossing
|
|
Intercompany
Eliminations
|
|
Pro Forma
Adjustments (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net
Loss
|
($207)
|
|
($53)
|
|
($5)
|
|
$41
|
|
($224)
|
Income Tax
Expense
|
6
|
|
10
|
|
-
|
|
-
|
|
16
|
Total Other Expense
(Benefit)
|
209
|
|
64
|
|
-
|
|
(31)
|
|
242
|
Depreciation and
Amortization Expense
|
203
|
|
81
|
|
-
|
|
(16)
|
|
268
|
Non-cash Compensation
Expense
|
26
|
|
4
|
|
-
|
|
-
|
|
30
|
Income from Discontinued
Operations
|
(1)
|
|
-
|
|
-
|
|
-
|
|
(1)
|
Consolidated Adjusted
EBITDA
|
|
|
|
|
|
|
|
|
|
$236
|
|
$106
|
|
($5)
|
|
($6)
|
|
$331
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Revenue(1)
|
|
|
|
|
|
|
|
|
$1,606
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
Margin
|
|
|
|
|
|
|
|
|
20.6%
|
|
|
|
|
|
|
|
|
|
|
(1)
Assumes an acquisition date of January 1, 2011.
|
|
Pro Forma Cash
Flows
|
|
Three Months Ended
September 30, 2011
|
(dollars in
millions)
|
Level
3
|
|
Global Crossing
|
|
Intercompany
Eliminations
|
|
Pro Forma
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities of Continuing Operations
|
|
|
|
|
|
|
|
|
|
$67
|
|
$35
|
|
$-
|
|
$-
|
|
$102
|
Capital
Expenditures
|
(109)
|
|
(48)
|
|
-
|
|
-
|
|
(157)
|
Free Cash Flow
|
($42)
|
|
($13)
|
|
$-
|
|
$-
|
|
($55)
|
Cash Interest Paid
|
147
|
|
49
|
|
-
|
|
-
|
|
196
|
Interest Income
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Unlevered Cash
Flow
|
$105
|
|
$36
|
|
$-
|
|
$-
|
|
$141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Revenue
Distribution by Channel
|
|
|
|
|
|
3Q11(2),
(3)
|
4Q11
|
1Q12
|
2Q12
|
3Q12
|
|
3Q12/ 2Q12 %
Change
|
3Q12/ 2Q12 % Change
Constant Currency
|
3Q12 %
CNS
|
|
|
|
|
|
|
|
|
|
|
CNS Revenue ($ in
millions)
|
|
|
|
|
|
|
|
|
North
America
|
$968
|
$976
|
$991
|
$1,003
|
$1,008
|
|
0.5%
|
0.7%
|
72%
|
Wholesale
|
$394
|
$388
|
$381
|
$382
|
$381
|
|
(0.3%)
|
0.0%
|
27%
|
Enterprise
|
$574
|
$588
|
$610
|
$621
|
$627
|
|
1.0%
|
1.1%
|
45%
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
$240
|
$224
|
$219
|
$214
|
$210
|
|
(1.9%)
|
(0.8%)
|
15%
|
Wholesale
|
$102
|
$94
|
$92
|
$91
|
$89
|
|
(2.2%)
|
(2.1%)
|
6%
|
Enterprise
|
$81
|
$80
|
$79
|
$81
|
$80
|
|
(1.2%)
|
1.3%
|
6%
|
UK Government
|
$57
|
$50
|
$48
|
$42
|
$41
|
|
(2.4%)
|
(2.0%)
|
3%
|
|
|
|
|
|
|
|
|
|
|
Latin
America
|
$173
|
$168
|
$172
|
$169
|
$177
|
|
4.7%
|
6.0%
|
13%
|
Wholesale
|
$39
|
$35
|
$34
|
$33
|
$36
|
|
9.1%
|
10.8%
|
3%
|
Enterprise
|
$134
|
$133
|
$138
|
$136
|
$141
|
|
3.7%
|
4.8%
|
10%
|
|
|
|
|
|
|
|
|
|
|
Total
|
$1,381
|
$1,368
|
$1,382
|
$1,386
|
$1,395
|
|
0.6%
|
1.1%
|
100%
|
Wholesale
|
$535
|
$517
|
$507
|
$506
|
$506
|
|
0.0%
|
0.3%
|
36%
|
Enterprise
(1)
|
$846
|
$851
|
$875
|
$880
|
$889
|
|
1.0%
|
1.5%
|
64%
|
|
|
|
|
|
|
|
|
|
|
Total
CNS
|
$1,381
|
$1,368
|
$1,382
|
$1,386
|
$1,395
|
|
0.6%
|
1.1%
|
|
Wholesale Voice Services
and Other Revenue
|
$225
|
$211
|
$204
|
$200
|
$195
|
|
(2.5%)
|
(2.9%)
|
|
Total
Revenue
|
$1,606
|
$1,579
|
$1,586
|
$1,586
|
$1,590
|
|
0.3%
|
0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes EMEA UK Government Revenue.
