x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 47-0210602 | |
(State of Incorporation) | (I.R.S. Employer | |
Identification No.) | ||
1025 Eldorado Blvd., Broomfield, CO | 80021-8869 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer x | Accelerated filer o | |
Non-accelerated filer o | Smaller reporting company o | |
(Do not check if a smaller reporting company) |
Page No. | ||
Item 1. | ||
Consolidated Statements of Operations | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 6. | ||
Certifications | ||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
(dollars in millions, except per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenue | $ | 2,056 | $ | 2,061 | $ | 4,107 | $ | 4,114 | ||||||||
Costs and Expenses: | ||||||||||||||||
Network access costs | 676 | 696 | 1,370 | 1,419 | ||||||||||||
Network related expenses | 339 | 363 | 677 | 719 | ||||||||||||
Depreciation and amortization | 310 | 288 | 611 | 576 | ||||||||||||
Selling, general and administrative expenses | 357 | 364 | 713 | 734 | ||||||||||||
Total Costs and Expenses | 1,682 | 1,711 | 3,371 | 3,448 | ||||||||||||
Operating Income | 374 | 350 | 736 | 666 | ||||||||||||
Other Income (Expense): | ||||||||||||||||
Interest income | 1 | — | 2 | 1 | ||||||||||||
Interest expense | (140 | ) | (165 | ) | (275 | ) | (345 | ) | ||||||||
Loss on modification and extinguishment of debt | (40 | ) | (163 | ) | (40 | ) | (163 | ) | ||||||||
Other, net | (5 | ) | (17 | ) | (15 | ) | (27 | ) | ||||||||
Total Other Expense | (184 | ) | (345 | ) | (328 | ) | (534 | ) | ||||||||
Income Before Income Taxes | 190 | 5 | 408 | 132 | ||||||||||||
Income Tax Expense | (41 | ) | (18 | ) | (135 | ) | (23 | ) | ||||||||
Net Income (Loss) | $ | 149 | $ | (13 | ) | $ | 273 | $ | 109 | |||||||
Basic Earnings (Loss) per Common Share | ||||||||||||||||
Net Income (Loss) Per Share | $ | 0.42 | $ | (0.04 | ) | $ | 0.77 | $ | 0.31 | |||||||
Weighted-Average Shares Outstanding (in thousands) | 357,924 | 354,471 | 357,355 | 350,693 | ||||||||||||
Diluted Earnings (Loss) per Common Share | ||||||||||||||||
Net Income (Loss) Per Share | $ | 0.41 | $ | (0.04 | ) | $ | 0.76 | $ | 0.31 | |||||||
Weighted-Average Shares Outstanding (in thousands) | 360,867 | 354,471 | 360,415 | 354,325 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
(dollars in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net Income (Loss) | $ | 149 | $ | (13 | ) | $ | 273 | $ | 109 | |||||||
Other Comprehensive Income (Loss) net of Tax: | ||||||||||||||||
Foreign currency translation adjustments, net of tax effect of $16, $0, $24 and $0 | (24 | ) | 84 | 24 | (57 | ) | ||||||||||
Defined benefit pension plan adjustments, net of tax effect of $1, $0, ($1) and $0 | 2 | 1 | (1 | ) | 1 | |||||||||||
Other Comprehensive Income (Loss), net of Tax | (22 | ) | 85 | 23 | (56 | ) | ||||||||||
Comprehensive Income | $ | 127 | $ | 72 | $ | 296 | $ | 53 |
June 30, | December 31, | |||||||
(dollars in millions, except per share data) | 2016 | 2015 | ||||||
Assets: | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 1,291 | $ | 854 | ||||
Restricted cash and securities | 8 | 8 | ||||||
Receivables, less allowances for doubtful accounts of $33 and $32, respectively | 839 | 757 | ||||||
Other | 140 | 111 | ||||||
Total Current Assets | 2,278 | 1,730 | ||||||
Property, Plant and Equipment, net of accumulated depreciation of $10,826 and $10,365, respectively | 10,073 | 9,878 | ||||||
Restricted Cash and Securities | 31 | 42 | ||||||
Goodwill | 7,739 | 7,749 | ||||||
Other Intangibles, net | 1,020 | 1,127 | ||||||
Deferred Tax Assets | 3,343 | 3,441 | ||||||
Other Assets, net | 50 | 50 | ||||||
Total Assets | $ | 24,534 | $ | 24,017 | ||||
Liabilities and Stockholders’ Equity: | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 762 | $ | 629 | ||||
Current portion of long-term debt | 7 | 15 | ||||||
Accrued payroll and employee benefits | 160 | 218 | ||||||
Accrued interest | 131 | 108 | ||||||
Current portion of deferred revenue | 268 | 267 | ||||||
Other | 171 | 179 | ||||||
Total Current Liabilities | 1,499 | 1,416 | ||||||
Long-Term Debt, less current portion | 10,871 | 10,866 | ||||||
Deferred Revenue, less current portion | 1,027 | 977 | ||||||
Other Liabilities | 637 | 632 | ||||||
Total Liabilities | 14,034 | 13,891 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Preferred stock, $.01 par value, authorized 10,000,000 shares: no shares issued or outstanding | — | — | ||||||
Common stock, $.01 par value, authorized 433,333,333 shares in both periods; 358,039,014 issued and outstanding at June 30, 2016 and 356,374,473 issued and outstanding at December 31, 2015 | 4 | 4 | ||||||
Additional paid-in capital | 19,720 | 19,642 | ||||||
Accumulated other comprehensive loss | (278 | ) | (301 | ) | ||||
Accumulated deficit | (8,946 | ) | (9,219 | ) | ||||
Total Stockholders’ Equity | 10,500 | 10,126 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 24,534 | $ | 24,017 |
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
(dollars in millions) | 2016 | 2015 | ||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 273 | $ | 109 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 611 | 576 | ||||||
Non-cash compensation expense attributable to stock awards | 78 | 58 | ||||||
Loss on modification and extinguishment of debt | 40 | 163 | ||||||
Accretion of debt discount and amortization of debt issuance costs | 10 | 13 | ||||||
Accrued interest on long-term debt, net | 23 | (40 | ) | |||||
Deferred income taxes | 111 | (10 | ) | |||||
(Gain) Loss on sale of property, plant and equipment and other assets | (1 | ) | 1 | |||||
Other, net | (3 | ) | 30 | |||||
Changes in working capital items: | ||||||||
Receivables | (69 | ) | (32 | ) | ||||
Other current assets | (40 | ) | (36 | ) | ||||
Accounts payable | 132 | (22 | ) | |||||
Deferred revenue | 42 | (4 | ) | |||||
Other current liabilities | (66 | ) | (82 | ) | ||||
Net Cash Provided by Operating Activities | 1,141 | 724 | ||||||
Cash Flows from Investing Activities: | ||||||||
Capital expenditures | (664 | ) | (571 | ) | ||||
Change in restricted cash and securities, net | 11 | (24 | ) | |||||
Proceeds from sale of property, plant and equipment and other assets | 1 | 2 | ||||||
Net Cash Used in Investing Activities | (652 | ) | (593 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Long-term debt borrowings, net of issuance costs | 764 | 3,948 | ||||||
Payments on and repurchases of long-term debt and capital leases | (816 | ) | (4,098 | ) | ||||
Net Cash Used in Financing Activities | (52 | ) | (150 | ) | ||||
Effect of Exchange Rates on Cash and Cash Equivalents | — | (12 | ) | |||||
Net Change in Cash and Cash Equivalents | 437 | (31 | ) | |||||
Cash and Cash Equivalents at Beginning of Period | 854 | 580 | ||||||
Cash and Cash Equivalents at End of Period | $ | 1,291 | $ | 549 |
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash interest paid | $ | 245 | $ | 366 | ||||
Income taxes paid, net of refunds | $ | 18 | $ | 29 | ||||
Non-cash Financing Activities: | ||||||||
Capital lease obligations incurred | $ | — | $ | 6 | ||||
Long-term debt conversion into equity | $ | — | $ | 333 | ||||
Accrued interest conversion into equity | $ | — | $ | 10 |
Gross Carrying Amount | Accumulated Amortization | Net | |||||||||
June 30, 2016 | |||||||||||
Finite-Lived Intangible Assets: | |||||||||||
Customer Contracts and Relationships | $ | 1,974 | $ | (1,023 | ) | $ | 951 | ||||
Trademarks | 55 | (55 | ) | — | |||||||
Patents and Developed Technology | 230 | (176 | ) | 54 | |||||||
2,259 | (1,254 | ) | 1,005 | ||||||||
Indefinite-Lived Intangible Assets: | |||||||||||
Trade Name | 15 | — | 15 | ||||||||
$ | 2,274 | $ | (1,254 | ) | $ | 1,020 | |||||
December 31, 2015 | |||||||||||
Finite-Lived Intangible Assets: | |||||||||||
Customer Contracts and Relationships | $ | 1,975 | $ | (932 | ) | $ | 1,043 | ||||
Trademarks | 55 | (55 | ) | — | |||||||
Patents and Developed Technology | 230 | (161 | ) | 69 | |||||||
2,260 | (1,148 | ) | 1,112 | ||||||||
Indefinite-Lived Intangible Assets: | |||||||||||
Trade Name | 15 | — | 15 | ||||||||
$ | 2,275 | $ | (1,148 | ) | $ | 1,127 |
2016 (remaining six months) | $ | 105 | |
2017 | 196 | ||
2018 | 193 | ||
2019 | 181 | ||
2020 | 166 | ||
2021 | 143 | ||
Thereafter | 21 | ||
$ | 1,005 |
Fair Value Measurement Using | ||||||||||||||||||||||||
Total Carrying Value in Consolidated Balance Sheets | Unadjusted Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | ||||||||||||||||||||||
(dollars in millions) | June 30, 2016 | December 31, 2015 | June 30, 2016 | December 31, 2015 | June 30, 2016 | December 31, 2015 | ||||||||||||||||||
Liabilities Not Recorded at Fair Value in the Financial Statements: | ||||||||||||||||||||||||
Long-term Debt, including the current portion: | ||||||||||||||||||||||||
Term Loans | $ | 4,562 | $ | 4,556 | $ | 4,606 | $ | 4,570 | $ | — | $ | — | ||||||||||||
Senior Notes | 6,129 | 6,126 | 6,240 | 6,298 | — | — | ||||||||||||||||||
Capital Leases and Other | 187 | 199 | — | — | 187 | 199 | ||||||||||||||||||
Total Long-term Debt, including the current portion | $ | 10,878 | $ | 10,881 | $ | 10,846 | $ | 10,868 | $ | 187 | $ | 199 |
Date of | June 30, 2016 | December 31, 2015 | ||||||||
Issuance/Amendment | Maturity | Interest Payments | Interest Rate | Amount | Amount | |||||
Senior Secured Term Loans: | ||||||||||
Borrowed by Level 3 Financing, Inc. | ||||||||||
Tranche B-III 2019 Term Loan (1)(4) | Aug 2013 | Aug 2019 | Quarterly | LIBOR +3.00% | $ | 815 | $ | 815 | ||
Tranche B 2020 Term Loan (1)(4) | Oct 2013 | Jan 2020 | Quarterly | LIBOR +3.00% | 1,796 | 1,796 | ||||
Tranche B-II 2022 Term Loan (1)(4) | May 2015 | May 2022 | Quarterly | LIBOR +2.75% | 2,000 | 2,000 | ||||
Senior Notes: | ||||||||||
Issued by Level 3 Financing, Inc. | ||||||||||
Floating Rate Senior Notes due 2018 (2)(4) | Nov 2013 | Jan 2018 | May/Nov | 6-Month LIBOR +3.50% | 300 | 300 | ||||
7% Senior Notes due 2020 (2) | Aug 2012 | Jun 2020 | Jun/Dec | 7.000% | — | 775 | ||||
6.125% Senior Notes due 2021 (2) | Nov 2013 | Jan 2021 | Apr/Oct | 6.125% | 640 | 640 | ||||
5.375% Senior Notes due 2022 (2) | Aug 2014 | Aug 2022 | May/Nov | 5.375% | 1,000 | 1,000 | ||||
5.625% Senior Notes due 2023 (2) | Jan 2015 | Feb 2023 | Jun/Dec | 5.625% | 500 | 500 | ||||
5.125% Senior Notes due 2023 (2) | Apr 2015 | May 2023 | Mar/Sept | 5.125% | 700 | 700 | ||||
5.375% Senior Notes due 2025 (2) | Apr 2015 | May 2025 | Mar/Sept | 5.375% | 800 | 800 | ||||
5.375% Senior Notes due 2024 (2) | Nov 2015 | Jan 2024 | Jan/Jul | 5.375% | 900 | 900 | ||||
5.25% Senior Notes due 2026 (5) | Mar 2016 | Mar 2026 | Apr/Oct | 5.250% | 775 | — | ||||
Issued by Level 3 Communications, Inc. | ||||||||||
5.75% Senior Notes due 2022 (3) | Dec 2014 | Dec 2022 | Mar/Sept | 5.750% | 600 | 600 | ||||
Capital Leases | 187 | 199 | ||||||||
Total Debt Obligations | 11,013 | 11,025 | ||||||||
Unamortized discounts | (14 | ) | (16 | ) | ||||||
Unamortized debt issuance costs | (121 | ) | (128 | ) | ||||||
Current portion of long-term debt | (7 | ) | (15 | ) | ||||||
Total Long-Term Debt | $ | 10,871 | $ | 10,866 |
2016 (remaining six months) | $ | 5 | |
2017 | 7 | ||
2018 | 307 | ||
2019 | 822 | ||
2020 | 1,803 | ||
2021 | 650 | ||
Thereafter | 7,419 | ||
$ | 11,013 |
(dollars in millions) | Net Foreign Currency Translation Adjustment | Defined Benefit Pension Plans | Total | |||||||||
Balance at December 31, 2014 | $ | (111 | ) | $ | (36 | ) | $ | (147 | ) | |||
Other comprehensive loss before reclassifications | (57 | ) | — | (57 | ) | |||||||
Amounts reclassified from accumulated other comprehensive loss | — | 1 | 1 | |||||||||
Balance at June 30, 2015 | $ | (168 | ) | $ | (35 | ) | $ | (203 | ) |
Balance at December 31, 2015 | $ | (273 | ) | $ | (28 | ) | $ | (301 | ) | |||
Other comprehensive income (loss) before reclassifications | 24 | (1 | ) | 23 | ||||||||
Amounts reclassified from accumulated other comprehensive loss | — | — | — | |||||||||
Balance at June 30, 2016 | $ | (249 | ) | $ | (29 | ) | $ | (278 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Outperform Stock Appreciation Rights | $ | 1 | $ | 1 | $ | 2 | $ | 3 | |||||||
Restricted Stock Units | 13 | 11 | 34 | 22 | |||||||||||
Performance Restricted Stock Units | 10 | 8 | 24 | 13 | |||||||||||
401(k) Match Expense | 8 | 7 | 19 | 20 | |||||||||||
32 | 27 | 79 | 58 | ||||||||||||
