BROOMFIELD, Colo., July 30, 2009

Level 3 Communications, Inc. (NASDAQ: LVLT) reported consolidated revenue of $942 million for the second quarter 2009, compared to consolidated revenue of $1.09 billion for the second quarter 2008.

The net loss for the second quarter 2009 was $134 million, or ($0.08) per share, compared to a net loss of $42 million, or ($0.03) per share for the second quarter 2008, which included a gain of $96 million from the sale of the company's Vyvx advertising distribution business. The net loss for the first quarter 2009 was $132 million, or ($0.08) per share.

Consolidated Adjusted EBITDA was $229 million in the second quarter 2009, compared to $251 million in the second quarter 2008. Consolidated Adjusted EBITDA was $250 million in the first quarter 2009.

"The economy continued to be challenging in the second quarter for wireline service providers," said James Crowe, CEO of Level 3. "As expected, sequential revenue pressure continued in the second quarter, although at a significantly moderated rate. We did see improvements in sales and churn, however, they were not as much as we expected.  We continue to manage our costs aggressively, and for the fifth consecutive quarter, we were able to reduce our operating expenses, and year over year, we improved both our Gross Margin and Adjusted EBITDA Margin percentages. In addition, we completed several liability management transactions, which further strengthened our balance sheet."

Financial Results

Metric ($ in millions)	Second Quarter 2009	Second Quarter 2008	First Quarter 2009
Revenue Core Communications Services(1)	$877	$954	$899
Other Communications Services	$49	$100	$63
Total Communications Revenue(1)	$926	$1,054	$962
Other Revenue	$16	$18	$18
Total Consolidated Revenue(1)	$942	$1,072	$980
Consolidated Adjusted EBITDA(2)(3)	$229	$239	$250
Capital Expenditures	$80	$106	$78
Unlevered Cash Flow(2)	$146	$126	$43
Free Cash Flow(2)	$20	$4	$(82)
Communications Gross Margin(2)(3)	59.1%	58.3%	59.5%
Communications Adjusted EBITDA Margin(2)(3)	24.8%	22.7%	25.9%

1. Excludes second quarter 2008 revenue of $6 million from the Vyvx Advertising Distribution business, which was sold on June 5, 2008 and $12 million of deferred revenue recognized as revenue during the second quarter 2008 that should have been recognized as revenue in prior years.
2. See schedule of non-GAAP metrics for definition and reconciliation to GAAP measures.
3. Second quarter 2008 Consolidated Adjusted EBITDA, Communications Gross Margin, and Communications Adjusted EBITDA margin exclude $12 million of deferred revenue recognized as revenue during the second quarter 2008 that should have been recognized as revenue in prior years.

Communications Business

Revenue
Total Communications Revenue for the second quarter 2009 was $926 million, versus a normalized $1.05 billion for the second quarter 2008. Total Communications Revenue for the first quarter 2009 was $962 million.

Communications Revenue ($ in millions)	Second Quarter 2009	Normalized Second Quarter 2008(1)	Percent Change
Core Network Services	$707	$779	(9)%
Wholesale Voice Services	$170	$175	(3)%
Total Core Communications Services	$877	$954	(8)%
Other Communications Services	$49	$100	(51)%
Total Communications Revenue	$926	$1,054	(12)%

1. For purposes of this press release, "Normalized Second Quarter 2008" excludes second quarter 2008 revenue of $6 million from the Vyvx Advertising Distribution business, which was sold on June 5, 2008 and $12 million of deferred revenue recognized as revenue during the second quarter 2008 that should have been recognized as revenue in prior years.

Core Communications Services
Core Communications Services revenue, which includes Core Network Services and Wholesale Voice Services, was $877 million in the second quarter 2009, an 8 percent decrease compared to Normalized Core Communications Services revenue of $954 million in the second quarter 2008.

