Quantcast
Last updated on April 24, 2014 at 0:18 EDT

Level 3 Reports Fourth Quarter and Full Year 2012 Results

February 12, 2013

BROOMFIELD, Colo., Feb. 12, 2013 /PRNewswire/ — Level 3 Communications, Inc. (NYSE: LVLT) reported total revenue of $1.614 billion for the fourth quarter 2012, compared to $1.590 billion for the third quarter 2012 and $1.579 billion for the fourth quarter 2011. For the full year 2012, total revenue was $6.376 billion, compared to $6.318 billion pro forma for the full year 2011.

(Logo: http://photos.prnewswire.com/prnh/20111004/LA77008LOGO)

The net loss for the fourth quarter 2012 was $0.16 per share, excluding a loss on the extinguishment of debt of $0.23 per share and a benefit from special items recognized in the fourth quarter 2012 of $0.13 per share. The net loss for the fourth quarter 2012 was $0.26 per share prior to excluding the effects of the loss on extinguishment of debt and the benefit from the special items. The net loss for the fourth quarter 2012 was $56 million, compared to a net loss of $166 million for the third quarter 2012 and a net loss of $163 million for the fourth quarter 2011.

Adjusted EBITDA was $407 million in the fourth quarter 2012, and included a $27 million net benefit from a non-cash reduction in asset retirement obligations (ARO) of $47 million, partially offset by severance and related charges of $20 million. This compared to $372 million in the third quarter 2012 and $271 million in the fourth quarter 2011. For the full year 2012, excluding the net benefit recognized in the fourth quarter 2012, Adjusted EBITDA was up 18 percent compared to the full year 2011 pro forma.

“Level 3 continued to grow revenue in the fourth quarter, and we see the opportunity to improve revenue growth in 2013,” said James Crowe, CEO of Level 3. “We made good progress with integration throughout 2012, invested in the business for future growth, and firmed up our balance sheet with over $4.5 billion of capital markets transactions last year, positioning us well for 2013.”

    Financial Results
    -----------------

    Metric                                           Fourth Quarter                     Third            Fourth Quarter    Full   Full Year
    ($ in millions)                                            2012              Quarter 2012                      2011    Year       2011,
                                                                                                                             2012         Pro
                                                                                                                                     Forma(3)
    ---                                                                                                                     ---    --------
    Core Network Services
     Revenue                                                 $1,424                    $1,395                    $1,368  $5,587      $5,418
    ---------------------                                    ------                    ------                    ------  ------      ------
    Wholesale Voice
     Services and Other
     Revenue                                                   $190                      $195                      $211    $789        $900
    -------------------                                        ----                      ----                      ----    ----        ----
    Total Revenue                                            $1,614                    $1,590                    $1,579  $6,376      $6,318
    -------------                                            ------                    ------                    ------  ------      ------
    Adjusted EBITDA(1)                                         $407                      $372                      $271  $1,459      $1,216
    -----------------                                          ----                      ----                      ----  ------      ------
    Capital Expenditures                                       $198                      $227                      $148    $743        $624
    --------------------                                       ----                      ----                      ----    ----        ----
    Unlevered Cash Flow(1)                                     $325                       $77                      $202    $528        $508
    ---------------------                                      ----                       ---                      ----    ----        ----
    Free Cash Flow(1)                                          $202                     ($157)                      $41   ($165)      ($202)
    ----------------                                           ----                     -----                       ---   -----       -----
    Gross Margin(1)                                            59.4%                     59.6%                     58.2%   59.2%       58.0%
    --------------                                             ----                      ----                      ----    ----        ----
    Adjusted EBITDA
     Margin(1)                                                 25.2%                     23.4%                     17.2%   22.9%       19.2%
    ---------------                                            ----                      ----                      ----    ----        ----
    Net Loss(2)                                                 $56                      $166                      $235    $422        $875
    ----------                                                  ---                      ----                      ----    ----        ----
    Net Loss per Share(2)                                     $0.26                     $0.76                     $1.15   $1.96       $4.28
    --------------------                                      -----                     -----                     -----   -----       -----
    (1) See schedule of non-GAAP metrics for definition and reconciliation to GAAP measures.
    ----------------------------------------------------------------------------------------
    (2) Net loss excludes the results attributable to the discontinued coal business in the fourth quarter 2011.
    ------------------------------------------------------------------------------------------------------------
    (3) References to "pro forma" figures assume the Global Crossing acquisition took place on January 1, 2011.
    -----------------------------------------------------------------------------------------------------------
    Revenue
    -------
    Revenue                                      Fourth Quarter 2012        Third Quarter 2012                    Percent   Fourth Quarter 2011                 Percent   Full Year 2012 Full Year 2011 Pro Forma
                                                                                                                                                                                                           (1)(3)                Percent
    ($ in millions)                                                                               Change, Constant Currency                     Change, Constant Currency                                           Change As Reported (4)
    --------------                                                                         ---                                              ---                                                               --- ----------------------
    North America                                             $1,024                    $1,008                          1%                 $976                       5%          $4,026                   $3,828                      5%
    -------------                                             ------                    ------                        ---                  ----                     ---           ------                   ------                    ---
    Wholesale                                                   $388                      $381                          2%                 $388                       -           $1,532                   $1,555                    (2%)
    ---------                                                   ----                      ----                        ---                  ----                     ---           ------                   ------                    ---
    Enterprise                                                  $636                      $627                          1%                 $588                       8%          $2,494                   $2,273                     10%
    ----------                                                  ----                      ----                        ---                  ----                     ---           ------                   ------                    ---

    EMEA                                                        $217                      $210                          1%                 $224                     (3%)            $860                     $924                    (7%)
    ----                                                        ----                      ----                        ---                  ----                     ---             ----                     ----                    ---
    Wholesale                                                    $88                       $89                        (3%)                  $94                     (6%)            $360                     $392                    (8%)
    ---------                                                    ---                       ---                        ---                   ---                     ---             ----                     ----                    ---
    Enterprise                                                   $87                       $80                          5%                  $80                       9%            $327                     $310                      6%
    ----------                                                   ---                       ---                        ---                   ---                     ---             ----                     ----                    ---
    UK Government                                                $42                       $41                        --%                  $50                    (17%)            $173                     $222                   (22%)
    -------------                                                ---                       ---                        ---                   ---                    ----             ----                     ----                   ----

