Financial and Business Highlights - Consolidated Revenue of $1.09 billion
BROOMFIELD, Colo., July 24 /PRNewswire-FirstCall/ -- Level 3
Communications, Inc. (Nasdaq: LVLT) today reported strong second quarter
results. Consolidated revenue was $1.09 billion for the second quarter 2008,
an increase of 4 percent compared to $1.05 billion for the second quarter
2007. First quarter 2008 consolidated revenue was $1.09 billion.
"Our strong second quarter results reflect Core Network Services growth
and our continued focus on reducing network costs and operating expenses,"
said James Crowe, president and CEO of Level 3. "We generated positive Free
Cash Flow and now expect to be Free Cash Flow positive for the remainder of
the year. And as previously announced, we expect to be Free Cash Flow positive
for the full year 2009."
The net loss for the second quarter 2008 was $33 million, or $0.02 per
share, including a $96 million, or $.06 per share gain on the sale of the
company's Vyvx advertising distribution business. This compares to a net loss
of $202 million, or $0.13 per share for the second quarter 2007 and a net loss
of $181 million, or $0.12 per share for the first quarter 2008.
Consolidated Adjusted EBITDA(1) was $251 million in the second quarter
2008, a 30 percent increase from $193 million for the second quarter 2007.
Consolidated Adjusted EBITDA for the first quarter 2008 was $211 million.
Core Revenue Growth and Cost Improvements Drive Substantial Improvement to
Consolidated Adjusted EBITDA
Metric Second Quarter Second Quarter
($ in millions) 2008 Results 2007 Results
Core Communications Revenue $972 $888
Other Communications Revenue $46$71
SBC Contract Services Revenue $54$76
Total Communications Revenue $1,072 $1,035
Other Revenue$18$17
Total Consolidated Revenue $1,090 $1,052
Consolidated Adjusted EBITDA (*)(**) $251 $193
Capital Expenditures $106 $170
Unlevered Cash Flow (**) $126 $(64)
Free Cash Flow (**) $4 $(141)
Communications Gross Margin (**) 58.8% 57.8%
Communications Adjusted EBITDA Margin (**)23.6% 18.7%
* Consolidated Adjusted EBITDA for the second quarter 2008 excludes $20
million in non-cash compensation expense and includes $4 million of
cash restructuring charges. Consolidated Adjusted EBITDA for the second
quarter 2007 excludes $24 million in non-cash compensation expense and
$1 million in non-cash impairment charges and includes $1 million of
cash restructuring charges
** See schedule of non-GAAP metrics for definition and reconciliation to
GAAP measures
Communications Business Results
Revenue
Total Communications revenue for the second quarter 2008 was $1.07
billion, a 4 percent increase from $1.04 billion in the second quarter 2007.
Total Communications revenue was $1.07 billion in the first quarter 2008.
Core Communications Services
Core Communications Services revenue, which includes Core Network Services
and Wholesale Voice Services, was $972 million in the second quarter 2008, an
increase of 9 percent over $888 million in the second quarter 2007. Core
Communications Services revenue was $958 million in the first quarter 2008.
Second quarter 2008 Core Network Services revenue was $797 million, compared
to $735 million in the second quarter 2007. Second quarter 2008 Wholesale
Voice Services revenue was $175 million, an increase of 14 percent compared to
the second quarter 2007. Wholesale Voice Services revenue was $184 million in
the first quarter 2008.
Communications
Revenue Quarter ended Quarter ended Percent Quarter ended
($ in millions) June 30, 2008 June 30, 2007 Change March 31, 2008
Core Network Services $797 $735 8% $774
Wholesale Voice Services $175 $15314% $184
Total Core Communications
Services $972 $888 9% $958
Other Communications
Services$46 $71 (35)% $51
SBC Contract Services$54 $76 (29)% $57
Total Communications
Revenue $1,072 $1,035 4% $1,066
During the second quarter, the company completed an analysis of its
deferred revenue accounts and determined that deferred revenue of
approximately $12 million should have been recognized as revenue in prior
years. The effect on each separate prior period was not material. Accordingly,
the company recognized $12 million of revenue (non-cash) in the second quarter
2008, in Core Network Services, primarily affecting the Wholesale Markets
Group.
