Fourth Quarter and Full Year 2014
Highlights
For the Level 3 business, on a standalone basis, excluding the
effects of the tw telecom acquisition that was completed on
Oct. 31, 2014:
- Grew Core Network Services revenue by 6.1 percent for the full
year 2014 compared to 2.9 percent for the full year 2013, both on a
constant currency basis
- Grew Adjusted EBITDA by 19 percent for the full year 2014,
excluding acquisition-related expenses, compared to the company's
outlook of 14 to 18 percent
- Generated strong Free Cash Flow of $325
million for the full year 2014 compared to the company's
outlook of $250 to $300
million
For the tw telecom business, on a standalone basis:
- For the full year 2014, tw telecom's revenue grew by 7.7
percent year over year
- For the full year 2014, tw telecom reported M-EBITDA of
$579 million, excluding
acquisition-related expenses
BROOMFIELD, Colorado,
Feb. 4, 2015 /PRNewswire/ -- Level 3
Communications, Inc. (NYSE: LVLT) today reported results for the
quarter and full year ending December 31,
2014.
"Level 3 had a solid 2014, delivering strong financial and
operational results and completing the acquisition of tw telecom,"
said Jeff Storey, president and CEO
of Level 3. "In 2015, we continue to focus on executing against our
integration plans while investing to grow the business well into
the future."
The reported results on a consolidated basis include two months
of tw telecom's financial performance, as the company closed the tw
telecom acquisition on Oct. 31,
2014.
Consolidated total revenue was $1.914
billion for the fourth quarter 2014, compared to
$1.602 billion for the fourth quarter
2013 and $6.777 billion for the full
year 2014 compared to $6.313 billion
for the full year 2013.
On a consolidated basis, net income per share was $0.35 per share excluding adjustments for unusual
items in the fourth quarter 2014; including those adjustments, the
net income per share was $0.22 per
share. The fourth quarter adjustments were comprised of a charge of
$70 million or $0.23 per share of acquisition-related expenses
for the tw telecom transaction, a charge of $53 million or $0.17 per share on the extinguishment of debt, a
non-cash charge of $17 million or
$0.06 per share for the impairment of
an intangible asset and a non-cash income tax benefit in EMEA of
approximately $100 million or
$0.33 per share. This compared to net
income per share of $0.06 for the
fourth quarter 2013.
Level 3 Communications Standalone Results
The
following tables provide Level 3 results on a standalone basis and
exclude acquisition-related expenses, intercompany eliminations and
acquisition accounting adjustments associated with the acquisition
of tw telecom in 2014.
Metric
($ in
millions)
|
Fourth
Quarter
2014
|
Fourth
Quarter
2013
|
Full Year
2014
|
Full Year
2013
|
Core Network Services
Revenue(1)
|
$1,497
|
$1,443
|
$5,915
|
$5,591
|
Wholesale Voice
Services and Other Revenue(1)
|
$137
|
$159
|
$582
|
$722
|
Total
Revenue(1)
|
$1,634
|
$1,602
|
$6,497
|
$6,313
|
Adjusted
EBITDA(2)(3)(4)
|
$470
|
$448
|
$1,869
|
$1,565
|
Capital
Expenditures
|
$239
|
$189
|
$847
|
$760
|
Unlevered Cash
Flow(2)
|
$317
|
$358
|
$886
|
$627
|
Free Cash
Flow(2)
|
$163
|
$197
|
$325
|
($47)
|
Network Access
Margin(2)
|
62.0%
|
61.4%
|
62.2%
|
60.9%
|
Adjusted EBITDA
Margin(2)(3)(4)
|
28.8%
|
28.0%
|
28.8%
|
24.8%
|
Net Income
(Loss)
|
$45
|
$14
|
$293
|
($109)
|
|
|
(1)
|
Excludes the
effects of intercompany eliminations of revenue from tw telecom
that reduced Core Network Services Revenue as reported by $5
million for both the fourth quarter 2014 and full year
2014.
|
(2)
|
See schedule of
non-GAAP metrics for definitions and reconciliation to GAAP
measures.
|
(3)
|
In 2013, the
company accrued 60 percent of its annual employee bonus
compensation expense in the form of equity and 40 percent in cash,
compared to 100 percent cash in 2014. The amount of the bonus
accrued as equity-based compensation in the fourth quarter of 2013
was $18 million and was $59 million for the full year 2013.
Adjusted EBITDA and Adjusted EBITDA margin in the fourth quarter
and the full year of 2013 have been adjusted on a pro forma basis
to include the $18 million and $59 million, respectively, to
present the results on a consistent basis with the accrual of bonus
compensation expense in 2014 as 100 percent cash.
|
(4)
|
Excludes tw
telecom acquisition-related expenses of $68 million for the fourth
quarter 2014, $7 million for the third quarter 2014, $4 million for
the second quarter 2014 and $79 million for the full year
2014.
|
Revenue
Core Network
Services (CNS) Revenue
($ in
millions)
|
Fourth Quarter
2014
|
Fourth Quarter
2013
|
Percent
Change,
Constant
Currency
|
Full
Year
2014
|
Full
Year
2013
|
Percent
Change,
Constant
Currency
|
North
America
|
$1,088
|
$1,025
|
6%
|
$4,245
|
$3,949
|
7%
|
Wholesale
|
$364
|
$374
|
(3%)
|
$1,467
|
$1,478
|
(1%)
|
Enterprise
|
$724
|
$651
|
11%
|
$2,778
|
$2,471
|
12%
|
|
|
|
|
|
|
|
EMEA
|
$218
|
$223
|
1%
|
$891
|
$888
|
(2%)
|
Wholesale
|
$75
|
$89
|
(12%)
|
$328
|
$354
|
(9%)
|
Enterprise(1)
|
$143
|
$134
|
9%
|
$563
|
$534
|
2%
|
|
|
|
|
|
|
|
Latin
America
|
$191
|
$195
|
4%
|
$779
|
$754
|
9%
|
Wholesale
|
$41
|
$41
|
8%
|
$165
|
$160
|
8%
|
Enterprise
|
$150
|
$154
|
3%
|
$614
|
$594
|
9%
|
|
|
|
|
|
|
|
Total CNS
Revenue
|
$1,497
|
$1,443
|
5%
|
$5,915
|
$5,591
|
6%
|
Wholesale
|
$480
|
$504
|
(3%)
|
$1,960
|
$1,992
|
(1%)
|
Enterprise(1)
|
$1,017
|
$939
|
10%
|
$3,955
|
$3,599
|
10%
|
|
|
(1)
|
Fourth Quarter
2014, Fourth Quarter 2013, Full Year 2014 and Full Year 2013 EMEA
CNS Enterprise and Total Enterprise CNS revenue include UK
Government revenue of $28 million, $29 million, $115 million and
$132 million, respectively.
|
Deferred Revenue
The deferred revenue balance was
$1.148 billion at the end of the
fourth quarter 2014, compared to $1.159
billion at the end of the fourth quarter 2013.
Network Access Costs
Network Access Costs, excluding
acquisition-related expenses, were $619
million in the fourth quarter 2014, compared to $618 million in the fourth quarter 2013. For the
full year 2014, Network Access Costs, excluding acquisition-related
expenses, decreased to $2.453
billion, compared to $2.471
billion for the full year 2013.
Network Related Expenses
Excluding non-cash
compensation expense, Network Related Expenses were $301 million in the fourth quarter 2014. This
compared to $296 million for the
fourth quarter 2013, on a pro forma basis, which includes
$9 million in bonus-related non-cash
compensation expense.
For the full year 2014, excluding non-cash compensation expense,
Network Related Expenses were $1.196
billion. This compared to $1.205
billion for the full year 2013, on a pro forma basis, which
includes $27 million in bonus-related
non-cash compensation expense.
Selling, General and Administrative Expenses
(SG&A)
Excluding non-cash compensation expense and acquisition-related
expenses, SG&A expenses were $245
million in the fourth quarter 2014. This compared to
$247 million for the fourth quarter
2013, on a pro forma basis, which includes $9 million in bonus-related non-cash
compensation.