|
(2)
|
Prior period results have been adjusted to reflect
pro forma revenues.
|
(3)
|
Assumes an acquisition date of January 1,
2011.
|
|
Level 3 Communications
Summary Financial
Results ($ in millions)
|
|
|
|
|
|
3Q11(1),
(2)
|
4Q11
|
1Q12
|
2Q12
|
3Q12
|
|
3Q12/ 2Q12 %
Change
|
3Q12 %
CNS
|
|
|
|
|
|
|
|
|
|
|
|
Core Network Services
Revenue
|
|
|
|
|
|
|
|
|
|
Colocation and Datacenter
Services
|
$136
|
$133
|
$136
|
$137
|
$136
|
|
(1%)
|
10%
|
|
Transport and
Fiber
|
$489
|
$486
|
$480
|
$485
|
$491
|
|
1%
|
35%
|
|
IP and Data
Services
|
$481
|
$479
|
$493
|
$499
|
$505
|
|
1%
|
36%
|
|
Voice Services (local
and
enterprise)
|
$275
|
$270
|
$273
|
$265
|
$263
|
|
(1%)
|
19%
|
|
Total Core Network
Services
|
$1,381
|
$1,368
|
$1,382
|
$1,386
|
$1,395
|
|
1%
|
|
|
Wholesale Voice Services
and Other
|
$225
|
$211
|
$204
|
$200
|
$195
|
|
(3%)
|
|
|
Total
Revenue
|
$1,606
|
$1,579
|
$1,586
|
$1,586
|
$1,590
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Prior period results have been adjusted to reflect
pro forma revenues.
|
(2)
|
Assumes an acquisition date of January 1,
2011.
|
Pro Forma Debt is defined as total
debt gross debt, including capital leases from the consolidated
balance sheet adjusted for the refinancing of the $650 million Tranche B II and $550 million Tranche B III Term Loans.
Pro Forma Cash and Cash
Equivalents is defined as total cash and cash
equivalents adjusted for the refinancing of the $650 million Tranche B II and $550 million Tranche B III Term Loans.
Pro Forma Net Debt to Annualized Adjusted EBITDA
Ratio is defined as pro forma debt, reduced by pro
forma cash and cash equivalents and divided by Annualized Adjusted
EBITDA.