Also during the quarter, the company completed the sale of the Vyvx
advertising distribution business. Second quarter 2008 revenue includes
approximately $6 million in Vyvx advertising distribution business revenue, or
about two months of revenue. Vyvx advertising distribution revenue was
approximately $7 million and $9 million for the second quarter 2007 and first
quarter 2008, respectively.
Excluding revenue from the Vyvx advertising distribution business for all
periods and the benefit of the $12 million deferred revenue change, second
quarter 2008 Core Communications Services revenue grew 8 percent, compared to
the second quarter 2007 and 1 percent compared to the first quarter 2008.
Similarly, Core Network Services revenue grew 7 percent from the second
quarter 2007 and 2 percent from the first quarter 2008. This growth was
primarily due to increased demand for transport and infrastructure services.
Financial Results
excluding the
benefit of Deferred
Revenue Change and Quarter QuarterQuarter
Vyvx Advertising ended ended ended
Distribution Business June 30, June 30, Percent March 31, Percent
($ in millions) 2008 2007Change2008(1) Change
Core Network Services$779$728 7% $765 2%
Wholesale Voice Services $175$153 14% $184 (5)%
Total Core Communications
Services $954$881 8% $949 1%
Total Communications
Revenue $1,054 $1,028 3% $1,057 0%
Consolidated Adjusted
EBITDA(1) $237$191 24% $207 NA
(1) Consolidated Adjusted EBITDA for the first quarter 2008 includes a $5
million one-time benefit from the company's coal-mining operations
Core Network Services includes revenue from transport and infrastructure,
IP and data services, local and enterprise voice services and Vyvx broadcast
services. These services have incremental gross margins of approximately 80
percent. Customers in each of the company's four market groups buy across the
Core Network Services portfolio. During the second quarter, the company signed
a large multi-year nationwide long haul and metro agreement with a Content
Markets Group customer.
Wholesale Voice Services includes revenue from long distance voice
services, including domestic voice termination, international voice
termination and toll free services, which are purchased by customers primarily
in the Wholesale and European market groups. These services have incremental
gross margins of approximately 30 percent. As previously indicated, the
company manages Wholesale Voice Services for gross margin and as a result,
revenue is expected to be volatile quarter to quarter.
Core Communications Services revenue by market group was:
Percent of Second
Core Communications Second Quarter Total First
Services Revenue Quarter Core Communications Quarter
($ in millions) 2008 Services Revenue 2008
Wholesale Markets Group$548 56% $541
Business Markets Group $241 25% $240
Content Markets Group $100 10% $100
European Markets Group $83 9% $77
Total Core Communications Services
Revenue $972100% $958
Year over year growth was led by the European Markets Group and Content
Markets Group, with both groups seeing strong demand from customers moving
video and other large file size content over the Internet.
Other Communications Services
Other Communications Services revenue declined 35 percent to $46 million
compared to $71 million in the second quarter 2007. Expected declines in
managed modem services were the reason for the decrease. First quarter 2008
Other Communications Services revenue was $51 million.
SBC Contract Services
SBC Contract Services revenue was $54 million in the second quarter 2008,
a 29 percent decline compared to the year earlier quarter revenue of $76
million. First quarter 2008 SBC Contract Services revenue was $57 million.
As previously disclosed, SBC announced its intention to migrate the
services provided under the agreement to its own network facilities in
accordance with terms previously negotiated by WilTel Communications, LLC
(WilTel), a company subsequently acquired by Level 3. Under the terms of this
agreement, SBC agreed to pay WilTel a minimum amount of gross margin
regardless of the actual revenue generated under the agreement.
As of the end of the second quarter 2008, the customer satisfied the gross
margin commitment for the agreement. Accordingly, beginning in the third
quarter 2008, revenue attributable to the SBC contract will be reported as
Other Communications Services revenue, and the SBC Contract Services category
will be eliminated.
Deferred Revenue
Communications deferred revenue was $932 million at the end of the second
quarter 2008, compared to $951 million at the end of the second quarter 2007.
Deferred revenue at the end of the first quarter 2008 was $927 million.
