BROOMFIELD, Colo. (ots-PRNewswire) - Level 3 Communications, Inc.
(Nasdaq: LVLT) today announced its second quarter 2000 results.
Consolidated revenue for the quarter was $234 million. The net loss
for the quarter was $281 million, or $0.77 per share. The per share
calculation was determined giving effect to an increase in the number
of shares of common stock outstanding as the result of a follow-on
equity offering in February 2000.
Included in the company's results is a gain of $57 million
relating to the issuance of stock by RCN Corporation (Nasdaq: RCNC),
in which Level 3 has an equity investment, for RCN's acquisition of
21st Century Telecom Group, Inc. Excluding this non-operating gain,
the net loss for the quarter was $338 million, or $0.92 per share.
The results for the quarter also include a $49 million non-cash
charge, the greatest portion of which is due to the company's
Outperform Stock Option Program. Excluding this charge and the RCN
gain, the net loss for the quarter was $0.79 per share.
"Overall, it was a particularly strong quarter for us," said James
Q. Crowe, CEO of Level 3. "Customer demand continues to outpace our
expectations. The rate at which our revenues increased is
particularly noteworthy given that we are still operating in a
supply-constrained environment. As we move from services supplied
over a leased network to our own facilities over the course of this
year, we believe we can meet customer demand at an even more rapid
Organizational Changes Announced:
Level 3 announced the following organizational changes:
-- Kevin O'Hara has been named president and chief operating
officer (COO), and will manage the daily operations of the company.
-- Douglas Bradbury has been named vice chairman of the Board of
Directors, and will continue to oversee the strategic financial
planning for the company. In addition, Bradbury has assumed global
responsibility for setting policy aimed at attracting and retaining
-- Sureel Choksi has been appointed chief financial officer
(CFO), with responsibility for managing the financial activities of
-- Colin Williams, executive vice president, global services and
systems, will formally retire from the company in November. Williams
will continue to serve on the Executive Management Committee, the
company's most senior operating committee, and to participate in
setting global strategy and policy.
Level 3 is pleased to announce that Lee Jobe, formerly president,
Network and Systems, for Concert, has been named President of Global
Operations for Level 3, overseeing sales and operations in the U.S.,
Europe and Asia. Jobe will report to Kevin O'Hara. "Lee is a highly
regarded leader in the industry who is known and respected for his
management and operations expertise," said O'Hara. "I am particularly
pleased to have someone of his caliber joining Level 3 and further
strengthening our management team."
Second Quarter Financial Highlights
Company Increases Revenue Projections: Total communications
revenue for 2000 is projected to be approximately $825 million versus
the previously announced $750 million. Of that amount, approximately
$200 million is expected to come from dark fiber sales, an amount
that is unchanged from previous estimates. "Due to the strong revenue
growth we are experiencing, we are increasing our estimates for
communication services revenue for the year," said Bradbury.
Communications and information services revenue for second quarter
2000 was $181 million, a 242 percent increase over 1999 second
quarter revenue of $53 million. The year-over-year increase was a
result of significant growth in the communications business.
Total communications revenue was $153 million for the quarter, a
750 percent increase over 1999 second quarter communications revenue
of $18 million, and a 58 percent increase over first quarter 2000
communications revenue. Revenue from communications services only --
excluding dark fiber sales and reciprocal compensation -- was $104
million. This represents a 37 percent increase over first quarter
2000 communications services revenue of $76 million.
Included in the total communications revenue was $35 million of
non-recurring revenue from dark fiber sales. Also included in total
communications revenue for the quarter was $14 million attributable
to reciprocal compensation.
Level 3's customer base continues to increase rapidly. At the end
of the quarter, the company had approximately 2,000 customers -- a 33
percent increase in the number of customers since the end of the
first quarter 2000. Almost 80 percent of the customer base currently
purchase more than one Level 3 product.
Communications Services Currently Offered in 43 U.S. and European
Markets: At the end of the quarter, the company offered
communications services in 38 U.S. and 5 European markets.
Other Revenue: Other revenue of $53 million for the second quarter
included $48 million from coal mining, versus second quarter 1999
coal mining revenue of $47 million. Full year 2000 coal revenue is
expected to be approximately 10 percent less than full year 1999 coal
revenue due to reduced shipments under long-term coal contracts in
Cost of Revenue: The cost of revenue for second quarter 2000 was
$154 million, representing a 90 percent increase over second quarter
1999 cost of revenue of $81 million. The year-over-year increase in
the cost of revenue was primarily a result of an increase in leased
network costs and costs associated with dark fiber sales.
