BWNG Broadwing

Broadwing Corporation (NASDAQ:BWNG), a leading provider of optical network communications services and solutions, today announced its third quarter 2006 financial and operational results. For the third quarter 2006, Broadwing reported total revenue of $231.9 million, compared to $224.3 million reported for the second quarter 2006 and $218.7 million for the third quarter 2005. Net loss for the quarter was $16.8 million, or a loss of $0.19 per share. This compares to a net loss for the second quarter 2006 of $11.7 million, or $0.13 per share; and a net loss for the third quarter 2005 of $30.5 million, or $0.41 per share. Third Quarter Selected Highlights: Total revenue increased by $13.2 million or 6% year-over-year, led by robust sales of data/broadband services. Combined data/broadband revenues increased by $13.8 million or 12% year-over-year due primarily to strong sales of converged and high speed optical services to both large enterprises and communications service providers. Net loss for the third quarter narrowed 45% year-over-year to $16.8 million. Net loss improvement year-over-year was primarily attributable to increased interest income and decreased depreciation, amortization, and interest expenses, offset primarily by charges recorded in the third quarter related to restructuring and compensation, including impairment losses for network spares inventory, severance, and non-cash equity-based expense. �We were very pleased with our top line performance this quarter,� said Stephen E. Courter, Broadwing�s chief executive officer. �Year-over-year revenue growth was driven by a strong 14% increase in broadband services revenue and by growing demand for our converged services from large enterprise customers such as systems integrators, financial services firms, and health care companies. Continuing the trend from last quarter, converged services contributed the majority of the 8% increase we recorded in data/Internet revenue.� Broadwing Agrees to be Acquired by Level 3 Communications Broadwing announced October 17, 2006, that it had signed a definitive agreement to be acquired by Level 3 Communications, Inc. (NASDAQ:LVLT). Under the terms of the agreement, Level 3 will pay $8.18 in cash plus 1.3411 shares of Level 3 common stock for each share of Broadwing common stock outstanding at closing. Based on Level 3�s closing stock price of $5.32 on October 16, 2006, each share of Broadwing stock would receive consideration equivalent to $15.31 per share. Total consideration is estimated to be $1.4 billion based on the closing stock price of Level 3 on October 16, 2006. The actual value of the consideration received by Broadwing stockholders at closing will depend on Level 3�s stock price at such time. �This quarter�s results illustrate the growth potential of the Broadwing business,� said Courter. �Given the opportunities and risks ahead of us in this industry, the Board of Directors and I believe that combining the operations of Broadwing with those of Level 3 Communications is the best choice to help us continue to grow our business and create additional long-term value for our investors and customers. �The combined company expects to be able to leverage the improved buying power that typically comes with increased scale to reduce its access, equipment and third-party network costs,� said Courter. �In addition, we believe the extensive network footprint and comprehensive product portfolio of the combined company will bolster market position both in the U.S. and internationally, where Level 3 has a significant facilities-based presence. Finally, the combined company will have increased ability to invest and innovate to meet customers� evolving needs.� The transaction has been approved by the Board of Directors of each company. Closing is subject to customary conditions, including receipt of applicable state and federal regulatory approvals, and the approval of Broadwing shareholders. Assuming that all approvals are received, the Company expects closing to occur in the first quarter of 2007. Quarterly Results Detail Broadwing Communications services revenue can be divided into two main product categories: �data/broadband� and �voice.