Cost of Revenue
Communications cost of revenue for the second quarter 2008 was $442
million, versus $437 million in the second quarter 2007. Cost of revenue was
$459 million in the first quarter 2008.
Communications Gross Margin was $630 million, or 58.8 percent in the
second quarter 2008, compared to $598 million, or 57.8 percent in the second
quarter 2007. For the first quarter 2008, Communications Gross Margin was $607
million or 56.9 percent.
Selling, General and Administrative (SG&A) Expense
Communications SG&A expense, including non-cash compensation expense, was
$393 million for the second quarter 2008, versus $427 million for the second
quarter 2007 and $418 million for the first quarter 2008. Communications SG&A
includes non-cash compensation expense of $20 million, $24 million, and $23
million for the second quarter 2008, second quarter 2007 and first quarter
2008, respectively.
Excluding non-cash compensation expense, Communications SG&A was $373
million in the second quarter 2008, a 7 percent decline compared to $403
million in the second quarter 2007 and a 6 percent decline compared to $395
million in the first quarter 2008.
Adjusted EBITDA
Adjusted EBITDA for the communications business was $253 million for the
second quarter 2008, a 30 percent increase compared to $194 million for the
second quarter 2007. First quarter 2008 Communications Adjusted EBITDA was
$205 million.
Communications Adjusted EBITDA margin was 23.6 percent in the second
quarter 2008, versus 18.7 percent in the second quarter 2007 and 19.3 percent
in the previous quarter.
Excluding the $12 million of previous years' deferred revenue recognized
in the quarter, second quarter Communications Adjusted EBITDA was $241
million, and Communications Adjusted EBITDA margin was 22.7 percent.
Communications Adjusted EBITDA excludes non-cash compensation expense and
includes severance and restructuring charges related to integration activities
of $4 million, $1 million and $7 million for the second quarter 2008, second
quarter 2007 and first quarter 2008, respectively. Adjusted EBITDA for the
second quarter 2007 also excludes $1 million of non-cash impairment charges.
Level 3 Generates Positive Free Cash Flow; Strong Liquidity Position
During the second quarter 2008, Unlevered Cash Flow was positive $126
million, versus negative $64 million in the second quarter 2007 and negative
$21 million for the previous quarter. Consolidated Free Cash Flow for the
second quarter 2008 was positive $4 million, versus negative $141 million for
the second quarter 2007 and negative $160 million for the first quarter 2008.
As of June 30, 2008, the company had cash and marketable securities of
approximately $666 million.
Continued Operational Improvements
Level 3 continued to make operational improvements to service activation
and delivery processes. Installation intervals also improved during the
quarter.
Project Unity, the company's unified process and systems program, remains
on track and the company generally expects to implement future releases as
planned.
Sale of Vyvx Advertising Distribution Business Closes During Quarter
On June 5, 2008, the company completed the sale of its Vyvx advertising
distribution business to DG FastChannel, Inc. Level 3 has retained ownership
of Vyvx's core broadcast business, including the Vyvx Services Broadcast
Business' content distribution capabilities.
Level 3 received gross proceeds at closing of approximately $129 million
in cash. The purchase price is subject to customary working capital and
certain other post-closing purchase price adjustments.
Business Outlook
"Our previous guidance for Adjusted EBITDA and Free Cash Flow included
anticipated results from the Vvyx advertising distribution business," said
Sunit Patel, executive vice president and CFO of Level 3. "For the second half
of 2008, the Vvyx advertising distribution business was expected to contribute
approximately $10 million in Adjusted EBITDA and cash flow. Our 2008 business
outlook for both Core Communications Services revenue and Consolidated
Adjusted EBITDA remains unchanged.
"In addition, we are raising our 2008 Free Cash Flow guidance from
breakeven to positive for the remainder of the year. Our capital efficiency
has also improved this year from enhancements in our supply chain that have
resulted in tighter management of equipment inventory, better purchasing and
improved capital recovery through the re-use of equipment already installed in
the network. As a result, we believe our capital expenditures for 2008 will be
11 to 12 percent of Total Communications Revenue. For the longer term, we
continue to believe that our capital expenditures will be 12 to 14 percent of
Total Communications Revenue."