    Latin America                                               $183                      $177                          5%                 $168                      14%            $701                     $666                      5%
    -------------                                               ----                      ----                        ---                  ----                     ---             ----                     ----                    ---
    Wholesale                                                    $37                       $36                          6%                  $35                      11%            $140                     $151                    (7%)
    ---------                                                    ---                       ---                        ---                   ---                     ---             ----                     ----                    ---
    Enterprise                                                  $146                      $141                          4%                 $133                      15%            $561                     $515                      9%
    ----------                                                  ----                      ----                        ---                  ----                     ---             ----                     ----                    ---

    Total CNS Revenue                                         $1,424                    $1,395                          2%               $1,368                       5%          $5,587                   $5,418                      3%
    -----------------                                         ------                    ------                        ---                ------                     ---           ------                   ------                    ---
    Wholesale                                                   $513                      $506                          1%                 $517                     --%          $2,032                   $2,098                    (3%)
    ---------                                                   ----                      ----                        ---                  ----                     ---           ------                   ------                    ---
    Enterprise(2)                                               $911                      $889                          2%                 $851                       8%          $3,555                   $3,320                      7%
    ------------                                                ----                      ----                        ---                  ----                     ---           ------                   ------                    ---

    (1) See schedule of non-GAAP metrics for definition and reconciliation to GAAP measures.
    ----------------------------------------------------------------------------------------
    (2) Includes EMEA UK Government
    -------------------------------
    (3) References to "pro forma" figures assume the Global Crossing acquisition took place on January 1, 2011.
    -----------------------------------------------------------------------------------------------------------
    (4) As Reported comparison measures current period results against pro forma results from full year 2011
    --------------------------------------------------------------------------------------------------------

Core Network Services Revenue
Core Network Services (CNS) revenue grew sequentially to $1.424 billion in the fourth quarter 2012, increasing approximately 1.8 percent on a constant currency basis.

“CNS revenue performance strengthened this quarter as expected, with overall CNS revenue growth on a constant currency basis of 1.8 percent sequentially and 4.7 percent year-over-year,” said Sunit Patel, executive vice president and CFO of Level 3. “In particular, on a constant currency basis, global CNS enterprise revenue growth improved this quarter, growing 2.2 percent sequentially, up from 1.5 percent sequential growth in the third quarter 2012, and growing 7.8 percent year-over-year.”

For the full year 2012, CNS revenue grew to $5.587 billion, compared to $5.418 billion for full year 2011 pro forma.

Deferred Revenue
The deferred revenue balance was $1.138 billion at the end of the fourth quarter 2012, compared to $1.101 billion at the end of the third quarter 2012 and $1.149 billion at the end of the fourth quarter 2011.

Cost of Revenue
Cost of revenue for the fourth quarter 2012 was $655 million, compared to $642 million in the third quarter 2012 and $660 million in the fourth quarter 2011. For the full year 2012, cost of revenue decreased to $2.602 billion, compared to $2.655 billion for the full year 2011 pro forma.

For the fourth quarter 2012, gross margin was 59.4 percent, compared to 59.6 percent for the third quarter 2012 and 58.2 percent for the fourth quarter 2011.

Gross margin increased to 59.2 percent for the full year 2012, compared to 58.0 percent for the full year 2011 pro forma.

Selling, General and Administrative (SG&A) Expenses
Excluding non-cash compensation expense, SG&A expenses were $552 million for the fourth quarter 2012, which included a $47 million benefit from a reduction in the estimated cost of asset retirement obligations (ARO) under real estate leases and right-of-way agreements and a $20 million charge for severance and related expenses. SG&A expenses were $576 million in the third quarter 2012 and $648 million in the fourth quarter 2011.

SG&A expenses, including non-cash compensation expense, were $585 million for the fourth quarter 2012, compared to $625 million in the third quarter 2012 and $681 million in the fourth quarter 2011. Non-cash compensation expense was $33 million, $49 million and $33 million for the fourth quarter 2012, the third quarter 2012 and the fourth quarter 2011, respectively.

For the full year 2012, excluding non-cash compensation expense, SG&A was $2.315 billion, compared to $2.447 billion for the full year 2011 pro forma.

Adjusted EBITDA
For the fourth quarter 2012, Adjusted EBITDA was $407 million, which included the $27 million net benefit of the ARO adjustment and offsetting severance charges incurred during the quarter. Also in the fourth quarter 2012, the company recognized higher than expected healthcare costs, entered into a settlement to resolve a longstanding dispute with a large carrier, and was affected by Superstorm Sandy for a total of approximately $15 million.

Adjusted EBITDA was $372 million in the third quarter 2012 and $271 million in the fourth quarter 2011.

For the full year 2012, Adjusted EBITDA was $1.459 billion. Excluding the $27 million net benefit from special items recognized in the fourth quarter 2012, Adjusted EBITDA grew 18 percent compared to the full year 2011 pro forma.

Adjusted EBITDA margin was 23.5 percent excluding the special items, compared to 23.4 percent for the third quarter 2012 and 17.2 percent in the fourth quarter 2011.

For the full year 2012, Adjusted EBITDA margin was 22.5 percent excluding the special items, compared to 19.2 percent for the full year 2011 pro forma.

Cash Flow and Capital Markets Transactions
During the fourth quarter 2012, Unlevered Cash Flow was $325 million, compared to $77 million for the third quarter 2012 and $202 million for the fourth quarter 2011.

Free Cash Flow was positive $202 million for the fourth quarter 2012, compared to negative $157 million in the third quarter 2012, and positive $41 million for the fourth quarter 2011.

For the full year 2012, Unlevered Cash Flow was $528 million, compared to $508 million in 2011 pro forma. Free Cash Flow was negative $165 million for the full year 2012, compared to negative $202 million for the full year 2011 pro forma.

Capital expenditures were $198 million for the fourth quarter 2012, compared to $227 million for the third quarter 2012 and $148 million for the fourth quarter 2011. For the full year 2012, capital expenditures were $743 million, approximately 12 percent of total revenue, compared to $624 million for the full year 2011 pro forma.

In Oct. 2012, Level 3 Financing refinanced its existing $650 million Tranche B II and $550 million Tranche B III Term Loans, each maturing in 2018, through the creation of a new Tranche B-II 2019 Term Loan of $1.2 billion, maturing in 2019. The company recognized a loss of $50 million in the fourth quarter 2012 as a result of this transaction.

As of December 31, 2012, the company had cash of approximately $979 million.

Integration Update
“In 2012, we took a deliberate and careful approach in bringing Global Crossing and Level 3 together to ensure we maintained the excellent customer service capabilities we’ve worked hard to build over the last several years,” said Jeff Storey, President and COO of Level 3. “We completed several milestones in support of a unified customer experience in 2012, and our customer satisfaction scores improved over the course of last year.”