For the full year 2014, excluding non-cash compensation expense
and acquisition-related expenses, SG&A expenses were
$980 million. This compared to
$1.079 billion for the full year
2013, on a pro forma basis, which includes $32 million in bonus-related non-cash
compensation.
Non-cash Compensation Expense
Non-cash compensation
expense was $24 million for the
fourth quarter 2014. For the fourth quarter 2013, non-cash
compensation was $36 million.
Excluding $18 million in
bonus-related non-cash compensation expense, fourth quarter 2013
non-cash compensation expense was $18
million.
Adjusted EBITDA
For the fourth quarter 2014, Adjusted
EBITDA was $470 million, excluding
acquisition-related expenses, compared to $448 million for the fourth quarter 2013, on a
pro forma basis, which includes $18
million in bonus-related non-cash compensation expense
recognized in that quarter.
For the full year 2014, Adjusted EBITDA was $1.869 billion, excluding acquisition-related
expenses, an increase of 19 percent from the starting point of
$1.565 billion for the full year
2013, on a pro forma basis, which includes $59 million in bonus-related non-cash
compensation expense recognized in that year.
Cash Flow and Liquidity
Free Cash Flow was
$325 million for the full year 2014,
compared to negative $47 million for
the full year 2013.
For the full year 2014, capital expenditures were 13 percent of
total revenue.
tw telecom Standalone Results
To enable investors to
track tw telecom's results, the company is providing selected,
unaudited tw telecom financial and operating metrics. The following
tables reflect the pro forma results of tw telecom for the fourth
quarter 2014 and full year 2014. These results are based on tw
telecom's definitions for these metrics and exclude
acquisition-related expenses, intercompany eliminations and
acquisition accounting adjustments associated with the acquisition
of tw telecom by Level 3 in 2014.
Metric
($ in
millions)
|
Fourth
Quarter
2014
|
Fourth
Quarter
2013
|
Full
Year
2014
|
Full
Year
2013
|
Revenue
|
|
|
|
|
Data and Internet
services
|
$271
|
$235
|
$1,029
|
$893
|
Voice
services
|
$78
|
$77
|
$310
|
$307
|
Network
services
|
$53
|
$60
|
$223
|
$251
|
Taxes and
fees
|
$26
|
$21
|
$99
|
$83
|
Intercarrier
compensation
|
$5
|
$7
|
$24
|
$30
|
Total
Revenue
|
$433
|
$400
|
$1,685
|
$1,564
|
Modified
EBITDA(1)(2)
|
$156
|
$141
|
$579
|
$553
|
Capital
Expenditures
|
$114
|
$208
|
$416
|
$502
|
Levered Free Cash
Flow(1)(3)
|
$27
|
($90)
|
$78
|
($34)
|
M-EBITDA Margin
Normalized(1)(2)
|
36.1%
|
35.2%
|
34.4%
|
35.3%
|
|
|
(1)
|
See schedule of
non-GAAP metrics for definition and reconciliation to GAAP
measures.
|
(2)
|
Adjusted to
exclude $88 million and $93 million of acquisition-related expenses
in the fourth quarter 2014 and the full year 2014,
respectively.
|
(3)
|
Net interest
expense in the fourth quarter of 2014 benefited from the
extinguishment of tw telecom's long-term debt
obligations.
|
Pro Forma Combined Company Results
The following
tables provide selected financial metrics on an unaudited pro forma
basis for the combined company, using Level 3's definitions for all
metrics shown.
Metric
(As reported, $ in
millions)
|
Fourth
Quarter
2014(3)
|
Fourth
Quarter
2013(3)
|
Full
Year
2014(4)
|
Core Network Services
Revenue
|
$1,915
|
$1,828
|
$7,541
|
Wholesale Voice
Services and Other
|
$137
|
$159
|
$582
|
Total
Revenue
|
$2,052
|
$1,987
|
$8,123
|
Adjusted EBITDA
Excluding Acquisition-Related Expenses(1)(2)
|
$625
|
$587
|
$2,443
|
Adjusted EBITDA
Including Acquisition-Related Expenses(1)(2)
|
$469
|
$587
|
$2,271
|
Adjusted EBITDA
Margin Excluding Acquisition-Related
Expenses(1)
|
30.5%
|
29.5%
|
30.1%
|
Adjusted EBITDA
Margin Including Acquisition-Related
Expenses(1)
|
22.9%
|
29.5%
|
28.0%
|
Capital
Expenditures
|
$346
|
$397
|
$1,255
|
Capital Expenditures
as percent of Total Revenue
|
17%
|
20%
|
15%
|
|
|
(1)
|
See schedule of
non-GAAP metrics for definition and reconciliation to GAAP
measures.
|
(2)
|
See details of the
expenses in the Acquisition-related Expenses section of the
release.
|
(3)
|
Fourth Quarter
2013 and Fourth Quarter 2014 Pro Forma Combined Company results
reflect a full three months of both Level 3's and tw telecom's
results.
|
(4)
|
Full year 2014 Pro
Forma Combined Company results reflect a full year of both Level
3's and tw telecom's results.
|
Core Network
Services (CNS) Revenue
($ in
millions)
|
Fourth
Quarter
2014(1)
|
Fourth
Quarter
2013(1)
|
Full
Year
2014(2)
|
North
America
|
$1,506
|
$1,410
|
$5,871
|
Wholesale
|
$443
|
$438
|
$1,770
|
Enterprise
|
$1,063
|
$972
|
$4,101
|
|
|
|
|
EMEA
|
$218
|
$223
|
$891
|
Wholesale
|
$75
|
$89
|
$328
|
Enterprise
|
$143
|
$134
|
$563
|
|
|
|
|
Latin
America
|
$191
|
$195
|
$779
|
Wholesale
|
$41
|
$41
|
$165
|
Enterprise
|
$150
|
$154
|
$614
|
|
|
|
|
Total CNS
Revenue
|
$1,915
|
$1,828
|
$7,541
|
Wholesale
|
$559
|
$568
|
$2,263
|
Enterprise
|
$1,356
|
$1,260
|
$5,278
|
|
|
(1)
|
Fourth Quarter
2013 and Fourth Quarter 2014 Pro Forma Combined Company results
reflect a full three months of both Level 3's and tw telecom's
results.
|
(2)
|
Full year 2014 Pro
Forma Combined Company results reflect a full year of both Level
3's and tw telecom's results.
|
Acquisition-related Expenses
The following table
provides a breakdown of the total acquisition-related expenses
incurred by both Level 3 and tw telecom.
|
Fourth Quarter
2014
|
Full Year
2014
|
Acquisition-related Expenses
($ in
millions)
|
Level
3
|
tw
telecom
|
Total
|
Level
3
|
tw
telecom
|
Total
|
Transaction
Expenses
|
$15
|
$85
|
$100
|
$22
|
$90
|
$112
|
Integration
Expenses
|
$53
|
$3
|
$56
|
$57
|
$3
|
$60
|
Total
Acquisition-related Expenses
|
$68
|
$88
|
$156
|
$79
|
$93
|
$172
|
Capital Market Transactions
During the quarter, Level
3 Communications, Inc. issued $600
million aggregate principal amount of its 5.75% Senior Notes
due 2022. The net proceeds from the offering of the notes, together
with cash on hand, were used to redeem the $605.2 million aggregate principal amount
outstanding of Level 3 Communications, Inc.'s 11.875% Senior Notes
due 2019. The company recognized a debt extinguishment loss of
$53 million, or $0.17 per share, associated with this transaction
during the fourth quarter 2014, that was recognized in Other
Expense.
After the close of the quarter, on Jan.
29, 2015, Level 3 Financing, Inc., issued $500 million aggregate principal amount of its
5.625% Senior Notes due 2023 to refinance Level 3 Financing's
outstanding $500 million aggregate
principal amount of its 9.375% Senior Notes due 2019. In the second
quarter 2015, the company expects to recognize a loss of
approximately $40 million on the
extinguishment of debt associated with this transaction that will
be recognized in Other Expense.
As of Dec. 31, 2014, on a
consolidated basis, the company had cash and cash equivalents of
approximately $580 million.
