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Level 3 Communications Reports First
Quarter 1999 Results; Construction of
Both U.S. Local and Intercity Networks Ahead of Schedule
OMAHA, Neb., April 23 /PRNewswire/ -- Level 3 Communications, Inc. (Nasdaq: LVLT -
news) today announced first quarter 1999 results, reporting consolidated revenues of $102 million.
The net loss for the quarter was $105 million, or $0.33 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 March 1999.
''During the first quarter, we achieved a number of strategic, operational and financial milestones,''
said James Q. Crowe, president and chief executive officer of Level 3. ''In fact, we have surpassed
our goals in a number of areas. We are currently significantly ahead of schedule for both our U.S.
intercity and local network builds. Demand has been stronger than expected for many of our
product offerings, which puts us well on the way to building a robust and stable customer base. We
also completed a successful equity offering during the quarter. These positive steps will allow us to
continue to proceed rapidly throughout 1999 and remain firmly on track with our strategic plan.''
First Quarter Financial Highlights
Communications and Information Services Revenue: Communications and information services
revenue was $46 million, a 59 percent increase over 1998 first quarter revenue of $29 million. The
year over year increase was due to the significant expansion of the communications business during
1998. During the first quarter, the company was offering services in 17 U.S. cities and 2 European
cities.
Other Revenue: Other revenue of $56 million includes $51 million from coal mining, a 4 percent
decline from first quarter 1998 coal mining revenue. The slight decrease in year over year coal
revenue was due to timing of customer shipments for annual commitments.
Expenses:
Cost of Revenue: The cost of revenue for the first quarter of 1999 increased 48 percent from the
first quarter 1998, to $62 million. The increase was primarily due to the planned expansion of the
communications and information services businesses.
Employee Related Expenses: Total selling, general and administrative (SG&A) expenses for the
quarter were $107 million. This represents an increase of 133 percent from the first quarter 1998
SG&A expenses of $46 million. The company added approximately 500 employees during the
quarter, bringing the total number of employees to approximately 2,700.
Additional employee related expenses during the quarter include $18 million in stock-based
compensation expense. These are non-cash expenses, accounted for in accordance with SFAS No.
123, ''Accounting For Stock-Based Compensation.''
Depreciation and Amortization: Depreciation and amortization expenses for the quarter were $41
million, compared to $6 million for the first quarter 1998. These charges reflect the significant
increase in capital spending for the growth of the communications business along with amortization
of goodwill associated with prior acquisitions. These expenses include the increased amortization
from the restatement of in-process R&D charges associated with the company's purchase of
XCOM Technologies, Inc. This revised charge is still subject to final SEC review, however the
company does not expect that any subsequent adjustment would be significant.
Capital Expenditures: Capital expenditures for property, plant and equipment for the quarter were
$407 million. The majority of the spending was for construction of the U.S. intercity network and
certain local networks in the U.S. and Europe. 1999 annual capital expenditures are still expected to
exceed $2 billion.
Equity Offering: On March 9, 1999, Level 3 completed the offering of 28.75 million shares of its
common stock, receiving proceeds of approximately $1.5 billion. The number of shares offered
includes 3.75 million shares of common stock sold to the underwriters to cover over allotments. The
offering brings the total number of shares outstanding at the end of the first quarter to 338.4 million.
The offering substantially prefunds Phase 3 of the strategic plan, which includes local builds in eight
European and Pacific Rim markets, a Pan-German intercity network and additional development in
existing U.S. markets.
Acquisition: On January 5, 1999, Level 3 acquired BusinessNet Limited, a leading London based
Internet service provider. This acquisition accelerated Level 3's entry into the UK market.
BusinessNet had an established market focus on the financial and professional services community,
specifically through its intracity network, which offers access to financial and other Internet Protocol
based services. The transaction was valued at approximately $16 million.
