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Level 3 Reports First Quarter 2011 Results

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 and principal repayments.

There are material limitations to using Free Cash Flow to measure the company against some of its competitors as 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. This financial measure 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 March 31, 2011 Unlevered
($ in millions)         Cash Flow         Free Cash Flow
 
Net Cash Provided by Operating Activities $0 $0
Capital Expenditures ($115) ($115)
Cash Interest Paid $156 N/A
Interest Income ($-) N/A
Total $41 ($115)
                     
Unlevered Cash Flow and Free Cash Flow                
Three Months Ended December 31, 2010 Unlevered
($ in millions)         Cash Flow         Free Cash Flow
 
Net Cash Provided by Operating Activities $190 $190
Capital Expenditures ($117) ($117)
Cash Interest Paid $111 N/A
Interest Income ($1) N/A
Total $183 $73
               
Unlevered Cash Flow and Free Cash Flow          
Three Months Ended March 31, 2010 Unlevered      
($ in millions)           Cash Flow       Free Cash Flow
 
Net Cash Used in Operating Activities ($8) ($8)
Capital Expenditures ($82) ($82)
Cash Interest Paid $141 N/A
Interest Income ($-) N/A
Total $51 ($90)
                 

Attachment #1

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
 
Three Months Ended
March 31, December 31, March 31,
(dollars in millions, except per share data)       2011 2010 2010
 
Revenue:
Communications $ 914 $ 904 $ 900
Coal Mining   15     17     10  
Total Revenue 929 921 910
 

Costs and Expenses (exclusive of depreciation and

amortization shown separately below):
Cost of Revenue:
Communications 357 352 371
Coal Mining   15     13     12  
Total Cost of Revenue 372 365 383
 
Depreciation and Amortization 204 213 225
Selling, General and Administrative 357 347 343
Restructuring Charges   -     -     -  
Total Costs and Expenses   933     925     951  
 
Operating Loss (4 ) (4 ) (41 )
 
Other Income (Expense):
Interest income - 1 -
Interest expense (157 ) (148 ) (149 )
Loss on extinguishment of debt (20 ) - (54 )
Other, net   3     6     7  
Total Other Expense   (174 )   (141 )   (196 )
 
Loss Before Income Taxes (178 ) (145 ) (237 )
 
Income Tax (Expense) Benefit   (27 )   93     (1 )
 
Net Loss $ (205 ) $ (52 ) $ (238 )
 
 
Basic and Diluted Loss per Share $ (0.12 ) $ (0.03 ) $ (0.14 )
 
Shares Used to Compute Basic and Diluted Loss per Share
(in thousands)   1,681,184     1,668,682     1,647,407  
                                     
 
Attachment #2
 
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
           
 
March 31, December 31,
(dollars in millions)       2011       2010
 

Assets

 
Current Assets:
Cash and cash equivalents $ 1,079 $ 616
Restricted cash and securities 3 2
Receivables, less allowances for doubtful accounts
of $18 and $17, respectively 295 264
Other   109           90  
Total Current Assets 1,486 972
 
Property, Plant and Equipment, net 5,276 5,302
Restricted Cash and Securities 120 120
Goodwill 1,429 1,427
Other Intangibles, net 347 371
Other Assets   144           163  
Total Assets $ 8,802         $ 8,355  
 
Liabilities and Stockholders' Deficit
 
Current Liabilities:
Accounts payable $ 328 $ 329
Current portion of long-term debt 449 180
Accrued payroll and employee benefits 39 84
Accrued interest 134 146
Current portion of deferred revenue 151 151
Other   79           66  
Total Current Liabilities 1,180 956
 
Long-Term Debt, less current portion 6,618 6,268
Deferred Revenue, less current portion 737 736
Other Liabilities   532           552  
Total Liabilities 9,067 8,512
 
Stockholders' Deficit   (265 )         (157 )
Total Liabilities and Stockholders' Deficit $ 8,802         $ 8,355  
                         
 
Attachment #3
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
 
        Three Months Ended
March 31,       December 31,       March 31,
(dollars in millions)         2011       2010       2010
 
Cash Flows from Operating Activities:
Net loss $ (205 ) $ (52 ) $ (238 )
 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 204 213 225
Non-cash compensation expense attributable to stock awards 25 17 16
Loss on extinguishment of debt, net 20 - 54
Accretion of debt discount and amortization of debt issuance costs 13 15 14
Accrued interest on long-term debt (12 ) 22 (6 )
Deferred income taxes 26 (92 ) -
Change in fair value of embedded derivative - - (2 )
Gain on sale of property, plant and equipment and other assets (2 ) (2 ) -
Other, net 2 (2 ) (7 )
Changes in working capital items:
Receivables (29 ) 52 17
Other current assets (13 ) 13 (7 )
Payables (4 ) (8 ) (17 )
Deferred revenue (3 ) (1 ) (16 )

Other current liabilities

  (22 )         15           (41 )
Net Cash Provided by (Used in) Operating Activities - 190 (8 )
 
Cash Flows from Investing Activities:
Capital expenditures (115 ) (117 ) (82 )
Proceeds from sale of property, plant and equipment and other assets 2 2 -
Increase in restricted cash and securities, net   (1 )         -           -  
Net Cash Used in Investing Activities (114 ) (115 ) (82 )
 
Cash Flows from Financing Activities:
Long term debt borrowings, net of issuance costs 772 25 613
Payments on and repurchases of long-term debt   (198 )         (1 )         (714 )
Net Cash Provided by (Used in) Financing Activities 574 24 (101 )
 
Effect of Exchange Rates on Cash and Cash Equivalents   3           (1 )         (6 )
 
Net Change in Cash and Cash Equivalents 463 98 (197 )
 
Cash and Cash Equivalents at Beginning of Period   616           518           836  
 
Cash and Cash Equivalents at End of Period $ 1,079         $ 616         $ 639  
 
Supplemental Disclosure of Cash Flow Information:
Cash interest paid $ 156 $ 111 $ 141
Income taxes paid, net of refunds         $ -         $ -         $ (2 )
 




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