2015 Business Outlook
"From a Free Cash Flow
perspective, 2014 was a transformational year for Level 3," said
Sunit Patel, executive vice
president and CFO of Level 3. "The company is well-positioned to
generate sustainable Free Cash Flow going forward."
"As we enter 2015, we are focused on driving profitable growth
to position the company to deliver long-term stockholder value,"
Patel continued. "In 2015, we expect to grow Adjusted EBITDA 12 to
16 percent from a starting point of $2.271
billion, which represents the combined company's full year
Adjusted EBITDA including acquisition-related expenses.
Additionally, we expect to generate Free Cash Flow of $550-$600 million for the full year 2015."
For the full year 2015, the company also expects:
- GAAP interest expense of approximately $680 million
- Net cash interest expense of approximately $640 million
- Capital expenditures of approximately 15 percent of total
revenue
- Depreciation and Amortization of approximately $1.160 billion
- GAAP and cash income tax expense of approximately $60 million
- Non-cash compensation expense of approximately $120 million
Conference Call and Web Site Information
Level 3 will
hold a conference call to discuss the company's fourth quarter 2014
and full year 2014 results today at 10 a.m.
ET. The call will be broadcast live on Level 3's Investor
Relations website at http://investors.level3.com. Additional
information regarding fourth quarter 2014 and full year 2014
results, including the presentation management will review on the
conference call, will be available on Level 3's Investor Relations
website. If you are unable to join the call via the Web, the call
can be accessed live at +1 877-283-5145 (U.S. Domestic) or +1
312-281-1200 (International). Questions should be sent to
investor.relations@level3.com.
For additional information, please call +1 720-888-2518.
About Level 3 Communications
Level 3 Communications,
Inc. (NYSE: LVLT) is a Fortune 500 company that provides local,
national and global communications services to enterprise,
government and carrier customers. Level 3's comprehensive portfolio
of secure, managed solutions includes fiber and infrastructure
solutions; IP-based voice and data communications; wide-area
Ethernet services; video and content distribution; data center and
cloud-based solutions. Level 3 serves customers in more than 500
markets in over 60 countries across a global services platform
anchored by owned fiber networks on three continents and connected
by extensive undersea facilities. For more information, please
visit www.level3.com or get to know us on Twitter, Facebook and
LinkedIn.
© Level 3 Communications, LLC. All Rights Reserved. Level 3,
Level 3 Communications, Level (3) and the Level 3 Logo are either
registered service marks or service marks of Level 3
Communications, LLC and/or one of its Affiliates in the United States and elsewhere. Any other
service names, product names, company names or logos included
herein are the trademarks or service marks of their respective
owners. Level 3 services are provided by subsidiaries of Level 3
Communications, Inc.
Forward-Looking Statement
Some statements
made in this press release are forward-looking in nature and 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. 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 the tw telecom
acquisition; manage risks associated with continued uncertainty in
the global economy; increase revenue from its services to realize
its targets for financial and operating performance; maintain and
increase traffic on its network; develop and maintain effective
business support systems; manage system and network failures or
disruptions; avert the breach of its network and computer system
security measures; develop new services that meet customer demands
and generate acceptable margins; manage the future expansion or
adaptation of its network to remain competitive; defend
intellectual property and proprietary rights; manage continued or
accelerated decreases in market pricing for communications
services; obtain capacity for its network from other providers and
interconnect its network with other networks on favorable terms;
attract and retain qualified management and other personnel;
successfully integrate future acquisitions; effectively manage
political, legal, regulatory, foreign currency and other risks it
is exposed to due to its substantial international operations;
mitigate its exposure to contingent liabilities; and meet all of
the terms and conditions of its 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.
Contact
Information
|
|
|
|
Media:
|
Investors:
|
Ashley
Pritchard
|
Mark
Stoutenberg
|
+1
720-888-5950
|
+1
720-888-2518
|
ashley.pritchard@level3.com
|
mark.stoutenberg@level3.com
|
Level 3 Communications:
Non-GAAP Metrics
Pursuant to Regulation G, the company is hereby providing
definitions of non-GAAP financial metrics and reconciliations to
the most directly comparable GAAP measures.
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.
In addition, measures referred to in the accompanying news
release as being calculated "on a constant currency basis" or "in
constant currency terms" are non-GAAP metrics intended to present
the relevant information assuming a constant exchange rate between
the two periods being compared. Such metrics are calculated by
applying the currency exchange rates used in the preparation of the
prior period financial results to the subsequent period
results.
Consolidated Revenue is defined as total revenue from the
Consolidated Statements of Operations.
Core Network Services Revenue includes revenue from
colocation and datacenter services, transport and fiber, IP and
data services, and voice services (local and enterprise).
Network Access Costs includes leased capacity,
right-of-way costs, access charges, satellite transponder lease
costs and other third party costs directly attributable to
providing access to customer locations from the Level 3 network,
but excludes Network Related Expenses, and depreciation and
amortization. Network Access Costs do not include any employee
expenses or impairment expenses; these expenses are allocated to
Network Related Expenses or Selling, General and Administrative
Expenses.
Network Related Expenses includes certain expenses
associated with the delivery of services to customers and the
operation and maintenance of the Level 3 network, such as facility
rent, utilities, maintenance and other costs, each related to the
operation of its communications network, as well as salaries, wages
and related benefits (including non-cash stock-based compensation
expenses) associated with personnel who are responsible for the
delivery of services, operation and maintenance of its
communications network, and accretion expense on asset retirement
obligations, but excludes depreciation and amortization.
Network Access Margin ($) is defined as total Revenue
less Network Access Costs from the Consolidated Statements of
Operations, and excludes Network Related Expenses.
Network Access Margin (%) is defined as Network Access
Margin ($) divided by total Revenue. Management believes that
network access margin is a relevant metric to provide to investors,
as it is a metric that management uses to measure the margin
available to the company after it pays third party network services
costs; in essence, a measure of the efficiency of the company's
network.
Adjusted EBITDA is defined as net income (loss) from the
Consolidated Statements of Operations before income taxes, total
other income (expense), non-cash impairment charges, depreciation
and amortization and non-cash stock compensation expense.
Adjusted EBITDA Margin is defined as Adjusted EBITDA
divided by total revenue.
