[Level 3 Communications Reports Fourth Quarter Results]
Acceleration and Expansion of Business Plan
Continued Strong Customer Demand Across All Product Lines
BROOMFIELD, Colo., Feb. 2 /PRNewswire/ -- Level 3 Communications, Inc. today announced fourth quarter 1999 results. Consolidated revenues for the quarter were $173 million. The net loss for the quarter was $191 million, or $0.56 per share.
Fourth Quarter Financial Highlights
Communications and Information Services Revenue: Communications and information services revenue for fourth quarter 1999 was $121 million, a 188 percent increase over 1998 fourth quarter revenue of $42 million. The year-over-year increase was a result of significant growth in the communications business. At the end of the quarter, the company was offering communications services in 27 U.S. markets and four European markets.
On October 21, 1999, Level 3 announced that it had reached an agreement with Bell Atlantic Corporation that established new reciprocal compensation rates between the two local carriers. Included in communications revenue for the quarter was $16 million attributable to reciprocal compensation. This includes revenue of $11 million from the settlement of all outstanding reciprocal compensation billing issues through September 1999 together with payments for billed minutes during the quarter.
Also included in communications revenue for the quarter was $26 million of revenue from both intercity and local dark fiber contracts. Approximately 800 miles of intercity dark fiber were delivered to customers during the quarter, along with portions of several metropolitan networks.
Other Revenue: Other revenue of $52 million for the fourth quarter included $49 million from coal mining, a slight decrease from fourth quarter 1998 coal mining revenue of $50 million. As expected and previously disclosed, 1999 coal revenue was approximately 10 percent less than 1998 annual revenue due to reduced shipments under long-term coal contracts in 1999. Full year 1999 coal revenue was $207 million versus $228 million in 1998.
Expenses:
Cost of Revenue: The cost of revenue for fourth quarter 1999 was $117 million. This represents a 92 percent increase over the fourth quarter 1998 cost of revenue of $61 million. This increase was primarily due to the continued expansion and acceleration of the company's business plan for the communications business.
Employee Related Expenses: Selling, general and administrative (SG&A) expenses for the quarter were $168 million. This represents a 44 percent increase over the fourth quarter 1998 SG&A expenses of $117 million. The company added over 300 employees to the communications business during the quarter. The total number of all Level 3 employees at the end of the quarter was approximately 3,850.
The company recognized $40 million in stock-based compensation expense during the quarter. The majority of this expense is due to Level 3's Outperform Stock Option program (OSO). Under this plan, OSOs are issued to all employees quarterly, with the exercise price indexed to the performance of the Standard & Poor's (S&P) 500 Index. This program directly aligns management's and stockholders' interests by basing stock option value on the company's ability to outperform the S&P 500. This is a non-cash expense, accounted for in accordance with SFAS No. 123, "Accounting For Stock-Based Compensation."
Depreciation and Amortization: Depreciation and amortization expenses for the quarter were $73 million, a 109 percent increase over the fourth quarter 1998 depreciation and amortization expenses of $35 million. These charges reflect the significant increase in capital spending for growth of the communications business.
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. Capital expenditures for 1999 were $3.4 billion. This acceleration in spending is a result of faster than expected completion of network construction.
Operational Highlights for the Quarter
U.S. and European Network Construction Ahead of Schedule -- As previously announced, Level 3 expects to complete both its U.S. and European intercity networks on or ahead of schedule. The company has advanced its U.S. intercity network construction completion date by approximately one quarter and the U.S. intercity network is now expected to be substantially complete by the end of the fourth quarter 2000.
Approximately 3,400 miles of the multi-conduit U.S. intercity network were completed during the fourth quarter 1999, bringing the total to approximately 9,300 miles, well ahead of Level 3's previously announced target for the year. Approximately 97% of the 16,000 mile U.S. intercity network is now under construction. The company has installed approximately 3,000 miles of fiber optic cable in the first conduit of the completed sections of the network.