Capitalized Non-Cash Compensation | (1 | ) | — | (1 | ) | — | |||||||||
$ | 31 | $ | 27 | $ | 78 | $ | 58 |
Three Months Ended | Six Months Ended | |||||||||||||||
(dollars in millions) | June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Core Network Services Revenue: | ||||||||||||||||
North America | $ | 1,605 | $ | 1,550 | $ | 3,206 | $ | 3,085 | ||||||||
EMEA | 191 | 205 | 382 | 412 | ||||||||||||
Latin America | 160 | 187 | 315 | 372 | ||||||||||||
Total Core Network Services Revenue | 1,956 | 1,942 | 3,903 | 3,869 | ||||||||||||
Wholesale Voice Services Revenue: | ||||||||||||||||
North America | 95 | 114 | 194 | 232 | ||||||||||||
EMEA | 3 | 3 | 6 | 7 | ||||||||||||
Latin America | 2 | 2 | 4 | 6 | ||||||||||||
Total Wholesale Voice Services Revenue | 100 | 119 | 204 | 245 | ||||||||||||
Total Revenue | $ | 2,056 | $ | 2,061 | $ | 4,107 | $ | 4,114 |
Three Months Ended | Six Months Ended | |||||||||||||||
(dollars in millions) | June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Adjusted EBITDA: | ||||||||||||||||
North America | $ | 819 | $ | 767 | $ | 1,631 | $ | 1,507 | ||||||||
EMEA | 52 | 57 | 106 | 113 | ||||||||||||
Latin America | 64 | 79 | 138 | 159 | ||||||||||||
Unallocated Corporate Expenses | (220 | ) | (238 | ) | (450 | ) | (479 | ) | ||||||||
Adjusted EBITDA | 715 | 665 | 1,425 | 1,300 | ||||||||||||
Income Tax Expense | (41 | ) | (18 | ) | (135 | ) | (23 | ) | ||||||||
Total Other Expense | (184 | ) | (345 | ) | (328 | ) | (534 | ) | ||||||||
Depreciation and Amortization | (310 | ) | (288 | ) | (611 | ) | (576 | ) | ||||||||
Non-Cash Stock Compensation Attributable to Stock Awards | (31 | ) | (27 | ) | (78 | ) | (58 | ) | ||||||||
Net Income (Loss) | $ | 149 | $ | (13 | ) | $ | 273 | $ | 109 |
Three Months Ended | Six Months Ended | |||||||||||||||
(dollars in millions) | June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Capital Expenditures: | ||||||||||||||||
North America | $ | 237 | $ | 191 | $ | 432 | $ | 358 | ||||||||
EMEA | 40 | 45 | 79 | 73 | ||||||||||||
Latin America | 51 | 46 | 74 | 74 | ||||||||||||
Unallocated Corporate Capital Expenditures | 39 | 35 | 79 | 66 | ||||||||||||
Total Capital Expenditures | $ | 367 | $ | 317 | $ | 664 | $ | 571 |
(dollars in millions) | June 30, 2016 | December 31, 2015 | ||||||
Assets: | ||||||||
North America | $ | 20,410 | $ | 19,961 | ||||
EMEA | 1,785 | 1,796 | ||||||
Latin America | 2,212 | 2,131 | ||||||
Other | 127 | 129 | ||||||
Total Assets | $ | 24,534 | $ | 24,017 |
North America | EMEA | Latin America | Total | ||||||||||||
Balance at December 31, 2015 | $ | 7,024 | $ | 129 | $ | 596 | $ | 7,749 | |||||||
Effect of foreign currency rate change | — | (10 | ) | — | (10 | ) | |||||||||
Balance at June 30, 2016 | $ | 7,024 | $ | 119 | $ | 596 | $ | 7,739 |
Level 3 Communications, Inc. | Level 3 Financing, Inc. | Level 3 Communications, LLC | Other Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||
Revenue | $ | — | $ | — | $ | 879 | $ | 1,211 | $ | (34 | ) | $ | 2,056 | ||||||||||
Costs and Expense: | |||||||||||||||||||||||
Network Access Costs | — | — | 315 | 395 | (34 | ) | 676 | ||||||||||||||||
Network Related Expenses | — | — | 237 | 102 | — | 339 | |||||||||||||||||
Depreciation and Amortization | — | — | 92 | 218 | — | 310 | |||||||||||||||||
Selling, General and Administrative Expenses | 1 | 2 | 263 | 91 | — | 357 | |||||||||||||||||
Total Costs and Expenses | 1 | 2 | 907 | 806 | (34 | ) | 1,682 | ||||||||||||||||
Operating Income (Loss) | (1 | ) | (2 | ) | (28 | ) | 405 | — | 374 | ||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||
Interest income | — | — | 1 | — | — | 1 | |||||||||||||||||
Interest expense | (9 | ) | (128 | ) | — | (3 | ) | — | (140 | ) | |||||||||||||
Interest income (expense) affiliates, net | 343 | 528 | (802 | ) | (69 | ) | — | — | |||||||||||||||
Equity in net earnings (losses) of subsidiaries | (187 | ) | (489 | ) | 201 | — | 475 | — | |||||||||||||||
Other, net | — | (39 | ) | 1 | (7 | ) | — | (45 | ) | ||||||||||||||
Total Other Income (Expense) | 147 | (128 | ) | (599 | ) | (79 | ) | 475 | (184 | ) | |||||||||||||
Income (Loss) before Income Taxes | 146 | (130 | ) | (627 | ) | 326 | 475 | 190 | |||||||||||||||
Income Tax Benefit (Expense) | 3 | (57 | ) | (1 | ) | 14 | — | (41 | ) | ||||||||||||||
Net Income (Loss) | 149 | (187 | ) | (628 | ) | 340 | 475 | 149 | |||||||||||||||
Other Comprehensive Income (Loss), Net of Income Taxes | (22 | ) | — | — | (22 | ) | 22 | (22 | ) | ||||||||||||||
Comprehensive Income (Loss) | $ | 127 | $ | (187 | ) | $ | (628 | ) | $ | 318 | $ | 497 | $ | 127 |
Level 3 Communications, Inc. | Level 3 Financing, Inc. | Level 3 Communications, LLC | Other Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||
Revenue | $ | — | $ | — | $ | 1,745 | $ | 2,430 | $ | (68 | ) | $ | 4,107 | ||||||||||
Costs and Expense: | |||||||||||||||||||||||
Network Access Costs | — | — | 635 | 803 | (68 | ) | 1,370 | ||||||||||||||||
Network Related Expenses | — | — | 474 | 203 | — | 677 | |||||||||||||||||
Depreciation and Amortization | — | — | 180 | 431 | — | 611 | |||||||||||||||||
Selling, General and Administrative Expenses | 2 | 3 | 513 | 195 | — | 713 | |||||||||||||||||
Total Costs and Expenses | 2 | 3 | 1,802 | 1,632 | (68 | ) | 3,371 | ||||||||||||||||
Operating Income (Loss) | (2 | ) | (3 | ) | (57 | ) | 798 | — | 736 | ||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||
Interest income | — | — | 1 | 1 | — | 2 | |||||||||||||||||
Interest expense | (18 | ) | (256 | ) | (1 | ) | — | — | (275 | ) | |||||||||||||
Interest income (expense) affiliates, net | 685 | 1,059 | (1,603 | ) | (141 | ) | — | — | |||||||||||||||
Equity in net earnings (losses) of subsidiaries | (399 | ) | (1,030 | ) | 400 | — | 1,029 | — | |||||||||||||||
Other, net | — | (39 | ) | 3 | (19 | ) | — | (55 | ) | ||||||||||||||
Total Other Income (Expense) | 268 | (266 | ) | (1,200 | ) | (159 | ) | 1,029 | (328 | ) | |||||||||||||
Income (Loss) before Income Taxes | 266 | (269 | ) | (1,257 | ) | 639 | 1,029 | 408 | |||||||||||||||
Income Tax Benefit (Expense) | 7 | (130 | ) | (2 | ) | (10 | ) | — | (135 | ) | |||||||||||||
Net Income (Loss) | 273 | (399 | ) | (1,259 | ) | 629 | 1,029 | 273 | |||||||||||||||
Other Comprehensive Income (Loss), Net of Income Taxes | 23 | — | — | 23 | (23 | ) | 23 | ||||||||||||||||
Comprehensive Income (Loss) | $ | 296 | $ | (399 | ) | $ | (1,259 | ) | $ | 652 | $ | 1,006 | $ | 296 |
Level 3 Communications, Inc. | Level 3 Financing, Inc. | Level 3 Communications, LLC | Other Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||
Revenue | $ | — | $ | — | $ | 832 | $ | 1,274 | $ | (45 | ) | $ | 2,061 | ||||||||||
Costs and Expense: | |||||||||||||||||||||||
Network Access Costs | — | — | 299 | 442 | (45 | ) | 696 | ||||||||||||||||
Network Related Expenses | — | — | 231 | 132 | — | 363 | |||||||||||||||||
Depreciation and Amortization | — | — | 75 | 213 | — | 288 | |||||||||||||||||
Selling, General and Administrative Expenses | 1 | — | 268 | 95 | — | 364 | |||||||||||||||||
Total Costs and Expenses | 1 | — | 873 | 882 | (45 | ) | 1,711 | ||||||||||||||||
Operating (Loss) Income | (1 | ) | — | (41 | ) | 392 | — | 350 | |||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||
Interest income | — | — | — | — | — | — | |||||||||||||||||
Interest expense | (14 | ) | (146 | ) | (1 | ) | (4 | ) | — | (165 | ) | ||||||||||||
Interest income (expense) affiliates, net | 331 | 496 | (769 | ) | (58 | ) | — | — | |||||||||||||||
Equity in net earnings (losses) of subsidiaries | (311 | ) | (516 | ) | 183 | — | 644 | — | |||||||||||||||
Other, net | (18 | ) | (145 | ) | (3 | ) | (14 | ) | — | (180 | ) | ||||||||||||
Total Other Income (Expense) | (12 | ) | (311 | ) | (590 | ) | (76 | ) | 644 | (345 | ) | ||||||||||||
Income (Loss) before Income Taxes | (13 | ) | (311 | ) | (631 | ) | 316 | 644 | 5 | ||||||||||||||
Income Tax Expense | — | — | — | (18 | ) | — | (18 | ) | |||||||||||||||
Net Income (Loss) | (13 | ) | (311 | ) | (631 | ) | 298 | 644 | (13 | ) | |||||||||||||
Other Comprehensive Income (Loss), Net of Income Taxes | 85 | — | — | 85 | (85 | ) | 85 | ||||||||||||||||
Comprehensive Income (Loss) | $ | 72 | $ | (311 | ) | $ | (631 | ) | $ | 383 | $ | 559 | $ | 72 |
Level 3 Communications, Inc. | Level 3 Financing, Inc. | Level 3 Communications, LLC | Other Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||
Revenue | $ | — | $ | — | $ | 1,650 | $ | 2,561 | $ | (97 | ) | $ | 4,114 | ||||||||||
Costs and Expense: | |||||||||||||||||||||||
Network Access Costs | — | — | 619 | 897 | (97 | ) | 1,419 | ||||||||||||||||
Network Related Expenses | — | — | 461 | 258 | — | 719 | |||||||||||||||||
Depreciation and Amortization | — | — | 149 | 427 | — | 576 | |||||||||||||||||
Selling, General and Administrative Expenses | 2 | — | 515 | 217 | — | 734 | |||||||||||||||||
Total Costs and Expenses | 2 | — | 1,744 | 1,799 | (97 | ) | 3,448 | ||||||||||||||||
Operating (Loss) Income | (2 | ) | — | (94 | ) | 762 | — | 666 | |||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||
Interest income | — | — | — | 1 | — | 1 | |||||||||||||||||
Interest expense | (33 | ) | (301 | ) | (2 | ) | (9 | ) | — | (345 | ) | ||||||||||||
Interest income (expense) affiliates, net | 664 | 997 | (1,535 | ) | (126 | ) | — | — | |||||||||||||||
Equity in net earnings (losses) of subsidiaries | (502 | ) | (1,052 | ) | 360 | — | 1,194 | — | |||||||||||||||
Other, net | (18 | ) | (145 | ) | (1 | ) | (26 | ) | — | (190 | ) | ||||||||||||
Total Other Income (Expense) | 111 | (501 | ) | (1,178 | ) | (160 | ) | 1,194 | (534 | ) | |||||||||||||
Income (Loss) before Income Taxes | 109 | (501 | ) | (1,272 | ) | 602 | 1,194 | 132 | |||||||||||||||
Income Tax Expense | — | (1 | ) | — | (22 | ) | — | (23 | ) | ||||||||||||||
Net Income (Loss) | 109 | (502 | ) | (1,272 | ) | 580 | 1,194 | 109 | |||||||||||||||
Other Comprehensive Income (Loss), Net of Income Taxes | (56 | ) | — | — | (56 | ) | 56 | (56 | ) | ||||||||||||||
Comprehensive Income (Loss) | $ | 53 | $ | (502 | ) | $ | (1,272 | ) | $ | 524 | $ | 1,250 | $ | 53 |
Level 3 Communications, Inc. | Level 3 Financing, Inc. | Level 3 Communications, LLC | Other Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||
Assets | |||||||||||||||||||||||
Current Assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 11 | $ | 6 | $ | 1,202 | $ | 72 | $ | — | $ | 1,291 | |||||||||||
Restricted cash and securities | — | — | 1 | 7 | — | 8 | |||||||||||||||||
Receivables, less allowances for doubtful accounts | — | — | 81 | 758 | — | 839 | |||||||||||||||||
Due from affiliates | 13,140 | 23,715 | — | 2,565 | (39,420 | ) | — | ||||||||||||||||
Other | — | — | 90 | 50 | — | 140 | |||||||||||||||||
Total Current Assets | 13,151 | 23,721 | 1,374 | 3,452 | (39,420 | ) | 2,278 | ||||||||||||||||
Property, Plant, and Equipment, net | — | — | 3,645 | 6,428 | — | 10,073 | |||||||||||||||||
Restricted Cash and Securities | 22 | — | 9 | — | — | 31 | |||||||||||||||||
Goodwill and Other Intangibles, net | — | — | 358 | 8,401 | — | 8,759 | |||||||||||||||||
Investment in Subsidiaries | 16,816 | 17,713 | 3,730 | — | (38,259 | ) | — | ||||||||||||||||
Deferred Tax Assets | 44 | 2,717 | — | 582 | — | 3,343 | |||||||||||||||||
Other Assets, net | — | — | 12 | 38 | — | 50 | |||||||||||||||||
Total Assets | $ | 30,033 | $ | 44,151 | $ | 9,128 | $ | 18,901 | $ | (77,679 | ) | $ | 24,534 | ||||||||||
Liabilities and Stockholders' Equity (Deficit) | |||||||||||||||||||||||
Current Liabilities: | |||||||||||||||||||||||
Accounts payable | $ | — | $ | — | $ | 360 | $ | 402 | $ | — | $ | 762 | |||||||||||
Current portion of long-term debt | — | — | 2 | 5 | — | 7 | |||||||||||||||||
Accrued payroll and employee benefits | — | — | 125 | 35 | — | 160 | |||||||||||||||||
Accrued interest | 11 | 112 | — | 8 | — | 131 | |||||||||||||||||
Current portion of deferred revenue | — | — | 108 | 160 | — | 268 | |||||||||||||||||
Due to affiliates | — | — | 39,420 | — | (39,420 | ) | — | ||||||||||||||||
Other | — | — | 124 | 47 | — | 171 | |||||||||||||||||
Total Current Liabilities | 11 | 112 | 40,139 | 657 | (39,420 | ) | 1,499 | ||||||||||||||||
Long-Term Debt, less current portion | 592 | 10,099 | 14 | 166 | — | 10,871 | |||||||||||||||||
Deferred Revenue, less current portion | — | — | 725 | 302 | — | 1,027 | |||||||||||||||||
Other Liabilities | 15 | — | 140 | 482 | — | 637 | |||||||||||||||||