Operational Highlights for the Quarter
U.S. Network Construction Ahead of Schedule: At the end of the quarter, approximately 1,300
miles of the U.S. intercity network were completed -- more than double the previously targeted
total of 600 miles -- with another 2,500 miles under construction. In addition, 800 miles of
rights-of-way (ROW) were acquired during the quarter, bringing the total ROW under contract to
15,200 miles or 95 percent of the total required.
Local network development is currently underway in 25 U.S. cities. The first loops of local
networks became operational in seven cities during the quarter -- Dallas, Denver, Seattle, Boston,
San Francisco, Chicago, and Detroit -- compared to the previously targeted total of three local
loops. The company has received Certificates of Public Convenience and Necessity from regulatory
bodies in 37 states. These certificates are required in order to operate as a telecommunications
service provider within a state. The company has also executed interconnection agreements with
incumbent local exchange carriers in 24 markets, allowing Level 3 to interconnect its network with
those of the incumbent telephone companies.
European Network Construction Underway: Design and development of local city networks and
the European intercity network are currently underway and on schedule in five countries -- the
United Kingdom, France, Germany, The Netherlands, and Belgium. Level 3 has been granted
national and international facilities licenses, along with Public Telephony Voice licenses in eight
European countries. The company plans to launch its second gateway in Europe in the second
quarter, with five markets expected to be in service by the end of 1999.
Transatlantic Cable Build: As announced separately today, Level 3 has signed an agreement with
Tyco Submarine Systems to design and develop a high capacity transatlantic cable system. This
system will provide a critical link in Level 3's international IP Network. The system is currently
under development and is expected to be in service in the third quarter of 2000.
IP Voice Service Development On Track: Level 3 successfully demonstrated its IP Voice service at
an Analyst and Investor conference in February and concluded initial (''alpha'') testing during the
quarter. The service is currently in commercial (''beta'') testing. Subject to successful completion of
beta testing, full commercial launch of the IP Voice service is still expected for the second half of
1999.
Outlook
''We are pleased with the progress that has been made during the quarter. What is particularly
encouraging is the strong response to the product offerings we've put into the market place. Clearly,
demand is strong for a high quality product at a better price,'' said Crowe.
About Level 3 Communications
Level 3 Communications, Inc., is a communications and information services company that is
building the first international network optimized for Internet Protocol technology. The Level 3
network combines local, long distance, and undersea networks, connecting customers end-to-end
across the U.S. and in Europe and Asia. The company expects to complete the U.S. intercity
portion of the network during the first quarter of 2001. In the interim, Level 3 has leased a national
network over which it began to offer services in the third quarter of 1998. Level 3's common stock
is traded on The Nasdaq National Market (U.S.) under the symbol LVLT. Its World Wide Web
address is www.Level3.com.
The statements made by Level 3 in this press release may be 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 its target
markets. Additional information concerning these and other potential important factors can be found
within Level 3's filings with the U.S. 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
(Unaudited)
Three Months Ended
March 31,
(dollars in millions) 1999 1998
Revenue:
Communications and
Information Services $46 $29
Other 56 58
Total Revenue 102 87
Costs and Expenses:
Cost of Revenue 62 42
Depreciation and Amortization 41 6
Selling, General
and Administrative 107 46
Stock-Based Compensation 18 2
Total Costs and Expenses 228 96
Loss from Operations (126) (9)
Other Income (Expense), net (26) --
Loss before Income Taxes and
Discontinued Operations (152) (9)
Income Tax Benefit 47 3
Loss from Continuing
Operations (105) (6)
Discontinued Operations:
Gain on Separation of
Construction Operations -- 608
Energy, net of Income Taxes -- 324
Income from Discontinued
Operations -- 932
Total Net Earnings (Loss) $(105) $926
Earnings (Loss) per Share:
Continuing Operations:
Basic and Diluted $(0.33) $(0.02)
Net Earnings (Loss):
Basic and Diluted $(0.33) $3.17
Net Earnings (Loss)
Excluding Gain on
Separation of
Construction Operations:
Basic and Diluted $(0.33) $1.09
Weighted Average
Shares Outstanding
(in thousands):
Basic and Diluted 316,288 292,325
Performance Metrics -- First Quarter 1999
In order to monitor the progress of the network build, Level 3 has developed operating and
construction metrics. These benchmarks will be reported every quarter to help Level 3 stockholders
and the investment community monitor the company's performance and anticipate future progress.
