Level 3 Communications

Level 3 Communications Reports First Quarter Results
Continued Strong Communications Revenue Growth Across All Product Lines
Construction of U.S. and European Networks Ahead of Schedule

    Broomfield, Colo. (ots-PRNewswire) - Level 3 Communications, Inc. (Nasdaq: LVLT) today announced its first quarter 2000 results. Consolidated revenue for the quarter was $177 million. The net loss for the quarter was $271 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 $38 million relating to the issuance of stock by RCN Corporation (Nasdaq: RCNC), an equity investment of the company. Excluding this non-operating gain, the net loss for the quarter was $308 million, or $0.88 per share.

    The results for the quarter also include a $48 million non-cash charge, the majority of which is due to the company's Outperform Stock Option Program. Excluding this charge and the RCN gain from the reported income, the net loss for the quarter was $0.75 per share.

    "A key event for Level 3 during the quarter was the successful sale of approximately $5.5 billion of debt and equity securities. With the proceeds of this offering, combined with the cash on hand and the undrawn commitments under the credit facility, Level 3 has approximately $8.6 billion of funds available at the end of the quarter. This amount substantially prefunds our business plan to free cash flow breakeven," said James Q. Crowe, president and chief executive officer of Level 3. "Through these offerings we have significantly reduced the company's overall risk and exposure to the capital markets."

    First Quarter Financial Highlights

    Communications and Information Services Revenue: Communications and information services revenue for first quarter 2000 was $123 million, a 167 percent increase over 1999 first quarter revenue of $46 million. The year-over-year increase was a result of significant growth in the communications business.

    Total communications revenue was $97 million for the quarter, a 547 percent increase over 1999 first quarter communications revenue of $15 million. Revenue from communications services only -- excluding dark fiber sales and reciprocal compensation -- was $76 million. This represents a 58 percent increase over fourth quarter 1999 services revenue of $48 million.

    Included in the total communications revenue was $13 million of non-recurring revenue from U.S. dark fiber and transatlantic undersea contracts. Also included in total communications revenue for the quarter was $8 million attributable to reciprocal compensation.

    Communications Services Currently Offered in 35 U.S. and European Markets: The company's selection of cities involved in network and gateway construction is primarily based on concentration of Web-centric customers. At the end of the quarter, the company was offering communications services in 30 U.S. and 5 European markets.

    Level 3's customer base continues to increase rapidly. At the end of the quarter, the company had over 1,500 customers -- a 16 percent increase in the number of customers since the end of 1999. Almost 80 percent of the customer base currently purchase more than one Level 3 product.

    Other Revenue: Other revenue of $54 million for the first quarter included $48 million from coal mining, versus first quarter 1999 coal mining revenue of $51 million. Full year coal revenue is expected to be approximately 10 percent less than 1999 coal revenue due to reduced shipments under long-term coal contracts in 2000.


    Cost of Revenue: The cost of revenue for first quarter 2000 was $130 million, representing a 110 percent increase over first quarter 1999 cost of revenue of $62 million.

    Sales, General and Administrative Expenses (SG&A): SG&A expenses for the quarter were $188 million, a 76 percent increase over first quarter 1999 SG&A expenses. This increase primarily results from the company's addition of over 1,600 employees since the end of first quarter 1999. The company added over 450 employees to the communications business during the quarter ending March 31, 2000, bringing the total number of Level 3 employees to approximately 4,300.

    Outperform Stock Option Expense: The company recognized $48 million in stock-based compensation expense during the quarter. The majority of this expense is 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 to all employees quarterly, 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. This program directly 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 $88 million, a 115 percent increase from the first quarter 1999 depreciation and amortization expenses of $41 million. These charges reflect the significant increase in capital spending to support the growth of the communications business.

    Other Income - Gains from Equity Investments: Included in "Other Income" is a pre-tax gain of $38 million from the company's equity investment in RCN. During the first quarter, RCN issued shares of their common stock in conjunction with an exchange agreement. This reduced Level 3's ownership of RCN from 35 percent at December 31, 1999, to 33 percent at March 31, 2000, but increased the value of its proportionate share of RCN's net assets.

    Capital Expenditures: Capital expenditures for property, plant and equipment were $1.3 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 $4.5 billion versus the previously announced total of $3.5 billion. This increase in rate of expenditure is the result of acceleration of the company's business plan.