Summary
"We are pleased with the better than expected performance in the second
quarter and with the improvement in our guidance for Free Cash Flow," said
Crowe. "We remain focused on increasing sales and install rates over the
remainder of 2008 and continuing to improve our already solid operating
leverage through effective cost management and deploying Project Unity
processes and systems."
Conference Call and Web Site Information
Level 3 will hold a conference call to discuss the company's second
quarter results at 10 a.m. EDT today. The call will be broadcast live on Level
3's Web site at www.Level3.com. If you are unable to join the call via the
Web, you may access the call at 913-312-0862 or 888-631-5928.
The call will be archived and available on Level 3's Web site at
http://www.level3.com/q0208report.html, or you may access an audio replay
until 12:00 a.m. EDT on Friday, August 1, 2008, by dialing 888-203-1112 or
719-457-0820 access code 9144398. For additional information please call 720-
888-2502.
The company will post an investor presentation that summarizes the
financial and operational progress for the second quarter 2008 on its Web site
at http://www.level3.com/investor_relations/index.html.
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 communications
services with an industry-leading combination of scalability and quality, over
an end-to-end fiber network. Level 3 offers a portfolio of metro and long haul
services over an end-to-end fiber network, including transport, data, internet,
content delivery and voice. For more information, visit www.Level3.com.
Level 3 Communications, Level 3, the red 3D brackets and the Level 3
Communications logo are registered service marks of Level 3 Communications,
LLC and/or 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, product or company names recited herein are trademarks
or service marks of their respective owners.
Forward-Looking Statement
Some of the statements made in this press release are forward looking in
nature. These statements 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. The most
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 acquisitions; increase the volume of traffic on the network; defend
intellectual property and proprietary rights; develop new products and
services that meet customer demands and generate acceptable margins;
successfully complete commercial testing of new technology and information
systems to support new products and services; attract and retain qualified
management and other personnel; and meet all of the terms and conditions of
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.
1) Non-GAAP Metrics
Pursuant to Regulation G, the Company is hereby providing a reconciliation
of non-GAAP financial metrics to the most directly comparable GAAP measure.
The Company provides projections that include non-GAAP metrics that the
Company deems relevant to management and investors. These non-GAAP metrics are
Consolidated Adjusted EBITDA, Consolidated Adjusted EBITDA Excluding the
Benefit of Deferred Revenue Change and Vyvx Advertising Distribution Results,
Communications Gross Margin, Communications Adjusted EBITDA Margin, Unlevered
Cash Flow and Consolidated Free Cash Flow. Certain of the following
reconciliations of these non-GAAP financial metrics to GAAP include
forward-looking statements with respect to the information identified as a
projection. Level 3 has made a number of assumptions in preparing our
projections, including assumptions as to the components of financial metrics.
These assumptions, including dollar amounts of the various components that
comprise a financial metric, may or may not prove to be correct. We caution
you that these forward-looking statements are only projections, which are
subject to risks and uncertainties including technological uncertainty,
financial variations, changes in the regulatory environment, industry growth
and trend predictions. Please see the Company's Annual Report on Form 10-K for
a description of these risks and uncertainties.
In order to provide projections with respect to non-GAAP metrics, we are
required to indicate a range for GAAP measures that are components of the
reconciliation of the non-GAAP metric. The provision of these ranges is in no
way meant to indicate that the Company is explicitly or implicitly providing
projections on those GAAP components of the reconciliation. In order to
reconcile the non-GAAP financial metric to GAAP, the Company has to use ranges
for the GAAP components that arithmetically add up to the non-GAAP financial
metric. While the Company feels reasonably comfortable about the projections
for its non-GAAP financial metrics, it fully expects that the ranges used for
the GAAP components will vary from actual results. We will consider our
projections of non-GAAP financial metrics to be accurate if the specific
non-GAAP metric is met or exceeded, even if the GAAP components of the
reconciliation are different from those provided in an earlier reconciliation.
Communications Gross Margin ($) is defined as communications revenue less
communications cost of revenue from the consolidated condensed statements of
operations.