Commitments and Contingencies | |||||||||||||||||||||||
Stockholders' Equity (Deficit) | 29,415 | 33,940 | (31,890 | ) | 17,294 | (38,259 | ) | 10,500 | |||||||||||||||
Total Liabilities and Stockholders' Equity (Deficit) | $ | 30,033 | $ | 44,151 | $ | 9,128 | $ | 18,901 | $ | (77,679 | ) | $ | 24,534 |
Level 3 Communications, Inc. | Level 3 Financing, Inc. | Level 3 Communications, LLC | Other Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||
Assets | |||||||||||||||||||||||
Current Assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 12 | $ | 6 | $ | 727 | $ | 109 | $ | — | $ | 854 | |||||||||||
Restricted cash and securities | — | — | 1 | 7 | — | 8 | |||||||||||||||||
Receivables, less allowances for doubtful accounts | — | — | 47 | 710 | — | 757 | |||||||||||||||||
Due from affiliates | 12,415 | 22,759 | — | 2,816 | (37,990 | ) | — | ||||||||||||||||
Other | — | — | 56 | 55 | — | 111 | |||||||||||||||||
Total Current Assets | 12,427 | 22,765 | 831 | 3,697 | (37,990 | ) | 1,730 | ||||||||||||||||
Property, Plant, and Equipment, net | — | — | 3,423 | 6,455 | — | 9,878 | |||||||||||||||||
Restricted Cash and Securities | 27 | — | 14 | 1 | — | 42 | |||||||||||||||||
Goodwill and Other Intangibles, net | — | — | 363 | 8,513 | — | 8,876 | |||||||||||||||||
Investment in Subsidiaries | 16,772 | 17,714 | 3,734 | — | (38,220 | ) | — | ||||||||||||||||
Deferred Tax Assets | 38 | 2,847 | — | 556 | — | 3,441 | |||||||||||||||||
Other Assets, net | — | — | 12 | 38 | — | 50 | |||||||||||||||||
Total Assets | $ | 29,264 | $ | 43,326 | $ | 8,377 | $ | 19,260 | $ | (76,210 | ) | $ | 24,017 | ||||||||||
Liabilities and Stockholders' Equity (Deficit) | |||||||||||||||||||||||
Current Liabilities: | |||||||||||||||||||||||
Accounts payable | $ | — | $ | 1 | $ | 195 | $ | 433 | $ | — | $ | 629 | |||||||||||
Current portion of long-term debt | — | — | 2 | 13 | — | 15 | |||||||||||||||||
Accrued payroll and employee benefits | — | — | 186 | 32 | — | 218 | |||||||||||||||||
Accrued interest | 11 | 90 | — | 7 | — | 108 | |||||||||||||||||
Current portion of deferred revenue | — | — | 119 | 148 | — | 267 | |||||||||||||||||
Due to affiliates | — | — | 37,990 | — | (37,990 | ) | — | ||||||||||||||||
Other | — | — | 115 | 64 | — | 179 | |||||||||||||||||
Total Current Liabilities | 11 | 91 | 38,607 | 697 | (37,990 | ) | 1,416 | ||||||||||||||||
Long-Term Debt, less current portion | 591 | 10,092 | 15 | 168 | — | 10,866 | |||||||||||||||||
Deferred Revenue, less current portion | — | — | 680 | 297 | — | 977 | |||||||||||||||||
Other Liabilities | 15 | — | 133 | 484 | — | 632 | |||||||||||||||||
Commitments and Contingencies | |||||||||||||||||||||||
Stockholders' Equity (Deficit) | 28,647 | 33,143 | (31,058 | ) | 17,614 | (38,220 | ) | 10,126 | |||||||||||||||
Total Liabilities and Stockholders' Equity (Deficit) | $ | 29,264 | $ | 43,326 | $ | 8,377 | $ | 19,260 | $ | (76,210 | ) | $ | 24,017 |
Level 3 Communications, Inc. | Level 3 Financing, Inc. | Level 3 Communications, LLC | Other Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||
Net Cash Provided by (Used in) Operating Activities | $ | (18 | ) | $ | (225 | ) | $ | 274 | $ | 1,110 | $ | — | $ | 1,141 | |||||||||
Cash Flows from Investing Activities: | |||||||||||||||||||||||
Capital Expenditures | — | — | (333 | ) | (331 | ) | — | (664 | ) | ||||||||||||||
(Increase) decrease in restricted cash and securities, net | 5 | — | 6 | — | — | 11 | |||||||||||||||||
Proceeds from the sale of property, plant and equipment and other assets | — | — | — | 1 | — | 1 | |||||||||||||||||
Net Cash Provided by (Used in) Investing Activities | 5 | — | (327 | ) | (330 | ) | — | (652 | ) | ||||||||||||||
Cash Flows from Financing Activities: | |||||||||||||||||||||||
Long-term debt borrowings, net of issuance costs | — | 764 | — | — | — | 764 | |||||||||||||||||
Payments on and repurchases of long-term debt and capital leases | — | (806 | ) | — | (10 | ) | — | (816 | ) | ||||||||||||||
Increase (decrease) due from/to affiliates, net | 12 | 267 | 528 | (807 | ) | — | — | ||||||||||||||||
Net Cash Provided by (Used in) Financing Activities | 12 | 225 | 528 | (817 | ) | — | (52 | ) | |||||||||||||||
Effect of Exchange Rates on Cash and Cash Equivalents | — | — | — | — | — | — | |||||||||||||||||
Net Change in Cash and Cash Equivalents | (1 | ) | — | 475 | (37 | ) | — | 437 | |||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 12 | 6 | 727 | 109 | — | 854 | |||||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 11 | $ | 6 | $ | 1,202 | $ | 72 | $ | — | $ | 1,291 |
Level 3 Communications, Inc. | Level 3 Financing, Inc. | Level 3 Communications, LLC | Other Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||
Net Cash Provided by (Used in) Operating Activities | $ | (21 | ) | $ | (339 | ) | $ | (22 | ) | $ | 1,106 | $ | — | $ | 724 | ||||||||
Cash Flows from Investing Activities: | |||||||||||||||||||||||
Capital Expenditures | — | — | (188 | ) | (383 | ) | — | (571 | ) | ||||||||||||||
Decrease in restricted cash and securities, net | (25 | ) | — | 1 | — | — | (24 | ) | |||||||||||||||
Proceeds from sale of property, plant and equipment and other assets | — | — | — | 2 | — | 2 | |||||||||||||||||
Net Cash Used in Investing Activities | (25 | ) | — | (187 | ) | (381 | ) | — | (593 | ) | |||||||||||||
Cash Flows from Financing Activities: | |||||||||||||||||||||||
Long-term debt borrowings, net of issuance costs | — | 3,948 | — | — | — | 3,948 | |||||||||||||||||
Payments on and repurchases of long-term debt and capital leases | (313 | ) | (3,780 | ) | — | (5 | ) | — | (4,098 | ) | |||||||||||||
Increase (decrease) due from/to affiliates, net | 365 | 171 | 191 | (727 | ) | — | — | ||||||||||||||||
Net Cash Provided by (Used in) Financing Activities | 52 | 339 | 191 | (732 | ) | — | (150 | ) | |||||||||||||||
Effect of Exchange Rates on Cash and Cash Equivalents | — | — | — | (12 | ) | — | (12 | ) | |||||||||||||||
Net Change in Cash and Cash Equivalents | 6 | — | (18 | ) | (19 | ) | — | (31 | ) | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 7 | 5 | 307 | 261 | — | 580 | |||||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 13 | $ | 5 | $ | 289 | $ | 242 | $ | — | $ | 549 |
• | growing revenue by increasing sales generated by its Core Network Services; |
• | focusing on its enterprise customers, as this customer group has the largest potential for growth; |
• | continually improving the customer experience to increase customer retention and reduce customer churn; |
• | launching new products and services to meet customer needs, in particular for enterprise customers; |
• | improving profitability by reducing network costs and operating expenses; |
• | achieving and maintaining sustainable generation of positive cash flows from operations; |
• | continuing to show improvement in Adjusted EBITDA (as defined in this Item below) as a percentage of revenue; |
• | localizing certain decision making and interactions with its mid-market enterprise customers, including leveraging our existing network assets; |
• | concentrating its capital expenditures on those technologies and assets that enable the Company to develop its Core Network Services; |
• | managing Wholesale Voice Services for profit contribution; and |
• | refinancing its future debt maturities. |
• | Core Network Services revenue from colocation and data center services; transport and fiber; Internet Protocol ("IP") and data services; and local and enterprise voice services. |
• | Wholesale Voice Services revenue from sales of long distance voice services to wholesale customers |
• | The enterprise channel includes large, multi-national enterprises requiring large amounts of bandwidth to support their business operations, such as financial services companies, healthcare companies, content providers, and portal and search engine companies. It also includes medium sized enterprises, regional service providers, as well as government markets, the U.S. federal government, the systems integrators supporting the U.S. federal government, U.S. state and local governments, academic consortia, and certain academic institutions. |
• | The wholesale channel includes revenue from incumbent and alternative carriers in each of the regions, global carriers, wireless carriers, cable companies, satellite companies and voice service providers. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
(dollars in millions) | 2016 | 2015 | Change % | 2016 | 2015 | Change % | ||||||||||||||||
Revenue | $ | 2,056 | $ | 2,061 | — | % | $ | 4,107 | $ | 4,114 | — | % | ||||||||||
Network Access Costs | 676 | 696 | (3 | )% | 1,370 | 1,419 | (3 | )% | ||||||||||||||
Network Related Expenses | 339 | 363 | (7 | )% | 677 | 719 | (6 | )% | ||||||||||||||
Depreciation and Amortization | 310 | 288 | 8 | % | 611 | 576 | 6 | % | ||||||||||||||
Selling, General and Administrative Expenses | 357 | 364 | (2 | )% | 713 | 734 | (3 | )% | ||||||||||||||
Total Costs and Expenses | 1,682 | 1,711 | (2 | )% | 3,371 | 3,448 | (2 | )% | ||||||||||||||
Operating Income | 374 | 350 | 7 | % | 736 | 666 | 11 | % | ||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||
Interest income | 1 | — | NM | 2 | 1 | NM | ||||||||||||||||
Interest expense | (140 | ) | (165 | ) | (15 | )% | (275 | ) | (345 | ) | (20 | )% | ||||||||||
Loss on modification and extinguishment of debt | (40 | ) | (163 | ) | (75 | )% | (40 | ) | (163 | ) | (75 | )% | ||||||||||
Other, net | (5 | ) | (17 | ) | (71 | )% | (15 | ) | (27 | ) | (44 | )% | ||||||||||
Total Other Expense | (184 | ) | (345 | ) | (47 | )% | (328 | ) | (534 | ) | (39 | )% | ||||||||||
Income Before Income Taxes | 190 | 5 | NM | 408 | 132 | NM | ||||||||||||||||
Income Tax Expense | (41 | ) | (18 | ) | 128 | % | (135 | ) | (23 | ) | NM | |||||||||||
Net Income (Loss) | $ | 149 | $ | (13 | ) | NM | $ | 273 | $ | 109 | NM |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
(dollars in millions) | 2016 | 2015 | Change % | 2016 | 2015 | Change % | ||||||||||||||||
Core Network Services Revenue: | ||||||||||||||||||||||
North America - Wholesale Channel | $ | 443 | $ | 452 | (2 | )% | $ | 877 | $ | 890 | (1 | )% | ||||||||||
North America - Enterprise Channel | 1,162 | 1,098 | 6 | % | 2,329 | 2,195 | 6 | % | ||||||||||||||
EMEA - Wholesale Channel | 63 | 69 | (9 | )% | 128 | 140 | (9 | )% | ||||||||||||||
EMEA - Enterprise Channel | 128 | 136 | (6 | )% | 254 | 272 | (7 | )% | ||||||||||||||
Latin America - Wholesale Channel | 37 | 48 | (23 | )% | 76 | 96 | (21 | )% | ||||||||||||||
Latin America - Enterprise Channel | 123 | 139 | (12 | )% | 239 | 276 | (13 | )% | ||||||||||||||
Total Core Network Services Revenue | 1,956 | 1,942 | 1 | % | 3,903 | 3,869 | 1 | % | ||||||||||||||
Wholesale Voice Services | 100 | 119 | (16 | )% | 204 | 245 | (17 | )% | ||||||||||||||
Total Revenue | $ | 2,056 | $ | 2,061 | — | % | $ | 4,107 | $ | 4,114 | — | % |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
(dollars in millions) | 2016 | 2015 | Change % | 2016 | 2015 | Change % | ||||||||||||||||
Core Network Services Revenue: | ||||||||||||||||||||||
Colocation and Datacenter Services | $ | 164 | $ | 150 | 9 | % | $ | 311 | $ | 305 | 2 | % | ||||||||||
Transport and Fiber | 575 | 580 | (1 | )% | 1,154 | 1,171 | (1 | )% | ||||||||||||||
IP and Data Services | 915 | 894 | 2 | % | 1,833 | 1,777 | 3 | % | ||||||||||||||
Voice Services (Local and Enterprise) | 302 | 318 | (5 | )% | 605 | 616 | (2 | )% | ||||||||||||||
Total Core Network Services Revenue | 1,956 | 1,942 | 1 | % | 3,903 | 3,869 | 1 | % | ||||||||||||||
Wholesale Voice Services | 100 | 119 | (16 | )% | 204 | 245 | (17 | )% | ||||||||||||||
Total Revenue | $ | 2,056 | $ | 2,061 | — | % | $ | 4,107 | $ | 4,114 | — | % |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(dollars in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net Income (Loss) | $ | 149 | $ | (13 | ) | $ | 273 | $ | 109 | |||||||
Income Tax Expense | 41 | 18 | 135 | 23 | ||||||||||||
Total Other Expense | 184 | 345 | 328 | 534 | ||||||||||||
Depreciation and Amortization | 310 | 288 | 611 | 576 | ||||||||||||
Non-Cash Stock Compensation Attributable to Stock Awards | 31 | 27 | 78 | 58 | ||||||||||||
Adjusted EBITDA | $ | 715 | $ | 665 | $ | 1,425 | $ | 1,300 | ||||||||
North America | $ | 819 | $ | 767 | $ | 1,631 | $ | 1,507 | ||||||||
EMEA | 52 | 57 | 106 | 113 | ||||||||||||
Latin America | 64 | 79 | 138 | 159 | ||||||||||||
