Events Associated with the Merger of tw telecom (Notes)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Events Associated with the Merger of tw telecom inc.

On October 31, 2014, the Company and two of its subsidiaries completed the merger with tw telecom inc. (“tw telecom”) and tw telecom became a wholly owned subsidiary of the Company through a tax-free, stock and cash reorganization (the "Merger"). As a result of the Merger, (1) each issued and outstanding share of common stock of tw telecom was exchanged for 0.7 shares of Level 3 common stock and $10 in cash ( together the "merger consideration"); (2) the outstanding stock options were canceled and the holders received the merger consideration, net of aggregate per share exercise price; (3) each restricted stock unit award was canceled and the holders received the merger consideration; and (4) each restricted stock unit was immediately vested and canceled and holders received the merger consideration.

In connection with the closing of the Merger, Level 3 Financing amended its existing credit agreement to incur an additional $2 billion of borrowings through an additional Tranche (the "Tranche B 2022 Term Loan"). The aggregate net proceeds of Level 3 Financing's Tranche B 2022 Term Loan issued in October 2014 were used to finance the cash portion of the merger consideration payable to tw telecom's stockholders and to refinance certain existing indebtedness of tw telecom, including fees and premiums, in connection with the closing of the Merger (see Note 6 — Long-Term Debt for additional information). In addition, the $1.0 billion of proceeds from the issuance of 5.375% Senior Notes due 2022 raised in August 2014 (see Note 6 — Long-Term Debt) by an indirect, wholly owned subsidiary were deposited into an escrow account. On October 31, 2014, following the consummation of the Merger and the satisfaction of certain escrow release conditions, the 5.375% Senior Notes were assumed by Level 3 Financing and the funds were released from the escrow account. The net proceeds from the 5.375% Senior Notes were used to finance the cash portion of the merger consideration payable to tw telecom stockholders and to refinance certain existing indebtedness of tw telecom, including fees and premiums, in connection with the closing of the Merger.

On October 30, 2014, the Company increased the number of authorized shares of common stock by 100,000,000 shares to 433,333,333. As a result of the Merger, the Company issued approximately 96.9 million shares of Level 3 common stock to former holders of tw telecom common shares, stock options, restricted stock awards and restricted stock units. In addition, Level 3 called for redemption and discharged or repaid approximately $1.793 billion of tw telecom's outstanding consolidated debt. The shares of tw telecom common stock, which previously traded under the symbol "TWTC", ceased trading on the NASDAQ Global Select Market ("NASDAQ") at the close of trading on October 31, 2014 and were delisted from NASDAQ as of October 31, 2014.

Based on the number of Level 3 shares issued, Level 3's closing stock price of $46.91 on October 31, 2014, the cash paid to the former holders of tw telecom common stock and the $1.793 billion of debt of tw telecom called for redemption and discharged or repaid, the aggregate consideration for acquisition accounting, including assumed debt, approximated $8.1 billion.

The premium paid by Level 3 in this transaction is attributable to strategic benefits, as the transaction further solidifies Level 3's position as a premier global communications provider to the enterprise, government and carrier market, combining tw telecom's extensive local operations and assets in North America with Level 3's global assets and capabilities. tw telecom's business model is directly aligned with Level 3's initiatives for growth, which include building managed solutions to meet customer needs through an advanced IP/optical network.

The goodwill associated with this transaction is not expected to be deductible for income tax purposes.

The assets acquired and liabilities assumed of tw telecom will be recognized at their acquisition date fair value, however, based on the acquisition date of October 31, 2014, the summary of assets acquired and liabilities assumed are not available at the time of this filing. The purchase price allocation of acquired assets and assumed liabilities, including the assignment of goodwill to reporting units, will require extensive analysis and is expected to be completed no later than October 31, 2015. A preliminary allocation of the purchase price to intangible assets has been used to determine the adjustment to the pro forma operating results below. The final identification of all intangible assets acquired may be significantly different from the preliminary allocation.

The following unaudited pro forma financial information presents the combined results of Level 3 and tw telecom as if the completion of the merger had occurred as of January 1, 2013 (dollars in millions, except per share data).

	Three Months Ended					Nine Months Ended
	September 30, 2014		September 30, 2013			September 30, 2014		September 30, 2013
Total Revenue	$	2,047	$	1,955		$	6,096	$	5,854
Net Income (Loss)	$	72	$	(67	)	$	199	$	(212	)
Net Income (Loss) per Share - Basic	$	0.22	$	(0.21	)	$	0.60	$	(0.67	)
Net Income (Loss) per Share- Diluted	$	0.21	$	(0.21	)	$	0.59	$	(0.67	)

These pro forma results include certain adjustments, primarily due to increases in depreciation and amortization expense due to fair value adjustments of tangible and intangible assets, increases in interest expense due to Level 3's issuance of incremental debt to finance cash consideration partially offset by the refinancing of tw telecom debt that had higher interest rates than the incremental financing, and to eliminate historical transactions between Level 3 and tw telecom. The pro forma information is not intended to represent or be indicative of the actual results of operations of Level 3 that would have been reported had the Merger been completed on January 1, 2013, nor is it representative of future operating results of the Company. The pro forma information does not include any operating efficiencies or cost savings that Level 3 may achieve with respect to combining the companies.

Acquisition related costs include transaction costs such as legal, accounting, valuation and other professional services as well as integration costs such as severance and retention. Acquisition related costs have been recorded in Network Related Expenses and Selling, General and Administrative Expenses in the Company's Consolidated Statements of Operations. Level 3 incurred total acquisition related transaction and integration costs of approximately $11 million through September 30, 2014. Level 3 estimates that total acquisition related transaction costs will be approximately $82 million. In addition, Level 3 expects to incur $170 million of integration related costs in 2014 and 2015.

Level 3 also adopted an amendment to its existing Stockholder Rights Plan to extend the term of that plan. The plan is designed to protect its U.S. federal net operating losses from certain Internal Revenue Code Section 382 limitations. The plan was designed to deter trading that would result in a change of control (as defined in that Code Section), and thereby protect the Company's ability to use its historical federal net operating loss carryforwards in the future.