� Data/broadband consists of high-speed data transport services utilizing Internet protocol (IP) and ATM/frame relay platforms; Converged Services; long-haul transmission of data, voice and Internet traffic over dedicated circuits (Private Line); and Media transport services. Voice includes revenue from sales of long distance/local voice services, including Voice over Internet Protocol (VoIP) services. Revenue from data/broadband services was $131.3 million, or 57% of total revenue in the third quarter. Data/broadband revenue increased 4% from the prior quarter and 12% from the third quarter 2005. Both the sequential and year-over-year increases were primarily due to increased sales of Converged Services and to sales growth across virtually all of the Company�s broadband products, particularly higher speed optical and Ethernet circuits. Voice revenue from sales of long-distance and local voice services was $100.6 million, a 2% increase from the prior quarter and flat as compared to the third quarter 2005. Voice revenue increased sequentially largely due to increased long distance minutes of use. Year-over-year revenue growth in voice services was impacted primarily by industry-wide rate reductions. Voice revenue was 43% of total revenue. Net loss in the third quarter of 2006 increased from the second quarter primarily due to charges recorded for restructuring and compensation, including impairment losses for network spares inventory, severance, and non-cash equity-based expense. Financial Position Capital expenditures of $22.8 million for the three months ended September 30, 2006, includes $3.5 million of a Ciena deposit that was used for equipment purchases. Other capital expenditures in the third quarter were associated with capacity expansion and network maintenance. As of September 30, 2006, cash, cash equivalents and short-term investments totaled $341.3 million. Recent Announcements Broadwing announced that it will implement a nationwide fiber based backbone network for Progression Networks, d/b/a GameRail, a facilities-based network operator dedicated to delivering superior performance to the online gaming community. GameRail is purchasing several 100Mb Ethernet Private Line circuits over 36 months from Broadwing to connect multiple U.S. cities into the first private network that directly connects gamers to game servers. Online gamers will be able to bypass the congested public Internet and play over a superior performing network featuring lower latency, less jitter, and less packet loss. Broadwing also announced that it will offer true pay-for-use metered billing to its converged services customers beginning in November. Currently customers with disaster recovery, intermittent or seasonal data needs must either pay based on a formula that approximates sustained usage levels or manually adjust their port bandwidth allocations. Broadwing�s new flexible billing option allows customers to pay based on the actual amount of data delivered across the network, and is ideal for professional service organizations with periodic reporting requirements, transactional-based service companies, and companies with business continuity requirements. Webcast Information Broadwing will host a conference call to review its third quarter 2006 financial results and other operational developments, today, November 2 at 10:30 AM ET. The live broadcast of the conference will be available via Broadwing�s website, www.broadwing.com. An archived audio of the conference call will be available for future reference through the Broadwing website at www.broadwing.com. About Broadwing Corporation Broadwing Corporation (NASDAQ:BWNG), through its consolidated subsidiary Broadwing Communications, LLC (Broadwing) delivers innovative data, voice, and media solutions to enterprises and service providers. Enabled by its leading-edge optical network and award-winning products and services, Broadwing Communications provides communications solutions with unparalleled customer focus and speed. For more information, visit www.broadwing.com. Broadwing and its logo are trademarks and/or service marks of Broadwing Communications, LLC, and/or Broadwing Corporation. All trademarks and service marks not belonging to Broadwing are the property of their respective owners. Investor Note Regarding Forward-Looking Statements Statements in this press release regarding Broadwing Corporation and/or Broadwing Communications, LLC (collectively "Broadwing"), that are not statements of historical fact may include forward-looking statements, and statements regarding Broadwing's beliefs, plans, expectations or intentions regarding the future are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Broadwing's actual results could differ materially from these statements. BROADWING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Unaudited � Quarter Ended September 30, September 30, 2006� 2005� � � Revenue $ 231,894� $ 218,659� � � Cost