Level 3 Communications

Level 3 reports communications cash revenue of US$1.26 billion for the year 2000 - part 2 of 4


    Cost of Revenue: The cost of revenue for fourth quarter 2000 was $311 million, representing a 166 percent increase over fourth quarter 1999 cost of revenue of $117 million. The year-over-year increase in the cost of revenue was primarily a result of an increase in leased network costs in advance of network completion, and costs associated with dark fiber sales.

    Consolidated gross margin was 28 percent for the quarter, down from 42 percent in the third quarter. As previously announced, the company recognized a one-time asset sale on the company's transatlantic cable and dark fiber contracts which reduced the gross margin quarter over quarter. Consolidated gross margin for the year 2000 was 33 percent, up from 30 percent in 1999. Gross margin for the communications business was 25 percent for the quarter, down from 38 percent in the third quarter.

    For the full year 2000, gross margin for the communications business was 27 percent, exceeding the company's previously announced estimate of 25 percent.

    Selling, General and Administrative Expenses (SG&A): SG&A expenses for the quarter were $286 million, a 70 percent increase over fourth quarter 1999 SG&A expenses of $168 million. This increase primarily results from the company's addition of more than 2,350 employees during the past 12 months. The company added approximately 300 employees to the communications business during the fourth quarter, bringing the total number of Level 3 employees to approximately 6,200.

    Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA: Consolidated EBITDA, excluding stock-based compensation expense was $(164) million for the fourth quarter and $(520) million for the year 2000. Consolidated Adjusted EBITDA was $105 million for the fourth quarter and $80 million for the year. Adjusted EBITDA is defined as Consolidated EBITDA plus changes in cash deferred revenue and excluding non-cash cost of goods sold associated with certain transoceanic IRU sales and dark fiber contracts.

    "We are pleased to announce that Adjusted EBITDA was positive after only two full years of operations. Adjusted EBITDA is expected to grow rapidly and to represent a significant source of funding for the company's capital expenditures," said Choksi.

    Stock-Based Compensation Expense: The company recognized $83 million in stock-based compensation expense during the quarter. The 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 value of the options 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 better 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 $193 million, a 164 percent increase from the fourth quarter 1999 depreciation and amortization expenses of $73 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 $5.9 billion for the year. The company previously announced it expected to spend $6.3 billion for the year. As a result of timing differences, the remaining $400 million is expected to shift into 2001. The majority of the spending in 2000 was for construction of the U.S. and European intercity networks, certain local networks in the U.S. and Europe, and the transatlantic and pan-Asia undersea cables.

part 3 and 4 to follow

Original-Content von: Level 3 Communications, übermittelt durch news aktuell

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