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
OMAHA, NEBRASKA, May 7, 1998 – Level 3 Communications, Inc. (Nasdaq: 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."
About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT), an international communications company, operates one of the largest Internet backbones in the world, connecting 180 markets in 18 countries. The company serves a broad range of wholesale, enterprise and content customers with a comprehensive suite of services including: Internet Protocol (IP) services, broadband transport and infrastructure services, colocation services, voice and voice over IP services, content delivery and media distribution services. These services provide the building blocks to enable Level 3’s customers to meet their growing demands for advanced communications solutions. The company’s Web address is 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 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 may be trademarks or service marks of their respective owners.
Forward-Looking Statement
Some of the statements that we make 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 our control, which could cause actual events to differ materially from those expressed or implied by the statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to our ability to: successfully integrate acquisitions; increase the volume of traffic on our network; defend our 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 our 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.