“With the progress we made throughout the year and the additional milestones we reached in the fourth quarter, we felt comfortable taking additional cost reduction actions in the fourth quarter, reducing our workforce by approximately 4 percent and beginning the process to exit office locations. At the same time, we made investments for growth by increasing our sales force, putting additional customer buildings on-net throughout our global footprint, and launching additional capabilities to our Managed Services, Managed Security and Professional Services product offerings.”

“As we look to 2013, we remain focused on revenue growth in all regions, and continuing to drive additional cost efficiencies throughout the business.”

2013 Business Outlook
“Overall for 2013, we expect to see stronger sequential CNS revenue growth and continued double digit Adjusted EBITDA growth,” said Patel.

“For the first quarter 2013, we expect to see a slight decline in CNS revenue on a sequential basis, due to the typical reversal in the seasonally strong fourth quarter revenue. Adjusting for the special items in the fourth quarter, with the expected decline in CNS revenue and increase in payroll taxes, we expect Adjusted EBITDA to be roughly flat in the first quarter 2013 compared to the fourth quarter 2012.”

“For the remainder of 2013, we generally expect sequential CNS revenue growth to be stronger compared to 2012. We expect low double digit percentage growth in Adjusted EBITDA, compared to full year 2012 reported Adjusted EBITDA of $1.459 billion. We expect to be Free Cash Flow positive for the full year, excluding interest rate swap obligations.”

“GAAP interest expense is expected to be approximately $665 million, and net cash interest expense is expected to be approximately $645 million for the full year 2013. Capital expenditures are expected to be approximately 12 percent of total revenue for the full year 2013. Depreciation and Amortization is expected to be approximately $770 million for the full year 2013.”

“Consistent with previous years, we expect a heavier use of cash in the first quarter 2013, primarily due to higher sequential cash interest expense, which is expected to be approximately $70 million greater in the first quarter 2013 compared to the fourth quarter 2012, as well as our annual bonus payments and other working capital requirements.”

2013 Revenue Reporting
“At the beginning of each year, we assess our reporting to ensure our external disclosure best reflects the business,” said Patel. “We are maintaining our current reporting categories in 2013, but making some adjustments between current geographic and channel reporting categories.”

“To conform Global Crossing reporting to a consistent basis across the company, we have reallocated revenue to more accurately reflect the revenue attribution by region. In the fourth quarter 2012 pro forma for this change, $12 million of CNS revenue from North America would have been reported in our other two regions, with $11 million reported in EMEA and $1 million reported in Latin America.”

“Additionally, we made some minor customer channel changes, and reallocated CNS voice services revenue of about $33 million attributable to our reseller channel to Wholesale Voice Services and Other revenue.”

Pro forma for these changes for the third and fourth quarter 2012, Core Network Services revenue was:

    CNS Revenue(1)                                            Fourth                     Third                    Percent        Percent
    ($ in millions)                                          Quarter                   Quarter                    Change,        Change,
                                                                2012                      2012                         As       Constant
                                                                                                                   Reported       Currency
    ---                                                                                    ---                   --------      ---------
    North America                                               $979                      $963                          2%             2%
    -------------                                               ----                      ----                        ---            ---
    Wholesale                                                   $392                      $386                          2%             2%
    ---------                                                   ----                      ----                        ---            ---
    Enterprise                                                  $587                      $577                          2%             1%
    ----------                                                  ----                      ----                        ---            ---

    EMEA                                                        $228                      $223                          2%             1%
    ----                                                        ----                      ----                        ---            ---
    Wholesale                                                    $87                       $87                        --%           (3%)
    ---------                                                    ---                       ---                        ---            ---
    Enterprise                                                   $99                       $94                          5%             4%
    ----------                                                   ---                       ---                        ---            ---
    UK Government                                                $42                       $42                        --%            -%
    -------------                                                ---                       ---                        ---            ---

    Latin America                                               $184                      $179                          3%             4%
    -------------                                               ----                      ----                        ---            ---
    Wholesale                                                    $41                       $40                          3%             4%
    ---------                                                    ---                       ---                        ---            ---
    Enterprise                                                  $143                      $139                          3%             4%
    ----------                                                  ----                      ----                        ---            ---
    Total CNS Revenue                                         $1,391                    $1,365                          2%             2%
    -----------------                                         ------                    ------                        ---            ---
    Wholesale                                                   $520                      $513                          1%             1%
    ---------                                                   ----                      ----                        ---            ---
    Enterprise(2)                                               $871                      $852                          2%             2%
    ------------                                                ----                      ----                        ---            ---

    Wholesale Voice
     Services and Other
     Revenue                                                    $223                      $225                        (1%)           (1%)
    -------------------                                         ----                      ----                        ---            ---
    Total Revenue                                             $1,614                    $1,590                          2%             1%
    -------------                                             ------                    ------                        ---            ---
    (1) Results for previous quarters and the full year 2012 in this format can be found in the "Supplemental Schedule" on the
     Level 3 Investor Relations website
    --------------------------------------------------------------------------------------------------------------------------
    (2) Includes EMEA UK Government Revenue
    ---------------------------------------
    CNS Services
     Revenue(1)                                       Fourth                     Third       Percent
    ($ in millions)                                  Quarter                   Quarter       Change,
                                                        2012                      2012            As
                                                                                              Reported
    ---                                                                            ---      --------
    Colocation and
     Datacenter
     Services                                           $145                      $139             4%
    --------------                                      ----                      ----           ---
    Transport &
     Fiber                                              $494                      $491             1%
    -----------                                         ----                      ----           ---
    IP and Data
     Services                                           $512                      $502             2%
    -----------                                         ----                      ----           ---
    Voice Services
     (local and
     enterprise)                                        $240                      $233             3%
    --------------                                      ----                      ----           ---

    Total CNS
     Revenue                                          $1,391                    $1,365             2%
    ---------                                         ------                    ------           ---
    (1) Results for previous quarters and the full year 2012 in this format can be found in
     the "Supplemental Schedule" on the Level 3 Investor Relations website
    ---------------------------------------------------------------------------------------

The pro forma reporting for these changes for the full year 2012 by quarter is provided in the supplemental schedules on the Investor Relations section of the Level 3 website.

Conference Call and Web Site Information
Level 3 will hold a conference call to discuss the company’s fourth quarter and full year 2012 results today at 9 a.m. ET. The conference call will be broadcast live on Level 3′s Investor Relations website at http://lvlt.client.shareholder.com/events.cfm. Additional information regarding the fourth quarter and full year 2012 results, including the presentation that 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 can also be sent to Investor.Relations@Level3.com.