Adjusted EBITDA
Metric
|
Q4
2014
|
(in
millions)
|
|
|
|
Net Income
|
$
|
66
|
|
Income Tax
Benefit
|
(103)
|
|
Total Other
Expense
|
268
|
|
Depreciation and
Amortization
|
250
|
|
Non-Cash Stock
Compensation
|
25
|
|
Non-Cash
Impairment
|
1
|
|
Adjusted
EBITDA
|
$
|
507
|
|
|
|
|
Total
Revenue
|
$
|
1,914
|
|
Adjusted EBITDA
Margin
|
26.5
|
%
|
Adjusted EBITDA
Metric
|
Level 3
Standalone
|
Q4
2014
|
(in
millions)
|
|
|
|
Net Income
|
$
|
45
|
|
Income Tax
Benefit
|
(105)
|
|
Total Other
Expense
|
250
|
|
Depreciation and
Amortization
|
187
|
|
Non-Cash Stock
Compensation
|
24
|
|
Non-Cash
Impairment
|
1
|
|
Acquisition-Related
Expenses
|
68
|
|
Adjusted
EBITDA
|
$
|
470
|
|
|
|
|
Total
Revenue
|
$
|
1,634
|
|
Adjusted EBITDA
Margin
|
28.8
|
%
|
Adjusted EBITDA
Metric
|
Q4
2013
|
(in
millions)
|
|
|
|
Net Income
|
$
|
14
|
|
Income Tax
Benefit
|
(1)
|
|
Total Other
Expense
|
206
|
|
Depreciation and
Amortization
|
204
|
|
Non-Cash Stock
Compensation
|
36
|
|
Non- Cash
Impairment
|
$
|
7
|
|
Adjusted
EBITDA
|
$
|
466
|
|
Non-Cash Stock-Based
Bonus
|
(18)
|
|
Adjusted EBITDA
less non-cash stock based bonus
|
$
|
448
|
|
|
|
|
Total
Revenue
|
$
|
1,602
|
|
Adjusted EBITDA
Margin
|
28.0
|
%
|
Adjusted EBITDA
Metric
|
Year Ended
December 31, 2014
|
(in
millions)
|
|
|
|
Net Income
|
$
|
314
|
|
Income Tax
Benefit
|
(76)
|
|
Total Other
Expense
|
775
|
|
Depreciation and
Amortization
|
808
|
|
Non-Cash Stock
Compensation
|
73
|
|
Non-Cash
Impairment
|
1
|
|
Adjusted
EBITDA
|
$
|
1,895
|
|
|
|
|
Total
Revenue
|
$
|
6,777
|
|
Adjusted EBITDA
Margin
|
28.0
|
%
|
Adjusted EBITDA
Metric
|
Level 3
Standalone
|
Year Ended
December 31, 2014
|
(in
millions)
|
|
|
|
Net Income
|
$
|
293
|
|
Income Tax
Benefit
|
(78)
|
|
Total Other
Expense
|
757
|
|
Depreciation and
Amortization
|
745
|
|
Non-Cash Stock
Compensation
|
72
|
|
Non-Cash
Impairment
|
1
|
|
Acquisition-Related
Expenses
|
79
|
|
Adjusted
EBITDA
|
$
|
1,869
|
|
|
|
|
Total
Revenue
|
$
|
6,497
|
|
Adjusted EBITDA
Margin
|
28.8
|
%
|
Adjusted EBITDA
Metric
|
Year Ended
December 31, 2013
|
(in
millions)
|
|
|
|
Net Loss
|
$
|
(109)
|
|
Income Tax
Expense
|
38
|
|
Total Other
Expense
|
737
|
|
Depreciation and
Amortization
|
800
|
|
Non-Cash Stock
Compensation
|
151
|
|
Non- Cash
Impairment
|
$
|
7
|
|
Adjusted
EBITDA
|
$
|
1,624
|
|
Non-Cash Stock-Based
Bonus
|
(59)
|
|
Adjusted EBITDA
less non-cash stock based bonus
|
$
|
1,565
|
|
|
|
|
Total
Revenue
|
$
|
6,313
|
|
Adjusted EBITDA
Margin
|
24.8
|
%
|
Management believes that Adjusted EBITDA and Adjusted EBITDA
Margin are relevant and useful metrics to provide to investors, as
they are an important part of the company's internal reporting and
are key measures used by Management to evaluate profitability and
operating performance of the company and to make resource
allocation decisions. Management believes such measures are
especially important in a capital-intensive industry such as
telecommunications. Management also uses Adjusted EBITDA and
Adjusted EBITDA Margin to compare the company's performance to that
of its competitors and to eliminate certain non-cash and
non-operating items in order to consistently measure from period to
period its ability to fund capital expenditures, fund growth,
service debt and determine bonuses. Adjusted EBITDA excludes
non-cash impairment charges and non-cash stock compensation expense
because of the non-cash nature of these items. Adjusted EBITDA also
excludes interest income, interest expense and income taxes because
these items are associated with the company's capitalization and
tax structures. Adjusted EBITDA also excludes depreciation and
amortization expense because these non-cash expenses primarily
reflect the impact of historical capital investments, as opposed to
the cash impacts of capital expenditures made in recent periods,
which may be evaluated through cash flow measures. Adjusted EBITDA
excludes the gain (or loss) on extinguishment and modification of
debt and other, net because these items are not related to the
primary operations of the company.
There are limitations to using Adjusted EBITDA as a financial
measure, including the difficulty associated with comparing
companies that use similar performance measures whose calculations
may differ from the company's calculations. Additionally, this
financial measure does not include certain significant items such
as interest income, interest expense, income taxes, depreciation
and amortization, non-cash impairment charges, non-cash stock
compensation expense, the gain (or loss) on extinguishment and
modification of debt and net other income (expense). Adjusted
EBITDA and Adjusted EBITDA Margin should not be considered a
substitute for other measures of financial performance reported in
accordance with GAAP.
Unlevered Cash Flow is defined as net cash provided by
(used in) operating activities less capital expenditures, plus cash
interest paid and less interest income all as disclosed in the
Consolidated Statements of Cash Flows or the Consolidated
Statements of Operations. Management believes that Unlevered Cash
Flow is a relevant metric to provide to investors, as it is an
indicator of the operational strength and performance of the
company and, measured over time, provides management and investors
with a sense of the underlying business' growth pattern and ability
to generate cash. Unlevered Cash Flow excludes cash used for
acquisitions and debt service and the impact of exchange rate
changes on cash and cash equivalents balances.
There are material limitations to using Unlevered Cash Flow to
measure the company's cash performance as it excludes certain
material items such as payments on and repurchases of long-term
debt, interest income, cash interest expense and cash used to fund
acquisitions. Comparisons of Level 3's Unlevered Cash Flow to that
of some of its competitors may be of limited usefulness since Level
3 does not currently pay a significant amount of income taxes due
to net operating losses, and therefore, generates higher cash flow
than a comparable business that does pay income taxes.
Additionally, this financial measure is subject to variability
quarter over quarter as a result of the timing of payments related
to accounts receivable and accounts payable and capital
expenditures. Unlevered Cash Flow should not be used as a
substitute for net change in cash and cash equivalents in the
Consolidated Statements of Cash Flows.
Free Cash Flow is defined as net cash provided by (used
in) operating activities less capital expenditures as disclosed in
the Consolidated Statements of Cash Flows. Management believes that
Free Cash Flow is a relevant metric to provide to investors, as it
is an indicator of the company's ability to generate cash to
service its debt. Free Cash Flow excludes cash used for
acquisitions, principal repayments and the impact of exchange rate
changes on cash and cash equivalents balances.
There are material limitations to using Free Cash Flow to
measure the company's performance as it excludes certain material
items such as principal payments on and repurchases of long-term
debt and cash used to fund acquisitions. Comparisons of Level 3's
Free Cash Flow to that of some of its competitors may be of limited
usefulness since Level 3 does not currently pay a significant
amount of income taxes due to net operating losses, and therefore,
generates higher cash flow than a comparable business that does pay
income taxes. Additionally, this financial measure is subject to
variability quarter over quarter as a result of the timing of
payments related to interest expense, accounts receivable and
accounts payable and capital expenditures. Free Cash Flow should
not be used as a substitute for net change in cash and cash
equivalents on the Consolidated Statements of Cash Flows.
