Condensed Consolidating Financial Information

6 Months Ended

Jun. 30, 2011

Condensed Consolidating Financial Information

Condensed Consolidating Financial Information

(13) Condensed Consolidating Financial Information

Level 3 Financing, a wholly owned subsidiary of the Company, has issued Senior Notes that are unsecured obligations of Level 3 Financing; however, they are also jointly and severally and fully and unconditionally guaranteed on an unsecured senior basis by Level 3 Communications, Inc. and Level 3 Communications, LLC.  Level 3 Communications, LLC has also provided a guarantee of the 9.375% Senior Notes due 2019, which will become registered securities upon the completion of the exchange offer dated July 1, 2011.

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 Operations

For the three months ended June 30, 2011

	Level 3 Communications, Inc.			Level 3 Financing, Inc.			Level 3 Communications, LLC			Other Non- Guarantor Subsidiaries			Eliminations			Total
	(dollars in millions)
Revenue	$	—		$	—		$	576		$	416		$	(60	)	$	932
Costs and Expenses:
Cost of Revenue	—			—			224			199			(57		)	366
Depreciation and Amortization	—			—			104			103			—			207
Selling, General and Administrative	1			—			306			53			(3		)	357
Restructuring Charges	—			—			—			—			—			—
Total Costs and Expenses	1			—			634			355			(60		)	930
Operating (Loss) Income	(1		)	—			(58		)	61			—			2
Other Income (Expense):
Interest income	—			—			—			—			—			—
Interest expense	(55		)	(99		)	(1		)	(5		)	—			(160		)
Interest income (expense) affiliates, net	211			358			(515		)	(54		)	—			—
Equity in net earnings (losses) of subsidiaries	(336		)	(572		)	36			—			872			—
Other, net	—			(23		)	3			—			—			(20		)
Other Income (Expense)	(180		)	(336		)	(477		)	(59		)	872			(180		)
(Loss) Income Before Income Taxes	(181		)	(336		)	(535		)	2			872			(178		)
Income Tax Expense	—			—			—			(3		)	—			(3		)
Net (Loss) Income	$	(181	)	$	(336	)	$	(535	)	$	(1	)	$	872		$	(181	)

Condensed Consolidating Statements of Operations

For the six months ended June 30, 2011

	Level 3 Communications, Inc.			Level 3 Financing, Inc.			Level 3 Communications, LLC			Other Non- Guarantor Subsidiaries			Eliminations			Total
	(dollars in millions)
Revenue	$	—		$	—		$	1,136		$	837		$	(112	)	$	1,861
Costs and Expenses:
Cost of Revenue	—			—			436			408			(106		)	738
Depreciation and Amortization	—			—			207			204			—			411
Selling, General and Administrative	1			—			613			106			(6		)	714
Restructuring Charges	—			—			—			—			—			—
Total Costs and Expenses	1			—			1,256			718			(112		)	1,863
Operating (Loss) Income	(1		)	—			(120		)	119			—			(2		)
Other Income (Expense):
Interest income	—			—			—			—			—			—
Interest expense	(112		)	(197		)	(2		)	(6		)	—			(317		)
Interest income (expense) affiliates, net	421			719			(1,031		)	(109		)	—			—
Equity in net earnings (losses) of subsidiaries	(673		)	(1,172		)	78			—			1,767			—
Other, net	(21		)	(23		)	6			1			—			(37		)
Other Income (Expense)	(385		)	(673		)	(949		)	(114		)	1,767			(354		)
(Loss) Income Before Income Taxes	(386		)	(673		)	(1,069		)	5			1,767			(356		)
Income Tax Expense	—			—			—			(30		)	—			(30		)
Net (Loss) Income	$	(386	)	$	(673	)	$	(1,069	)	$	(25	)	$	1,767		$	(386	)

Condensed Consolidating Statements of Operations

For the three months ended June 30, 2010

	Level 3 Communications, Inc.			Level 3 Financing, Inc.			Level 3 Communications, LLC			Other Non- Guarantor Subsidiaries			Eliminations			Total
	(dollars in millions)
Revenue	$	—		$	—		$	501		$	462		$	(55	)	$	908
Costs and Expenses:
Cost of Revenue	—			—			197			229			(52		)	374
Depreciation and Amortization	—			—			110			113			—			223
Selling, General and Administrative	—			—			294			47			(3		)	338
Restructuring Charges	—			—			—			1			—			1
Total Costs and Expenses	—			—			601			390			(55		)	936
Operating (Loss) Income	—			—			(100		)	72			—			(28		)
Other Income (Expense):
Interest income	—			—			—			—			—			—
Interest expense	(49		)	(94		)	—			(2		)	—			(145		)
Interest income (expense) affiliates, net	201			328			(480		)	(49		)	—			—
Equity in net earnings (losses) of subsidiaries	(325		)	(558		)	43			—			840			—
Other, net	4			(1		)	(6		)	7			—			4
Other Income (Expense)	(169		)	(325		)	(443		)	(44		)	840			(141		)
(Loss) Income Before Income Taxes	(169		)	(325		)	(543		)	28			840			(169		)
Income Tax (Expense) Benefit	—			—			(1		)	1			—			—
Net (Loss) Income	$	(169	)	$	(325	)	$	(544	)	$	29		$	840		$	(169	)