The call will be archived and available on Level 3′s Investor Relations website or can be accessed as an audio replay starting at 2 p.m. ET on Feb. 12 until midnight ET on March 15. The replay can be accessed by dialing 1 800-633-8284 (U.S. Domestic) or 1 402-977-9140 (International), conference code 21645117.

For additional information, please call 720-888-2502.

About Level 3 Communications
Level 3 Communications, Inc. (NYSE: LVLT) 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 450 markets in 45 countries over 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

© Level 3 Communications, LLC. All Rights Reserved. Level 3, Level 3 Communications, Level (3), Think Ahead, the Level 3 Logo and the Level 3 Think Ahead 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/or other countries. 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.

Website Access to Company Information
Level 3 maintains a corporate website at www.level3.com, and you can find additional information about the company through the Investors pages on that website at http:// http://lvlt.client.shareholder.com/. Level 3 uses its website as a channel of distribution of important information about the company. Level 3 routinely posts financial and other important information regarding the company and its business, financial condition and operations on the Investor Relations web pages.

Visitors to the Investors Relations web pages can view and print copies of Level 3′s SEC filings, including periodic and current reports on Forms 10-K, 10-Q, 8-K, as soon as reasonably practicable after those filings are made with the SEC.

Copies of the charters for each of the Audit, Compensation and Nominating and Governance committees of Level 3′s Board of Directors, its Corporate Governance Guidelines, Code of Ethics, press releases and analysts and investor conference presentations are all available through the Investor Relations web pages.

Please note that the information contained on any of Level 3′s web sites is not incorporated by reference in, or considered to be a part of, any document unless expressly incorporated by reference in that document.

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 Global Crossing acquisition or otherwise realize the anticipated benefits thereof; manage risks associated with continued uncertainty in the global economy; obtain additional financing, particularly in the event of disruptions in the financial markets; manage continued or accelerated decreases in market pricing for communications services; maintain and increase traffic on its network; develop and maintain effective business support systems; manage system and network failures or disruptions; develop new services that meet customer demands and generate acceptable margins; adapt to rapid technological changes that could adversely affect the company’s competitiveness; defend intellectual property and proprietary rights; 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:
    Monica Martinez            Mark Stoutenberg
    +1 720-888-3991            +1 720-888-2518
    Monica.Martinez@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).

Gross Margin ($) is defined as total revenue less cost of revenue from the Consolidated Statements of Operations.

Gross Margin (%) is defined as gross margin ($) divided by total revenue. Management believes that gross 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, non-cash stock compensation expense, and discontinued operations.

Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by total revenue.

                                  Adjusted EBITDA Metric
                                         Q4 2012
                                         -------

                                      (in millions)
                                       ------------

    Net Loss                                                  ($56)
    Income Tax Expense                                          13
    Total Other Expense                                        231
    Depreciation and Amortization                              186
    Non-Cash Stock Compensation                                 33
                                                               ---
    Adjusted EBITDA                                           $407
                                                              ====

    Adjusted EBITDA Margin                                    25.2%

                                  Adjusted EBITDA Metric
                                         Q3 2012
                                         -------
                                      (in millions)
                                       ------------

    Net Loss                                                 ($166)
    Income Tax Expense                                          13
    Total Other Expense                                        291
    Depreciation and Amortization                              185
    Non-Cash Stock Compensation                                 49
    Adjusted EBITDA                                           $372
                                                              ====

    Adjusted EBITDA Margin                                    23.4%

                                  Adjusted EBITDA Metric
                                         Q4 2011
                                         -------
                                      (in millions)
                                       ------------

    Net Loss                                                 ($163)
    Income Tax Expense                                           5
    Total Other Expense                                        275
    Depreciation and Amortization                              193
    Non-Cash Stock Compensation                                 33
    Income from Discontinued Operations                        (72)
                                                               ---
    Adjusted EBITDA                                           $271
                                                              ====

    Adjusted EBITDA Margin                                    17.2%

                                  Adjusted EBITDA Metric
                               Year Ended December 31, 2012
                               ----------------------------
                                      (in millions)
                                       ------------

    Net Loss                                                 ($422)
    Income Tax Expense                                          48
    Total Other Expense                                        949
    Depreciation and Amortization                              749
    Non-Cash Stock Compensation                                135
    Adjusted EBITDA                                         $1,459
                                                            ======

    Adjusted EBITDA Margin                                    22.9%

                                  Adjusted EBITDA Metric
                              Year Ended December 31, 2011*
                               ----------------------------
                                      (in millions)
                                       ------------

    Net Loss                                                 ($756)
    Income Tax Expense                                          41
    Total Other Expense                                        838
    Depreciation and Amortization                              805
    Non-Cash Stock Compensation                                101
    Income from Discontinued Operations                        (71)
                                                               ---
    Adjusted EBITDA                                           $958
                                                              ====

    Adjusted EBITDA Margin                                    22.1%

    * Includes Level 3 Communications results
     prior to the acquisition of Global
     Crossing on October 4, 2011.

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 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 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’s 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, 2012                               Unlevered
    ($ in millions)                                                    Cash Flow        Free Cash Flow
    --------------                                                     ---------        --------------

    Net Cash Provided by Operating Activities of Continuing Operations            $400                  $400
    Capital Expenditures                                                         ($198)                ($198)
    Cash Interest Paid                                                            $123                   N/A
    Interest Income                                                                  -                   N/A
                                                                                   ---                   ---
    Total                                                                         $325                  $202
                                                                                  ====                  ====

    Unlevered Cash Flow and Free Cash Flow
    Three Months Ended September 30, 2012                              Unlevered
    ($ in millions)                                                    Cash Flow        Free Cash Flow
    --------------                                                     ---------        --------------

    Net Cash Provided by Operating Activities of Continuing Operations             $70                   $70
    Capital Expenditures                                                         ($227)                ($227)
    Cash Interest Paid                                                            $234                   N/A
    Interest Income                                                                  -                   N/A
                                                                                   ---                   ---
    Total                                                                          $77                 ($157)
                                                                                   ===                 =====

    Unlevered Cash Flow and Free Cash Flow*
    --------------------------------------
    Three Months Ended December 31, 2011                               Unlevered
    ($ in millions)                                                    Cash Flow        Free Cash Flow
    --------------                                                     ---------        --------------

    Net Cash Provided by Operating Activities of Continuing Operations            $189                  $189
    Capital Expenditures                                                         ($148)                ($148)
    Cash Interest Paid                                                            $162                   N/A
    Interest Income                                                                 (1)                  N/A
                                                                                   ---                   ---
    Total                                                                         $202                   $41
                                                                                  ====                   ===