of revenue, excluding depreciation expense 144,467� 143,470� � Research and development (including equity-based expense of $0 for both the period ended September 30, 2006 and 2005) -� 679� Sales, general and administrative (including equity-based expense of $5,615 and $934 for the period ending September 30, 2006 and 2005, respectively) 85,030� 78,320� Depreciation 12,327� 23,403� Amortization 919� 1,404� Restructuring and other charges (including equity-based expense of $1,835 and $0 for the period ending September 30, 2006 and 2005, respectively) 8,117� 630� Total operating expenses 250,860� 247,906� � Operating loss (18,966) (29,247) � Other income, net 4,644� 1,862� Interest expense, net of capitalized amounts (2,469) (3,150) Net loss $ (16,791) $ (30,535) � Net loss per common share $ (0.19) $ (0.41) � Weighted average shares outstanding 87,918� 73,711� BROADWING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Unaudited Quarter Ended September 30, June 30, 2006� � 2006� � � Revenue $ 231,894� $ 224,273� � � Cost of revenue, excluding depreciation expense 144,467� 139,148� � Sales, general and administrative (including equity-based expense of $5,615 and $2,648 for the period ending September 30, 2006 and June 30, 2006, respectively) 85,030� 81,652� Depreciation 12,327� 14,499� Amortization 919� 1,313� Restructuring and other charges (including equity-based expense of $1,835 and $250 for the period ending September 30, 2006 and June 30, 2006, respectively) 8,117� 759� Total operating expenses 250,860� 237,371� � Operating loss (18,966) (13,098) � Other income, net 4,644� 3,574� Interest expense, net of capitalized amounts (2,469) (2,172) Net loss $ (16,791) $ (11,696) � Net loss per common share (0.19) $ (0.13) � Weighted average shares outstanding 87,918� 87,261� BROADWING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) Unaudited � � � September 30, June 30, 2006� 2006� ASSETS Current assets: Cash and cash equivalents $ 259,172� $ 335,224� Short-term investments 82,084� 16,377� Trade accounts receivable, net of allowances of $41,207 and $39,638 at September 30, 2006 and June 30, 2006, respectively 80,442� 75,945� Prepaids and other current assets 23,055� 23,251� � Total current assets 444,753� 450,797� � Restricted cash, non-current 13,647� 13,603� Long-term investments 3,581� -� Property and equipment, net 274,447� 265,946� Goodwill 58,354� 58,354� Intangible assets, net 21,184� 22,103� Other non-current assets, net 20,835� 24,881� � Total assets $ 836,801� $ 835,684� � LIABILITIES AND STOCKHOLDERS� EQUITY Current liabilities: � Capital lease obligations, current portion $ 1,491� $ 1,357� Notes payable, net of discounts, current portion 327� 321� Accounts payable 56,077� 59,087� Accrued expenses and other liabilities 59,688� 51,230� Accrued communication service costs 22,089� 19,372� Deferred revenue, current portion 8,610� 5,986� Accrued restructuring and other charges 4,899� 2,690� � Total current liabilities 153,181� 140,043� � Capital lease obligations, net of current portion 19,446� 19,454� Notes payable, net of discounts and current portion 180,484� 180,565� Deferred revenue, net of current portion 13,490� 17,877� Other long-term liabilities 11,514� 12,037� � Total liabilities 378,115� 369,976� � Commitments and contingencies Stockholders� equity: Common stock � $0.01 par value; 1,900,000,000 shares authorized; 89,401,751 shares issued and 88,173,571 shares outstanding as of September 30, 2006; 88,598,636 shares issued and 87,370,436 shares outstanding as of June 30, 2006 � 893� 877� Treasury stock (1,228,180 shares at September 30, 2006 and June 30, 2006, at cost) (9,512) (9,512) Additional paid-in capital 3,322,530� 3,312,781� Accumulated other comprehensive loss: Unrealized investment losses (13) (17) Accumulated deficit (2,855,212) (2,838,421) � Total stockholders� equity 458,686� 465,708� � Total liabilities and stockholders� equity $ 836,801� $ 835,684� OTHER FINANCIAL INFORMATION (In thousands) Unaudited Three Months Ended September September 2006� 2005� � Capital expenditures* $ 22,827� $ 13,542� � � � * Capital expenditures of $22.8 million for the three months ended September 30, 2006 included $3.5 million of Ciena deposit that was used for purchases of equipment in the third quarter. � Broadwing Corporation (NASDAQ:BWNG), a leading provider of optical network communications services and solutions, today announced its third quarter 2006 financial and operational results. For the third quarter 2006, Broadwing reported total revenue of $231.9 million, compared to $224.3 