Level 3 Communications,
Inc. and Consolidated Subsidiaries
|
Pro Forma Net Debt to Annualized
Adjusted EBITDA ratio as of September 30,
2012
|
|
|
|
|
|
(dollars in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Debt
|
$
|
8,790
|
|
|
|
|
|
Cash and cash equivalents
|
|
793
|
|
Pro forma cash from debt refinancing
|
|
(17)
|
|
Pro Forma Cash and Cash
Equivalents
|
|
776
|
|
|
|
|
|
Pro Forma Net
Debt
|
$
|
8,014
|
|
|
|
|
|
Annualized Adjusted
EBITDA
|
$
|
1,488
|
|
|
|
|
|
Pro Forma Net Debt to
Annualized Adjusted EBITDA Ratio
|
|
5.4
|
|
|
|
|
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated Statements of
Operations
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
September
30,
|
|
June
30,
|
|
September
30,
|
|
(dollars
in millions, except share data)
|
2012
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
$
1,590
|
|
$
1,586
|
|
$
927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
Expenses (exclusive of depreciation and
|
|
|
|
|
|
|
|
amortization shown separately below):
|
|
|
|
|
|
|
|
Cost of
Revenue
|
|
|
642
|
|
648
|
|
342
|
|
|
Depreciation and Amortization
|
|
185
|
|
191
|
|
203
|
|
|
Selling,
General and Administrative
|
625
|
|
614
|
|
375
|
|
|
|
Total
Costs and Expenses
|
|
1,452
|
|
1,453
|
|
920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
138
|
|
133
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
-
|
|
1
|
|
-
|
|
|
Interest
expense
|
|
|
(188)
|
|
(181)
|
|
(178)
|
|
|
Loss on
extinguishment of debt, net
|
|
(49)
|
|
-
|
|
(30)
|
|
|
Other,
net
|
|
|
|
(54)
|
|
(7)
|
|
(1)
|
|
|
|
Total
Other Expense
|
|
|
(291)
|
|
(187)
|
|
(209)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Income Taxes
|
|
|
(153)
|
|
(54)
|
|
(202)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax
Expense
|
|
|
(13)
|
|
(8)
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From
Continuing Operations
|
|
(166)
|
|
(62)
|
|
(208)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
From Discontinued Operations, net
|
-
|
|
-
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
$
(166)
|
|
$
(62)
|
|
$
(207)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
Diluted Loss per Share *
|
|
|
|
|
|
|
|
|
Loss per
Share From Continuing Operations
|
$
(0.76)
|
|
$
(0.29)
|
|
$
(1.76)
|
|
|
Income per
Share From Discontinued Operations
|
-
|
|
-
|
|
0.01
|
|
|
|
Net
Loss
|
|
|
|
$
(0.76)
|
|
$
(0.29)
|
|
$
(1.75)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Used to Compute Basic and Diluted Loss per Share *
|
|
|
|
|
|
|
(in
thousands)
|
|
|
217,301
|
|
216,399
|
|
118,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Basic
and diluted loss per share have been updated to reflect the one for
fifteen reverse stock split that became effective October 19,
2011.
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated Balance Sheets
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
June
30,
|
December
31,
|
(dollars
in millions)
|
2012
|
2012
|
2011
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash and
cash equivalents
|
$
793
|
$
733
|
$
918
|
|
Restricted
cash and securities
|
8
|
8
|
10
|
|
Receivables, less allowances for doubtful
accounts
|
748
|
689
|
648
|
|
Other
|
186
|
167
|
131
|
Total
Current Assets
|
1,735
|
1,597
|
1,707
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
8,191
|
8,076
|
8,136
|
Restricted
Cash and Securities
|
39
|
49
|
51
|
Goodwill
|
2,565
|
2,497
|
2,541
|
Other
Intangibles, net
|
287
|
308
|
358
|
Other
Assets
|
399
|
420
|
395
|
Total
Assets
|
$
13,216
|
$
12,947
|
$
13,188
|
|
|
|
|
|
|
Liabilities and Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