Core Communications Services revenue by market group was:

Core Communications Services Revenue ($ in millions)	Second Quarter 2009	Normalized Second Quarter 2008(1)	Percent Change	First Quarter 2009	Percent Change
Wholesale Markets	$495	$537	(8%)	$513	(4%)
Business Markets	$218	$240	(9%)	$223	(2%)
Content Markets	$82	$94	(13%)	$85	(4%)
European Markets	$82	$83	(1%)	$78	5%
Total Core Communications Services Revenue	$877	$954	(8%)	$899	(2%)

1. For purposes of this press release, "Normalized Second Quarter 2008" excludes second quarter 2008 revenue of $6 million from the Vyvx Advertising Distribution business, which was sold on June 5, 2008 and $12 million of deferred revenue recognized as revenue during the second quarter 2008 that should have been recognized as revenue in prior years.

Core Network Services revenue by market group was:

Core Network Services Revenue ($ in millions)	Second Quarter 2009	Normalized Second Quarter 2008(1)	Percent Change	First Quarter 2009	Percent Change
Wholesale Markets	$340	$377	(10%)	$358	(5%)
Business Markets	$212	$235	(10%)	$216	(2%)
Content Markets	$82	$93	(12%)	$85	(4%)
European Markets	$73	$74	(1%)	$70	4%
Total Core Network Services Revenue	$707	$779	(9%)	$729	(3%)

1. For purposes of this press release, "Normalized Second Quarter 2008" excludes second quarter 2008 revenue of $6 million from the Vyvx Advertising Distribution business, which was sold on June 5, 2008 and $12 million of deferred revenue recognized as revenue during the second quarter 2008 that should have been recognized as revenue in prior years.

During the quarter, the company announced a number of new customer agreements including a major multinational customer, Fox Entertainment Group, Internet Billboard, Iusacell, and the U.S. Coast Guard.

Deferred Revenue
The communications deferred revenue balance was $905 million at the end of the second quarter 2009, compared to $932 million at the end of the second quarter 2008 and $868 million at the end of the first quarter 2009.

Cost of Revenue
Communications cost of revenue for the second quarter 2009 decreased to $379 million, versus $442 million in the second quarter 2008. Communications cost of revenue was $390 million in the first quarter 2009.

Communications gross margin was 59.1 percent for the second quarter 2009, compared to 58.3 percent in the second quarter 2008, excluding the second quarter 2008 deferred revenue adjustment. Communications gross margin was 59.5 percent in the first quarter 2009.

Selling, General and Administrative Expenses (SG&A)
Communications SG&A expenses, including non-cash compensation expense, decreased to $320 million for the second quarter 2009, compared to $393 million for the second quarter 2008.  SG&A expenses were $338 million for the first quarter 2009.

Excluding non-cash compensation expense, Communications SG&A was $311 million in the second quarter 2009, a 17 percent improvement compared to $373 million in the second quarter 2008. First quarter 2009 Communications SG&A, excluding non-cash compensation expense was $322 million. Communications SG&A expense includes $9 million, $20 million, and $16 million of non-cash compensation expense for the second quarter 2009, second quarter 2008, and first quarter 2009, respectively.

Adjusted EBITDA
Communications Adjusted EBITDA was $230 million for the second quarter 2009, compared to $241 million for the second quarter 2008, excluding the second quarter 2008 deferred revenue adjustment.  First quarter 2009 Communications Adjusted EBITDA was $249 million.

Communications Adjusted EBITDA margin improved to 24.8 percent for the second quarter 2009, versus 22.7 percent for the second quarter 2008, excluding the second quarter 2008 deferred revenue adjustment.  Communications Adjusted EBITDA margin was 25.9 percent in the first quarter 2009.

Communications Adjusted EBITDA excludes non-cash compensation expense and includes severance and restructuring charges. Severance and restructuring charges were $6 million for the second quarter 2009, $4 million for the second quarter 2008 and $1 million for the first quarter 2009.