Unlevered Cash
Flow and Free Cash Flow
|
|
|
|
|
|
Three Months Ended
December 31, 2014
|
Unlevered
|
|
|
|
($ in
millions)
|
Cash
Flow
|
|
Free Cash
Flow
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities
|
396
|
|
|
396
|
|
Capital
Expenditures
|
(302)
|
|
|
(302)
|
|
Cash Interest
Paid
|
$
|
190
|
|
|
N/A
|
|
Interest
Income
|
—
|
|
|
N/A
|
|
Cash
Interest/Acquisition-Related Expenditures
|
25
|
|
|
61
|
|
Total
|
$
|
309
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
Level 3 Stand
Alone
|
|
|
|
|
|
Unlevered Cash
Flow and Free Cash Flow
|
|
|
|
|
|
Three Months Ended
December 31, 2014
|
Unlevered
|
|
|
|
($ in
millions)
|
Cash
Flow
|
|
Free Cash
Flow
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities
|
$
|
343
|
|
|
$
|
343
|
|
Capital
Expenditures
|
(239)
|
|
|
(239)
|
|
Cash Interest
Paid
|
190
|
|
|
N/A
|
|
Interest
Income
|
—
|
|
|
N/A
|
|
Cash
Interest/Acquisition-Related Expenditures
|
23
|
|
|
59
|
|
Total
|
$
|
317
|
|
|
$
|
163
|
|
Unlevered Cash
Flow and Free Cash Flow
|
|
|
|
|
|
Three Months Ended
December 31, 2013
|
Unlevered
|
|
|
|
($ in
millions)
|
Cash
Flow
|
|
Free Cash
Flow
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities
|
$
|
386
|
|
|
$
|
386
|
|
Capital
Expenditures
|
(189)
|
|
|
(189)
|
|
Cash Interest
Paid
|
161
|
|
|
N/A
|
|
Interest
Income
|
—
|
|
|
N/A
|
|
Total
|
$
|
358
|
|
|
$
|
197
|
|
Unlevered Cash
Flow and Free Cash Flow
|
|
|
|
|
|
Year Ended
December 31, 2014
|
Unlevered
|
|
|
|
($ in
millions)
|
Cash
Flow
|
|
Free Cash
Flow
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities
|
$
|
1,161
|
|
|
$
|
1,161
|
|
Capital
Expenditures
|
(910)
|
|
|
(910)
|
|
Cash Interest
Paid
|
598
|
|
|
N/A
|
|
Interest
Income
|
(1)
|
|
|
N/A
|
|
Cash
Interest/Acquisition-Related Expenditures
|
30
|
|
|
66
|
|
Total
|
$
|
878
|
|
|
$
|
317
|
|
Level 3 Stand
Alone
|
|
|
|
|
|
Unlevered Cash
Flow and Free Cash Flow
|
|
|
|
|
|
Year Ended
December 31, 2014
|
Unlevered
|
|
|
|
($ in
millions)
|
Cash
Flow
|
|
Free Cash
Flow
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities
|
$
|
1,108
|
|
|
$
|
1,108
|
|
Capital
Expenditures
|
(847)
|
|
|
(847)
|
|
Cash Interest
Paid
|
598
|
|
|
N/A
|
|
Interest
Income
|
(1)
|
|
|
N/A
|
|
Cash
Interest/Acquisition-Related Expenditures
|
28
|
|
|
64
|
|
Total
|
$
|
886
|
|
|
$
|
325
|
|
Unlevered Cash
Flow and Free Cash Flow
|
|
|
|
|
|
Year Ended
December 31, 2013
|
Unlevered
|
|
|
|
($ in
millions)
|
Cash
Flow
|
|
Free Cash
Flow
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities
|
$
|
713
|
|
|
$
|
713
|
|
Capital
Expenditures
|
(760)
|
|
|
(760)
|
|
Cash Interest
Paid
|
674
|
|
|
N/A
|
|
Interest
Income
|
—
|
|
|
N/A
|
|
Total
|
$
|
627
|
|
|
$
|
(47)
|
|
4Q14 Pro Forma
Combined Company Results
|
|
($ in
millions)
|
|
Legacy Level
3
|
Add: Nov and Dec
Intercompany
Transactions
|
Standalone Level
3
|
Standalone
tw
|
Intercompany
Eliminations
|
Acquisition
Accounting
|
Total
|
Core Network
Services (CNS) Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
1,083
|
|
$
|
5
|
|
$
|
1,088
|
|
$
|
433
|
|
$
|
(15)
|
|
$
|
—
|
|
$
|
1,506
|
|
Wholesale
|
|
$
|
359
|
|
$
|
5
|
|
$
|
364
|
|
$
|
94
|
|
$
|
(15)
|
|
$
|
—
|
|
$
|
443
|
|
Enterprise
|
|
$
|
724
|
|
$
|
—
|
|
$
|
724
|
|
$
|
339
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
$
|
218
|
|
$
|
—
|
|
$
|
218
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
218
|
|
Wholesale
|
|
$
|
75
|
|
$
|
—
|
|
$
|
75
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
75
|
|
Enterprise
|
|
$
|
143
|
|
$
|
—
|
|
$
|
143
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin
America
|
|
$
|
191
|
|
$
|
—
|
|
$
|
191
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
191
|
|
Wholesale
|
|
$
|
41
|
|
$
|
—
|
|
$
|
41
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
41
|
|
Enterprise
|
|
$
|
150
|
|
$
|
—
|
|
$
|
150
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CNS
Revenue
|
|
$
|
1,492
|
|
$
|
5
|
|
$
|
1,497
|
|
$
|
433
|
|
$
|
(15)
|
|
$
|
—
|
|
$
|
1,915
|
|
Wholesale Voice
Services and Other
|
|
137
|
|
—
|
|
137
|
|
—
|
|
—
|
|
|
|
137
|
|
Total
Revenue
|
|
$
|
1,629
|
|
$
|
5
|
|
$
|
1,634
|
|
$
|
433
|
|
$
|
(15)
|
|
$
|
—
|
|
$
|
2,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Access
Costs
|
|
(616)
|
|
(4)
|
|
(620)
|
|
(123)
|
|
11
|
|
—
|
|
(732)
|
|
Network Related
Expenses
|
|
(303)
|
|
(1)
|
|
(304)
|
|
(77)
|
|
3
|
|
—
|
|
(378)
|
|
Selling, General and
Administrative Expenses
|
|
(333)
|
|
—
|
|
(333)
|
|
(234)
|
|
—
|
|
—
|
|
(567)
|
|
Add back: Non-Cash
Compensation Expenses
|
|
24
|
|
—
|
|
24
|
|
69
|
|
—
|
|
—
|
|
93
|
|
Add back: Non-Cash
Impairment
|
|
1
|
|
—
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
Adjusted EBITDA
Including Acquisition-Related Expenses
|
|
$
|
402
|
|
$
|
—
|
|
$
|
402
|
|
$
|
68
|
|
$
|
(1)
|
|
$
|
—
|
|
$
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
Costs
|
|
$
|
15
|
|
$
|
—
|
|
$
|
15
|
|
$
|
85
|
|
$
|
—
|
|
$
|
—
|
|
$
|
100
|
|
Integration
Costs
|
|
53
|
|
—
|
|
53
|
|
3
|
|
—
|
|
—
|
|
56
|
|
Total
Acquisition-Related Expenses
|
|
$
|
68
|
|
$
|
—
|
|
$
|
68
|
|
$
|
88
|
|
$
|
—
|
|
$
|
—
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
Excluding Acquisition-Related Expenses
|
|
$
|
470
|
|
$
|
—
|
|
$
|
470
|
|
$
|
156
|
|
$
|
(1)
|
|
$
|
—
|
|
$
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures
|
|
$
|
239
|
|
$
|
—
|
|
$
|
239
|
|
$
|
107
|
|
$
|
—
|
|
$
|
—
|
|
$
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4Q13 Pro Forma
Combined Company Results
|
|
($ in
millions)
|
|
Legacy Level
3
|
Add: Intercompany
Transactions
|
Standalone Level
3
|
Standalone
tw
|
Intercompany
Eliminations
|
Acquisition
Accounting
|
Total
|
Core Network
Services (CNS) Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
1,025
|
|
$
|
—
|
|
$
|
1,025
|
|
$
|
400
|
|
$
|
(15)
|
|
$
|
—
|
|
$
|
1,410
|
|
Wholesale
|
|
$
|
374
|
|
$
|
—
|
|
$
|
374
|
|
$
|
79
|
|
$
|
(15)
|
|
$
|
—
|
|
$
|
438
|
|
Enterprise
|
|
$
|
651
|
|
$
|
—
|
|
$
|
651
|
|
$
|
321
|
|
$
|
—
|
|
$
|
—
|
|
$
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
$
|
223
|
|
$
|
—
|
|
$
|
223
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
223
|
|
Wholesale
|
|
$
|
89
|
|
$
|
—
|
|
$
|
89
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
89
|
|
Enterprise
|
|
$
|
134
|
|
$
|
—
|
|
$
|
134
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin
America
|
|
$
|
195
|
|
$
|
—
|
|
$
|
195
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
195
|
|
Wholesale
|
|
$
|
41
|
|
$
|
—
|
|
$
|
41
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
41
|
|
Enterprise
|
|
$
|
154
|
|
$
|
—
|
|
$
|
154
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CNS
Revenue
|
|
$
|
1,443
|
|
$
|
—
|
|
$
|
1,443
|
|
$
|
400
|
|
$
|
(15)
|
|
$
|
—
|
|
$
|
1,828
|
|