The 4,750 mile multi-conduit European intercity network build is also ahead of schedule. Construction of the first two of three rings is currently underway. Approximately 1,200 miles were completed in the fourth quarter 1999, bringing the total miles completed to over 2,100 miles. As previously announced, the company is sharing construction costs for the first two rings of the European network with COLT Telecom Group plc. Ring 1 connects London, Amsterdam, Frankfurt, Paris and Brussels; Ring 2 connects Frankfurt, Dusseldorf, Hamburg, Berlin and Munich.
Level 3's multi-conduit network is designed to enable new generations of fiber cables to be installed much more rapidly and at lower incremental costs than traditional network designs.
First U.S. Intercity Network Segment Lit -- A fiber network is considered to be "lit" when electronics are installed, thereby enabling the network to carry customer traffic. In December 1999, Level 3 announced that it was carrying customer traffic between Dallas and Houston on the first completed and lit segment of its U.S. intercity network.
Communications Services Being Offered in 31 U.S. and European Markets -- The company's selection of cities involved in network and gateway construction is primarily based on the concentration of Web-centric customers. Level 3 Gateways are advanced technical facilities, which provide colocation space for customers' equipment and facilities, link Level 3's network to other communications networks, and house the company's own network equipment. At the end of the fourth quarter of 1999, Level 3 had operational Gateways in 27 U.S. markets and four European markets -- Amsterdam, Frankfurt, London and Paris. Additionally, at the end of the fourth quarter of 1999, markets with local fiber networks totaled 25 versus a planned 23 markets. Of the total, 22 are in the U.S. and three are in Europe.
Asian Developments -- In 1999, Level 3 opened its Asia Pacific headquarters in Hong Kong and began development of its 70,000 sq. ft. Gateway there. In addition, Level 3 is currently constructing a 60,000 sq. ft. Gateway facility in Tokyo. Both Gateways are expected to be operational in the fourth quarter of 2000. The company also announced plans to build a 2.56 terabit Northern Asia undersea cable system initially connecting Hong Kong to Tokyo.
Business Plan Expanded to Meet Demand for Colocation Services -- As previously announced, Level 3 has experienced a higher than expected demand for its colocation services from Web-centric customers, many of whom also purchase significant amounts of other Level 3 services. In its 31 initial Gateway facilities in the U.S. and Europe, colocation space was completely committed in an average of 10 months after completion of construction. In total, Level 3 has secured over 3.4 million square feet of Gateway space. Of this total, at the end of 1999, construction of approximately 1.3 million sq. ft. was completed.
To capitalize on the colocation opportunity, Level 3 is reprioritizing and expanding the scope of its business plan. Phase 5 has been modified and now includes a significant increase in the amount of colocation space. Additionally, Phase 5 will include the development of additional local fiber facilities. Level 3 expects Phase 5 plans to require approximately $2.5 billion in funding. In addition, a Phase 6 has been added to the business plan.
Phase 6 includes certain initiatives previously planned as part of Phase 5, including the build-out of additional markets in Europe and Asia and the third ring of the European intercity network. Phase 6 is anticipated to require approximately $2.5 billion in funding. Level 3 expects that future funding requirements beyond Phase 6 will relate to specific initiatives and success-based capital (capital required to purchase and install facilities and equipment necessary to provide service to customer backlog.)
About Level 3 Communications
Level 3 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 and both transpacific and transatlantic undersea cables. The U.S. and first two rings of the European intercity network are expected to be substantially completed during the fourth quarter of 2000. Level 3 currently offers Internet infrastructure services in 27 U.S. markets and four European markets. Its Web address is 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.)
LEVEL 3 COMMUNICATIONS, INC.