Unallocated Corporate Expenses | (220 | ) | (238 | ) | (450 | ) | (479 | ) | ||||||||
Adjusted EBITDA | $ | 715 | $ | 665 | $ | 1,425 | $ | 1,300 |
Six Months Ended June 30, | ||||||||||||
(dollars in millions) | 2016 | 2015 | Change | |||||||||
Net Cash Provided by Operating Activities | $ | 1,141 | $ | 724 | $ | 417 | ||||||
Net Cash Used in Investing Activities | (652 | ) | (593 | ) | (59 | ) | ||||||
Net Cash Used in Financing Activities | (52 | ) | (150 | ) | 98 | |||||||
Effect of Exchange Rates on Cash and Cash Equivalents | — | (12 | ) | 12 | ||||||||
Net Change in Cash and Cash Equivalents | $ | 437 | $ | (31 | ) | $ | 468 |
Six Months Ended June 30, | ||||||||||||
(dollars in millions) | 2016 | 2015 | Change | |||||||||
Net Cash Provided by Operating Activities | $ | 1,141 | $ | 724 | $ | 417 | ||||||
Capital Expenditures | (664 | ) | (571 | ) | (93 | ) | ||||||
Free Cash Flow | $ | 477 | $ | 153 | $ | 324 |
(a) | Exhibits incorporated by reference are indicated in parentheses. |
3.1 | Certificate of Amendment of Restated Certificate of Incorporation of Level 3 Communications, Inc., dated as of May 20, 2016. |
12 | Statements re computation of ratios. |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | The following materials from the Quarterly Report on Form 10-Q of Level 3 Communications, Inc. for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows and (v) Notes to Unaudited Consolidated Financial Statements. |
LEVEL 3 COMMUNICATIONS, INC. | ||||||
Dated: | August 5, 2016 | /s/ Eric J. Mortensen | ||||
Eric J. Mortensen | ||||||
Senior Vice President, Controller and Principal Accounting Officer |
Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||
(dollars in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||
Income (Loss) from Continuing Operations Before Income Taxes | $ | 408 | $ | 132 | $ | 283 | $ | 238 | $ | (71 | ) | $ | (374 | ) | $ | (786 | ) | ||||||||||
Interest on Debt, Net of Capitalized Interest | 275 | 345 | 642 | 654 | 649 | 733 | 716 | ||||||||||||||||||||
Amortization of Capitalized Interest | — | — | — | — | — | — | — | ||||||||||||||||||||
Portion of rents deemed representative of the interest factor (1/3) | 58 | 59 | 119 | 104 | 101 | 101 | 77 | ||||||||||||||||||||
Earnings Available for Fixed Charges | $ | 741 | $ | 536 | $ | 1,044 | $ | 996 | $ | 679 | $ | 460 | $ | 7 | |||||||||||||
Interest on Debt | 275 | 345 | 642 | 654 | 649 | 733 | 716 | ||||||||||||||||||||
Preferred Dividends | — | — | — | — | — | — | — | ||||||||||||||||||||
Interest Expense Portion of Rental Expense | 58 | 59 | 119 | 104 | 101 | 101 | 77 | ||||||||||||||||||||
Total Fixed Charges | $ | 333 | $ | 404 | $ | 761 | $ | 758 | $ | 750 | $ | 834 | $ | 793 | |||||||||||||
Ratio of Earnings to Fixed Charges | 2.2 | 1.3 | 1.4 | 1.3 | — | — | — | ||||||||||||||||||||
Deficiency | $ | — | $ | — | $ | — | $ | — | $ | (71 | ) | $ | (374 | ) | $ | (786 | ) |
1. | I have reviewed this Form 10-Q of Level 3 Communications, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Jeff K. Storey | |
Jeff K. Storey | |
Chief Executive Officer |
1. | I have reviewed this Form 10-Q of Level 3 Communications, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Sunit S. Patel | |
Sunit S. Patel | |
Chief Financial Officer |
1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Jeff K. Storey | |
Jeff K. Storey | |
Chief Executive Officer | |
August 5, 2016 |
1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Sunit S. Patel | |
Sunit S. Patel | |
Chief Financial Officer | |
August 5, 2016 |
Document and Entity Information Document - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Aug. 03, 2016 |
|
Entity Information [Line Items] | ||
Entity Registrant Name | LEVEL 3 COMMUNICATIONS INC | |
Entity Central Index Key | 0000794323 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 359,525,110 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q2 |
Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Revenue | $ 2,056 | $ 2,061 | $ 4,107 | $ 4,114 |
Costs and Expenses: | ||||
Network access costs | 676 | 696 | 1,370 | 1,419 |
Network related expenses | 339 | 363 | 677 | 719 |
Depreciation and amortization | 310 | 288 | 611 | 576 |
Selling, general and administrative Expenses | 357 | 364 | 713 | 734 |
Total Costs and Expenses | 1,682 | 1,711 | 3,371 | 3,448 |
Operating Income | 374 | 350 | 736 | 666 |
Other Income (Expense): | ||||
Interest income | 1 | 0 | 2 | 1 |
Interest expense | (140) | (165) | (275) | (345) |
Loss on modification and extinguishment of Debt | (40) | (163) | (40) | (163) |
Other, net | (5) | (17) | (15) | (27) |
Total Other Expense | (184) | (345) | (328) | (534) |
Income Before Income Taxes | 190 | 5 | 408 | 132 |
Income Tax Expense | (41) | (18) | (135) | (23) |
Net Income (Loss) | $ 149 | $ (13) | $ 273 | $ 109 |
Basic Earnings (Loss) per Common Share | ||||
Net Income (Loss) Per Share | $ 0.42 | $ (0.04) | $ 0.77 | $ 0.31 |
Weighted-Average Shares Outstanding (in thousands) | 357,924 | 354,471 | 357,355 | 350,693 |
Diluted Earnings per Common Share | ||||
Net Income Per Share | $ 0.41 | $ (0.04) | $ 0.76 | $ 0.31 |
Weighted-Average Shares Outstanding (in thousands) | 360,867 | 354,471 | 360,415 | 354,325 |
Consolidated Statements of Comprehensive Income) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Net Income (Loss) | $ 149 | $ (13) | $ 273 | $ 109 |
Other Comprehensive Income (Loss) net of Tax: | ||||
Foreign currency translation adjustments, net of tax effect of $16, $0, $24 and $0 | (24) | 84 | 24 | (57) |
Defined benefit pension plan adjustments, net of tax effect of $1, $0, ($1) and $0 | 2 | 1 | (1) | 1 |
Other Comprehensive Income (Loss), Net of Tax | (22) | 85 | 23 | (56) |
Comprehensive Income | $ 127 | $ 72 | $ 296 | $ 53 |
Comprehensive Income Parenthetical (Parentheticals) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Comprehensive Income Parenthetical [Abstract] | ||||
Foreign currency translation adjustments, tax effect | $ 16 | $ 0 | $ 24 | $ 0 |
Defined benefit pension plan adjustments, tax effect | $ 1 | $ 0 | $ (1) | $ 0 |
Consolidated Balance Sheets Parentheticals (Parentheticals) - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Allowance for doubtful accounts | $ 33 | $ 32 |
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment | $ 10,826 | $ 10,365 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 433,333,333 | 433,333,333 |
Common stock, shares issued | 358,039,014 | 356,374,473 |
Common stock, shares outstanding | 358,039,014 | 356,374,473 |
Organization and Summary of Significant Accounting Policies (Notes) |
6 Months Ended |
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Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Organization and Summary of Significant Accounting Policies | Organization and Summary of Significant Accounting Policies Description of Business Level 3 Communications, Inc. and subsidiaries (the "Company" or "Level 3") is an international facilities-based provider (that is, a provider that owns or leases a substantial portion of the plant, property and equipment necessary to provide its services) of a broad range of integrated communications services. The Company created its communications network by constructing its own assets and through a combination of purchasing other companies and purchasing or leasing facilities from others. The Company designed its network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies. Principles of Consolidation and Basis of Presentation The Consolidated Financial Statements include the accounts of Level 3 Communications, Inc. and subsidiaries in which it has a controlling interest. All significant intercompany accounts and transactions have been eliminated. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). As part of its consolidation policy, the Company considers its controlled subsidiaries, investments in businesses in which the Company is not the primary beneficiary or does not have effective control but has the ability to significantly influence operating and financial policies, and variable interests resulting from economic arrangements that give the Company rights to economic risks or rewards of a legal entity. The Company does not have variable interests in a variable interest entity where it is required to consolidate the entity as the primary beneficiary. Prior to October 1, 2015, the Company included the results of its wholly owned Venezuelan subsidiary in its Consolidated Financial Statements using the consolidation method of accounting. The Company’s Venezuelan subsidiary was in the Latin America segment and had total revenue of $24 million and $47 million, with Adjusted EBITDA of $15 million and $30 million, for the three and six months ended June 30, 2015, respectively. For more information on the Company's segments and non-GAAP measures see Note 8 - Segment Information. Venezuelan exchange control regulations have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar, and have restricted the Company's Venezuelan operations’ ability to pay dividends and settle intercompany obligations in U.S. dollars. The severe currency controls imposed by the Venezuelan government have significantly limited the ability to realize the benefits from earnings of the Company’s Venezuelan operations and access the resulting liquidity provided by those earnings in U.S. dollars. The Company expects that this condition will continue for the foreseeable future. Additionally, government regulations affecting the Company's ability to manage its Venezuelan subsidiary’s capital structure, purchasing, product pricing, customer invoicing and collections, and labor relations; and the current political and economic situation within Venezuela have resulted in an acute degradation in the Company's ability to make key operational decisions for its Venezuelan operations. This lack of exchangeability into U.S. dollars and the degradation in the Company's ability to control key operational decisions has resulted in a lack of control over the Company's Venezuelan subsidiary for U.S. accounting purposes. Therefore, while continuing to wholly own its Venezuelan subsidiary, the Company concluded it no longer met the accounting criteria for consolidation and deconsolidated its Venezuelan subsidiary on September 30, 2015, and began accounting for its variable interest investment in its Venezuelan operations using the cost method of accounting. The factors that led to the Company's conclusions at the end of the third quarter of 2015 continued to exist through the end of the second quarter of 2016. Any dividends from the Company's Venezuelan subsidiary are recorded as other income upon receipt of the cash in U.S. dollars. Prior period results have not been adjusted to reflect the deconsolidation of the Company's Venezuelan subsidiary. The accompanying Consolidated Balance Sheet as of December 31, 2015, which was derived from audited Consolidated Financial Statements, and the unaudited interim Consolidated Financial Statements as of June 30, 2016 and for the six months ended June 30, 2016 and 2015 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015. In the opinion of the Company’s management, these financial statements contain all adjustments necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the interim periods presented herein. The results of operations for an interim period are not necessarily indicative of the results of operations expected for a full fiscal year. The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates under different assumptions or conditions and such differences could be material. Reclassifications Certain amounts in the prior year Consolidated Financial Statements and accompanying footnotes have been reclassified to conform to the current year's presentation primarily pursuant to the adoption of Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs. As of December 31, 2015, approximately $19 million of current debt issuance costs have been reclassified from other current assets to long-term debt, less current portion and approximately $109 million of non-current debt issuance costs have been reclassified from other non-current assets to long-term debt, less current portion. Recently Issued Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, as part of its simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the effect of the adoption of this standard as early as the third quarter of 2016, and estimates this adoption would reduce income tax expense by a range of $18 million to $24 million and would lower the Company's effective income tax rate for the year ended 2016. In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842), which requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This ASU will replace most existing leasing guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early application is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU 2016-02 will have on its Consolidated Financial Statements and related disclosures, and expects the new guidance to significantly increase the reported assets and liabilities on its Consolidated Balance Sheets. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ASC Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its Consolidated Financial Statements and related disclosures and has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. |