Consolidated Cash Flow and Liquidity
During the second quarter 2009, Unlevered Cash Flow improved to $146 million, compared to $126 million for the second quarter 2008 and $43 million in the first quarter 2009.

Consolidated Free Cash Flow improved to $20 million for the second quarter 2009, compared to $4 million for the second quarter 2008 and negative $82 million for the first quarter 2009.

During the second quarter of 2009, the company's wholly owned subsidiary, Level 3 Financing, Inc., closed its $280 million senior secured Tranche B Term Loan.

The company also completed a debt exchange agreement with an institutional investor to exchange a combination of $78 million in cash and $200 million of its 7% Convertible Senior Notes due 2015, for $142 million aggregate principal amount of its 6% Convertible Subordinated Notes due 2010 and $140 million aggregate principal amount of its 2.875% Convertible Senior Notes due 2010.

In addition, during the second quarter the company repurchased a total of $314 million of debt for $281 million of cash on hand including an early redemption of approximately $13 million of the remaining 11.5% Senior Notes due 2010, at par.

As a result, excluding capital leases and commercial mortgages, at the end of the second quarter 2009 the company had approximately $55 million of principal amount of debt due in 2009, $168 million in 2010, $461 million in 2011 and $301 million in 2012.

As of June 30, 2009, the company had cash and cash equivalents of approximately $630 million.

Outlook
"We noted last quarter that while we remained cautious, we expected our revenue base to stabilize and that core communications services revenue pressure would moderate, which is what occurred in the second quarter," said Sunit Patel, CFO of Level 3.

"Sales and churn did improve, but not as much as we had expected.  In particular, a number of our large telecom and enterprise customers continue to manage their costs aggressively and to defer purchases of network capacity. More broadly, we have not yet seen a return to the historical levels of purchases necessary to accommodate underlying, longer term growth in demand."

"As a result, we are updating our Consolidated Adjusted EBITDA guidance to $900 million to $950 million and expect to be Free Cash Flow positive for the remainder of 2009 in the aggregate, but approximately Free Cash Flow neutral for the full year 2009.  While we expect revenue performance to improve as it did in the second quarter, we still expect to see overall revenue pressure for the second half of the year."

As a result of the liability management transactions completed during the quarter, the company expects GAAP interest expense of approximately $600 million and Net Cash Interest Expense of approximately $515 million for the full year 2009.

Summary
"We remain focused on continuing to execute in the market and providing outstanding service to our customers," said Crowe. "We believe our combination of metro and intercity facilities and advanced IP and optical services remain a significant differentiator."

"While the economic environment remains challenging, our rate of revenue decline was approximately one third of the first quarter and as the economy improves, we expect to return to positive revenue growth."

Conference Call and Web Site Information
Level 3 will hold a conference call to discuss the company's second quarter results at 10 a.m. EDT today. To join the call, please dial 888-481-2845 or 719-457-1512, passcode 6227843. A live broadcast of the call can also be heard on Level 3's Web site at www.level3.com. During the call, the company will review an earnings presentation that summarizes the financial results of the quarter.  This presentation may be accessed at http://www.level3.com/investor_relations/index.html.

An audio replay of the call will be available until 11:59 p.m. EDT on Saturday, Aug. 8, 2009, by dialing 888-203-1112 or 719-457-0820, access code 6227843. The archived webcast of the second quarter conference call together with the press release, financial statements, earnings presentation and non-GAAP reconciliations may also be accessed at http://www.level3.com/investor_relations/index.html. For additional information please call 720-888-2502.

About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT) is a leading international provider of fiber-based communications services. Enterprise, content, wholesale and government customers rely on Level 3 to deliver services with an industry-leading combination of scalability and value over an end-to-end fiber network. Level 3 offers a portfolio of metro and long-haul services, including transport, data, Internet, content delivery and voice. For more information, visit www.Level3.com.