Wholesale Voice
Services and Other
|
|
159
|
|
—
|
|
159
|
|
—
|
|
—
|
|
—
|
|
159
|
|
Total
Revenue
|
|
$
|
1,602
|
|
$
|
—
|
|
$
|
1,602
|
|
$
|
400
|
|
$
|
(15)
|
|
$
|
—
|
|
$
|
1,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Access
Costs
|
|
(618)
|
|
—
|
|
(618)
|
|
(115)
|
|
11
|
|
—
|
|
(722)
|
|
Network Related
Expenses
|
|
(298)
|
|
—
|
|
(298)
|
|
(58)
|
|
3
|
|
—
|
|
(353)
|
|
Selling, General and
Administrative Expenses
|
|
(263)
|
|
—
|
|
(263)
|
|
(95)
|
|
—
|
|
—
|
|
(358)
|
|
Add back: Non-Cash
Compensation Expenses
|
|
36
|
|
—
|
|
36
|
|
8
|
|
—
|
|
—
|
|
44
|
|
Add back: Non-Cash
Impairment
|
|
7
|
|
—
|
|
7
|
|
—
|
|
—
|
|
—
|
|
7
|
|
Subtract: Non-Cash
Stock-Based Bonus
|
|
(18)
|
|
—
|
|
(18)
|
|
—
|
|
—
|
|
—
|
|
(18)
|
|
Adjusted EBITDA
Including Acquisition-Related Expenses
|
|
$
|
448
|
|
$
|
—
|
|
$
|
448
|
|
$
|
140
|
|
$
|
(1)
|
|
$
|
—
|
|
$
|
587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
Costs
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Integration
Costs
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Total
Acquisition-Related Expenses
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
Excluding Acquisition-Related Expenses
|
|
$
|
448
|
|
$
|
—
|
|
$
|
448
|
|
$
|
140
|
|
$
|
(1)
|
|
$
|
—
|
|
$
|
587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures
|
|
$
|
189
|
|
$
|
—
|
|
$
|
189
|
|
$
|
208
|
|
$
|
—
|
|
$
|
—
|
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY2014 Pro Forma
Combined Company Results
|
($ in
millions)
|
|
Legacy Level
3
|
Add: Nov and Dec
Intercompany
Transactions
|
Standalone Level
3
|
Standalone
tw
|
Intercompany
Eliminations
|
Acquisition
Accounting
|
Total
|
Core Network
Services (CNS) Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
4,240
|
|
$
|
5
|
|
$
|
4,245
|
|
$
|
1,685
|
|
$
|
(58)
|
|
$
|
(1)
|
|
$
|
5,871
|
|
Wholesale
|
|
$
|
1,462
|
|
$
|
5
|
|
$
|
1,467
|
|
$
|
362
|
|
$
|
(58)
|
|
$
|
(1)
|
|
$
|
1,770
|
|
Enterprise
|
|
$
|
2,778
|
|
$
|
—
|
|
$
|
2,778
|
|
$
|
1,323
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
$
|
891
|
|
$
|
—
|
|
$
|
891
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
891
|
|
Wholesale
|
|
$
|
328
|
|
$
|
—
|
|
$
|
328
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
328
|
|
Enterprise
|
|
$
|
563
|
|
$
|
—
|
|
$
|
563
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin
America
|
|
$
|
779
|
|
$
|
—
|
|
$
|
779
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
779
|
|
Wholesale
|
|
$
|
165
|
|
$
|
—
|
|
$
|
165
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
165
|
|
Enterprise
|
|
$
|
614
|
|
$
|
—
|
|
$
|
614
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Network
Services
|
|
$
|
5,910
|
|
$
|
5
|
|
$
|
5,915
|
|
$
|
1,685
|
|
$
|
(58)
|
|
$
|
(1)
|
|
$
|
7,541
|
|
Wholesale Voice
Services and Other
|
|
582
|
|
—
|
|
582
|
|
—
|
|
—
|
|
|
|
582
|
|
Total
Revenue
|
|
$
|
6,492
|
|
$
|
5
|
|
$
|
6,497
|
|
$
|
1,685
|
|
$
|
(58)
|
|
$
|
(1)
|
|
$
|
8,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Access
Costs
|
|
(2,450)
|
|
(4)
|
|
(2,454)
|
|
(486)
|
|
46
|
|
—
|
|
(2,894)
|
|
Network Related
Expenses
|
|
(1,204)
|
|
(1)
|
|
(1,205)
|
|
(262)
|
|
11
|
|
—
|
|
(1,456)
|
|
Selling, General and
Administrative Expenses
|
|
(1,121)
|
|
—
|
|
(1,121)
|
|
(550)
|
|
—
|
|
—
|
|
(1,671)
|
|
Add
back: Non-Cash Compensation Expenses
|
|
72
|
|
—
|
|
72
|
|
96
|
|
—
|
|
—
|
|
168
|
|
Add back: Non-Cash
Impairment
|
|
1
|
|
—
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
Adjusted EBITDA
Including Acquisition-Related Expenses
|
|
$
|
1,790
|
|
$
|
—
|
|
$
|
1,790
|
|
$
|
483
|
|
$
|
(1)
|
|
$
|
(1)
|
|
$
|
2,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
Costs
|
|
$
|
22
|
|
$
|
—
|
|
$
|
22
|
|
$
|
90
|
|
$
|
—
|
|
$
|
—
|
|
$
|
112
|
|
Integration
Costs
|
|
57
|
|
—
|
|
57
|
|
3
|
|
—
|
|
—
|
|
60
|
|
Total
Acquisition-Related Expenses
|
|
$
|
79
|
|
$
|
—
|
|
$
|
79
|
|
$
|
93
|
|
$
|
—
|
|
$
|
—
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
Excluding Acquisition-Related Expenses
|
|
$
|
1,869
|
|
$
|
—
|
|
$
|
1,869
|
|
$
|
576
|
|
$
|
(1)
|
|
$
|
(1)
|
|
$
|
2,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures
|
|
$
|
847
|
|
$
|
—
|
|
$
|
847
|
|
$
|
408
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt is defined as total gross debt, including capital
leases from the Consolidated Balance Sheet.
Net Debt to Last Twelve Months (LTM) Pro Forma Adjusted
EBITDA Ratio is defined as debt, reduced by cash and cash
equivalents and divided by LTM Adjusted EBITDA Pro Forma to include
tw telecom results excluding acquisition-related expenses.
Level 3
Communications, Inc. and Consolidated Subsidiaries
|
Net Debt to Pro
Forma LTM Adjusted EBITDA Ratio as of December 31,
2014
|
($ in
millions)
|
|
|
|
Debt
|
$
|
11,366
|
|
Cash and Cash
Equivalents
|
(580)
|
|
Net Debt
|
$
|
10,786
|
|
Pro Forma LTM
Adjusted EBITDA
|
$
|
2,443
|
|
Net Debt to Pro Forma
LTM Adjusted EBITDA Ratio
|
4.4
|
|
tw telecom
Pursuant to Regulation G, the Company is hereby providing
definitions of tw telecom's non-GAAP financial metrics and
reconciliations to the most directly comparable GAAP measures.
The following describes and reconciles those financial measures
as reported under 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.
Management provides financial measures of tw telecom using U.S.
generally accepted accounting principles ("GAAP") as well as
adjustments to GAAP measures to describe its business trends,
including Modified EBITDA. Management believes that its definition
of Modified EBITDA is a standard measure of operating performance
and liquidity that is commonly reported and widely used by
analysts, investors, and other interested parties in the
telecommunications industry because it eliminates many differences
in financial, capitalization, and tax structures, as well as
non-cash and non-operating income or charges to earnings. Modified
EBITDA is not intended to replace operating income (loss), net
income (loss), cash flow, and other measures of financial
performance and liquidity reported in accordance with GAAP.
Management uses Modified EBITDA internally to assess on-going
operations and it is the basis for various financial covenants
contained in the Company's debt agreements and for operating
performance and liquidity. Modified EBITDA is reconciled to Net
Income (Loss), the most comparable GAAP measure for operating
performance within the Consolidated Operations Highlights.
In addition, management uses unlevered and levered free cash
flow, which measure the ability of M-EBITDA to cover capital
expenditures. The Company uses these cash flow definitions to
eliminate certain non-cash costs. Levered and unlevered free cash
flow are reconciled to Net Cash provided by operating
activities.