million reported for the second quarter 2006 and $218.7 million for the third quarter 2005. Net loss for the quarter was $16.8 million, or a loss of $0.19 per share. This compares to a net loss for the second quarter 2006 of $11.7 million, or $0.13 per share; and a net loss for the third quarter 2005 of $30.5 million, or $0.41 per share. Third Quarter Selected Highlights: -- Total revenue increased by $13.2 million or 6% year-over-year, led by robust sales of data/broadband services. -- Combined data/broadband revenues increased by $13.8 million or 12% year-over-year due primarily to strong sales of converged and high speed optical services to both large enterprises and communications service providers. -- Net loss for the third quarter narrowed 45% year-over-year to $16.8 million. Net loss improvement year-over-year was primarily attributable to increased interest income and decreased depreciation, amortization, and interest expenses, offset primarily by charges recorded in the third quarter related to restructuring and compensation, including impairment losses for network spares inventory, severance, and non-cash equity-based expense. "We were very pleased with our top line performance this quarter," said Stephen E. Courter, Broadwing's chief executive officer. "Year-over-year revenue growth was driven by a strong 14% increase in broadband services revenue and by growing demand for our converged services from large enterprise customers such as systems integrators, financial services firms, and health care companies. Continuing the trend from last quarter, converged services contributed the majority of the 8% increase we recorded in data/Internet revenue." Broadwing Agrees to be Acquired by Level 3 Communications Broadwing announced October 17, 2006, that it had signed a definitive agreement to be acquired by Level 3 Communications, Inc. (NASDAQ:LVLT). Under the terms of the agreement, Level 3 will pay $8.18 in cash plus 1.3411 shares of Level 3 common stock for each share of Broadwing common stock outstanding at closing. Based on Level 3's closing stock price of $5.32 on October 16, 2006, each share of Broadwing stock would receive consideration equivalent to $15.31 per share. Total consideration is estimated to be $1.4 billion based on the closing stock price of Level 3 on October 16, 2006. The actual value of the consideration received by Broadwing stockholders at closing will depend on Level 3's stock price at such time. "This quarter's results illustrate the growth potential of the Broadwing business," said Courter. "Given the opportunities and risks ahead of us in this industry, the Board of Directors and I believe that combining the operations of Broadwing with those of Level 3 Communications is the best choice to help us continue to grow our business and create additional long-term value for our investors and customers. "The combined company expects to be able to leverage the improved buying power that typically comes with increased scale to reduce its access, equipment and third-party network costs," said Courter. "In addition, we believe the extensive network footprint and comprehensive product portfolio of the combined company will bolster market position both in the U.S. and internationally, where Level 3 has a significant facilities-based presence. Finally, the combined company will have increased ability to invest and innovate to meet customers' evolving needs." The transaction has been approved by the Board of Directors of each company. Closing is subject to customary conditions, including receipt of applicable state and federal regulatory approvals, and the approval of Broadwing shareholders. Assuming that all approvals are received, the Company expects closing to occur in the first quarter of 2007. Quarterly Results Detail Broadwing Communications services revenue can be divided into two main product categories: "data/broadband" and "voice." Data/broadband consists of high-speed data transport services utilizing Internet protocol (IP) and ATM/frame relay platforms; Converged Services; long-haul transmission of data, voice and Internet traffic over dedicated circuits (Private Line); and Media transport services. Voice includes revenue from sales of long distance/local voice services, including Voice over Internet Protocol (VoIP) services. Revenue from data/broadband services was $131.3 million, or 57% of total revenue in the third quarter. Data/broadband revenue increased 4% from the prior quarter and 12% from the third quarter 2005. Both the sequential and year-over-year increases were primarily