Earnings Per Share (Notes) |
6 Months Ended |
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Jun. 30, 2016 | |
Earnings Per Share [Abstract] | |
Earnings Per Share | Earnings Per Share The Company computes basic earnings per share by dividing net income for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the net income for the period by the weighted average number of shares of common stock outstanding during the period and including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding convertible notes and stock-based compensation awards. The effect of approximately 3 million total outperform stock appreciation rights ("OSOs"), restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs") outstanding at June 30, 2016 has been included in the computation of diluted earnings per share for the three and six months ended June 30, 2016. The effect of approximately 4 million total OSOs and RSUs outstanding at June 30, 2015 has not been included in the computation of diluted earnings per share for the three months ended June 30, 2015 because their inclusion would have been anti-dilutive to the computation but have been included in the computation of diluted earnings per share for the six months ended June 30, 2015. PRSUs were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2015, as they were contingently issuable and no shares would have been issued if these periods were the end of the contingency period. |
Other Intangible Assets (Notes) |
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Acquired Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired Intangible Assets | Other Intangible Assets Other intangible assets as of June 30, 2016 and December 31, 2015 were as follows (dollars in millions):
Finite-lived intangible asset amortization expense was $53 million and $106 million for the three and six months ended June 30, 2016 and $58 million and $114 million for the three and six months ended June 30, 2015. At June 30, 2016, the weighted average remaining useful lives of the Company's finite-lived intangible assets was 5.3 years in total; 5.4 years for customer contracts and relationships, and 3.0 years for patents and developed technology. As of June 30, 2016, estimated amortization expense for the Company’s finite-lived intangible assets over the next five years is as follows (dollars in millions):
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Fair Value of Financial Instruments (Notes) |
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Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, restricted cash and securities, receivables, accounts payable, capital leases, other liabilities and long-term debt (including the current portion). The carrying values of cash and cash equivalents, restricted cash and securities, receivables, accounts payable, capital leases and other liabilities approximated their fair values at June 30, 2016 and December 31, 2015. GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements and disclosures for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as interest and foreign exchange rates, transfer restrictions, and risk of non-performance. Fair Value Hierarchy GAAP establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value measurement of each class of assets and liabilities is dependent upon its categorization within the fair value hierarchy, based upon the lowest level of input that is significant to the fair value measurement of each class of asset and liability. GAAP establishes three levels of inputs that may be used to measure fair value: Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2— Unadjusted quoted prices for similar assets or liabilities in active markets, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3— Unobservable inputs for the asset or liability. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period. There were no transfers within the fair value hierarchy during each of the six months ended June 30, 2016 and June 30, 2015. The table below presents the fair values for the Company’s long-term debt as well as the input levels used to determine these fair values as of June 30, 2016 and December 31, 2015:
The Company does not have any assets or liabilities where the fair value is measured using significant unobservable inputs (Level 3). Term Loans The fair value of the Term Loans referenced above was approximately $4.6 billion at both June 30, 2016 and December 31, 2015. The fair value of each loan is based on quoted prices for identical terms and maturities. Each loan tranche is actively traded. Senior Notes The fair value of the Senior Notes referenced above was approximately $6.2 billion at June 30, 2016 and $6.3 billion at December 31, 2015, respectively, based on quoted prices for identical terms and maturities. Each series of notes is actively traded. Capital Leases The fair value of the Company's capital leases was determined by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. |
Long-Term Debt (Notes) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt | Long-Term Debt The following table summarizes the Company’s long-term debt (amounts in millions):
(1) The term loans are secured obligations and guaranteed by the Company and Level 3 Communications, LLC and certain other subsidiaries. (2) The notes are fully and unconditionally guaranteed on an unsubordinated unsecured basis by the Company and Level 3 Communications, LLC. (3) The notes were not guaranteed by any of the Company’s subsidiaries. (4) The Tranche B-III 2019 Term Loan and the Tranche B 2020 Term Loan each had an interest rate of 4.000% as of June 30, 2016 and December 31, 2015. The Tranche B-II 2022 Term Loan had an interest rate of 3.500% as of June 30, 2016 and December 31, 2015. The Floating Rate Senior Notes due 2018 had an interest rate of 4.407% as of June 30, 2016 and 4.101% as of December 31, 2015. The interest rate on the Tranche B-III 2019 Term Loan, and the Tranche B 2020 Term Loan are set with a minimum LIBOR of 1.00%, and the Tranche B-II 2022 Term Loan is set with a minimum LIBOR of 0.75%. (5) The notes are fully and unconditionally guaranteed on a unsubordinated unsecured basis by the Company. Senior Secured Term Loans As of June 30, 2016, Level 3 Financing, Inc., the Company's direct wholly owned subsidiary ("Level 3 Financing") had a senior secured credit facility consisting of $815 million Tranche B-III Term Loan due 2019, $1.796 billion Tranche B Term Loan due 2020 and $2 billion Tranche B-II Term Loan due 2022. Senior Notes All of the notes pay interest semiannually, and allow for the redemption of the notes at the option of the issuer upon not less than 30 or more than 60 days’ prior notice by paying the greater of 101% of the principal amount or a “make-whole” amount, plus accrued interest. In addition, the notes also have a provision that allows for an additional right of optional redemption using cash proceeds received from the sale of equity securities. For specific details of these features and requirements, including the applicable premiums and timing, refer to the indentures for the respective senior notes in connection with the original issuances. 7% Senior Notes due 2020 and 5.25% Senior Notes due 2026 On March 22, 2016, Level 3 Financing issued $775 million in aggregate principal amount of its 5.25% Senior Notes due 2026 (the “5.25% Senior Notes due 2026”). The 5.25% Senior Notes due 2026 are fully and unconditionally guaranteed on an unsubordinated unsecured basis by the Company. In addition, each of Level 3 Communications, Inc. and Level 3 Financing has agreed to endeavor in good faith using commercially reasonable efforts to cause Level 3 Communications, LLC to obtain all material governmental authorizations and consents required in order for it to guarantee the 5.25% Senior Notes due 2026 at the earliest practicable date and to enter into a guarantee of the 5.25% Senior Notes due 2026 promptly thereafter. The 5.25% Senior Notes due 2026 were not originally registered under the Securities Act of 1933, as amended. A registration rights agreement with respect to these notes became effective as of March 22, 2016. On April 21, 2016, all of the outstanding principal amount of the 7% Senior Notes Due 2020 was redeemed at a redemption price equal to 104.138% of the principal amount, along with accrued and unpaid interest to but excluding the redemption date. To fund the redemption of these notes, Level 3 Financing used the net proceeds, along with cash on hand, from the March 22, 2016 issuance of its 5.25% Senior Notes due 2026. The Company recognized a loss on modification and extinguishment of debt of approximately $40 million in Other Expense in the second quarter of 2016 as a result of the redemption of the 7% Senior Notes due 2020. Capital Leases As of June 30, 2016, the Company had $187 million of capital leases. The Company leases property, equipment, certain dark fiber facilities and metro fiber under non-cancelable IRU agreements that are accounted for as capital leases. The average interest rate on these capital leases approximated 5.8% as of June 30, 2016. Covenant Compliance At June 30, 2016 and December 31, 2015, the Company was in compliance with the financial covenants on all outstanding debt issuances. Long-Term Debt Maturities Aggregate future contractual maturities of long-term debt and capital leases (excluding discounts and debt issuance costs) were as follows as of June 30, 2016 (dollars in millions):
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Accumulated Other Comprehensive Loss (Notes) |
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Comprehensive Income (Loss) Note [Text Block] | Accumulated Other Comprehensive Loss The accumulated balances for each classification of other comprehensive income (loss) were as follows:
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Stock-Based Compensation (Notes) |
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Compensation and Retirement and Compensation Related Costs, Share-based Payments Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation The following table summarizes non-cash compensation expense attributable to stock-based awards for the three and six months ended June 30, 2016 and 2015 (dollars in millions):
The Company capitalizes non-cash compensation for those employees directly involved in the construction of the network, installation of services for customers or the development of business support systems. As of June 30, 2016, there were less than 1 million OSOs outstanding, and approximately 5 million total restricted stock and performance restricted stock units outstanding. |
Segment Information (Notes) |