Cost of Revenue for the communications business includes leased capacity,
right-of-way costs, access charges and other third party circuit costs
directly attributable to the network, as well as costs of assets sold. Cost
of revenue also includes satellite transponder lease costs, package delivery
costs and blank tape media costs attributable to the video business. Delivery
costs and blank tape media costs attributable to the Vyvx advertising
distribution business are included in cost of revenue through the date of the
Vyvx advertising distribution business disposition on June 5, 2008. Cost of
revenue does not include depreciation and amortization.
Communications Gross Margin (%) is defined as communications gross margin
($) divided by communications revenue. Management believes that communications
gross margin is a relevant metric to provide to investors, as it is a metric
that management uses to measure the margin available to the Company after it
pays third party network services costs; in essence, a measure of the
efficiency of the Company's network.
Communications Gross Margin Q208 Q108 Q207
($ in millions)
Communications Revenue $1,072 $1,066$1,035
Communications Cost of Revenue $442 $459 $437
Communications Gross Margin ($)$630 $607 $598
Communications Gross Margin (%)58.8% 56.9% 57.8%
Consolidated Adjusted EBITDA is defined as net income/(loss) from the
consolidated condensed statements of operations before income taxes, total
other income/(expense), non-cash impairment charges, depreciation and
amortization and non-cash stock compensation expense.
Communications Adjusted EBITDA Margin is defined as Communications
Adjusted EBITDA divided by communications revenue.
Management believes that Consolidated Adjusted EBITDA and Communications
Adjusted EBITDA 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
Consolidated Adjusted EBITDA and Communications 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. Consolidated Adjusted EBITDA excludes
non-cash impairment charges and non-cash stock compensation expense because of
the non-cash nature of these items. Consolidated Adjusted EBITDA also
excludes interest income, interest expense and income taxes because these
items are associated with the Company's capitalization and tax structures.
Consolidated Adjusted EBITDA also excludes depreciation and amortization
expense because these non-cash expenses reflect the impact of capital
investments which management believes should be evaluated through consolidated
free cash flow. Consolidated Adjusted EBITDA excludes the gain on sale of
business group 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 on sale of business group and net other income/(expense).
Consolidated Adjusted EBITDA and Communications Adjusted EBITDA Margin should
not be considered a substitute for other measures of financial performance
reported in accordance with GAAP.
Consolidated Adjusted EBITDA Excluding the Benefit of Deferred Revenue
Change and Vyvx Advertising Distribution Results is defined as Consolidated
Adjusted EBITDA less the benefit of deferred revenue that should have been
recognized in prior years and less the Vyvx advertising distribution business
Adjusted EBITDA. In addition to the factors described above in "Communications
Adjusted EBITDA Margin", management believes that Consolidated Adjusted EBITDA
Excluding the Benefit of Deferred Revenue Change and Vyvx Advertising
Distribution Results is a relevant and useful profitability and operating
performance metric for management and investors to exclude the effect of
non-recurring items.
Consolidated Adjusted EBITDA
Three Months Ended June 30, 2008 Communications Other Consolidated
($ in millions)
Net Earnings (Loss) ($29) ($4) ($33)
Income Tax (Benefit) Expense$1$-- $1
Total Other (Income) Expense $29$-- $29
Non-Cash Impairment Charge $--$-- $--
Depreciation and Amortization Expense $232 $2$234
Non-Cash Stock Compensation Expense$20$-- $20
Consolidated Adjusted EBITDA $253($2) $251
Consolidated Adjusted EBITDA
Three Months Ended March 31, 2008 Communications OtherConsolidated
($ in millions)
Net Earnings (Loss) ($187)$6 ($181)
Income Tax (Benefit) Expense$2 $1 $3
Total Other (Income) Expense $128($2) $126
Non-Cash Impairment Charge $--$-- $--