Modified EBITDA (or "M-EBITDA") is defined as net income
or loss before depreciation, amortization, accretion, impairment
charges and other income and losses, interest expense, debt
extinguishment costs, interest income, income tax expense or
benefit, cumulative effect of change in accounting principle, and
non-cash stock-based compensation expense. The Company defines
Modified EBITDA margin as M-EBITDA divided by total revenue.
Modified EBITDA
Metric
|
Q4
2014
|
(in
millions)
|
|
|
|
Net Loss
|
$
|
(60)
|
|
Income Tax
Benefit
|
(49)
|
|
Interest Expenses,
net of Interest Income
|
15
|
|
Non-Cash Interest
Expense and Deferred Debt Costs
|
—
|
|
Non-Cash Stock
Compensation
|
69
|
|
Depreciation,
Amortization, Accretion
|
93
|
|
M-EBITDA
|
$
|
68
|
|
Acquisition-related
expenses
|
88
|
|
M-EBITDA excluding
acquisition-related expenses
|
$
|
156
|
|
Total
Revenue
|
$
|
433
|
|
M-EBITDA Margin,
Normalized for acquisition-related expenses
|
36.1
|
%
|
Modified EBITDA
Metric
|
Q4
2013
|
(in
millions)
|
|
|
|
Net Income
|
$
|
15
|
|
Income Tax
Expense
|
13
|
|
Interest Expenses,
net of Interest Income
|
23
|
|
Non-Cash Interest
Expense and Deferred Debt Costs
|
2
|
|
Non-Cash Stock
Compensation
|
8
|
|
Depreciation,
Amortization, Accretion
|
80
|
|
M-EBITDA
|
$
|
141
|
|
Acquisition-related
expenses
|
—
|
|
M-EBITDA excluding
acquisition-related expenses
|
$
|
141
|
|
Total
Revenue
|
$
|
400
|
|
M-EBITDA Margin,
Normalized for acquisition-related expenses
|
35.2
|
%
|
Modified EBITDA
Metric
|
Year Ended
December 31, 2014
|
(in
millions)
|
|
|
|
Net Loss
|
$
|
(26)
|
|
Income Tax
Benefit
|
(20)
|
|
Interest Expenses,
net of Interest Income
|
85
|
|
Non-Cash Interest
Expense and Deferred Debt Costs
|
5
|
|
Debt Extinguishment
Costs
|
1
|
|
Non-Cash Stock
Compensation
|
96
|
|
Depreciation,
Amortization, Accretion
|
345
|
|
M-EBITDA
|
$
|
486
|
|
Acquisition-related
expenses
|
93
|
|
M-EBITDA excluding
acquisition-related expenses
|
$
|
579
|
|
Total
Revenue
|
$
|
1,685
|
|
|
|
|
M-EBITDA Margin,
Normalized for acquisition-related expenses
|
34.4
|
%
|
Modified EBITDA
Metric
|
Year Ended
December 31, 2013
|
(in
millions)
|
|
|
|
Net Income
|
$
|
36
|
|
Income Tax
Expense
|
34
|
|
Interest Expenses,
net of Interest Income
|
85
|
|
Non-Cash Interest
Expense and Deferred Debt Costs
|
11
|
|
Debt Extinguishment
Costs
|
39
|
|
Non-Cash Stock
Compensation
|
39
|
|
Depreciation,
Amortization, Accretion
|
309
|
|
M-EBITDA
|
$
|
553
|
|
Acquisition-related
expenses
|
—
|
|
M-EBITDA excluding
acquisition-related expenses
|
$
|
553
|
|
Total
Revenue
|
$
|
1,564
|
|
|
|
|
M-EBITDA Margin,
Normalized for acquisition-related expenses
|
35.3
|
%
|
Unlevered free cash flow is defined as Modified EBITDA
less capital expenditures, which is reconciled to Net Cash provided
by (used in) operating activities.
Levered free cash flow is defined as Modified EBITDA less
capital expenditures and net interest expense from operations
(excluding debt extinguishment costs, non-cash interest expense and
deferred debt costs), which is reconciled to Net Cash provided by
(used in) operating activities.
Unlevered Cash
Flow and Levered Free Cash Flow
|
|
|
Three Months Ended
December 31, 2014
|
|
|
($ in
millions)
|
|
|
|
|
|
Modified
EBITDA
|
$
|
68
|
|
Less Capital
Expenditures
|
(114)
|
|
Unlevered Free Cash
Flow
|
(46)
|
|
Less Net Interest
Expense
|
(15)
|
|
Levered Free Cash
Flow
|
$
|
(61)
|
|
Acquisition-Related
Expenses
|
88
|
|
Levered Free Cash
Flow, before acquisition-related expenses
|
$
|
27
|
|
|
|
|
Levered Free Cash Flow,
before acquisition-related expenses
|
$
|
27
|
|
Capital
Expenditures
|
|
114
|
|
Income Tax
Benefit
|
|
49
|
|
Deferred Income
Taxes
|
|
(49)
|
|
Changes in Operating
Assets and Liabilities
|
|
(18)
|
|
Acquisition-Related
Expenses
|
|
(88)
|
|
Net Cash Provided
by Operating Activities
|
$
|
35
|
|
|
|
|
|
|
|
Unlevered Cash
Flow and Levered Free Cash Flow
|
|
|
Three Months Ended
December 31, 2013
|
|
|
($ in
millions)
|
|
|
|
|
|
Modified
EBITDA
|
$
|
141
|
|
Less Capital
Expenditures
|
(208)
|
|
Unlevered Free Cash
Flow
|
(67)
|
|
Less Net Interest
Expense
|
(23)
|
|
Levered Free Cash
Flow
|
$
|
(90)
|
|
Acquisition-Related
Expenses
|
—
|
|
Levered Free Cash
Flow, before acquisition-related expenses
|
$
|
(90)
|
|
|
|
|
|
Levered Free Cash Flow,
before acquisition-related expenses
|
$
|
(90)
|
|
Capital
Expenditures
|
|
208
|
|
Income Tax
Expense
|
|
(13)
|
|
Deferred Income
Taxes
|
|
11
|
|
Changes in Operating
Assets and Liabilities
|
|
(8)
|
|
Acquisition-Related
Expenses
|
|
-
|
|
Net Cash Provided
by Operating Activities
|
$
|
108
|
|
|
|
|
|
|
|
Unlevered Cash
Flow and Levered Free Cash Flow
|
|
|
Year Ended
December 31, 2014
|
|
|
($ in
millions)
|
|
|
|
|
|
Modified
EBITDA
|
$
|
486
|
|
Less Capital
Expenditures
|
(416)
|
|
Unlevered Free Cash
Flow
|
70
|
|
Less Net Interest
Expense
|
(85)
|
|
Levered Free Cash
Flow
|
$
|
(15)
|
|
Acquisition-Related
Expenses
|
93
|
|
Levered Free Cash
Flow, before acquisition-related expenses
|
$
|
78
|
|
|
|
|
|
Levered Free Cash Flow,
before acquisition-related expenses
|
$
|
78
|
|
Capital
Expenditures
|
|
416
|
|
Income Tax
Benefit
|
|
20
|
|
Deferred Income
Taxes
|
|
(22)
|
|
Changes in Operating
Assets and Liabilities
|
|
(17)
|
|
Acquisition-Related
Expenses
|
|
(93)
|
|
Net Cash Provided
by Operating Activities
|
$
|
382
|
|
|
|
|
|
|
|
Unlevered Cash
Flow and Levered Free Cash Flow
|
|
|
Year Ended
December 31, 2013
|
|
|
($ in
millions)
|
|
|
|
|
|
Modified
EBITDA
|
$
|
553
|
|
Less Capital
Expenditures
|
(502)
|
|
Unlevered Free Cash
Flow
|
51
|
|
Less Net Interest
Expense
|
(85)
|
|
Levered Free Cash
Flow
|
$
|
(34)
|
|
Acquisition-Related
Expenses
|
—
|
|
Levered Free Cash
Flow, before acquisition-related expenses
|
$
|
(34)
|
|
|
|
|
|
Levered Free Cash Flow,
before acquisition-related expenses
|
$
|
(34)
|
|
Capital
Expenditures
|
|
502
|
|
Income Tax
Expense
|
|
(34)
|
|
