Level 3 posts $3.3 billion loss on asset write-down

Fueled by a massive asset write-down, Level 3 Communications today announced a net loss for the fourth quarter of $3.3 billion, or $8.54 per share.

The loss includes a $3.2 billion impairment charge on existing assets. Forty-eight percent of that is associated with co-location assets, 39% with conduits on the carrier’s long-haul and metropolitan networks and 10% with transoceanic assets. About 73% of the impairment charge is for North American assets. There was also a $539 million charge from the discontinuation of the company’s Asian operations, but both charges were partially offset by a $981 million gain on a tender offer and debt-for-equity offer completed during the fourth quarter.

Excluding these figures, the company posted a net loss of $475 million, or $1.24 per share, significantly better than the $1.68 loss per share predicted on First Call/Thomson Financial.

Revenues for the quarter were $326 million, up from $319 during the third quarter but down from $432 million year-over-year.

For the full year 2001, Level 3 reported revenues of $1.53 billion, up from $1.18 billion for 2000. Net loss for the year was $4.98 billion, significantly higher than the $1.46 billion reported in 2000.

The company provided limited guidance for the first quarter. Reported communications revenues are expected to by about $235 million, and consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) should be a positive $10 million. Level 3 anticipates capital expenditures of approximately $110 million, and a net loss of $1.10 per share.

The prediction of EBITDA positive, however, incorporates the warning that the level of customer disconnects and cancellations experienced during the second half of ‘01 will continue through at least the first half of ’02. This level of lost business accounts for about 20% of Level 3’s recurring revenue.

“I would not characterize our customer base as stronger today,” said James Crowe, CEO of Level 3. “I would characterize it as more predictable.”

Given this rate of lost revenue the company said it is likely to violate revenue covenants on a $1.775 billion senior secured credit facility as early as the end of the second quarter.

In anticipation of this violation, though, Level 3 has begun discussions with its creditors to revise the facility.