Selling, General and Administrative Expenses (SG&A): SG&A expenses
for the quarter were $200 million, a 56 percent increase over second
quarter 1999 SG&A expenses of $128 million. This increase primarily
results from the company's addition of 1,800 employees during the
past 12 months. The company added approximately 700 employees to the
communications business during the second quarter, bringing the total
number of Level 3 employees to approximately 5,000.
Outperform Stock Option Expense: The company recognized $49
million in stock-based compensation expense during the quarter. The
substantial majority of this expense was due to Level 3's Outperform
Stock Option (OSO) Program. This non-cash expense is accounted for in
accordance with SFAS NO. 123, "Accounting For Stock-Based
Compensation." Level 3 expenses the value of OSOs over the two-year
vesting period. This approach is in contrast to the current practice
of most corporations under which conventional stock options are not
accounted for as an expense on the income statement.
Under Level 3's plan, OSOs are issued quarterly to all employees,
with the exercise price indexed to the performance of the company's
common stock relative to the performance of the Standard & Poor's 500
(S&P 500) Index. The company believes that this program aligns Level
3 employees' and stockholders' interests by basing stock option value
on the company's ability to outperform the S&P 500.
Depreciation and Amortization: Depreciation and amortization
expenses for the quarter were $139 million, a 172 percent increase
from the second quarter 1999 depreciation and amortization expenses
of $51 million. These charges reflect the significant increase in
capital spending to support the growth of the communications
Other Income -- Gains from Equity Investments: Included in "Other
Income" is a pre-tax gain of $57 million from the company's equity
investment in RCN. During the second quarter, RCN issued shares of
common stock in conjunction with an acquisition. This reduced Level
3's ownership of RCN from 33 percent to approximately 31 percent, but
increased the value of its proportionate share of RCN's net assets.
Capital Expenditures: Capital expenditures for property, plant and
equipment were $1.7 billion for the quarter. The majority of the
spending was for construction of the U.S. and European intercity
networks, certain local networks in the U.S. and Europe, and the
transatlantic cable network. Total capital expenditures for 2000 are
expected to be approximately $6.3 billion versus the previously
announced estimate of $4.5 billion. This increase in rate of
expenditure is the result of the rapid build-out of Level 3's
network, as well as the expansion of the business plan.
The previously announced expansion of the company's business plan
includes an additional 3.1 million square feet of global gateway and
technical space -- resulting in a global total at completion of 6.5
million square feet. Also included is the build-out of seven
additional local markets in Europe and Asia, the third ring of the
European intercity network, and the expansion of existing local
Network Development Highlights for the Quarter
U.S. and European Intercity Network Construction Ahead of
Schedule: Construction of 2,431 miles of the multi-conduit U.S.
intercity network was completed during the second quarter 2000,
bringing the total miles of conduit installation completed to 14,231
miles, or 89 percent of the total planned intercity network. As
previously announced, Level 3 advanced the construction completion
date of this portion of the network by more than three months, and
now expects construction of the U.S. intercity multi-conduit network
to be substantially completed by the end of fourth quarter 2000.
The company also installed an additional 3,800 miles of fiber
optic cable during the quarter, bringing the total intercity route
miles with fiber installed to approximately 9,200 miles.
Construction of the multi-conduit European intercity network is
also ahead of schedule. Over 340 miles were completed in the second
quarter 2000, bringing the total miles of conduit installation
completed to 3,559 miles. The installation of conduit on Ring 1,
which connects London, Amsterdam, Frankfurt, Paris and Brussels, is
now complete. Ring 2, which connects Frankfurt, Dusseldorf, Hamburg,
Berlin and Munich, is expected to be complete by the end of the third
Level 3's multi-conduit network is designed to enable new
generations of fiber cable to be installed more quickly and at lower
incremental cost than traditional network designs.
Over 1,700 Miles of Intercity Network Lit: During the second
quarter, Level 3 lit over 1,700 miles on its U.S. intercity network,
bringing the total network miles lit to approximately 2,500. A fiber
network is considered to be "lit" when electronics are installed,
thereby enabling the network to carry customer traffic.
Gateways and Local Fiber Networks: At the end of the second
quarter, Level 3 had operational Gateways in 38 U.S. markets and five
European markets. Level 3 Gateways are advanced technical facilities,
where customers can physically locate their equipment and connect
directly to Level 3's broadband network. Additionally, Gateways
provide direct connection to other communications networks, and can
house Level 3's network equipment. The eight markets added during the
quarter were Phoenix, Cleveland, Kansas City, Omaha, Louisville,
Jacksonville, Wilmington and Nashville. Additionally, at the end of
the second quarter, markets with Level 3 built local fiber networks
totaled 31 -- 26 in the U.S. and 5 in Europe.
