Level 3 Communications

Level 3 Reports Communications Revenue of $255 Million, Growth Of 67% in Third Quarter Over Second Quarter /Customer Base Grows to 2,400; a 20% Increase in Third Quarter And 85% Increase Year to Date

    Broomfield, Colo. (ots-PRNewswire) - Level 3 Communications, Inc. (Nasdaq: LVLT) today announced its third quarter 2000 results. Consolidated revenue for the quarter was $341 million. The net loss for the quarter was $351 million, or $.96 per share.

    Included in the company's results is a gain of $22 million relating to sale of the company's 50 percent interest in Walnut Creek Mining Company. Excluding this non-operating gain, the net loss for the quarter was $373 million, or $1.02 per share.

    The results for the quarter also include a $61 million non-cash charge, primarily related to the company's Outperform Stock Option Program. Excluding this charge and the gain on sale of non-core assets, the net loss for the quarter was $.85 per share.

    "I am pleased that we have experienced another solid quarter," said James Q. Crowe, CEO of Level 3. "The strong revenue growth is evidence of the continuing demand for our services, and I am particularly pleased with the quality and breadth of our customer base."

    Third Quarter Financial Highlights

    Communications and Information Services Revenue: Communications and information services revenue for third quarter 2000 was $285 million, a 313 percent increase over 1999 third quarter revenue of $69 million. The year-over-year increase was a result of significant growth in the communications business.

    Total communications revenue was $255 million for the quarter, a 608 percent increase over 1999 third quarter communications revenue of $36 million, and a 67 percent increase over second quarter 2000 communications revenue of $153 million.

    Included in total communications revenue was $101 million of non-recurring revenue from dark fiber sales. Also included in total communications revenue for the quarter was $18 million attributable to reciprocal compensation.

    Level 3's customer base continues to increase rapidly. At the end of the quarter, the company had approximately 2,400 customers -- a 20 percent increase in the number of customers since the end of the second quarter 2000. Over 75 percent of the customer base currently purchases more than one Level 3 service.

    Communications Services Currently Offered in 47 U.S., European and Asian Markets: At the end of the quarter, the company offered communications services in 41 U.S., five European markets and one Asian market.

    Level 3 announced the launch of two new Global IP Services during the quarter. (3)CrossRoads(TM) is a service offered in North America, Europe, and Asia for customers that are located in a Level 3 Gateway. This Internet access and transport service can lower bandwidth costs for customers by as much as 50 percent using Destination Sensitive Billing, the industry's first pricing based on the destination of Internet traffic, rather than traditional flat rate pricing. For customers not located in a Level 3 Gateway, Level 3 launched (3)CrossRoads EPOP(TM) (Ethernet Point of Presence), a service offered in North America and Europe that gives customers high-speed Ethernet Internet access with economic benefits similar to (3)CrossRoads(TM).

    Other Revenue: Other revenue of $56 million for the third quarter included $50 million from coal mining, versus third quarter 1999 coal mining revenue of $60 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 2000 and the sale of the company's 50 percent interest in Walnut Creek Mining Company during the third quarter.


    Cost of Revenue: The cost of revenue for third quarter 2000 was $199 million, representing a 99 percent increase over third quarter 1999 cost of revenue of $100 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.

    Consolidated gross margin was 42 percent for the quarter, up from 34 percent in the second quarter. Gross margin for the communications business was 38 percent for the quarter, up from 25 percent in the second quarter. Communications gross margin was significantly higher than previous quarters as a result of one time contracts. "As previously announced, we expect full year gross margin for the communications business to be 25 percent in 2000," said Sureel Choksi, Chief Financial Officer of Level 3.

    Selling, General and Administrative Expenses (SG&A): SG&A expenses for the quarter were $237 million, a 71 percent increase over third quarter 1999 SG&A expenses of $139 million. This increase primarily results from the company's addition of over 2,200 employees during the past 12 months. The company added approximately 900 employees to the communications business during the third quarter, bringing the total number of Level 3 employees to approximately 5,900.

    Stock-Based Compensation Expense: The company recognized $61 million in stock-based compensation expense during the quarter. The Outperform Stock Option (OSO) Program represents the principal component of the company's stock-based compensation. This expense is accounted for in accordance with SFAS No. 123, "Accounting For Stock-Based Compensation."  Level 3 expenses the value of OSOs and its other stock-based compensation over the respective 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 $164 million, a 160 percent increase from the third quarter 1999 depreciation and amortization expenses of $63 million. These charges reflect the significant increase in capital spending to support the growth of the communications business.

    Capital Expenditures: Capital expenditures for property, plant and equipment were $1.4 billion for the quarter and $4.5 billion year to date. 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 as previously announced.

    Network Development Highlights for the Quarter

    U.S. and European Intercity Network Construction Ahead of Schedule:

    Conduit installation is now complete on 96 percent of the total planned U.S. intercity network, bringing total miles of conduit construction completed to 15,198. 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 4,100 miles of fiber optic cable during the quarter, bringing the total intercity route miles with fiber installed to approximately 13,300 miles.

    Conduit installation is now complete on 100 percent on Ring 1 and Ring 2 of the European intercity network, bringing total miles of conduit construction completed to approximately 3,600. Ring 1 of the European intercity network connects London, Amsterdam, Frankfurt, Paris and Brussels. Ring 2 connects Frankfurt, Dusseldorf, Hamburg, Berlin and Munich.

    Second Cable To Be Pulled Through Network: As a result of continued strong demand for services, Level 3 announced during the third quarter the deployment of a new generation of fiber in the second conduit of its U.S. intercity network. Level 3 plans to begin installing this fiber in the first quarter of 2001 and expects to be substantially complete by the end of 2001.