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Segment Reporting Disclosure [Text Block] | Segment Information Operating segments are defined under GAAP as components of an enterprise for which separate financial information is available and evaluated regularly by the Company's chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. The Company's reportable segments consist of 1) North America, 2) Europe, the Middle East and Africa (EMEA) and 3) Latin America. Other separate business interests that are not segments include interest, certain corporate assets and overhead costs, and certain other general and administrative costs that are not allocated to any of the operating segments. The CODM measures and evaluates segment performance primarily based upon revenue, revenue growth and Adjusted EBITDA. Adjusted EBITDA, as defined by the Company, is equal to net income (loss) from the Consolidated Statements of Operations before (1) income tax expense, (2) total other income (expense), (3) non-cash impairment charges included within selling, general and administrative expenses and network related expenses, (4) depreciation and amortization expense, and (5) non-cash stock-based compensation expense included within selling, general and administrative expenses and network related expenses. Adjusted EBITDA is not a measurement under GAAP and may not be used in the same way by other companies. Management believes that Adjusted EBITDA is an important part of the Company's internal reporting and is a key measure used by management to evaluate profitability and operating performance of the Company and to make resource allocation decisions. Management believes such measurement is especially important in a capital-intensive industry such as telecommunications. Management also uses Adjusted EBITDA 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-based compensation expense because of the non-cash nature of these items. Adjusted EBITDA also excludes interest income, interest expense and income tax expense 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 reflect the effect of capital investments which management believes are better evaluated through cash flow measures. Adjusted EBITDA excludes net other income (expense) because these items are not related to the primary operations of the Company. There are limitations to using non-GAAP financial measures such as Adjusted EBITDA, 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 tax benefit (expense), depreciation and amortization expense, non-cash impairment charges, non-cash stock-based compensation expense, and net other income (expense). Adjusted EBITDA should not be considered a substitute for other measures of financial performance reported in accordance with GAAP. The following table presents revenue by segment:
The following table presents Adjusted EBITDA by segment and reconciles Adjusted EBITDA to net income (loss):
The following table presents capital expenditures by segment and reconciles capital expenditures by segment to total capital expenditures:
The following table presents total assets by segment:
The changes in the carrying amount of goodwill by segment during the six months ended June 30, 2016 were as follows (in millions):
There were no events or changes in circumstances during the first half of 2016 that indicated the carrying value of goodwill may not be recoverable. |
Commitments, Contingencies and Other Items (Notes) |
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Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments, Contingencies and Other Items | Commitments, Contingencies and Other Items The Company is subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect its financial condition, future results of operations or cash flows. Amounts accrued for such contingencies aggregate to $119 million and are included in “Other” current liabilities and “Other Liabilities” in the Company's Consolidated Balance Sheet at June 30, 2016. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued would have no effect on the Company's results of operations but could materially adversely affect its cash flows for the affected period. The Company reviews its accruals at least quarterly and adjusts them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Below is a description of material legal proceedings and other contingencies pending at June 30, 2016. Although the Company believes it has accrued for these matters in accordance with the accounting guidance for contingencies, contingencies are inherently unpredictable and it is possible that results of operations or cash flows could be materially and adversely affected in any particular period by unfavorable developments in, or resolution or disposition of, one or more of these matters. For those contingencies in respect of which the Company believes that it is reasonably possible that a loss may result that is materially in excess of the accrual (if any) established for the matter, the Company has either provided an estimate of such possible loss or range of loss or included a statement that such an estimate cannot be made. In addition to the contingencies described below, the Company is party to many other legal proceedings and contingencies, the resolution of which is not expected to materially affect its financial condition or future results of operations beyond the amounts accrued. Rights-of-Way Litigation The Company is party to a number of purported class action lawsuits involving its right to install fiber optic cable network in railroad right-of-ways adjacent to plaintiffs' land. In general, the Company obtained the rights to construct its networks from railroads, utilities, and others, and has installed its networks along the rights-of-way so granted. Plaintiffs in the purported class actions assert that they are the owners of lands over which the fiber optic cable networks pass, and that the railroads, utilities and others who granted the Company the right to construct and maintain its network did not have the legal authority to do so. The complaints seek damages on theories of trespass, unjust enrichment and slander of title and property, as well as punitive damages. The Company has also received, and may in the future receive, claims and demands related to rights-of-way issues similar to the issues in these cases that may be based on similar or different legal theories. The Company has defeated motions for class certification in a number of these actions but expects that, absent settlement of these actions, plaintiffs in the pending lawsuits will continue to seek certification of statewide or multi-state classes. The only lawsuit in which a class was certified against the Company, absent an agreed upon settlement, occurred in Koyle, et. al. v. Level 3 Communications, Inc., et. al., a purported two state class action filed in the United States District Court for the District of Idaho. The Koyle lawsuit has been dismissed pursuant to a settlement reached in November 2010 as described further below. The Company negotiated a series of class settlements affecting all persons who own or owned land next to or near railroad rights of way in which it has installed its fiber optic cable networks. The United States District Court for the District of Massachusetts in Kingsborough v. Sprint Communications Co. L.P. granted preliminary approval of the proposed settlement; however, on September 10, 2009, the court denied a motion for final approval of the settlement on the basis that the court lacked subject matter jurisdiction and dismissed the case. In November 2010, the Company negotiated revised settlement terms for a series of state class settlements affecting all persons who own or owned land next to or near railroad rights of way in which the Company has installed its fiber optic cable networks. The Company is currently pursuing presentment of the settlement in applicable jurisdictions. The settlements, affecting current and former landowners, have received final federal court approval in the vast majority of applicable states and the parties are actively engaged in, or have completed, the claims process for those states, including payment of claims. The Company continues to seek approval in the remaining two states. Management believes that the Company has substantial defenses to the claims asserted in all of these actions and intends to defend them vigorously if a satisfactory settlement is not ultimately approved for all affected landowners. Peruvian Tax Litigation Beginning in 2005, one of the Company's Peruvian subsidiaries received a number of assessments for tax, penalties and interest for calendar years 2001 and 2002. Peruvian tax authorities ("SUNAT") took the position that the Peruvian subsidiary incorrectly documented its importations resulting in additional income tax withholding and value-added taxes ("VAT"). The total amount of the asserted claims, including potential interest and penalties, was $26 million, consisting of $3 million for income tax withholding in connection with the import of services for calendar years 2001 and 2002, $7 million for VAT in connection with the import of services for calendar years 2001 and 2002, and $16 million in connection with the disallowance of VAT credits for periods beginning in 2005. After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, the total amount of exposure is $30 million at June 30, 2016. The Company challenged the tax assessments during 2005 by filing administrative claims before SUNAT. During August 2006 and June 2007, SUNAT rejected the Company's administrative claims, thereby confirming the assessments. Appeals were filed in September 2006 and July 2007 with the Tribunal Fiscal, the highest level of administrative review, which is not part of the Peru judiciary (the "Tribunal"). The 2001 and 2002 assessed withholding tax assessments were resolved in favor of the Company in separate administrative resolutions; however, the penalties with respect to withholding tax remain at issue in the administrative appeals. In October 2011, the Tribunal issued its administrative resolution with respect to the calendar year 2002 tax period regarding VAT, associated penalties and penalties associated with withholding taxes, deciding the central issue underlying the assessments in the government's favor, while confirming the assessment in part and denying a portion of the assessment on procedural grounds. The Company appealed the Tribunal's October 2011 administrative resolutions to the judicial court in Peru. In September 2014, the first judicial court rendered a decision largely in the Company’s favor on the central issue underlying the assessments. SUNAT appealed the court’s decision to the next judicial level. The court of appeal remanded the case to the first judicial court for further development of the facts and legal analysis supporting its decision. In April 2016, the first judicial level rendered a decision in the Company’s favor on the central issue underlying the assessments. SUNAT has appealed the court's decision to the next judicial level. In October 2013, the Tribunal notified the Company of its July 2013 administrative resolution with respect to the calendar year 2001 tax period regarding VAT, associated penalties and penalties associated with withholding taxes, determining the central issue underlying the assessments in the government's favor, while confirming the assessment in part and denying a portion of the assessment on procedural grounds. The Company appealed the Tribunal's July 2013 administrative resolutions to the judicial court in Peru. In April 2015, the first judicial court rendered a decision largely in SUNAT’s favor on the central issue underlying the assessments. The Company appealed the court’s decision to the next judicial level. In April 2016, the court of appeal rendered a decision that declared null the April 2015 decision and remanded the case to the first judicial court for further development of the facts and legal analysis supporting its decision. In December 2013, SUNAT initiated an audit of calendar year 2001. In June 2014, the Company was served with SUNAT’s assessments of the 2001 VAT credits declared null by the Tribunal and the corresponding fine. In July 2014, the Company challenged these assessments by filing administrative claims before SUNAT. In January 2015, SUNAT rejected the administrative claims, thereby confirming the assessments. The Company filed an appeal with the Tribunal in February 2015. In May 2015, the Tribunal notified the Company of its administrative resolution declaring the assessments and corresponding fines null. The time for SUNAT to appeal this resolution has closed. Under local practice, notification of an appeal can take several months. Counsel confirmed in the first quarter of 2016 that SUNAT has not filed an appeal to the resolution. Nevertheless, SUNAT retains the right to reissue the assessments declared null or start a new audit. However, the Company is under no obligation to provide additional information and any fine issued by SUNAT based on the same information that it has already used in the past would be declared