$
719
|
$
698
|
$
747
|
|
Current
portion of long-term debt
|
213
|
222
|
65
|
|
Accrued
payroll and employee benefits
|
163
|
140
|
209
|
|
Accrued
interest
|
166
|
225
|
216
|
|
Current
portion of deferred revenue
|
260
|
250
|
264
|
|
Other
|
122
|
119
|
157
|
Total
Current Liabilities
|
1,643
|
1,654
|
1,658
|
|
|
|
|
|
|
Long-Term
Debt, less current portion
|
8,496
|
8,190
|
8,385
|
Deferred
Revenue, less current portion
|
841
|
868
|
885
|
Other
Liabilities
|
1,032
|
1,021
|
1,067
|
Total
Liabilities
|
12,012
|
11,733
|
11,995
|
|
|
|
|
|
|
Stockholders' Equity
|
1,204
|
1,214
|
1,193
|
Total
Liabilities and Stockholders' Equity
|
$
13,216
|
$
12,947
|
$
13,188
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated Statements of Cash
Flows
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
June
30,
|
|
September
30,
|
(dollars
in millions)
|
|
2012
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
Cash Flows
from Operating Activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
(166)
|
|
$
(62)
|
|
($207)
|
|
Income
from discontinued operations
|
|
-
|
|
-
|
|
(1)
|
|
Net loss
from continuing operations
|
|
(166)
|
|
(62)
|
|
(208)
|
|
Adjustments to reconcile net loss from continuing
operations to net cash provided by operating activities of
continuing operations:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
185
|
|
191
|
|
203
|
|
Non-cash compensation expense
attributable to stock awards
|
|
49
|
|
29
|
|
26
|
|
Loss on extinguishment of debt,
net
|
|
49
|
|
-
|
|
30
|
|
Loss on interest rate
swaps
|
|
60
|
|
-
|
|
-
|
|
Accretion of debt discount and
amortization of debt issuance costs
|
|
12
|
|
11
|
|
18
|
|
Accrued interest on long-term
debt
|
|
(58)
|
|
60
|
|
13
|
|
Deferred income
taxes
|
|
15
|
|
(4)
|
|
7
|
|
Other, net
|
|
(28)
|
|
12
|
|
-
|
|
Changes in working capital
items:
|
|
|
|
|
|
|
|
Receivables
|
|
(77)
|
|
(17)
|
|
(44)
|
|
Other current assets
|
|
4
|
|
(5)
|
|
4
|
|
Payables
|
|
14
|
|
(23)
|
|
8
|
|
Deferred revenue
|
|
(22)
|
|
(10)
|
|
(2)
|
|
Other current liabilities
|
|
33
|
|
1
|
|
12
|
Net Cash
Provided by Operating Activities of Continuing
Operations
|
|
70
|
|
183
|
|
67
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(227)
|
|
(180)
|
|
(109)
|
|
Decrease (Increase) in restricted cash and
securities, net
|
|
11
|
|
3
|
|
(29)
|
|
Other
|
|
(13)
|
|
-
|
|
-
|
Net Cash
Used in Investing Activities of Continuing
Operations
|
|
(229)
|
|
(177)
|
|
(138)
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
Long
term debt borrowings, net of issuance costs
|
|
2,437
|
|
-
|
|
(1)
|
|
Payments on and repurchases of long-term
debt
|
|
(2,225)
|
|
(16)
|
|
(49)
|
|
Proceeds from stock options
exercised
|
|
4
|
|
-
|
|
-
|
Net Cash
Provided by (Used in) Financing Activities of Continuing
Operations
|
|
216
|
|
(16)
|
|
(50)
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
Net cash
provided by operating activities
|
|
-
|
|
-
|
|
1
|
|
Net cash
used in investing activities
|
|
-
|
|
-
|
|
(1)
|
Net Cash
Used In Discontinued Operations
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
Effect of Exchange Rates on Cash and Cash
Equivalents
|
|
3
|
|
(5)
|
|
(2)
|
|
|
|
|
|
|
|
|
Net
Change in Cash and Cash Equivalents
|
|
60
|
|
(15)
|
|
(123)
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
733
|
|
748
|
|
584
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
793
|
|
$
733
|
|
$
461
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow
Information:
|
|
|
|
|
|
|
|
Cash
interest paid
|
|
$234
|
|
$110
|
|
$147
|
SOURCE Level 3 Communications, Corporate Communications