    Ring 1 of European Intercity Network Lit and Carrying Customer Traffic: Ring 1 of the European intercity network is 100 percent lit and is currently carrying customer traffic. During the third quarter, Level 3 lit 375 miles on its U.S. intercity network, bringing the total network miles lit to approximately 2,875. A fiber network is considered to be "lit" when electronics are installed, thereby enabling the network to carry customer traffic.

    New Gateways and Local Fiber Networks in Service: At the end of the third quarter, Level 3 had operational Gateways in 41 U.S. markets, five European markets and one Asian market. The four markets added during the quarter were Hong Kong, Memphis, Salt Lake City and El Paso. To date, the company has secured approximately 5.5 million square feet of data center space around the world and has pre-funded the acquisition of another 1.0 million square feet.

    At the end of the third quarter, markets with Level 3 local fiber networks totaled 31 -- 26 in the U.S. and five in Europe.

    Construction of Transatlantic Cable System Complete: The previously announced 1.28 terabit cable system is construction complete. The company expects to begin offering service over this facility during the fourth quarter.

    "Overall, it was another strong quarter for us," said James Q. Crowe. "We remain ahead of schedule on the construction of our network, which we expect to substantially complete in the fourth quarter. And, we continue to initiate service in new markets in the U.S., Europe and Asia."

    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 IP intensive companies, which deliver their services over the Level 3 Network. Its Web address is www.Level3.com.

    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        Nine Months Ended
                                          September 30,                 September 30,

    (dollars in millions)        2000          1999          2000        1999
      Communications and
        Information Services    $285            $69          $589         $168
      Other                                 56              65            163          174
         Total Revenue                341            134            752          342

    Costs and Expenses:
      Cost of Revenue                199            100            483          243
      Depreciation and
        Amortization                  164              63            391          155
      Selling, General
        and Administrative         237            139            625          374
        Compensation                    61              39            158            86
         Total Costs and
          Expenses                      661            341         1,657          858

    Loss from Operations         (320)         (207)         (905)    (516)

    Other (Expense) Income,
    net                                    (41)          (13)          (28)          77

    Loss before Income Taxes  (361)         (220)         (933)      (439)

    Income Tax Benefit                10              73              30          143

    Net Loss                          $(351)        $(147)        $(903)    $(296)

    Loss per Share:
      Net Loss:
         Basic and Diluted    $(0.96)      $(0.43)      $(2.50)    $(0.89)

    Weighted Average     Shares Outstanding     (in thousands):

      Basic and Diluted      366,788      340,298      360,956    332,039

    Attachment 1a

                            Consolidated Condensed Balance Sheets

                                                              September 30, December 31,
    (dollars in millions)                                 2000                  1999


    Current Assets
      Cash and cash equivalents                          $1,158         $1,214
      Marketable securities                                  3,879          2,227
      Restricted securities                                        55                51
      Accounts receivable,
        less allowances of $23
        and $9, respectively                                      375              148
      Income taxes receivable                                    23              241
      Other                                                                131                55
    Total Current Assets                                      5,621          3,936

    Property, Plant and Equipment, net                8,175          4,287

    Investments                                                        225              300

    Other Assets, net                                              447              381

                                                                        $14,468         $8,904
    Liabilities and Stockholders' Equity

    Current Liabilities:
      Accounts payable                                         $1,094            $830
      Current portion of long-term debt                    14                 6
      Accrued payroll and employee benefits              99                43
      Accrued interest                                                94                47
      Deferred revenue                                              159                74
      Other                                                                 98                88
    Total Current Liabilities                              1,558          1,088

    Long-Term Debt, less current portion            7,140          3,989

    Deferred Revenue                                                352                37

    Accrued Reclamation Costs                                  94                99

    Other Liabilities                                              339              286

    Stockholders' Equity                                        4,985          3,405

                                                                         $14,468         $8,904

                          Performance Metrics - Third 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, an approximately 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 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; an approximately 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
    -- 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
        rights-of-way agreements are secured. Rights-of-way agreements
        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
        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
    Construction +
    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
                                        Actual  Actual    Actual         Est.        Half

    In Service                    30         38          41              49            56


    Markets with
    Fiber Networks              23         26          26              26            26


    Intercity Rights-
    Of-Way Miles          16,000  16,000  15,889*      15,889*      15,889*

                                                          (16,000)    (16,000)    (16,000)

    Intercity Route
    Miles Under
    Construction +
    Completed                15,896  15,926  15,889*      15,889*      15,889*

                                                          (16,000)    (16,000)    (16,000)

    Intercity Route
    Miles Completed      11,800  14,231    15,198      15,889*      15,889*

                                                            (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          Actual          Actual          Est.              Est.

    Markets In
    Service        5                    5                  6                 9                13


    Markets With
    Fiber Networks 3                5                  5                 6                10


    Intercity Route
    Miles Under
    Construction +
    Completed**  3,500         3,591            3,591          3,591         3,591


    Intercity Route
    Completed**  3,219         3,559            3,591          3,591         3,591


         Numbers in parenthesis ( ) represent the previously announced
    *  Has been reduced from 16,000 as a result of final adjustments
        network buildout plan
    ** 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 certain individuals to pre-announce their intention to make transfers of the company's securities in the permitted period following each earnings release, which policy the company reviews annually. After this review, the company has determined to apply the policy to the company's board of directors and members of senior management that are "executive officers" for purposes of the SEC's Section 16 rules. The company has also determined to only require pre-announcement of an intent to transfer shares not previously announced, and to not require the pre-announcement of certain transfers for estate planning purposes.

    The following schedule shows the individuals that have expressed a current intent to transfer, 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, when combined with shares previously pre-announced but not yet transferred, 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)

    David C. McCourt                 50,000                                      41%

    (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, including outperform     stock options, that are currently exercisable.

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