This set of benchmarks is for Phases 1 and 2, which includes 25 U.S. city networks, the 16,000
mile U.S. intercity network, six international city networks, and a 2,000 mile European intercity
network. Proceeds from the equity offering during the first quarter substantially prefund Phase 3 of
the plan, which includes local networks in eight European and Pacific Rim markets, 500 additional
European intercity miles along with additional development in existing U.S. markets. Initial
development on Phase 3 has been started, with performance metrics to be announced once detailed
implementation plans are completed.
Level 3 plans to have operations in approximately 50 U.S. and 21 international cities overall.
Definitions:
- Markets in Service -- Type I -- the number of local markets where
Level 3 has an operational gateway site, and a sales force offering
products over leased or owned facilities.
- Markets in Service -- Type II -- the number of cities where Level 3 has
accelerated market entry. Each of these markets has a smaller
operational gateway facility and a sales force. The accelerated market
entry precedes funding for the local network build.
- Markets with Fiber Networks -- the number of local markets where
Level 3 is able to offer 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 for Level 3 to build the intercity network.
- Intercity Route Miles Completed -- the number of intercity route miles
with completed conduits installed.
- Intercity Route Miles Under Construction and Completed -- the number of
intercity miles being constructed. A segment is considered to be
"under construction" when the contractor is mobilized.
Construction Rollout Schedule For International Network
-- Phases 1 and 2
1999 2000
Metric 1st Q 2nd Q 3rd Q 4th Q 1st Half 2nd Half
Actual Est. Est. Est. Est. Est.
Markets In
Service Type I 1 2 4 5 6 6
Markets In
Service Type II 1 1 0* 0 0 0
Markets With
Fiber Networks -- -- 1 3 4 5
International intercity network development work was just initiated. The first loop of approximately
2,000 miles is projected to be complete by year- end 2000.
* Note: The existing Market in Service Type II is Frankfurt. This city is projected to become a
Market in Service Type I, with a full gateway, in the third quarter.
Construction Rollout Schedule For U.S. Network - Phases 1 and 2
(Numbers in parenthesis ( ) represent the previously announced schedule.)
1998
Metric 2ndQ 3rdQ 4thQ
Actual Actual Actual
Markets In Service
Type I 0 10 15
Markets In Service
Type II 0 0 2
Markets with
Fiber Networks 0 0 0
Intercity Rights-
Of-Way 9,000 10,500 14,400
Intercity Route
Miles Completed 0 0 410
(100)
Intercity Route Miles
Under Construction
+ Completed 0 175 1,234
1999
Metric 1stQ 2ndQ 3rdQ 4thQ
Actual Est. Est. Est.
Markets In Service
Type I 15 19 23 25
Markets In Service
Type II 2 2 2 2
Markets with
Fiber Networks 7 10 17 20
(3) (8) (15)
Intercity Rights-
Of-Way 15,200 16,000 16,000 16,000
Intercity Route
Miles Completed 1,355 2,300 4,000 6,500
(600) (1,100) (3,500)
Intercity Route Miles
Under Construction
+ Completed 4,054 8,100 11,000 14,000
2000 2001
Metric 1st 2nd 1stQ
Half Half Est.
Est. Est.
Markets In Service
Type I 25 25 25
Markets In Service
Type II 10 24 25
Markets with
Fiber Networks 23 25 25
Intercity Rights-
Of-Way 16,000 16,000 16,000
Intercity Route
Miles Completed 9,500 14,000 16,000
Intercity Route Miles
Under Construction
+ Completed 15,000 16,000 16,000 |