null. Accordingly, in March 2016, the Company released an accrual of approximately $15 million for an assessment and associated interest. Employee Severance and Contractor Termination Disputes A number of former employees and third-party contractors have asserted a variety of claims in litigation against certain Latin American subsidiaries of the Company for separation pay, severance, commissions, pension benefits, unpaid vacation pay, breach of employment contracts, unpaid performance bonuses, property damages, moral damages and related statutory penalties, fines, costs and expenses (including accrued interest, attorneys fees and statutorily mandated inflation adjustments) as a result of their separation from the Company or termination of service relationships. The Company is vigorously defending itself against the asserted claims, which aggregate to approximately $29 million at June 30, 2016. Brazilian Tax Claims In December 2004, March 2009, April 2009 and July 2014, the São Paulo state tax authorities issued tax assessments against one of the Company's Brazilian subsidiaries for the Tax on Distribution of Goods and Services (“ICMS”) with respect to revenue from leasing movable properties (in the case of the December 2004, March 2009 and July 2014 assessments) and revenue from the provision of Internet access services (in the case of the April 2009 and July 2014 assessments), by treating such activities as the provision of communications services, to which the ICMS tax applies. During the third quarter of 2014, the Company released an accrual of $6 million for tax, penalty and associated interest corresponding to the ICMS applicable on the provision of Internet access services due to the expiration of the statute of limitations for the January 2008 to June 2009 tax periods. In September 2002, July 2009 and May 2012, the Rio de Janeiro state tax authorities issued tax assessments to the same Brazilian subsidiary on similar issues. The Company has filed objections to these assessments, arguing that the lease of assets and the provision of Internet access are not communication services subject to ICMS. The objections to the September 2002, December 2004 and March 2009 assessments were rejected by the respective state administrative courts, and the Company has appealed those decisions to the judicial courts. In October 2012 and June 2014, the Company received favorable rulings from the lower court on the December 2004 and March 2009 assessments regarding equipment leasing, but those rulings are subject to appeal by the state. No ruling has been obtained with respect to the September 2002 assessment. The objections to the April and July 2009 and May 2012 assessments are still pending final administrative decisions. The July 2014 assessment was confirmed during the fourth quarter of 2014 at the first administrative level and the Company appealed this decision to the second administrative level. During the fourth quarter of 2014, the Company entered into an amnesty with the Rio de Janeiro state tax authorities with respect to potential ICMS liability for the 2008 tax period. As a result, the Company paid $5 million and released an accrual of $3 million of tax corresponding to the ICMS applicable on the provision of Internet access services in the fourth quarter of 2014. The Company is vigorously contesting all such assessments in both states, and in particular, views the assessment of ICMS on revenue from leasing movable properties to be without merit. Nevertheless, the Company believes that it is reasonably possible that these assessments could result in a loss of up to $55 million at June 30, 2016 in excess of the accruals established for these matters. Letters of Credit It is customary for Level 3 to use various financial instruments in the normal course of business. These instruments include letters of credit. Letters of credit are conditional commitments issued on behalf of Level 3 in accordance with specified terms and conditions. As of June 30, 2016 and December 31, 2015, Level 3 had outstanding letters of credit or other similar obligations of approximately $40 million and $46 million, respectively, of which $34 million and $43 million are collateralized by cash that is reflected on the Consolidated Balance Sheets as restricted cash and securities. The Company does not believe exposure to loss related to its letters of credit is material. |
Condensed Consolidating Financial Information (Notes) |
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Condensed Consolidating Financial Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidating Financial Information | Condensed Consolidating Financial Information Level 3 Financing, Inc., a wholly owned subsidiary of the Company, has issued senior notes that are unsecured obligations of Level 3 Financing, Inc.; however, they are also fully and unconditionally and jointly and severally guaranteed on an unsecured senior basis by Level 3 Communications, Inc. and Level 3 Communications, LLC. In conjunction with the registration of the senior notes, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.” The operating activities of the separate legal entities included in the Company’s Consolidated Financial Statements are interdependent. The accompanying condensed consolidating financial information presents the results of operations, financial position and cash flows of each legal entity and, on an aggregate basis, the other non-guarantor subsidiaries based on amounts incurred by such entities, and is not intended to present the operating results of those legal entities on a stand-alone basis. Level 3 Communications, LLC leases equipment and certain facilities from other wholly owned subsidiaries of Level 3 Communications, Inc. These transactions are eliminated in the consolidated results of the Company. Condensed Consolidating Statements of Comprehensive Income (Loss) Three Months Ended June 30, 2016
Condensed Consolidating Statements of Comprehensive Income (Loss) Six Months Ended June 30, 2016
Condensed Consolidating Statements of Comprehensive Income (Loss) Three Months Ended June 30, 2015
Condensed Consolidating Statements of Comprehensive Income (Loss) Six Months Ended June 30, 2015
Condensed Consolidating Balance Sheets June 30, 2016
Condensed Consolidating Balance Sheets December 31, 2015
Condensed Consolidating Statements of Cash Flows Six Months Ended June 30, 2016
Condensed Consolidating Statements of Cash Flows Six Months Ended June 30, 2015
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Organization and Summary of Significant Accounting Policies (Policies) |
6 Months Ended |
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Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Description of Business | Description of Business Level 3 Communications, Inc. and subsidiaries (the "Company" or "Level 3") is an international facilities-based provider (that is, a provider that owns or leases a substantial portion of the plant, property and equipment necessary to provide its services) of a broad range of integrated communications services. The Company created its communications network by constructing its own assets and through a combination of purchasing other companies and purchasing or leasing facilities from others. The Company designed its network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies. |
Principles of Consolidation and Basis of Presentation | Principles of Consolidation and Basis of Presentation The Consolidated Financial Statements include the accounts of Level 3 Communications, Inc. and subsidiaries in which it has a controlling interest. All significant intercompany accounts and transactions have been eliminated. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). As part of its consolidation policy, the Company considers its controlled subsidiaries, investments in businesses in which the Company is not the primary beneficiary or does not have effective control but has the ability to significantly influence operating and financial policies, and variable interests resulting from economic arrangements that give the Company rights to economic risks or rewards of a legal entity. The Company does not have variable interests in a variable interest entity where it is required to consolidate the entity as the primary beneficiary. Prior to October 1, 2015, the Company included the results of its wholly owned Venezuelan subsidiary in its Consolidated Financial Statements using the consolidation method of accounting. The Company’s Venezuelan subsidiary was in the Latin America segment and had total revenue of $24 million and $47 million, with Adjusted EBITDA of $15 million and $30 million, for the three and six months ended June 30, 2015, respectively. For more information on the Company's segments and non-GAAP measures see Note 8 - Segment Information. Venezuelan exchange control regulations have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar, and have restricted the Company's Venezuelan operations’ ability to pay dividends and settle intercompany obligations in U.S. dollars. The severe currency controls imposed by the Venezuelan government have significantly limited the ability to realize the benefits from earnings of the Company’s Venezuelan operations and access the resulting liquidity provided by those earnings in U.S. dollars. The Company expects that this condition will continue for the foreseeable future. Additionally, government regulations affecting the Company's ability to manage its Venezuelan subsidiary’s capital structure, purchasing, product pricing, customer invoicing and collections, and labor relations; and the current political and economic situation within Venezuela have resulted in an acute degradation in the Company's ability to make key operational decisions for its Venezuelan operations. This lack of exchangeability into U.S. dollars and the degradation in the Company's ability to control key operational decisions has resulted in a lack of control over the Company's Venezuelan subsidiary for U.S. accounting purposes. Therefore, while continuing to wholly own its Venezuelan subsidiary, the Company concluded it no longer met the accounting criteria for consolidation and deconsolidated its Venezuelan subsidiary on September 30, 2015, and began accounting for its variable interest investment in its Venezuelan operations using the cost method of accounting. The factors that led to the Company's conclusions at the end of the third quarter of 2015 continued to exist through the end of the second quarter of 2016. Any dividends from the Company's Venezuelan subsidiary are recorded as other income upon receipt of the cash in U.S. dollars. Prior period results have not been adjusted to reflect the deconsolidation of the Company's Venezuelan subsidiary. The accompanying Consolidated Balance Sheet as of December 31, 2015, which was derived from audited Consolidated Financial Statements, and the unaudited interim Consolidated Financial Statements as of June 30, 2016 and for the six months ended June 30, 2016 and 2015 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015. In the opinion of the Company’s management, these financial statements contain all adjustments necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the interim periods presented herein. The results of operations for an interim period are not necessarily indicative of the results of operations expected for a full fiscal year. The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates under different assumptions or conditions and such differences could be material. |
