Jan. 29, 2002 -- Level 3 Communications, Inc. will take a $3.2 billion charge to account for nonproductive assets, and is entering talks with creditors to find an "appropriate solution" for potential violations of loan covenants, the company said today.
The company's baseline earnings and revenue exceeded expectations of Wall Street analysts. But the huge writedowns led to an overall loss of $3.3 billion, or $8.54 per share for the fourth quarter of 2001. Without the extraordinary items, Level 3's net loss was $475 million, or a $1.24 loss per. It had projected a loss of $1.70 a share.
Shares of Level 3 were down about 10 percent in midday trading, falling 49 cents to $4.18 per share.
Level 3 said its revenue projections raised the possibility that by June 30 it could find itself in violation of a covenant of its $1.7 billion senior credit facility.
"Recognizing that there is a risk we may violate a financial covenant later this year, we have initiated discussions with the administrative agent for our credit facility to find an appropriate solution prior to any potential covenant violation,'' said Chief Financial Officer Sureel Choksi.
"If the current rate of sales, cancellations, and disconnects were to continue, the company may violate a revenue-based financial covenant as early as the end of the second quarter," Level 3 said in a statement.
In revaluing its assets, Level 3 said the value of its colocation business had taken a hit of more than $1.5 billion, nearly half the overall writeoff. The value of the company's long haul and metropolitan networks decreased by $1.2 billion, while its undersea fiber routes shed about $320 million in value, according to Level 3.
Level 3 said it will spend about $35 million to terminate real estate leases, but provided no details about which facilities would be closed.
"Consistent with the difficult environment in which we are operating, we have taken what we believe is an appropriate approach to estimating the future cash flows associated with certain assets and, as a result, we have taken a charge against those assets,'' said Choksi.
Level 3 said it had approximately 2,000 customers at the end of the quarter -- down from 2,100 as of the end of the third quarter. It had 3,700 employees at the close of 2001.
"All in all, it's been a productive quarter, particularly given the difficult economy and market,'' said James Q. Crowe, CEO. "We have reduced a significant portion of our debt, capital expenses, operating expenses and headcount. We have strengthened our balance sheet, and because of our strong financial position, we have been able to capitalize on opportunities that have arisen in the market.
"As a consequence, we are able to reiterate that we remain fully funded to free cash flow breakeven, with a substantial cushion, in accordance with our business plan,'' Crowe added.
Denver-based Level 3 offers bandwidth services in North America, Europe and Asia, providings ervices in 50 data centers.