Depreciation and Amortization Expense $239 $1$240
Non-Cash Stock Compensation Expense$23$-- $23
Consolidated Adjusted EBITDA $205 $6$211
Consolidated Adjusted EBITDA
Three Months Ended June 30, 2007 Communications Other Consolidated
($ in millions)
Net Earnings (Loss) ($199) ($3) ($202)
Income Tax (Benefit) Expense $--$-- $--
Total Other (Income) Expense $123$--$123
Non-Cash Impairment Charge $1$-- $1
Depreciation and Amortization Expense$245 $2$247
Non-Cash Stock Compensation Expense $24$-- $24
Consolidated Adjusted EBITDA $194($1) $193
Consolidated Adjusted EBITDA Excluding the
Benefit of Deferred Revenue Change and Vyvx
Advertising Distribution Results
($ in millions)Q208 Q108 Q207
Consolidated Adjusted EBITDA $251 $211 $193
Benefit of Deferred Revenue Change ($12) $-- $--
Vyvx Advertising Distribution Adjusted
EBITDA ($2) ($4) ($2)
Consolidated Adjusted EBITDA Excluding the
Benefit of Deferred Revenue Change and Vyvx
Advertising Distribution Results $237 $207 $191
Communications Adjusted EBITDA Margin Q208 Q108 Q207
($ in millions)
Communications Revenue $1,072$1,066$1,035
Communications Adjusted EBITDA $253 $205 $194
Communications Adjusted EBITDA Margin 23.6% 19.3% 18.7%
Projected Consolidated Adjusted EBITDA
Twelve Months Ended December 31, 2008Consolidated
($ in millions) Range
Low High
Net Earnings (Loss) $(550) $(350)
Total Other (Income) Expense $440 $410
Depreciation and Amortization Expense $940 $900
Non-Cash Stock Compensation Expense$120 $140
Consolidated Adjusted EBITDA $950 $1,100
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 condensed consolidated statements of
cash flows or the condensed 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 cash used for acquisitions, proceeds from the sale of a business
group, payments on and repurchases of long-term debt, capital expenditures and
interest expense. Level 3 does not currently pay a significant amount of
income taxes due to net operating losses, and therefore, generates higher cash
flow than a comparable business that does pay income taxes. Additionally, this
financial measure is subject to variability quarter over quarter as a result
of the timing of payments related to accounts receivable and accounts payable
and capital expenditures. Unlevered Cash Flow should not be used as a
substitute for net change in cash and cash equivalents on the condensed
consolidated statements of cash flows.
Consolidated Free Cash Flow is defined as net cash provided by (used in)
operating activities less capital expenditures as disclosed in the condensed
consolidated statements of cash flows. Management believes that Consolidated
Free Cash Flow is a relevant metric to provide to investors, as it is an
indicator of the Company's ability to generate cash to service its debt.
Consolidated Free Cash Flow excludes cash used for acquisitions and principal
repayments.
There are material limitations to using Consolidated Free Cash Flow to
measure the Company against some of its competitors as Level 3 does not
currently pay a significant amount of income taxes due to net operating
losses, and therefore, generates higher cash flow than a comparable business
that does pay income taxes. Additionally, this financial measure is subject to
variability quarter over quarter as a result of the timing of payments related
to accounts receivable and accounts payable and capital expenditures. This
financial measure should not be used as a substitute for net change in cash
and cash equivalents on the condensed consolidated statements of cash flows.
Unlevered Cash Flow and Consolidated Free
Cash Flow Unlevered Consolidated
Three Months Ended June 30, 2008 Cash Flow Free Cash
Flow
($ in millions)
Net Cash Provided by Operating Activities $110 $110
Capital Expenditures ($106) ($106)
Cash Interest Paid $125 N/A
Interest Income ($3) N/A
Total $126 $4
Unlevered Cash Flow and Consolidated Free
Cash Flow
Three Months Ended March 31, 2008 Unlevered Consolidated
Cash Flow Free Cash Flow
($ in millions)
Net Cash Used in Operating Activities ($47) ($47)
Capital Expenditures ($113) ($113)
Cash Interest Paid $145N/A
Interest Income ($6) N/A
Total ($21) ($160)
Unlevered Cash Flow and Consolidated
Free Cash Flow
Three Months Ended June 30, 2007Unlevered Consolidated
Cash Flow Free Cash Flow
($ in millions)