due to increased sales of Converged Services and to sales growth across virtually all of the Company's broadband products, particularly higher speed optical and Ethernet circuits. Voice revenue from sales of long-distance and local voice services was $100.6 million, a 2% increase from the prior quarter and flat as compared to the third quarter 2005. Voice revenue increased sequentially largely due to increased long distance minutes of use. Year-over-year revenue growth in voice services was impacted primarily by industry-wide rate reductions. Voice revenue was 43% of total revenue. Net loss in the third quarter of 2006 increased from the second quarter primarily due to charges recorded for restructuring and compensation, including impairment losses for network spares inventory, severance, and non-cash equity-based expense. Financial Position Capital expenditures of $22.8 million for the three months ended September 30, 2006, includes $3.5 million of a Ciena deposit that was used for equipment purchases. Other capital expenditures in the third quarter were associated with capacity expansion and network maintenance. As of September 30, 2006, cash, cash equivalents and short-term investments totaled $341.3 million. Recent Announcements Broadwing announced that it will implement a nationwide fiber based backbone network for Progression Networks, d/b/a GameRail, a facilities-based network operator dedicated to delivering superior performance to the online gaming community. GameRail is purchasing several 100Mb Ethernet Private Line circuits over 36 months from Broadwing to connect multiple U.S. cities into the first private network that directly connects gamers to game servers. Online gamers will be able to bypass the congested public Internet and play over a superior performing network featuring lower latency, less jitter, and less packet loss. Broadwing also announced that it will offer true pay-for-use metered billing to its converged services customers beginning in November. Currently customers with disaster recovery, intermittent or seasonal data needs must either pay based on a formula that approximates sustained usage levels or manually adjust their port bandwidth allocations. Broadwing's new flexible billing option allows customers to pay based on the actual amount of data delivered across the network, and is ideal for professional service organizations with periodic reporting requirements, transactional-based service companies, and companies with business continuity requirements. Webcast Information Broadwing will host a conference call to review its third quarter 2006 financial results and other operational developments, today, November 2 at 10:30 AM ET. The live broadcast of the conference will be available via Broadwing's website, www.broadwing.com. An archived audio of the conference call will be available for future reference through the Broadwing website at www.broadwing.com. About Broadwing Corporation Broadwing Corporation (NASDAQ:BWNG), through its consolidated subsidiary Broadwing Communications, LLC (Broadwing) delivers innovative data, voice, and media solutions to enterprises and service providers. Enabled by its leading-edge optical network and award-winning products and services, Broadwing Communications provides communications solutions with unparalleled customer focus and speed. For more information, visit www.broadwing.com. Broadwing and its logo are trademarks and/or service marks of Broadwing Communications, LLC, and/or Broadwing Corporation. All trademarks and service marks not belonging to Broadwing are the property of their respective owners. Investor Note Regarding Forward-Looking Statements Statements in this press release regarding Broadwing Corporation and/or Broadwing Communications, LLC (collectively "Broadwing"), that are not statements of historical fact may include forward-looking statements, and statements regarding Broadwing's beliefs, plans, expectations or intentions regarding the future are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Broadwing's actual results could differ materially from these statements. -0- *T BROADWING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Unaudited Quarter Ended ---------------------------- September 30, September 30, 2006 2005 -------------- ------------- Revenue $231,894 $218,659 Cost of revenue, excluding depreciation expense 144,467 143,470 Research and development (including equity-based expense of $0 for both the period ended September 30, 2006 and 2005) - 679 Sales, general and administrative (including equity-based