    Unlevered Cash Flow and Free Cash Flow
    --------------------------------------
    Year Ended December 31, 2012                                       Unlevered
    ($ in millions)                                                    Cash Flow        Free Cash Flow
    --------------                                                     ---------        --------------

    Net Cash Provided by Operating Activities of Continuing Operations            $578                  $578
    Capital Expenditures                                                         ($743)                ($743)
    Cash Interest Paid                                                            $695                   N/A
    Interest Income                                                                 (2)                  N/A
                                                                                   ---                   ---
    Total                                                                         $528                 ($165)
                                                                                  ====                 =====

    Unlevered Cash Flow and Free Cash Flow*
    --------------------------------------
    Year Ended December 31, 2011                                       Unlevered
    ($ in millions)                                                    Cash Flow        Free Cash Flow
    --------------                                                     ---------        --------------

    Net Cash Provided by Operating Activities of Continuing Operations            $388                  $388
    Capital Expenditures                                                         ($494)                ($494)
    Cash Interest Paid                                                            $576                   N/A
    Interest Income                                                                 (1)                  N/A
                                                                                   ---                   ---
    Total                                                                         $469                 ($106)
                                                                                  ====                 =====
    * Schedule has been updated for the
     removal of Discontinued Operations and
     includes Level 3 Communications results
     prior to the acquisition of Global
     Crossing on October 4, 2011.

Pro Forma Combined Company Results

The following tables reflect the pro forma combined company results of Level 3 and Global Crossing for the year ended December 31, 2011. The tables begin with the pre-acquisition historical results in the columns labeled “Level 3″ and “Global Crossing.” The column labeled “Intercompany Eliminations,” includes adjustments to remove transactions between Level 3 and Global Crossing. The column “Pro Forma Adjustments,” includes adjustments as a result of purchase price accounting and changes in debt structure as a result of the acquisition.

                                   Pro Forma Consolidated Statements of Operations (unaudited)
                                                   Year Ended December 31, 2011
                                                   ----------------------------
    (dollars in millions)          Level 3                                 Global              Intercompany          Pro Forma            Total
                                                                       Crossing (1)            Eliminations       Adjustments (3)
    ---                                                                 -----------            ------------        --------------

    Revenue                                 $4,333                                    $2,050                ($43)                   ($22)  $6,318
    Costs and Expenses (exclusive
     of depreciation and
     amortization shown separately
     below):
     Cost of Revenue                         1,706                                       975                 (26)                      -    2,655
     Depreciation and Amortization             805                                       243                   -                     (49)     999
     Selling, General, and
      Administrative                         1,770                                       793                  (5)                      2    2,560
                                             -----                                       ---                 ---                     ---    -----
         Total Costs and Expenses            4,281                                     2,011                 (31)                    (47)   6,214
                                             -----                                     -----                 ---                     ---    -----

    Operating Income                            52                                        39                 (12)                     25      104

    Other Income (Expense):
     Interest income                             1                                         1                   -                       -        2
     Interest expense                         (716)                                     (138)                  -                      59     (795)
     Loss on extinguishment of
      debt, net                               (100)                                        -                   -                       -     (100)
     Other, net                                (23)                                       (3)                  -                       -      (26)
                                               ---                                       ---                 ---                     ---      ---
         Total Other Expense                  (838)                                     (140)                  -                      59     (919)
                                              ----                                      ----                 ---                     ---     ----

    Loss Before Income Taxes                  (786)                                     (101)                (12)                     84     (815)
    Income Tax Expense                         (41)                                      (19)                  -                       -      (60)
                                               ---                                       ---                 ---                     ---      ---
    Loss From Continuing
     Operations                               (827)                                     (120)                (12)                     84     (875)
    Income from Discontinued
     Operations                                 71                                         -                   -                       -       71
                                               ---                                       ---                 ---                     ---      ---
         Net Loss                            ($756)                                    ($120)               ($12)                    $84    ($804)
                                             =====                                     =====                ====                     ===    =====

    Basic and Diluted Loss per
     Share (2)
      Loss from continuing
       operations                           ($6.03)                                                                                        ($4.28)
      Income from discontinued
       operations                             0.52                                                                                           0.35
                                              ----                                                                                           ----
         Loss per share                     ($5.51)                                                                                        ($3.93)
                                            ======                                                                                         ======

    Shares used to compute loss
     per share (2)                         137,176                                                                                67,186  204,362
    (1)            Certain reclassifications have been
                   made to conform to Level 3 reporting.
    (2)            Basic and diluted loss per share have
                   been updated to reflect the one for
                   fifteen reverse stock split that
                   became effective October 19, 2011.
    (3)            Assumes an acquisition date of January
                   1, 2011.

                                                                                Pro Forma Adjusted EBITDA
                                                                               Year Ended December 31, 2011
                                                                               ----------------------------
    (dollars in millions)                                              Level 3                      Global     Intercompany Pro Forma
                                                                                                     Crossing Eliminations Adjustments (1)         Total
    ---                                                                                                                                          -----

    Consolidated Net Loss                                                      ($756)                  ($120)             ($12)             $84    ($804)
    Income Tax Expense                                                            41                      19                 -                -       60
    Total Other Expense (Benefit)                                                838                     140                 -              (59)     919
    Depreciation and Amortization Expense                                        805                     243                 -              (49)     999
    Non-cash Compensation Expense                                                101                      12                 -                -      113
    Income from Discontinued Operations                                          (71)                      -                 -                -      (71)
                                                                                 ---                     ---               ---              ---      ---
                                                                                $958                    $294              ($12)            ($24)  $1,216
    Consolidated Adjusted EBITDA

    Consolidated Revenue(1)                                                                                                                       $6,318

    Adjusted EBITDA Margin                                                                                                                          19.2%
                                                                                                                                                    ====

    (1) Assumes an acquisition date of January 1, 2011.