Net Cash Provided by Operating Activities $29$29
Capital Expenditures ($170) ($170)
Cash Interest Paid $89N/A
Interest Income($12) N/A
Total ($64) ($141)
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended
(dollars in millions, except share June 30, March 31,June 30,
and per share data) 2008 2008 2007
Revenue:
Communications $1,072 $1,066 $1,035
Other 18 26 17
Total Revenue 1,090 1,092 1,052
Costs and Expenses (exclusive of
depreciation and amortization shown
separately below):
Cost of Revenue 460 475 454
Depreciation and Amortization 234 240 247
Selling, General and Administrative,
including non-cash compensation of
$20, $23 and $24, respectively 395 422 428
Restructuring Charges, including
non-cash impairment charges of $-, $-
and $1, respectively 4 7 2
Total Costs and Expenses 1,093 1,144 1,131
Operating Loss (3)(52)(79)
Other Income (Expense):
Interest Income 3 6 12
Interest Expense (132) (135) (138)
Gain on Sale of Business Group 96 - -
Other, net 4 3 3
Total Other Income (Expense)(29) (126) (123)
Loss Before Income Taxes(32) (178) (202)
Income Tax Expense (1) (3) -
Net Loss $(33) $(181) $(202)
Loss per Share (Basic and Diluted) $(0.02) $(0.12) $(0.13)
Weighted Average Shares Outstanding
(in thousands):
Basic and Diluted 1,552,778 1,541,872 1,529,614
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
June 30,March 31, December 31,
(dollars in millions) 200820082007
Assets
Current Assets:
Cash and cash equivalents$661$533$714
Marketable securities 5 7 9
Restricted securities 5 8 10
Accounts receivable, less allowances
of $20, $22 and $20, respectively427 425 404
Other 119 110 88
Total Current Assets 1,217 1,083 1,225
Property, Plant and Equipment, net6,507 6,616 6,669
Restricted Securities 119 119 117
Goodwill and Other Intangibles, net 2,031 2,079 2,101
Other Assets, net 125 131 142
Total Assets $9,999 $10,028 $10,254
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $323$346$396
Current portion of long-term debt 6 7 32
Accrued payroll and employee benefits 85 73 97
Accrued interest 118 115 128
Current portion of deferred revenue 178 170 175
Other 126 134 144
Total Current Liabilities 836 845 972
Long-Term Debt, less current portion 6,829 6,831 6,832
Deferred Revenue, less current portion 754 757 763
Other Liabilities 612 657 617
Stockholders' Equity968 938 1,070
Total Liabilities and Stockholders'
Equity $9,999 $10,028 $10,254
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
June 30, March 31,June 30,
(dollars in millions) 200820082007
Cash Flows from Operating Activities:
Net loss $(33) $(181) $(202)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization234 240 247
Gain on sale of business group (96) - -
Gain on sale of property, plant
and equipment, and other assets - (1) (1)
Non-cash compensation expense
attributable to stock awards 20 23 24
Amortization of debt issuance costs4 4 4
Accreted interest on discount debt - - 6
Accrued interest on long-term debt 3 (14) 39
Changes in working capital items
net of amounts acquired:
Receivables(2)(20) (7)
Other current assets (10)(22) (8)
Payables (25)(52)(66)
Deferred revenue7 (17) 3
Other current liabilities 10 (15)(15)
Other (2) 8 5
Net Cash Provided by (Used in) Operating
Activities 110 (47) 29
Cash Flows from Investing Activities:
Capital expenditures (106) (113) (170)
Proceeds from sale of property, plant
and equipment and other assets - 2 -
Proceeds from sale of business group, net 123 - -
Proceeds from sale and maturity of
marketable securities - - 8
(Increase) decrease in restricted
cash and securities, net2 - (3)
Acquisitions, net of cash acquired - - 4
Net Cash Provided by (Used in) Investing
Activities 19(111) (161)
Cash Flows from Financing Activities:
Payments on and repurchases of long-
term debt and other(2)(26)(14)
Proceeds from warrants and stock-
based equity plans - - 1
Net Cash Used in Financing Activities (2)(26)(13)
Effect of Exchange Rates on Cash and
Cash Equivalents 1 3 -
Net Change in Cash and Cash
Equivalents 128(181) (145)
Cash and Cash Equivalents at
Beginning of Period 533 714 884
Cash and Cash Equivalents at End of
Period $661$533$739
Supplemental Disclosure of Cash Flow
Information:
Cash interest paid $125$145 $89
Total Cash and Marketable Securities$666$540$807
SOURCE Level 3 Communications, Inc.