    Capital Raising Transactions Substantially Prefund Business Plan: In February 2000, the company received gross proceeds of approximately $5.5 billion from the sale of common stock and debt. The company issued 23 million shares of common stock with gross proceeds of approximately $2.5 billion, $862 million in Convertible Subordinated notes, $1.4 billion in three tranches of U.S. dollar denominated debt securities, and 800 million Euros from two tranches of Euro denominated debt securities.

    "As a result of this offering Level 3 has substantially prefunded the balance of its business plan to free cash flow break even,"  said Doug Bradbury, chief financial officer.

    "We were very pleased with the market's receptivity to Level 3's objectives, and particularly pleased with the response of the European investors to these offerings."

    As announced in January, the company modified Phase 5 of the business plan and added a Phase 6. These phases now include an additional 3.1 million square feet of global gateway and technical space  -- for a global total at completion of 6.5 million square feet -- 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 facilities. Level 3 currently expects Phase 6 will be the final pre-announced phase of the business plan and that any future funding requirements will relate to specific initiatives and success-based capital needs.

    Network Development Highlights for the Quarter

    U.S. and European Intercity Network Construction Ahead of Schedule: Construction of approximately 2,500 miles of the multi-conduit U.S. intercity network was completed during the first quarter 2000, bringing the total miles of conduit installation completed to 11,800 miles, or 74 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 intercity multi-conduit network to be substantially completed by the end of fourth quarter 2000.

    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.

    The company also installed an additional 2,300 miles of fiber optic cable in the first conduit of the completed sections of the network during the quarter, bringing the total intercity route miles with fiber installed to approximately 5,400 miles.

    Construction of the multi-conduit European intercity network is also ahead of schedule. Over 1,000 miles were completed in the first quarter 2000, bringing the total miles of conduit installation completed to over 3,200 miles. Ring 1 connects London, Amsterdam, Frankfurt, Paris and Brussels. Ring 2 connects Frankfurt, Dusseldorf, Hamburg, Berlin and Munich.

    Local Fiber Networks in 26 Global Markets: At the end of the first quarter, Level 3 had operational Gateways in 30 U.S. markets and five European markets. Level 3 Gateways are advanced technical facilities, which provide colocation space for customers' equipment with links to other communications networks, and house the company's own network equipment. The markets added during the quarter were Austin, Fort Worth and San Antonio, Texas; and Brussels, Belgium. Additionally, at the end of the first quarter, markets with Level 3 built local fiber networks totaled 26 -- 23 in the U.S. and 3 in Europe.

    Transatlantic Cable System Underway: The four fiber pair, 1.28 terabit system announced by Level 3 in April 1999 is currently under construction and has a scheduled in-service date of September 2000. During the quarter, Level 3 announced an agreement whereby Global Crossing Ltd (Nasdaq: GBLX) will acquire a 50 percent ownership interest in the cable system. Under the co-build agreement, GBLX will separately own and operate two of the four fiber pairs on this transatlantic cable.

    About Level 3 Communications

    Level 3 (Nasdaq: LVLT) is a 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 during the fourth quarter of 2000. Level 3 currently offers broadband infrastructure services in 30 U.S. markets and five European markets. Its Web address is www.Level3.com.

    (* 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
                                                                                 March 31,
    (dollars in millions)                                          2000         1999

      Communications and Information Services    $      123  $        46
      Other                                                                    54            56
         Total Revenue                                                  177          102

    Costs and Expenses:
      Cost of Revenue                                                  130            62
      Depreciation and Amortization                              88            41
      Selling, General and Administrative                  188          107
      Stock-Based Compensation                                      48            18
         Total Costs and Expenses                                 454          228

    Loss from Operations                                            (277)        (126)

    Other Expense, net                                                  (3)         (26)

    Loss before Income Taxes                                      (280)        (152)

    Income Tax Benefit                                                    9            47

    Net Loss                                                         $    (271) $    (105)

    Loss per Share:
      Net Loss:
         Basic and Diluted                                      $  (0.77) $  (0.33)

    Weighted Average Shares Outstanding
    (in thousands):
      Basic and Diluted                                            350,285    316,288


                          Performance Metrics - First 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 or owned facilities.