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
(dollars in millions) 1999 1998 1999 1998
Revenue:
Communications and Information
Services $ 121 $ 42 $ 289 $ 144
Other 52 54 226 248
Total Revenue 173 96 515 392
Costs and Expenses:
Cost of Revenue 117 61 360 199
Depreciation and Amortization 73 35 228 66
Selling, General and
Administrative 168 117 542 293
Stock-Based Compensation 40 16 126 39
Write-off of In-Process Research
and Development -- -- -- 30
Total Costs and Expenses 398 229 1,256 627
Loss from Operations (225) (133) (741) (235)
Other Income (Expense), net (43) 97 34 82
Loss before Income Taxes and
Discontinued Operations (268) (36) (707) (153)
Income Tax Benefit 77 (3) 220 25
Loss from Continuing Operations (191) (39) (487) (128)
Discontinued Operations:
Gain on Separation of
Construction Operations -- -- -- 608
Energy, net of Income Taxes -- -- -- 324
Income from Discontinued
Operations -- -- -- 932
Net Earnings (Loss) $ (191) $ (39) $ (487) $ 804
Earnings (Loss) per Share:
Continuing Operations:
Basic and Diluted $(0.56) $(0.13) $(1.46) $(0.43)
Net Earnings (Loss):
Basic and Diluted $(0.56) $(0.13) $(1.46) $ 2.66
Net Earnings (Loss) Excluding
Gain on Separation of
Construction Operations:
Basic and Diluted $(0.56) $(0.13) $(1.46) $ 0.64
Weighted Average Shares
Outstanding (in thousands):
Basic and Diluted 341,199 307,463 334,348 301,976
Attachment 2
Performance Metrics -- Fourth 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 track the company's performance and anticipate future progress.
This set of benchmarks is for Phases 1 through 4, which includes 56 U.S. city networks, the 16,000 mile U.S. intercity network, 14 European and Asian city networks, and 3,400 miles of the European intercity network (Rings 1 & 2). The 3,400 mile European intercity network includes 1,600 miles being built by COLT Telecom Group plc as part of a joint construction agreement.
The total Level 3 network includes 56 U.S. city networks; 21 European and Asian city networks; a 16,000 mile U.S. intercity network; a 4,750 mile European intercity network; and transatlantic, transpacific and Northern Asian undersea networks.
Definitions:
-- Markets in Service -- the number of local markets where Level 3 has an operational Gateway facility and products offered over leased or owned facilities.
-- 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 Under Construction and Completed -- the number of intercity miles completed plus the number of miles being constructed. A segment is considered to be "under construction" when the contractor is mobilized.
-- Intercity Route Miles Completed -- the number of intercity route miles with completed 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
(20)
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
(14,000)
Intercity Route Miles
Completed 0 410 1,355 2,495 5,954 9,334
(8,000)
2000 2001
Metric 1st Q 2nd Q 3rd Q 4th Q 1st Half
Est. Est. Est. Est. Est.
Markets In Service 29 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 15,600 15,800 16,000 16,000 16,000
Intercity Route Miles
Completed 11,000 12,500 14,500 16,000 16,000
Construction Rollout Schedule For International Network - Phases 1 through 4
1999
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
(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
Est. 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* 3,400 3,400 3,400 3,400 3,400
Intercity Route Miles
Completed * 2,700 3,200 3,400 3,400 3,400
Numbers in parenthesis ( ) represent the previously announced schedule.
* Includes Ring 1 & Ring 2 (being built by COLT)
Attachment 3
Executive Officer Intended Transfers of Company Securities
The Company has a policy that generally requires members of the Company's board of directors and members of senior management that are "executive officers" for purposes of the SEC's Section 16 rules to pre-announce their intention to make transfers of the Company's securities in the permitted period following each earnings release. The period of time during which these individuals are permitted to transfer the Company's securities generally commences on the third business day following the Company's quarterly earnings release. As a result of the proposed offerings of securities contemplated by the Company, however, the commencement of this period will be delayed. At the time that this period commences, the Company will issue a further press release detailing the pre-announcement by these individuals of their intention to transfer the Company's securities during the permitted period. |
