Level 3 To Reduce Costs by Approximately $300 Million,Focus On North American and European Markets
HONG KONG, December 19, 2001 - Level 3 Communications, Inc. (Nasdaq:LVLT) today announced that Reach will acquire Level 3's Asian business. The agreement covers Level 3's Asian network operations, assets, liabilities and future financial obligations. This includes its North Asian cable system (Tiger); capacity on the Japan-US Cable System (JUS); capital and operational expenses related to the Tiger and JUS systems; data centers in Hong Kong and Tokyo; and existing customers on Level 3's Asian network.
"This transaction makes both sound fiscal and strategic sense for Level 3," said James Q. Crowe, Level 3 CEO. "Our business in Asia would require significant additional capital investment to get to the point of free cash flow breakeven. With this transaction, we will save approximately $300 million. Given current economic conditions, we believe it is beneficial to focus our efforts in North America and Europe.
"Strategically, Asia represents attractive longer term investment opportunities. In this volatile market and economy, however, we must take steps to focus on the immediate opportunities and to leverage our network and management time where the returns on capital are highest - which is in our North American and European markets."
As part of the agreement, the two companies have agreed Level 3 will provide capacity and services to Reach over Level 3's North American backbone network, and Level 3 will buy capacity and services from Reach in Asia. This will allow Level 3 to continue to service its customer base with capacity needs in Asia and give Reach access to a state-of-the-art, high capacity network in North America and Europe. Additionally, Level 3 will maintain a sales group in Asia to serve its global customers and Asian-based carriers with capacity needs in North America and Europe.
"The agreement enables Level 3 to focus on its strategy of serving the 300 largest consumers of bandwidth," said Steve Liddell, president of Level 3's Asian operations. "We have found in the current economic climate that the needs of this core group of customers are significantly greater in North America and Europe. We've significantly improved our overall cash flow, ensured our continued ability to provide capacity in Asia to our global customers, and gained a customer on our North American network."
This transaction will further strengthen Level 3's overall financial position. The company estimates that by virtue of the transaction it will reduce its future funding requirements by approximately $300 million through a combination of reductions in capital expenditures, network and operating expenses, taxes and working capital. These savings are expected to be realized through the point in time when the company reaches free cash flow breakeven. As a result of this transaction, Level 3 expects to recognize a one-time charge of approximately $500 million during the fourth quarter of 2001.
Under the terms of the agreement Reach will acquire Level 3's existing Asian business in Japan, Hong Kong, Korea, and Taiwan. This includes:
About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT), an international communications company, operates one of the largest Internet backbones in the world, connecting 180 markets in 18 countries. The company serves a broad range of wholesale, enterprise and content customers with a comprehensive suite of services including: Internet Protocol (IP) services, broadband transport and infrastructure services, colocation services, voice and voice over IP services, content delivery and media distribution services. These services provide the building blocks to enable Level 3’s customers to meet their growing demands for advanced communications solutions. The company’s Web address is www.Level3.com.
"Level 3 Communications,” "Level 3," the red 3D brackets and the Level 3 Communications logo are registered service marks of Level 3 Communications, LLC in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service, product or company names recited herein may be trademarks or service marks of their respective owners.
Forward-Looking Statement
Some of the statements that we make in this press release are forward looking in nature. These statements are based on management’s current expectations or beliefs. These forward looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual events to differ materially from those expressed or implied by the statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to our ability to: successfully integrate acquisitions; increase the volume of traffic on our network; defend our intellectual property and proprietary rights; develop new products and services that meet customer demands and generate acceptable margins; successfully complete commercial testing of new technology and information systems to support new products and services; attract and retain qualified management and other personnel; and meet all of the terms and conditions of our debt obligations. Additional information concerning these and other important factors can be found within Level 3’s filings with the Securities and Exchange Commission. Statements in this press release should be evaluated in light of these important factors. Level 3 is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