expense of $5,615 and $934 for the period ending September 30, 2006 and 2005, respectively) 85,030 78,320 Depreciation 12,327 23,403 Amortization 919 1,404 Restructuring and other charges (including equity-based expense of $1,835 and $0 for the period ending September 30, 2006 and 2005, respectively) 8,117 630 -------------- ------------- Total operating expenses 250,860 247,906 Operating loss (18,966) (29,247) Other income, net 4,644 1,862 Interest expense, net of capitalized amounts (2,469) (3,150) -------------- ------------- Net loss $(16,791) $(30,535) ============== ============= Net loss per common share $(0.19) $(0.41) ============== ============= Weighted average shares outstanding 87,918 73,711 ============== ============= *T -0- *T BROADWING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Unaudited Quarter Ended ----------------------- September 30, June 30, 2006 2006 ----------------------- Revenue $231,894 $224,273 Cost of revenue, excluding depreciation expense 144,467 139,148 Sales, general and administrative (including equity-based expense of $5,615 and $2,648 for the period ending September 30, 2006 and June 30, 2006, respectively) 85,030 81,652 Depreciation 12,327 14,499 Amortization 919 1,313 Restructuring and other charges (including equity-based expense of $1,835 and $250 for the period ending September 30, 2006 and June 30, 2006, respectively) 8,117 759 ------------- --------- Total operating expenses 250,860 237,371 Operating loss (18,966) (13,098) Other income, net 4,644 3,574 Interest expense, net of capitalized amounts (2,469) (2,172) ------------- --------- Net loss $(16,791) $(11,696) ============= ========= Net loss per common share (0.19) $(0.13) ============= ========= Weighted average shares outstanding 87,918 87,261 ============= ========= *T -0- *T BROADWING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) Unaudited ------------------------- September 30, June 30, 2006 2006 ------------- ----------- ASSETS -------------------------------------------- Current assets: Cash and cash equivalents $259,172 $335,224 Short-term investments 82,084 16,377 Trade accounts receivable, net of allowances of $41,207 and $39,638 at September 30, 2006 and June 30, 2006, respectively 80,442 75,945 Prepaids and other current assets 23,055 23,251 ------------- ----------- Total current assets 444,753 450,797 Restricted cash, non-current 13,647 13,603 Long-term investments 3,581 - Property and equipment, net 274,447 265,946 Goodwill 58,354 58,354 Intangible assets, net 21,184 22,103 Other non-current assets, net 20,835 24,881 ------------- ----------- Total assets $836,801 $835,684 ============= =========== LIABILITIES AND STOCKHOLDERS' EQUITY -------------------------------------------- Current liabilities: Capital lease obligations, current portion $1,491 $1,357 Notes payable, net of discounts, current portion 327 321 Accounts payable 56,077 59,087 Accrued expenses and other liabilities 59,688 51,230 Accrued communication service costs 22,089 19,372 Deferred revenue, current portion 8,610 5,986 Accrued restructuring and other charges 4,899 2,690 ------------- ----------- Total current liabilities 153,181 140,043 Capital lease obligations, net of current portion 19,446 19,454 Notes payable, net of discounts and current portion 180,484 180,565 Deferred revenue, net of current portion 13,490 17,877 Other long-term liabilities 11,514 12,037 ------------- ----------- Total liabilities 378,115 369,976 Commitments and contingencies Stockholders' equity: Common stock -- $0.01 par value; 1,900,000,000 shares authorized; 89,401,751 shares issued and 88,173,571 shares outstanding as of September 30, 2006; 88,598,636 shares issued and 87,370,436 shares outstanding as of June 30, 2006 893 877 Treasury stock (1,228,180 shares at September 30, 2006 and June 30, 2006, at cost) (9,512) (9,512) Additional paid-in capital 3,322,530 3,312,781 Accumulated other comprehensive loss: Unrealized investment losses (13) (17) Accumulated deficit (2,855,212) (2,838,421) ------------- ----------- Total stockholders' equity 458,686 465,708 ------------- ----------- Total liabilities and stockholders' equity $836,801 $835,684 ============= =========== *T -0- *T OTHER FINANCIAL INFORMATION (In thousands) Unaudited Three Months Ended September September 2006 2005 ------------- -------------- Capital expenditures(a) $22,827 $13,542 (a) Capital expenditures of $22.8 million for the three months ended September 30, 2006 included $3.5 million of Ciena deposit that was used for purchases of equipment in the third quarter. *T