Transatlantic Cable System: The four fiber pair, 1.28 terabit
system announced by Level 3 in April 1999 has been fabricated, and is
currently being installed. The cable is currently scheduled to be in
service by September 2000.
Asian Developments: Level 3 has made significant progress in the
construction of Gateways in Hong Kong and Tokyo. The company has
procured a landing site in Japan to bring ashore its undersea fiber
optic cable linking Hong Kong and Tokyo and expects to begin offering
service in the fourth quarter of this year.
Level 3 also recently announced its intention to construct
Gateways in Taipei, Taiwan and Seoul, South Korea. These two markets
will be connected to the rest of the company's global network via its
Northern Asian undersea fiber-optic cable system. The company expects
to begin offering services by the second half of 2001.
"Japan, Taiwan, South Korea and Hong Kong have about 42 million
Internet users and the growth rate is extraordinary. We are excited
to serve Web-centric customers in this key area of the world," said
About Level 3 Communications
Level 3 (Nasdaq: LVLT) is a global communications and information
services company offering a wide selection of IP-based services
including broadband transport, colocation services, submarine
transmission services and the industry's first Softswitch* based
services. Level 3 offers services primarily to Web-centric companies,
which deliver their services over the Level 3 Network. The Level 3
Network will include metropolitan networks in 56 U.S. markets and 21
international markets connected by an approximately 16,000 mile U.S.
intercity (long-distance) network, an approximately 4,750 mile
European intercity network, both transpacific and transatlantic
undersea cables and 6.5 million square feet of gateway and technical
space. Level 3 expects to substantially complete the U.S. and first
two rings of the European intercity network by the fourth quarter of
2000. Level 3 currently offers broadband infrastructure services in
38 U.S. markets and five European markets. Its Web address is
(* Softswitches are advanced software based switching systems,
which enable Level 3 to provide services combining the best features
of the Internet and traditional telephone networks.)
Some of the statements made by Level 3 in this press release are
forward-looking in nature. Actual results may differ materially from
those projected in forward-looking statements. Level 3 believes that
its primary risk factors include, but are not limited to: substantial
capital requirements; development of effective internal processes and
systems; the ability to attract and retain high quality employees;
changes in the overall economy; technology; the number and size of
competitors in its markets; law and regulatory policy; and the mix of
products and services offered in the company's target markets.
Additional information concerning these and other important factors
can be found within Level 3's filings with the Securities and
Exchange Commission. Statements in this release should be evaluated
in light of these important factors.
LEVEL 3 COMMUNICATIONS, INC.
Consolidated Condensed Statements of Operations
Three Months Ended Six Months Ended
June 30, June 30,
(dollars in millions) 2000 1999 2000 1999
Information Services $181 $53 $304 $99
Other 53 53 107 109
Total Revenue 234 106 411 208
Costs and Expenses:
Cost of Revenue 154 81 284 143
Amortization 139 51 227 92
Selling, General and
Administrative 200 128 388 235
Stock-Based Compensation 49 29 97 47
Total Costs and
Expenses 542 289 996 517
Loss from Operations (308) (183) (585) (309)
Other Income, net 16 116 13 90
Loss before Income Taxes (292) (67) (572) (219)
Income Tax Benefit 11 23 20 70
Net Loss $(281) $(44) $(552) $(149)
Loss per Share:
Basic and Diluted $(0.77) $(0.13) $(1.54) $(0.45)
Basic and Diluted 365,916 339,266 358,008 327,840
Performance Metrics -- Second Quarter 2000
In order to monitor the progress of its broadband infrastructure
development, Level 3 has developed several operating and construction
metrics. These benchmarks will be reported every quarter to help
Level 3 stockholders and the investment community track the company's
performance and future progress.
This set of benchmarks is for Phases 1 through 4 of the Level 3
business plan, which includes 56 U.S. city networks, the 16,000 mile
U.S. intercity network, 14 European and Asian city networks, and
3,500 miles of the European intercity network. The European intercity
network includes 1,600 miles being built by COLT Telecom Group plc as
part of a joint construction agreement.
Level 3 is currently substantially prefunded for all 6 phases of
its business plan. The total Level 3 network includes 56 U.S. city
networks; 21 European and Asian city networks; 6.5 million square
feet of technical space; a 16,000 mile U.S. intercity network; a
4,750 mile European intercity network; and transatlantic,
transpacific and Northern Asian undersea networks.
-- Markets in Service -- the number of local markets where Level
3 has an operational Gateway facility and offers services over leased
-- Markets with Fiber Networks -- the number of local markets
where Level 3 offers services over owned networks.