Deferred Income
Taxes
|
|
31
|
|
Changes in Operating
Assets and Liabilities
|
|
(26)
|
|
Acquisition-Related
Expenses
|
|
-
|
|
Net Cash Provided
by Operating Activities
|
$
|
439
|
|
|
|
|
|
|
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated
Statements of Operations
|
(unaudited)
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Year Ended
|
(dollars in millions,
except per share data)
|
December
31,
|
September
30,
|
December
31,
|
|
December
31,
|
December
31,
|
2014
|
2014
|
2013
|
|
2014
|
2013
|
|
|
|
|
|
|
|
Revenue
|
$ 1,914
|
$ 1,629
|
$ 1,602
|
|
$ 6,777
|
$ 6,313
|
|
|
|
|
|
|
|
Costs and
Expenses
|
|
|
|
|
|
|
Network Access
Costs
|
695
|
607
|
618
|
|
2,529
|
2,471
|
Network Related
Expenses
|
345
|
307
|
298
|
|
1,246
|
1,214
|
Depreciation and
Amortization
|
250
|
187
|
204
|
|
808
|
800
|
Selling, General and
Administrative Expenses
|
393
|
266
|
263
|
|
1,181
|
1,162
|
Total Costs and
Expenses
|
1,683
|
1,367
|
1,383
|
|
5,764
|
5,647
|
|
|
|
|
|
|
|
Operating
Income
|
231
|
262
|
219
|
|
1,013
|
666
|
|
|
|
|
|
|
|
Other Income
(Expense):
|
|
|
|
|
|
|
Interest
income
|
—
|
1
|
—
|
|
1
|
—
|
Interest
expense
|
(195)
|
(159)
|
(148)
|
|
(654)
|
(649)
|
Loss on modification
and extinguishment of debt, net
|
(53)
|
—
|
(67)
|
|
(53)
|
(84)
|
Other, net
|
(20)
|
(11)
|
9
|
|
(69)
|
(4)
|
Total Other
Expense
|
(268)
|
(169)
|
(206)
|
|
(775)
|
(737)
|
|
|
|
|
|
|
|
Income (Loss) Before
Income Taxes
|
(37)
|
93
|
13
|
|
238
|
(71)
|
|
|
|
|
|
|
|
Income Tax (Expense)
Benefit
|
103
|
(8)
|
1
|
|
76
|
(38)
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
$ 66
|
$ 85
|
$ 14
|
|
$ 314
|
$ (109)
|
|
|
|
|
|
|
|
Basic Earnings per
Common Share:
|
|
|
|
|
|
|
Net Income (Loss) per
Share
|
$ 0.22
|
$ 0.36
|
$ 0.06
|
|
$ 1.23
|
$ (0.49)
|
Weighted-Average
Shares Outstanding (in thousands)
|
305,842
|
238,265
|
225,840
|
|
254,428
|
221,198
|
|
|
|
|
|
|
|
Diluted Earnings per
Common Share:
|
|
|
|
|
|
|
Net Income (Loss) per
Share
|
$ 0.21
|
$ 0.35
|
$ 0.06
|
|
$ 1.21
|
$ (0.49)
|
Weighted-Average
Shares Outstanding (in thousands)
|
309,597
|
242,464
|
228,827
|
|
258,483
|
221,198
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated
Balance Sheets
|
(unaudited)
|
|
|
|
|
|
December
31,
|
September
30,
|
December
31,
|
(dollars in
millions)
|
2014
|
2014
|
2013
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents
|
$ 580
|
$ 729
|
$ 631
|
Restricted cash and
securities
|
7
|
1,020
|
7
|
Receivables, less
allowances for doubtful accounts
|
737
|
678
|
673
|
Other
|
165
|
173
|
143
|
Total Current
Assets
|
1,489
|
2,600
|
1,454
|
|
|
|
|
Property, Plant and
Equipment, net
|
9,881
|
8,268
|
8,240
|
Restricted Cash and
Securities
|
20
|
21
|
23
|
Goodwill
|
7,668
|
2,570
|
2,577
|
Other Intangibles,
net
|
1,414
|
154
|
205
|
Other
Assets
|
475
|
370
|
375
|
Total
Assets
|
$ 20,947
|
$ 13,983
|
$ 12,874
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$ 664
|
$ 607
|
$ 625
|
Current portion of
long-term debt
|
349
|
502
|
31
|
Accrued payroll and
employee benefits
|
273
|
165
|
209
|
Accrued
interest
|
174
|
184
|
160
|
Current portion of
deferred revenue
|
287
|
244
|
253
|
Other
|
167
|
151
|
168
|
Total Current
Liabilities
|
1,914
|
1,853
|
1,446
|
|
|
|
|
Long-Term Debt, less
current portion
|
10,984
|
8,856
|
8,331
|
Deferred Revenue,
less current portion
|
921
|
877
|
906
|
Other
Liabilities
|
765
|
749
|
780
|
Total
Liabilities
|
14,584
|
12,335
|
11,463
|
|
|
|
|
Stockholders'
Equity
|
6,363
|
1,648
|
1,411
|
Total Liabilities and
Stockholders' Equity
|
$ 20,947
|
$ 13,983
|
$ 12,874
|
LEVEL 3
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
Consolidated
Statements of Cash Flows
|
(unaudited)
|
|
|
|
|
|
Three Months
Ended
|
|
December
31,
|
September
30,
|
December
31,
|
(dollars in
millions)
|
2014
|
2014
|
2013
|
|
|
|
|
Cash Flows from
Operating Activities:
|
|
|
|
Net income
|
$ 66
|
$ 85
|
$ 14
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation and
amortization
|
250
|
187
|
204
|
Loss on
impairment
|
18
|
—
|
7
|
Non-cash compensation
expense attributable to stock awards
|
25
|
22
|
36
|
Loss on modification
and extinguishment of debt, net
|
53
|
—
|
67
|
Accretion of debt
discount and amortization of debt issuance costs
|
9
|
10
|
9
|
Accrued interest on
long-term debt
|
(12)
|
18
|
(10)
|
Non-cash tax
adjustments
|
2
|
(5)
|
(37)
|
Deferred income
taxes
|
(118)
|
(12)
|
(34)
|
Gain on sale of
property, plant and equipment and other assets
|
—
|
(2)
|
(1)
|
Other, net
|
25
|
(19)
|
(7)
|
Changes in working
capital items:
|
|
|
|
Receivables
|
34
|
24
|
64
|
Other current
assets
|
33
|
(1)
|
37
|
Payables
|
(56)
|
(17)
|
(10)
|
Deferred
revenue
|
35
|
(7)
|
46
|
Other current
liabilities
|
32
|
38
|
1
|
Net Cash Provided by
Operating Activities
|
396
|
321
|
386
|
|
|
|
|
Cash Flows from
Investing Activities:
|
|
|
|
Capital
expenditures
|
(302)
|
(204)
|
(189)
|
Change in restricted
cash and securities, net
|
—
|
(12)
|
(1)
|
Investment in tw
telecom, net of cash acquired
|
(167)
|
—
|
—
|
Proceeds from sale of
property, plant and equipment and other assets
|
—
|
2
|
1
|
Other
|
—
|
(1)
|
—
|
Net Cash Used in
Investing Activities
|
(469)
|
(215)
|
(189)
|
|
|
|
|
Cash Flows from
Financing Activities:
|
|
|
|
Long-term debt
borrowings, net of issuance costs
|
590
|
(1)
|
912
|
Payments on and
repurchases of long-term debt and capital leases
|
(663)
|
(2)
|
(986)
|
Net Cash Used in
Financing Activities
|
(73)
|
(3)
|
(74)
|
|
|
|
|
Effect of Exchange
Rates on Cash and Cash Equivalents
|
(3)
|
(11)
|
1
|
|
|
|
|
Net Change in Cash
and Cash Equivalents
|
(149)
|
92
|
124
|
|
|
|
|
Cash and Cash
Equivalents at Beginning of Period
|
729
|
637
|
507
|
|
|
|
|
Cash and Cash
Equivalents at End of Period
|
$ 580
|
$ 729
|
$ 631
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
Cash interest
paid
|
$ 190
|
$ 131
|
$ 161
|
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