    -- 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 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

                                            1998                                      1999
    Metric                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 Networks          0                0          7          11            17      22

    Intercity Rights-
    Of-Way Miles    10,500        14,400  15,200    15,920      16,000 16,000

    Intercity Route
    Miles Under
    + Completed         175         1,234    4,054      9,270      13,313  15,528

    Intercity Route
    Miles Completed      0            410    1,355      2,495        5,954    9,334

                                                                2000                        2001

    Metric                         1st Q      2nd Q        3rd Q      4th Q    1st Half

                                      Actual        Est.        Est.      Est.        Est.
    Markets In Service    30          35            37          49          56

    Markets with
    Fiber Networks          23          24            25          26          26

  Intercity Rights-
    Of-Way Miles        16,000    16,000      16,000    16,000      16,000

    Intercity Route Miles
    Under Construction
    + Completed         15,896    15,896      16,000    16,000      16,000

    Intercity Route Miles
    Completed            11,800    12,500      14,500    16,000      16,000


                 Construction Rollout Schedule For International Network

                                              - Phases 1 through 4


    Metric                                        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 Completed* 0              0          904      2,139

                                                 2000                                 2001
    Metric                    1st Q        2nd Q        3rd Q        4th Q  1st Half

                                 Actual          Est         Est.         Est         Est.
    Markets In Service    5              5              5              9          13

    Markets With Fiber Networks  
                                      3              5              5              6          10
    Intercity Route Miles
    Under Construction
    + Completed*        3,500        3,500        3,500        3,500        3,500

    Intercity Route Miles
    Completed*          3,219        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
Yellow Backhaul


            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 release.

    In the Company's press release reporting the Company's earnings for the fourth quarter 1999, the Company indicated that as a result of the proposed offerings of securities contemplated by the Company at that time, the commencement of the trading period that customarily follows the reporting of earnings was to be delayed. When the trading period was opened, the directors and members of senior management that are subject to the Company's pre- announcement policy voluntarily elected not to sell or transfer any securities at that time, and elected to defer any transactions to the window that will open on April 20, 2000. 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 represents.

    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)
    Walter Scott, Jr.                                  500,000              1%
      Chairman of the Board
    R. Douglas Bradbury                            300,000(2)            9%
      Vice Chairman, Executive Vice
      President and CFO
    Robert E. Julian                              1,000,000(3)          25%
    Michael B. Yanney                                      14,000          14%
    Kevin J. O'Hara                                         75,000            4%
      Executive Vice President & COO
    Colin V.K. Williams                                  60,000          15%
      Executive Vice President
    Sureel A. Choksi                                        12,000          18%
      Group Vice President
    Daniel P. Caruso                                        80,000          18%
      Group Vice President
    Michael Jones                                      223,935(4)          98%
      Group Vice President
    Kathleen A. Perone                                    12,500          45%
      Group Vice President
    Thomas C. Stortz                                  50,000(5)            9%
      Group Vice President and
      General Counsel
    Ronald Vidal                                         20,000(6)            3%
      Group Vice President
    John F. Waters, Jr.                            15,410(7)            23%
    Group Vice President
      Eric J. Mortensen                                    25,000            6%
      Vice President and Controller

    (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)  Consistent with the approach of Jim Crowe, CEO of Level 3, outlined in his open letter to stockholders in May 1999, Mr. Bradbury intends to transfer 300,000 shares of common stock to a special trust account established with an independent trustee. The document establishing this trust will require the trustee to transfer 1,250 shares of common stock each business day pursuant to Mr. Bradbury's direction, to either Mr. Bradbury's previously established charitable remainder trust as to which Mr. Bradbury and his wife are the sole current beneficiaries, or to another irrevocable trust or trusts created to further implement his estate plan. Any of the secondary recipient trusts will be administered by an independent trustee and Mr. Bradbury will not retain any right to direct or otherwise control the decision of the trustee as to the sale or retention of the stock transferred to it.

    (3)  Mr. Julian has indicated his intention to transfer 1.0 million shares of common stock to a family limited partnership of which Mr. Julian is the sole general partner.

    (4)  Includes 53,935 shares of common stock as of April 18, 2000, which are issuable upon exercise of 17,500 Outperform Stock Options.

    (5)  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.

    (6)  Represents shares of common stock as of April 18, 2000, which are issuable upon exercise of 6,490 Outperform Stock Options.

    (7)  Represents shares of common stock as of April 18, 2000, which are issuable upon exercise of 5,000 Outperform Stock Options.

ots Original Text Service: Level 3 Communications, Inc. Internet: http://recherche.newsaktuell.de

Contact: News Media: Josh Howell, (USA) 720-888-2517, or Steve Ingish, (USA) 720-888-2521, or Investors: Julie Stangl, (USA) 720-888-2500, all of Level 3 Communications

Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/19990721/LVLTLOGO PRN Photo Desk, (USA) 888-776-6555 or 201-369-3467

Web site: http://www.level3.com

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