-- Intercity Rights-of-Way Miles -- the number of intercity miles
where rights-of-way agreements are secured. Rights-of-way agreements
are required before Level 3 can build the intercity network.
-- Intercity Route Miles Under Construction and Completed -- the
number of intercity miles completed plus the number of miles under
construction. A segment is considered to be "under construction" when
the contractor is mobilized.
-- Intercity Route Miles Completed -- the number of intercity
route miles with multiple conduits installed.
Construction Rollout Schedule For U.S. Network --
Phases 1 through 4
3rd Q 4th Q 1st Q 2nd Q 3rd Q 4th Q
Actual Actual Actual Actual Actual Actual
Markets In Service
10 17 17 21 26 27
Markets with Fiber
0 0 7 11 17 22
Intercity Rights-Of-Way Miles
10,500 14,400 15,200 15,920 16,000 16,000
Construction + Completed
175 1,234 4,054 9,270 13,313 15,528
0 410 1,355 2,495 5,954 9,334
1st Q 2nd Q 3rd Q 4th Q 1st Half
Actual Actual Est. Est. Est.
Service 30 38 40 49 56
Fiber Networks 23 26 26 26 26
16,000 16,000 16,000 16,000 16,000
15,896 15,926 16,000 16,000 16,000
11,800 14,231 14,500 16,000 16,000
Construction Rollout Schedule For International Network --
Phases 1 through 4
1st Q 2nd Q 3rd Q 4th Q
Actual Actual Actual Actual
Markets In Service
1 4 4 4
Markets With Fiber Networks
0 0 1 3
Intercity Route Miles Under Construction + Completed*
0 0 1,200 3,400
Intercity Route Miles
0 0 904 2,139
1st Q 2nd Q 3rd Q 4th Q 1st Half
Actual Actual Est. Est. Est.
Markets In Service
5 5 5 9 13
Markets With Fiber Networks
3 5 5 6 10
Construction + Completed*
3,500 3,591 3,591 3,591 3,591
(3,500) (3,500) (3,500) (3,500)
Intercity Route Miles Completed*
3,219 3,559 3,591 3,591 3,591
(3,400) (3,500) (3,500) (3,500)
Numbers in parenthesis ( ) represent the previously announced
* Includes Ring 1, Ring 2 (being built by COLT), and Project
Executive Officer Intended Transfers of Company Securities
The company has a policy that generally requires members of the
company's board of directors, members of senior management that are
"executive officers" for purposes of the SEC's Section 16 rules and
members of senior management with the title of group vice president
or higher to pre-announce their intention to make transfers of the
company's securities in the permitted period following each earnings
The following schedule shows the individuals that have expressed a
current intent to transfer, by sale, gift or otherwise, during the
period, the maximum number of shares they propose to transfer and the
percentage of their holdings that the intended transfer amount
None of the individuals are required to dispose of shares and the
listed individuals may choose to sell fewer, or none, of the shares
described, but will not sell more during the period. An individual's
ultimate decision to transfer shares of common stock will be made in
compliance with applicable federal securities laws.
Name and Title No. of Shares Percentage(1)
Colin V.K. Williams
Executive Vice President 26,000 7%
Sureel A. Choksi
Group Vice President and CFO 5,000 4%
Daniel P. Caruso
Group Vice President 70,000 15%
Group Vice President 15,670(2) 26%
Kathleen A. Perone
Group Vice President 12,500 27%
Gail A. Smith
Group Vice President 15,670(2) 98%
Thomas C. Stortz
Group Vice President and
General Counsel 50,000(3) 10%
Group Vice President 20,000 3%
John F. Waters, Jr.
Group Vice President 30,000 9%
(1) The percentage is derived by dividing (a) the number of
shares that the individual may transfer by (b) the individual's total
shares of the company's common stock held and all other shares that
may be acquired in the future through the exercise of vested options
or Outperform Stock Options that are currently exercisable. (2) The
number of shares indicated in the table represents the number of
shares of common stock that are issuable upon the exercise of 5,000
Outperform Stock Options as of July 18, 2000. The actual number of
shares transferred may be greater or smaller, depending upon changes
in the performance of the Level 3 common stock in relation to the
performance of the S&P 500 to the date of the transfer. (3) Mr.
Stortz has also indicated his intention to transfer his March 2000
grant of Outperform Stock Options to a family limited partnership of
which he is the sole general partner. This grant of Outperform Stock
Options will not be exercisable until March 2002.
ots Original Text Service: Level 3 Communications, Inc.
Contact: media, Josh Howell, 720-888-2517, or Steve Ingish,
720-888-2521, or investors, Robin Miller, 720-888-2500, all of Level
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