Level 3 Communications, Level 3, the red 3D brackets and the Level 3 Communications logo are registered service marks of Level 3 Communications, LLC and/or its affiliates in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service, product or company names recited herein are trademarks or service marks of their respective owners.

Forward-Looking Statement
Some of the statements made in this press release are forward looking in nature. These statements are based on management's current expectations or beliefs. These forward looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside Level 3's control, which could cause actual events to differ materially from those expressed or implied by the statements. The most important factors that could prevent Level 3 from achieving its stated goals include, but are not limited to the company's ability to: successfully integrate acquisitions; increase the volume of traffic on the network; defend intellectual property and proprietary rights; develop new products and services that meet customer demands and generate acceptable margins; successfully complete commercial testing of new technology and information systems to support new products and services; attract and retain qualified management and other personnel; and meet all of the terms and conditions of debt obligations. Additional information concerning these and other important factors can be found within Level 3's filings with the Securities and Exchange Commission. Statements in this press release should be evaluated in light of these important factors. Level 3 is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

Non-GAAP Metrics

Pursuant to Regulation G, the Company is hereby providing a reconciliation of non-GAAP financial metrics to the most directly comparable GAAP measure.

The following describes and reconciles those financial measures as reported under accounting principles generally accepted in the United States (GAAP) with those financial measures as adjusted by the items detailed below and presented in the accompanying news release. These calculations are not prepared in accordance with GAAP and should not be viewed as alternatives to GAAP. In keeping with its historical financial reporting practices, the company believes that the supplemental presentation of these calculations provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis, independently of regularly reported non-cash charges and infrequent or unusual events.

Normalized Consolidated Revenue is defined as total revenue from the Condensed Consolidated Statements of Operations less Vyvx advertising distribution business revenue.

Normalized Communications Revenue is defined as communications revenue from the Condensed Consolidated Statements of Operations less Vyvx advertising distribution business revenue.

Normalized Core Communications Services Revenue includes core network services revenue and wholesale voice services less Vyvx advertising distribution business revenue.

Normalized Core Network Services Revenue includes revenue from transport and infrastructure, IP and data services, local and enterprise voice services and Level 3 Vyvx broadcast services less Vyvx advertising distribution business revenue.

European Markets Group Constant Currency Revenue includes revenue from our European Markets Group plus an adjustment to present revenue on a constant currency basis.

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
							Three Months Ended
							June 30,		March 31,		June 30,
(dollars in millions, except per share data)							2009		2009		2008
Revenue:
	Communications						$ 926		$ 962		$ 1,072
	Coal Mining						16		18		18
		Total revenue					942		980		1,090
Costs and Expenses (exclusive of depreciation and
	amortization shown separately below):
	Cost of Revenue
		Communications					379		390		442
		Coal Mining					16		17		18
			Total Cost of Revenue				395		407		460
	Depreciation and Amortization						228		222		234
	Selling, General and Administrative						321		338		395
	Restructuring Charges						6		1		4
		Total Costs and Expenses					950		968		1,093
Operating Income (Loss)							(8)		12		(3)
Other Income (Expense):
	Interest income						1		1		3
	Interest expense						(152)		(146)		(141)
	Gain on extinguishment of debt						14		-		-
	Gain on sale of business group						-		-		96
	Other, net						12		2		4
		Total Other Income (Expense)					(125)		(143)		(38)
Loss Before Income Taxes							(133)		(131)		(41)
Income Tax Expense							(1)		(1)		(1)
Net Loss							$ (134)		$ (132)		$ (42)
Basic and Diluted Loss per Share							$ (0.08)		$ (0.08)		$ (0.03)
Shares Used to Compute Basic and Diluted Loss per Share
	(in thousands):						1,632,254		1,620,932		1,552,778
Financial statements for the three months ended June 30, 2008 have been adjusted for the
	retrospective application of FSP APB 14-1.
			© 2009 by Level 3 Communications, Inc. All rights reserved.