                                                                                        Pro Forma Cash Flows
                                                                                    Year Ended December 31, 2011
                                                                                    ----------------------------
    (dollars in millions)                                              Level 3                      Global       Intercompany    Pro Forma       Total
                                                                                                   Crossing      Eliminations   Adjustments
    ---                                                                                                                                              ---

    Net Cash Provided by Operating Activities of Continuing Operations
                                                                                $388                     $34                $-               $-     $422
    Capital Expenditures                                                        (494)                   (130)                -                -     (624)
                                                                                ----                    ----               ---              ---     ----
     Free Cash Flow                                                            ($106)                   ($96)               $-               $-    ($202)
     Cash Interest Paid                                                          576                     136                 -                -      712
     Interest Income                                                              (1)                     (1)                -                -       (2)
                                                                                 ---                     ---               ---              ---      ---
     Unlevered Cash Flow                                                        $469                     $39                $-               $-     $508
                                                                                ====                     ===               ===              ===     ====

                                Regional Revenue Distribution by Channel
                                ----------------------------------------
                                                  4Q11                   1Q12        2Q12        3Q12   4Q12         4Q12/          4Q12/              4Q12/          4Q12/             4Q12      FY             FY
                                                                                                                           3Q12 %           3Q12 %   4Q11                    4Q11 %    %            2011(2),        2012
                                                                                                                    Change          Change               %            Change             CNS                 (3)
                                                                                                                                   Constant           Change         Constant
                                                                                                                                   Currency                          Currency
                                                                                                                              ---                               ---                                                     ---

    CNS Revenue ($ in millions)
    North America                                                   $976        $991      $1,003 $1,008      $1,024           1.6%              1.4%            4.9%              4.9%        72%        $3,828      $4,026
      Wholesale                                                     $388        $381        $382   $381        $388           1.8%              1.5%             -%            (0.1%)        27%        $1,555      $1,532
      Enterprise                                                    $588        $610        $621   $627        $636           1.4%              1.4%            8.2%              8.2%        45%        $2,273      $2,494

    EMEA                                                            $224        $219        $214   $210        $217           3.3%              0.9%          (3.1%)            (2.9%)        15%          $924        $860
      Wholesale                                                      $94         $92         $91    $89         $88         (1.1%)            (2.7%)          (6.4%)            (5.5%)         6%          $392        $360
      Enterprise                                                     $80         $79         $81    $80         $87           8.8%              5.2%            8.8%              8.9%         6%          $310        $327
      UK Government                                                  $50         $48         $42    $41         $42           2.4%              0.4%         (16.0%)           (17.2%)         3%          $222        $173

    Latin America                                                   $168        $172        $169   $177        $183           3.4%              4.5%            8.9%             14.1%        13%          $666        $701
      Wholesale                                                      $35         $34         $33    $36         $37           2.8%              5.6%            5.7%             10.6%         3%          $151        $140
      Enterprise                                                    $133        $138        $136   $141        $146           3.5%              4.2%            9.8%             15.0%        10%          $515        $561

    Total                                                         $1,368      $1,382      $1,386 $1,395      $1,424           2.1%              1.8%            4.1%              4.7%       100%        $5,418      $5,587
      Wholesale                                                     $517        $507        $506   $506        $513           1.4%              1.0%          (0.8%)            (0.4%)        36%        $2,098      $2,032
      Enterprise (1)                                                $851        $875        $880   $889        $911           2.5%              2.2%            7.1%              7.8%        64%        $3,320      $3,555

    Total CNS                                                     $1,368      $1,382      $1,386 $1,395      $1,424           2.1%              1.8%            4.1%              4.7%                   $5,418      $5,587
    Wholesale Voice Services
     and Other Revenue                                              $211        $204        $200   $195        $190         (2.6%)            (2.3%)         (10.0%)           (10.1%)                     $900        $789
                                                                    ----        ----        ----   ----        ----                                                                                        ----        ----
    Total Revenue                                                 $1,579      $1,586      $1,586 $1,590      $1,614           1.5%              1.3%            2.2%              2.8%                   $6,318      $6,376
                                                                  ======      ======      ====== ======      ======                                                                                      ======      ======
    (1)            Includes EMEA UK Government
                   Revenue.
    (2)            Prior period results have been
                   adjusted to reflect pro forma
                   revenues.
    (3)            Assumes an acquisition date of
                   January 1, 2011.

                                                         Level 3 Communications Summary Financial
                                                                         Results
                                                                         -------
                                                       4Q11       1Q12       2Q12         3Q12                 4Q12                     4Q12/                   4Q12/                 4Q12                   FY                 FY
                                                                                                                                               3Q12 %                 4Q11 %         %                          2011(1),       2012
                                                                                                                                       Change                  Change                 CNS                               (2)
                                                                                                                                       ------                  ------                 ---                              ---

    Core Network Services Revenue ($ in millions)
    Colocation and Datacenter Services                   $133       $136       $137            $136                      $141                       4%                      6%                10%                     $528       $550
    Transport and Fiber                                  $486       $480       $485            $491                      $494                       1%                      2%                35%                   $1,928     $1,950
    IP and Data Services                                 $479       $493       $499            $505                      $516                       2%                      8%                36%                   $1,870     $2,013
    Voice Services (local and  enterprise)               $270       $273       $265            $263                      $273                       4%                      1%                19%                   $1,092     $1,074
                                                         ----       ----       ----            ----                      ----                                                                                       ------     ------
    Total Core Network Services                        $1,368     $1,382     $1,386          $1,395                    $1,424                       2%                      4%                                      $5,418     $5,587
    Wholesale Voice Services and Other                   $211       $204       $200            $195                      $190                     (3%)                   (10%)                                        $900       $789
                                                         ----       ----       ----            ----                      ----                                                                                         ----       ----
    Total Revenue                                      $1,579     $1,586     $1,586          $1,590                    $1,614                       2%                      2%                                      $6,318     $6,376
                                                       ======     ======     ======          ======                    ======                                                                                       ======     ======
    (1)            Prior period results have
                   been adjusted to reflect
                   pro forma revenues.
    (2)            Assumes an acquisition date
                   of January 1, 2011.

Pro Forma Debt is defined as total debt gross debt, including capital leases from the consolidated balance sheet adjusted for the repayment of the 15% Convertible Notes due 2013.

Pro Forma Cash and Cash Equivalents is defined as total cash and cash equivalents adjusted for the repayment of the 15% Convertible Notes due 2013.

Pro Forma Net Debt to Last Twelve Months (LTM) Adjusted EBITDA Ratio is defined as pro forma debt, reduced by pro forma cash and cash equivalents and divided by LTM Adjusted EBITDA.

