Monday, July 24, 2006

Level 3 Reports Second Quarter Results

Level 3 Communications reported consolidated Q2 revenue of $1.53 billion, compared to $1.27 billion for the first quarter 2006. Communications revenue was $819 million in the second quarter, versus $804 million for the previous quarter. Information services revenue was $695 million in the second quarter, compared to $445 million for the previous quarter and $504 million for the same quarter last year.

The net loss for the second quarter 2006 was $201 million, or $0.23 per share, compared to a net loss of $168 million, or $0.20 per share, for the previous quarter.

During the quarter, the company reviewed its estimated useful lives, used to calculate depreciation for optical fiber. Based on this review, the company determined the useful life of its optical fiber should be extended. Accordingly, depreciation expense decreased by $18 million, or $0.02 per share, in the second quarter.

The company also recorded a loss of $55 million in the second quarter, or $0.06 per share, attributable to the amendment and restatement of the Level 3 Financing, Inc.'s $730 million credit agreement. Included in the net loss for the first quarter 2006 was a gain of $27 million, or $0.03 per share, that was recorded as a result of the company's $692 million private debt exchange offer, which was completed in January 2006.

"During the second quarter, our margins in the communications business increased and the company generated positive free cash flow," said James Q. Crowe, CEO of Level 3. "Additionally, the communications business saw positive contributions from the benefit of the WilTel integration, recent acquisitions and continuing demand for our Core Communications Services."

Some additional highlights:

  • As of June 30, 2006, the company had cash and marketable securities of approximately $2.2 billion compared to approximately $992 million at March 31, 2006. Pro forma for the July 13, 2006 redemption of its outstanding 9 1/8% Senior Notes due 2008 and 10 1/2% Senior Discount Notes due 2008 and the closing of the acquisition of TelCove, Inc. on July 24, 2006, the company had cash and marketable securities of approximately $1.1 billion at June 30, 2006.

  • On July 24, 2006, Level 3 closed its previously announced acquisition of TelCove, Inc., a privately held Pennsylvania-based telecommunications company. Level 3 paid consideration to the TelCove security holders of 149,944,647 million shares of Level 3 common stock and approximately $445.8 million in cash. Also in connection with the closing, Level 3 is using approximately $132 million in cash to pay off outstanding TelCove debt. The transaction also included approximately $13 million in capital leases, which are expected to remain outstanding.

  • On June 5, 2006, Level 3 announced a definitive agreement to acquire Looking Glass Networks. Under the terms of the agreement, Level 3 will pay total consideration to Looking Glass' security holders of $96 million, consisting of $87 million in unregistered shares of Level 3 common stock and $9 million in cash. At closing, Level 3 will also pay Looking Glass debt of approximately $69 million. Closing is expected to occur by mid-third quarter 2006.

  • On May 31, 2006, the company closed its previously announced acquisition of ICG Communications, for consideration of approximately 26 million shares of Level 3 common stock and $45 million in cash, subject to adjustment based on the subsequent calculation of actual closing date working capital.

"A substantial portion of the integration of WilTel is complete, and we've begun to see the benefit of the synergies we expected from this acquisition," said Kevin O'Hara, president and COO of Level 3. "Our primary focus going forward will be to complete the WilTel integration and continue the integration efforts of our metro acquisitions. The integration of our metro acquisitions, Progress, ICG, TelCove and the pending acquisition of Looking Glass, are different from traditional consolidation transactions, where the majority of value is derived by eliminating duplicative costs. These companies are high-margin, growing businesses, and the primary benefits of integration are the extension of the Level 3 network into regional and local markets and the elimination of certain third-party network expenses for the existing Level 3 communications business."

See also