 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
			June 30,	March 31,	December 31,
(dollars in millions)			2009	2009	2008
			(unaudited)	(unaudited)
Assets
Current Assets:
	Cash and cash equivalents		$630	$672	$768
	Restricted cash and securities		2	3	3
	Receivables, less allowances for doubtful accounts
		of $18, $18 and $16, respectively	374	401	390
	Other		111	96	81
Total Current Assets			1,117	1,172	1,242
Property, Plant and Equipment, net			5,939	6,012	6,159
Restricted Cash and Securities			125	128	127
Goodwill			1,432	1,431	1,432
Other Intangibles, net			512	535	559
Other Assets			110	110	115
Total Assets			$ 9,235	$ 9,388	$ 9,634
Liabilities and Stockholders' Equity
Current Liabilities:
	Accounts payable		$336	$357	$365
	Current portion of long-term debt		178	500	186
	Accrued payroll and employee benefits		39	52	105
	Accrued interest		132	123	117
	Current portion of deferred revenue		163	169	168
	Other		92	96	111
Total Current Liabilities			940	1,297	1,052
Long-Term Debt, less current portion			6,168	5,933	6,245
Deferred Revenue, less current portion			742	699	719
Other Liabilities			563	604	597
Total Liabilities			8,413	8,533	8,613
Stockholders' Equity			822	855	1,021
Total Liabilities and Stockholders' Equity			$ 9,235	$ 9,388	$ 9,634
Financial statements as of December 31, 2008 have been adjusted for the retrospective application of FSP APB 14-1.
		© 2009 by Level 3 Communications, Inc. All rights reserved.

 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
			Three Months Ended
			June 30,	March 31,	June 30,
(dollars in millions)			2009	2009	2008
Cash Flows from Operating Activities:
	Net loss		$ (134)	$ (132)	$ (42)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation and amortization		228	222	234
	Non-cash compensation expense attributable to stock awards		9	16	20
	Gain on extinguishment of debt, net		(14)	-	-
	Gain on sale of business group		-	-	(96)
	Accretion of debt discount and amortization of debt issuance costs		16	14	13
	Accrued interest on long-term debt		9	6	3
	Other, net		(1)	(6)	(2)
	Changes in working capital items:
	Receivables		30	(11)	(2)
	Other current assets		(12)	(15)	(10)
	Payables		(28)	(14)	(25)
	Deferred revenue		29	(17)	7
	Other current liabilities		(32)	(67)	10
Net Cash Provided by (Used in) Operating Activities			100	(4)	110
Cash Flows from Investing Activities:
	Capital expenditures		(80)	(78)	(106)
	(Increase) decrease in restricted cash and securities, net		4	(1)	2
	Proceeds from sale of business group, net		-	-	123
Net Cash Provided by (Used in) Investing Activities			(76)	(79)	19
Cash Flows from Financing Activities:
	Long term debt borrowings, net of issuance costs		274	(2)	-
	Payments on and repurchases of long-term debt		(346)	(7)	(2)
Net Cash Used in Financing Activities			(72)	(9)	(2)
Effect of Exchange Rates on Cash and Cash Equivalents			6	(4)	1
Net Change in Cash and Cash Equivalents			(42)	(96)	128
Cash and Cash Equivalents at Beginning of Period			672	768	533
Cash and Cash Equivalents at End of Period			$ 630	$ 672	$ 661
Supplemental Disclosure of Cash Flow Information:
	Cash interest paid		$ 127	$ 126	$ 125
	Income taxes paid		$ 3	$ 1	$ 3
Financial statements for the three months ended June 30, 2008 have been adjusted for the
	retrospective application of FSP APB 14-1.
	© 2009 by Level 3 Communications, Inc. All rights reserved.

 

Contact Information
Media:	Investors:
Skip Thurman	Valerie Finberg
720-888-2292	720-888-2518