               Level 3 Communications, Inc. and
                   Consolidated Subsidiaries
                  --------------------------------
          Pro Forma Net Debt to LTM Adjusted EBITDA
                 ratio as of December 31, 2012
         ------------------------------------------

     (dollars in millions)
     --------------------

                                                        Pro Forma
                                                        ---------
     Pro Forma Debt                                               $8,608

                     Cash and cash equivalents                       979
                     Pro forma cash from debt repayment             (172)
                                                                    ----
     Pro Forma Cash and Cash Equivalents                             807

     Pro Forma Net Debt                                           $7,801
                                                                  ======

     LTM Adjusted EBITDA                                          $1,459
                                                                  ======

      Pro Forma Net Debt to LTM Adjusted EBITDA
      Ratio                                                          5.3
                                                                     ===
               Level 3 Communications, Inc and Consolidated
                               Subsidiaries
              --------------------------------------------
               Net Debt to Pro Forma Adjusted EBITDA ratio
                         as of December 31, 2011
              --------------------------------------------

    (dollars in millions)
    --------------------

                                                             Pro Forma
                                                            ---------
    Total Debt                                                      $8,528

    Cash and Cash Equivalents                                          918
                                                                       ---

    Net Debt                                                        $7,610
                                                                    ======

    Pro Forma Adjusted EBITDA                                       $1,216
                                                                    ======

    Net Debt to Pro Forma Adjusted EBITDA Ratio                        6.3
                                                                       ===

2013 Revenue Reporting

We are maintaining our current reporting categories in 2013, but making some adjustments between current geographic and channel reporting categories to more accurately reflect the revenue attribution by region.

Additionally, we made some minor customer channel changes, and reallocated CNS voice services revenue attributable to our reseller channel to Wholesale Voice Services and Other revenue.

                                1Q12          3Q12   4Q12 4Q12/         4Q12/
                                            2Q12                3Q12 %          3Q12 %
                                                          Change         Change
                                                                        Constant
                                                                        Currency
                                                                        --------

    CNS Revenue ($ in millions)
    North America                      $942   $956   $963   $979   1.7%             1.5%
      Wholesale                        $381   $382   $386   $392   1.6%             1.6%
      Enterprise                       $561   $574   $577   $587   1.7%             1.4%

    EMEA                               $232   $228   $223   $228   2.2%             0.6%
      Wholesale                         $96    $94    $87    $87    -%           (2.7%)
      Enterprise                        $88    $91    $94    $99   5.3%             3.8%
      UK Government                     $48    $43    $42    $42    -%              -%

    Latin America                      $176   $173   $179   $184   2.8%             4.0%
      Wholesale                         $38    $37    $40    $41   2.5%             3.8%
      Enterprise                       $138   $136   $139   $143   2.9%             4.1%

    Total CNS Revenue                $1,350 $1,357 $1,365 $1,391   1.9%             1.7%
      Wholesale                        $515   $513   $513   $520   1.4%             1.1%
      Enterprise (1)                   $835   $844   $852   $871   2.2%             2.0%

    Wholesale Voice Services           $236   $229   $225   $223 (0.9%)           (1.3%)
    and Other Revenue

    Total Revenue                    $1,586 $1,586 $1,590 $1,614   1.5%             1.3%
                                     ====== ====== ====== ======
    (1)            Includes EMEA UK Government
                   Revenue.
                                1Q12          3Q12   4Q12        4Q12/         4Q12
                                         2Q12                          3Q12 % % CNS
                                                                 Change
                                                                 ------

    CNS Revenue ($ in millions)
    Colocation and Datacenter          $138   $139   $139   $145          4.3%      10.4%
    Services
    Transport and Fiber                $480   $485   $491   $494          0.6%      35.5%
    IP and Data Services               $491   $497   $502   $512          2.0%      36.8%
    Voice Services (local and          $241   $236   $233   $240          3.0%      17.3%
    enterprise)

    Total CNS Revenue                $1,350 $1,357 $1,365 $1,391          1.9%

    Wholesale Voice Services           $236   $229   $225   $223        (0.9%)
    and Other Revenue

    Total Revenue                    $1,586 $1,586 $1,590 $1,614          1.5%
                                     ====== ====== ====== ======

                                                                                                                                                                          LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
                                                                                                                                                                              Consolidated Statements of Operations
                                                                                                                                                                                           (unaudited)

                                                                                                                                                                  Three Months Ended                                                                             Year Ended
                                                                                                                                                                  ------------------                                                                             ----------
                                                                                                                                                               December 31,                                   September 30,                                   December 31,                                               December 31,                                  December 31,
    (dollars in millions, except share data)                                                                                                                                       2012                                            2012                                          2011                                                       2012                                           2011
    ---------------------------------------                                                                                                                                        ----                                            ----                                          ----                                                       ----                                           ----

    Revenue                                                                                                                                                                      $1,614                                          $1,590                                        $1,579                                                     $6,376                                         $4,333

    Costs and Expenses (exclusive of depreciation and amortization shown separately below):
                                         Cost of Revenue                                                                          655                                              642                                             660                                                    2,602                                           1,706
                                         Depreciation and Amortization                                                            186                                              185                                             193                                                      749                                             805
                                         Selling, General and Administrative                                                      585                                              625                                             681                                                    2,450                                           1,770
                                         Total Costs and Expenses                                         1,426                             1,452                                          1,534                                                                                5,801                 4,281
                                                                                                          -----                             -----                                          -----                                                                                -----                 -----

    Operating Income                                                                                                                                                                188                                             138                                            45                                                        575                                             52

    Other Income (Expense):
                                         Interest income                                                                                      -                                              -                                               1                                                          2                                             1
                                         Interest expense                                                                        (175)                                            (188)                                           (221)                                                    (733)                                           (716)
                                         Loss on extinguishment of debt, net                                                      (50)                                             (49)                                            (27)                                                    (160)                                           (100)
                                         Other, net                                                                                (6)                                             (54)                                            (28)                                                     (58)                                            (23)
                                         Total Other Expense                                               (231)                             (291)                                          (275)                                                                                (949)                 (838)
                                                                                                           ----                              ----                                           ----                                                                                 ----                  ----

    Loss Before Income Taxes                                                                                                                                                        (43)                                           (153)                                         (230)                                                      (374)                                          (786)

    Income Tax Expense                                                                                                                                                              (13)                                            (13)                                           (5)                                                       (48)                                           (41)
                                                                                                                                                                                    ---                                             ---                                           ---                                                        ---                                            ---

    Loss From Continuing Operations                                                                                                                                                 (56)                                           (166)                                         (235)                                                      (422)                                          (827)

    Income From Discontinued Operations, net                                                                                                                                          -                                               -                                            72                                                          -                                             71

    Net Loss                                                                                                                                                                       $(56)                                          $(166)                                        $(163)                                                     $(422)                                         $(756)
                                                                                                                                                                                   ====                                           =====                                         =====                                                      =====                                          =====

    Basic and Diluted Loss per Share *
                                         Loss per Share From Continuing Operations                                                        $(0.26)                                        $(0.76)                                         $(1.15)                                                    $(1.96)                                       $(6.03)
                                          Income per Share From Discontinued
                                          Operations                                                                                          -                                              -                                            0.35                                                          -                                          0.52
                                         Net Loss                                                        $(0.26)                           $(0.76)                                        $(0.80)                                                                              $(1.96)               $(5.51)
                                                                                                         ======                            ======                                         ======                                                                               ======                ======

    Shares Used to Compute Basic and Diluted Loss per Share * (in thousands)
                                                                                                                                                                                217,924                                         217,301                                       204,767                                                    215,356                                        137,176
                                                                                                                                                                                =======                                         =======                                       =======                                                    =======                                        =======
    * Basic and diluted loss
     per share have been
     updated to reflect the
     one for fifteen reverse
     stock split that became
     effective October 19,
     2011.


