Level 3 Communications Reports First Quarter 1998 Results
IP Network Development on Track
Results Reflect Separation of Kiewit Construction Group And Sale of CalEnergy Interests
May 7, 1998 08:01 AM
OMAHA, Neb., May 7 /PRNewswire/ -- Level 3 Communications, Inc. LVLT today reported first quarter 1998 revenue of $87 million from its information services, communications and coal mining businesses. Total net earnings for the quarter of $926 million includes a $608 million gain attributable to the discontinued construction operations. This gain was distributed to the former Class C shareholders at the March 31, 1998 separation from Kiewit Construction Group. Net earnings, excluding the gain on the separation of construction operations, of $318 million, or $2.18 per share, results primarily from the net gain on Level 3's sale of its interests in CalEnergy and related projects.
In late 1997, Level 3 announced a plan to significantly change the direction and focus of its business. The company's new plan calls for a substantial increase in its information services business and expansion of the range of services it offers by building an advanced, international communications network, including both local and inter-city facilities, based on Internet Protocol (IP) technology. Since this plan represents a significant change to the previous business direction, current financials and year over year comparisons to previous quarters may not serve as a meaningful indication of the company's results or future financial performance.
"We're pleased with the progress we've made toward developing our new communications business -- including the successful $2.0 billion offering of senior notes, the merger with XCOM Technologies, and the completion of critical steps in the deployment of our network," said Jim Crowe, president and chief executive officer of Level 3. "All of these are important milestones in the successful implementation of our strategic plan."
First Quarter Financial Highlights
Communications and Information Services Revenue
Communications and information services revenue was $29 million, an increase of 81 percent from 1997 first quarter revenue of $16 million. This revenue growth was due to increases in both the systems integration and the computer outsourcing businesses.
"We are particularly pleased by the growing range of information services that we can offer our corporate customers," said Crowe. "We continue to expand our service offerings and our ability to help corporations convert their older systems to IP platforms that can be accessed using standard web browsers. We believe that these services will provide a competitive edge for both our information services and communications businesses."
Other Revenue
Other revenue of $58 million includes $53 million from coal mining, a decrease from $61 million for first quarter 1997. The year over year change in the first quarter was primarily the result of a long term customer contract expiring at the end of 1997 and a lower price structure for new customer contracts. 1998 annual coal mining revenue is anticipated to approximate 1997 revenue.
Discontinued Operations
On January 2, 1998, the company completed the sale of its interests in the CalEnergy Company, Inc. and related energy investments. The net proceeds from the sale were approximately $1.16 billion, resulting in an after tax gain of $324 million.
Operational Highlights for the Quarter
Level 3 is designing and building an advanced fiber optic network across the U.S. -- the first national communications network to use IP technology end-to-end for both local and long distance facilities. During the first quarter, the company announced a definitive agreement to lease approximately 8,300 miles of long distance network capacity. This leased national network, together with company installed IP technology, will enable Level 3 to begin providing services to customers before the Level 3 network is completed.
During the quarter, Level 3 signed an agreement with Union Pacific Railroad Company granting the use of approximately 7,800 miles of rights of way along Union Pacific's rail routes, primarily west of the Mississippi. This transaction secured rights of way for approximately 50 percent of the planned Level 3 inter-city network build in the United States.
Level 3 plans to begin offering services in 15 U.S. cities in the fall of 1998. In preparation for the product launch, the company made significant progress during the quarter in obtaining appropriate licenses, agreements and technical facilities. The company has secured approximately 750,000 square feet of space for technical gateway and collocation sites in the 15 cities, and received Certificates of Public Convenience and Necessity in eight states. The company also obtained collocation agreements in 56 Central Offices and has begun construction in most of them, and is currently in discussions with all of the incumbent local exchange carriers for Interconnection Agreements.