Reclassifications | Reclassifications Certain amounts in the prior year Consolidated Financial Statements and accompanying footnotes have been reclassified to conform to the current year's presentation primarily pursuant to the adoption of Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs. As of December 31, 2015, approximately $19 million of current debt issuance costs have been reclassified from other current assets to long-term debt, less current portion and approximately $109 million of non-current debt issuance costs have been reclassified from other non-current assets to long-term debt, less current portion. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, as part of its simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the effect of the adoption of this standard as early as the third quarter of 2016, and estimates this adoption would reduce income tax expense by a range of $18 million to $24 million and would lower the Company's effective income tax rate for the year ended 2016. In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842), which requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This ASU will replace most existing leasing guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early application is permitted. The standard requires the use of a modified retrospective transition method. The Company is evaluating the effect that ASU 2016-02 will have on its Consolidated Financial Statements and related disclosures, and expects the new guidance to significantly increase the reported assets and liabilities on its Consolidated Balance Sheets. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ASC Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its Consolidated Financial Statements and related disclosures and has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. |
Other Intangible Assets (Tables) |
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Acquired Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of acquisition-related intangible assets | Other intangible assets as of June 30, 2016 and December 31, 2015 were as follows (dollars in millions):
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Schedule of estimated amortization expense of finite-lived acquisition-related intangible assets | As of June 30, 2016, estimated amortization expense for the Company’s finite-lived intangible assets over the next five years is as follows (dollars in millions):
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Fair Value of Financial Instruments (Tables) |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value of liabilities measured on a recurring basis | The table below presents the fair values for the Company’s long-term debt as well as the input levels used to determine these fair values as of June 30, 2016 and December 31, 2015:
The Company does not have any assets or liabilities where the fair value is measured using significant unobservable inputs (Level 3). |
Long-Term Debt (Tables) |
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Schedule of long-term debt | The following table summarizes the Company’s long-term debt (amounts in millions):
(1) The term loans are secured obligations and guaranteed by the Company and Level 3 Communications, LLC and certain other subsidiaries. (2) The notes are fully and unconditionally guaranteed on an unsubordinated unsecured basis by the Company and Level 3 Communications, LLC. (3) The notes were not guaranteed by any of the Company’s subsidiaries. (4) The Tranche B-III 2019 Term Loan and the Tranche B 2020 Term Loan each had an interest rate of 4.000% as of June 30, 2016 and December 31, 2015. The Tranche B-II 2022 Term Loan had an interest rate of 3.500% as of June 30, 2016 and December 31, 2015. The Floating Rate Senior Notes due 2018 had an interest rate of 4.407% as of June 30, 2016 and 4.101% as of December 31, 2015. The interest rate on the Tranche B-III 2019 Term Loan, and the Tranche B 2020 Term Loan are set with a minimum LIBOR of 1.00%, and the Tranche B-II 2022 Term Loan is set with a minimum LIBOR of 0.75%. (5) The notes are fully and unconditionally guaranteed on a unsubordinated unsecured basis by the Company. |
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Schedule of aggregate future contractual maturities of long-term debt and capital leases (excluding discounts) | Long-Term Debt Maturities Aggregate future contractual maturities of long-term debt and capital leases (excluding discounts and debt issuance costs) were as follows as of June 30, 2016 (dollars in millions):
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Accumulated Other Comprehensive Loss (Tables) |
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Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block] | The accumulated balances for each classification of other comprehensive income (loss) were as follows:
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Stock-Based Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Share-based Compensation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of non-cash compensation expense and capitalized non-cash compensation | The following table summarizes non-cash compensation expense attributable to stock-based awards for the three and six months ended June 30, 2016 and 2015 (dollars in millions):
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Segment Information (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting Information [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block] | The following table presents Adjusted EBITDA by segment and reconciles Adjusted EBITDA to net income (loss):
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Schedule of Segment Reporting Information, by Segment [Table Text Block] | The following table presents capital expenditures by segment and reconciles capital expenditures by segment to total capital expenditures:
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Reconciliation of Revenue from Segments to Consolidated [Table Text Block] | The following table presents revenue by segment:
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Reconciliation of Assets from Segment to Consolidated [Table Text Block] | The following table presents total assets by segment:
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Reconciliation of Goodwill from Segment to Consolidated [Table Text Block] | The changes in the carrying amount of goodwill by segment during the six months ended June 30, 2016 were as follows (in millions):
There were no events or changes in circumstances during the first half of 2016 that indicated the carrying value of goodwill may not be recoverable. |
Condensed Consolidating Financial Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Condensed Consolidating Financial Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidating Financial Information | Condensed Consolidating Financial Information Level 3 Financing, Inc., a wholly owned subsidiary of the Company, has issued senior notes that are unsecured obligations of Level 3 Financing, Inc.; however, they are also fully and unconditionally and jointly and severally guaranteed on an unsecured senior basis by Level 3 Communications, Inc. and Level 3 Communications, LLC. In conjunction with the registration of the senior notes, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.” The operating activities of the separate legal entities included in the Company’s Consolidated Financial Statements are interdependent. The accompanying condensed consolidating financial information presents the results of operations, financial position and cash flows of each legal entity and, on an aggregate basis, the other non-guarantor subsidiaries based on amounts incurred by such entities, and is not intended to present the operating results of those legal entities on a stand-alone basis. Level 3 Communications, LLC leases equipment and certain facilities from other wholly owned subsidiaries of Level 3 Communications, Inc. These transactions are eliminated in the consolidated results of the Company. Condensed Consolidating Statements of Comprehensive Income (Loss) Three Months Ended June 30, 2016
Condensed Consolidating Statements of Comprehensive Income (Loss) Six Months Ended June 30, 2016
Condensed Consolidating Statements of Comprehensive Income (Loss) Three Months Ended June 30, 2015
Condensed Consolidating Statements of Comprehensive Income (Loss) Six Months Ended June 30, 2015
Condensed Consolidating Balance Sheets June 30, 2016
Condensed Consolidating Balance Sheets December 31, 2015
Condensed Consolidating Statements of Cash Flows Six Months Ended June 30, 2016
Condensed Consolidating Statements of Cash Flows Six Months Ended June 30, 2015
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Schedule of Condensed Consolidating Statements of Comprehensive Income (Loss) | Condensed Consolidating Statements of Comprehensive Income (Loss) Three Months Ended June 30, 2016
Condensed Consolidating Statements of Comprehensive Income (Loss) Six Months Ended June 30, 2016
Condensed Consolidating Statements of Comprehensive Income (Loss) Three Months Ended June 30, 2015
Condensed Consolidating Statements of Comprehensive Income (Loss) Six Months Ended June 30, 2015
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Schedule of Condensed Consolidating Balance Sheets | Condensed Consolidating Balance Sheets June 30, 2016
Condensed Consolidating Balance Sheets December 31, 2015
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Schedule of Condensed Consolidating Statements of Cash Flows | Condensed Consolidating Statements of Cash Flows Six Months Ended June 30, 2016
Condensed Consolidating Statements of Cash Flows Six Months Ended June 30, 2015
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Organization and Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
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schedule of consolidation [Line Items] | |||||
Revenue | $ 2,056 | $ 2,061 | $ 4,107 | $ 4,114 | |
Adjusted EBITDA by Segment | 715 | 665 | 1,425 | 1,300 | |
Deferred Finance Costs, Current, Net | $ 19 | ||||
Deferred Finance Costs, Noncurrent, Net | $ 109 | ||||
Latin America [Member] | |||||
schedule of consolidation [Line Items] | |||||
Adjusted EBITDA by Segment | $ 64 | 79 | $ 138 | 159 | |
VENEZUELA | Latin America [Member] | |||||
schedule of consolidation [Line Items] | |||||
Revenue | 24 | 47 | |||
Adjusted EBITDA by Segment | $ 15 | $ 30 |
Organization and Summary of Significant Accounting Policies New Accounting Pronouncements (Details) - Scenario, Forecast [Member] $ in Millions |
12 Months Ended |
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Dec. 31, 2016
USD ($)
| |
Minimum [Member] | |
New Accounting Pronouncement, Early Adoption [Line Items] | |
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | $ 18 |
Maximum [Member] | |
New Accounting Pronouncement, Early Adoption [Line Items] | |
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | $ 24 |
Earnings Per Share (Details) - shares shares in Millions |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Earnings per share | |||
Stock Awards Included in Computation of Earnings Per Share, Amount | 3 | 4 | |
Stock options, outperform stock appreciation rights (OSOs), restricted stock units and warrants | |||
Earnings per share | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 4 |
Earnings Per Share Supplemental (Details) - shares shares in Millions |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Stock Awards Included in Computation of Earnings Per Share, Amount | 3 | 4 | |
Performance Shares [Member] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 0 | 0 | |
Performance Restricted Stock Units | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 4 |
Fair Value of Financial Instruments - Liabilities, Recurring (Details) - Fair Value, Measurements, Recurring - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Total Carrying Value in Consolidated Balance Sheet | ||
Long-term Debt, including the current portion: | ||
Term Loans | $ 4,562 | $ 4,556 |
Senior Notes | 6,129 | 6,126 |
Capital Leases and Other | 187 | 199 |
Total Long-term Debt, including the current portion: | 10,878 | 10,881 |
Unadjusted Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | ||
Long-term Debt, including the current portion: | ||
Term Loans | 4,606 | 4,570 |
Senior Notes | 6,240 | 6,298 |
Capital Leases and Other | 0 | 0 |
Total Long-term Debt, including the current portion: | 10,846 | 10,868 |
Significant Other Observable Inputs (Level 2) | ||
Long-term Debt, including the current portion: | ||
Term Loans | 0 | 0 |
Senior Notes | 0 | 0 |
Capital Leases and Other | 187 | 199 |
Total Long-term Debt, including the current portion: | $ 187 | $ 199 |
Commitments, Contingencies and Other Items - Other Commitments (Details) - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Commitments and Contingencies Disclosure [Abstract] | ||
Amount outstanding under letters of credit or other similar obligations | $ 40 | $ 46 |
Collateralized by cash, that is reflected on the consolidated balance sheets as restricted cash | $ 34 | $ 43 |
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