                                     LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
                                              Consolidated Balance Sheets
                                                      (unaudited)

                                                    December 31,             September 30, December 31,
    (dollars in millions)                                                                          2012   2012   2011
    --------------------                                                                           ----   ----   ----

    Assets

    Current Assets:
                                           Cash and cash
                                           equivalents                                             $979   $793   $918
                                           Restricted cash
                                           and securities                                8            8     10
                                           Receivables, less allowances for
                                           doubtful accounts                                        714    748    648
                                          Other                                        141          186    131
                                          -----                                        ---          ---
    Total Current Assets                                                                          1,842  1,735  1,707

    Property, Plant and Equipment,
     net                                                                                          8,199  8,191  8,136
    Restricted Cash and Securities                                                                   35     39     51
    Goodwill                                                                                      2,565  2,565  2,541
    Other Intangibles, net                                                                          268    287    358
    Other Assets                                                                                    398    399    395
    Total Assets                                                    $13,307        $13,216      $13,188
                                                                    =======        =======      =======

    Liabilities and Stockholders' Equity

    Current Liabilities:
                                          Accounts payable                                         $779   $719   $747
                                           Current portion
                                           of long-term
                                           debt                                        210          213     65
                                           Accrued payroll
                                           and employee
                                           benefits                                    211          163    209
                                          Accrued interest                             209          166    216
                                           Current portion
                                           of deferred
                                           revenue                                     251          260    264
                                          Other                                        136          122    157
                                          -----                                        ---          ---
    Total Current Liabilities                                                                     1,796  1,643  1,658

    Long-Term Debt, less current
     portion                                                                                      8,522  8,496  8,385
    Deferred Revenue, less current
     portion                                                                                        887    841    885
    Other Liabilities                                                                               931  1,032  1,067
                                                                                                    ---  -----  -----
    Total Liabilities                                                                            12,136 12,012 11,995

    Stockholders' Equity                                                                          1,171  1,204  1,193
                                                                                                  -----  -----  -----
    Total Liabilities and
     Stockholders' Equity                                           $13,307        $13,216      $13,188
                                                                    =======        =======      =======

                                                          LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
                                                              Consolidated Statements of Cash Flows
                                                                           (unaudited)

                                                                                 Three Months Ended
                                                                                 ------------------
                                                                              December 31,              September 30,         December 31,
    (dollars in millions)                                                                        2012                   2012           2011
    --------------------                                                                         ----                   ----           ----

    Cash Flows from Operating
     Activities:
               Net loss                                                                          $(56)                 $(166)         ($163)
               Income from discontinued operations                                                  -                      -            (72)

               Net loss from continuing operations                                                (56)                  (166)          (235)
                Adjustments to reconcile net loss from
                continuing operations to net cash
                provided by operating activities of
                continuing operations:
                   Depreciation and amortization                                                  186                    185            193
                   Asset retirement obligation adjustment                                         (47)                     -              -
                   Non-cash compensation expense
                    attributable to stock awards                                                   33                     49             33
                   Loss on extinguishment of debt, net                                             50                     49             27
                   Loss on interest rate swaps                                                      -                     60              -
                   Accretion of debt discount and
                    amortization of debt issuance costs                                            10                     12             11
                   Accrued interest on long-term debt                                              42                    (58)            46
                   Loss on impairment of wireless
                    spectrum licenses                                                               -                      -             20
                   Deferred income taxes                                                           10                     15             (1)
                   Gain on sale of property, plant and
                    equipment and other assets                                                     (1)                     -              -
                   Other, net                                                                     (25)                   (28)            11
                   Changes in working capital items:
                          Receivables                                                              34                    (77)            58
                          Other current assets                                                     23                      4             11
                          Payables                                                                 60                     14             20
                          Deferred revenue                                                         35                    (22)             3
                          Other current liabilities                                                46                     33             (8)
    Net Cash Provided by Operating
     Activities of Continuing
     Operations                                                                                   400                     70            189

     Cash Flows from Investing
      Activities:
                Capital expenditures                                                             (198)                  (227)          (148)
                Investment in Global Crossing, net of
                 cash acquired                                                                      -                      -            146
                Decrease in restricted cash and
                 securities, net                                                                    5                     11              9
                Proceeds from sale of property, plant
                 and equipment and other assets                                                     6                      -              -
                Other                                                                               -                    (13)             -
    Net Cash Provided by (Used in)
     Investing Activities of
     Continuing Operations                                                                       (187)                  (229)             7

     Cash Flows from Financing
      Activities:
                Long term debt borrowings, net of
                 issuance costs                                                                 1,187                  2,437          1,113
                Payments on and repurchases of long-
                 term debt                                                                     (1,214)                (2,225)          (906)
                Proceeds from stock options exercised                                               -                      4              -
    Net Cash Provided by (Used in)
     Financing Activities of
     Continuing Operations                                                                        (27)                   216            207

    Discontinued Operations:
               Net cash used in operating activities                                                -                      -             (4)
                Net cash provided by investing
                activities                                                                          -                      -             59

    Net Cash Provided by
     Discontinued Operations                                                                        -                      -             55

     Effect of Exchange Rates on Cash
      and Cash Equivalents                                                                          -                      3             (1)
                                                                                                  ---                    ---            ---

     Net Change in Cash and Cash
      Equivalents                                                                                 186                     60            457

     Cash and Cash Equivalents at
      Beginning of Period                                                                         793                    733            461
                                                                                                  ---                    ---            ---

     Cash and Cash Equivalents at End
      of Period                                                                                  $979                   $793           $918
                                                                                                 ====                   ====           ====

    Supplemental Disclosure of Cash
     Flow Information:
               Cash interest paid                                                                $123                   $234           $162

SOURCE Level 3 Communications, Inc.


Source: PR Newswire