$2.0 Billion Debt Offering
On April 28, 1998, Level 3 completed the sale of $2.0 billion of 9-1/8 percent Senior Notes, maturing on May 1, 2008 in a transaction that was exempt from registration under the Securities Act of 1933. The price to the purchasers of the Senior Notes was 99.579 percent. The company intends to use the net proceeds of the offering to fund the implementation of its business plan.
XCOM Technologies Merger
Level 3 and XCOM Technologies announced the completion of the merger of the two companies on April 23, 1998. XCOM has developed technology that Level 3 believes will provide key components necessary for the company to develop an interface, or "bridge", between its IP-based network and the public switched telephone network. Further development of this bridge will allow the company to offer a broad range of communications services, including high quality voice and fax services, over the Level 3 network. Under the terms of the agreement, approximately 2.6 million shares of Level 3 common stock were exchanged for all of the outstanding common and preferred stock of XCOM.
Database Technologies Acquisition
On April 14, 1998, Level 3's subsidiary, PKS Systems Integration (PKS-SI) announced the acquisition of Database Technologies. The database expertise of Database Technologies combined with PKS-SI's international resources and systems integration capability, creates an organization that is particularly well qualified to serve corporations' rapidly expanding database and informational systems needs.
Outlook
"Changing communications technology has created a new opportunity of historic proportion," said Mr. Crowe. "We believe we are pursuing a strategic plan aimed squarely at capturing that opportunity. We are moving forward rapidly with our plan and are pleased that a number of the key milestones were completed this quarter."
Except for the historical information contained herein, the matters discussed in this news release are forward looking statements that involve risks and uncertainties as detailed from time to time in various regulatory filings. Actual results may vary significantly from these statements.
About Level 3 Communications
Level 3 is a communications and information services company building an advanced Internet Protocol (IP) technology based network across the U.S. that is expected to be completed in phases over the next 36 months. To provide service in the interim, Level 3 has signed an agreement to lease capacity on a national network over which it will be able to offer advanced IP-based services in selected cities beginning in the third quarter of 1998. Level 3 will be the first company to combine both local and long distance IP technology based networks connecting customers end-to-end across the U.S. The company will focus primarily on the business market using its network to provide a full range of communications services -- including local, long distance and data transmission as well as other enhanced services and Internet access services. Plans also call for the company to expand internationally. Level 3's common stock is traded on the Nasdaq National Market under the symbol LVLT. Its World Wide Web address is www.L3.com.
LEVEL 3 COMMUNICATIONS, INC.
Consolidated Condensed Statements of Earnings
(unaudited)
Three Months Ended
March 31,
(dollars in millions,
except per share data) 1998 1997
Revenue:
Communications and
Information Services $29 $ 16
Other 58 64
Total revenue 87 80
Costs and Expenses:
Operating expenses 42 39
Depreciation and amortization 6 5
General and administrative
expense 48 16
Total costs and expenses 96 60
Income (Loss) from Operations (9) 20
Other Income, Net -- 1
Income (Loss) before Income Taxes
and Discontinued Operations (9) 21
Income Tax (Provision) Benefit 3 (5)
Income (Loss) from
Continuing Operations (6) 16
Discontinued Operations:
Gain on separation of
Construction operations 608 --
Energy, net of income taxes 324 4
Construction, net of
income taxes -- 15
Income from Discontinued
Operations 932 19
Net Earnings:
Level 3 Communications, Inc. 926 20
Discontinued Construction
Operations -- 15
Total net earnings $926 $ 35
Earnings (Loss) Per Share:
Continuing Operations:
Basic $(0.04) $0.12
Diluted $(0.04) $0.12
Net Earnings:
Basic $6.34 $0.16
Diluted $6.34 $0.16
Net Earnings excluding gain on separation of Construction Operations:
Basic $2.18 $0.16
Diluted $2.18 $0.16
Weighted Average Shares Outstanding (in thousands):
Basic 146,163 122,207
Diluted 146,163 122,478
SOURCE Level 3 Communications, Inc.
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