Condensed Consolidating Statements of Operations

For the six months ended June 30, 2010

	Level 3 Communications, Inc.			Level 3 Financing, Inc.			Level 3 Communications, LLC			Other Non- Guarantor Subsidiaries			Eliminations			Total
	(dollars in millions)
Revenue	$	—		$	—		$	990		$	940		$	(112	)	$	1,818
Costs and Expenses:
Cost of Revenue	—			—			396			467			(106		)	757
Depreciation and Amortization	—			—			218			230			—			448
Selling, General and Administrative	1			—			588			98			(6		)	681
Restructuring Charges	—			—			—			1			—			1
Total Costs and Expenses	1			—			1,202			796			(112		)	1,887
Operating (Loss) Income	(1		)	—			(212		)	144			—			(69		)
Other Income (Expense):
Interest income	—			—			—			—			—			—
Interest expense	(101		)	(188		)	—			(5		)	—			(294		)
Interest income (expense) affiliates, net	398			649			(935		)	(112		)	—			—
Equity in net earnings (losses) of subsidiaries	(709		)	(1,115		)	87			—			1,737			—
Other, net	6			(55		)	(6		)	12			—			(43		)
Other Income (Expense)	(406		)	(709		)	(854		)	(105		)	1,737			(337		)
(Loss) Income Before Income Taxes	(407		)	(709		)	(1,066		)	39			1,737			(406		)
Income Tax Expense	—			—			(1		)	—			—			(1		)
Net (Loss) Income	$	(407	)	$	(709	)	$	(1,067	)	$	39		$	1,737		$	(407	)

Condensed Consolidating Balance Sheets

June 30, 2011

	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	$	156		$	7		$	350		$	71	$	—	$	584
Restricted cash and securities	—			—			1			631		—		632
Receivable, net	—			—			74			220		—		294
Due from (to) affiliates	12,402			12,013			(26,838		)	2,423		—		—
Other	4			13			61			34		—		112
Total Current Assets	12,562			12,033			(26,352		)	3,379		—		1,622
Property, Plant and Equipment, net	—			—			2,861			2,367		—		5,228
Restricted Cash and Securities	18			—			21			81		—		120
Goodwill and Other Intangibles, net	—			—			512			1,240		—		1,752
Investment in Subsidiaries	(11,024		)	(18,289		)	3,366			—		25,947		—
Other Assets, net	15			45			7			73		—		140
Total Assets	$	1,571		$	(6,211	)	$	(19,585	)	$	7,140	$	25,947	$	8,862
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Accounts payable	$	1		$	—		$	52		$	283	$	—	$	336
Current portion of long-term debt	275			—			2			598		—		875
Accrued payroll and employee benefits	—			—			59			6		—		65
Accrued interest	59			106			—			4		—		169
Current portion of deferred revenue	—			—			111			33		—		144
Other	—			1			52			30		—		83
Total Current Liabilities	335			107			276			954		—		1,672
Long-Term Debt, less current portion	1,652			4,609			23			65		—		6,349
Deferred Revenue, less current portion	—			—			682			63		—		745
Other Liabilities	16			101			149			262		—		528
Commitments and Contingencies														—
Stockholders’ Equity (Deficit)	(432		)	(11,028		)	(20,715		)	5,796		25,947		(432		)
Total Liabilities and Stockholders’ Equity (Deficit)	$	1,571		$	(6,211	)	$	(19,585	)	$	7,140	$	25,947	$	8,862

Condensed Consolidating Balance Sheets

December 31, 2010

	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	$	173		$	7		$	350		$	86	$	—	$	616
Restricted cash and securities	—			—			1			1		—		2
Receivable, net	—			—			46			218		—		264
Due from (to) affiliates	11,927			11,424			(26,093		)	2,742		—		—
Other	4			10			41			35		—		90
Total Current Assets	12,104			11,441			(25,655		)	3,082		—		972
Property, Plant and Equipment, net	—			—			2,937			2,365		—		5,302
Restricted Cash and Securities	18			—			21			81		—		120
Goodwill and Other Intangibles, net	—			—			543			1,255		—		1,798
Investment in Subsidiaries	(10,437		)	(17,176		)	3,575			—		24,038		—
Other Assets, net	9			65			6			83		—		163
Total Assets	$	1,694		$	(5,670	)	$	(18,573	)	$	6,866	$	24,038	$	8,355
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Accounts payable	$	1		$	—		$	57		$	271	$	—	$	329
Current portion of long-term debt	176			—			2			2		—		180
Accrued payroll and employee benefits	—			—			78			6		—		84
Accrued interest	47			99			—			—		—		146
Current portion of deferred revenue	—			—			115			36		—		151
Other	—			1			65			—		—		66
Total Current Liabilities	224			100			317			315		—		956
Long-Term Debt, less current portion	1,612			4,564			24			68		—		6,268
Deferred Revenue, less current portion	—			—			673			63		—		736
Other Liabilities	15			107			154			276		—		552
Commitments and Contingencies
Stockholders’ Equity (Deficit)	(157		)	(10,441		)	(19,741		)	6,144		24,038		(157		)
Total Liabilities and Stockholders’ Equity (Deficit)	$	1,694		$	(5,670	)	$	(18,573	)	$	6,866	$	24,038	$	8,355

Condensed Consolidating Statements of Cash Flows

For the six months ended June 30, 2011

	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	$	(82	)	$	(180	)	$	85		$	308		$	—	$	131
Cash Flows from Investing Activities:
Capital expenditures	—			—			(94		)	(146		)	—		(240		)
Increase in restricted cash and securities, net	—			—			—			(34		)	—		(34		)
Proceeds from sale of property, plant and equipment	—			—			1			3			—		4
Net Cash Used in Investing Activities	—			—			(93		)	(177		)	—		(270		)
Cash Flows from Financing Activities:
Long-term debt borrowings, net of issuance costs	292			474			—			—			—		766
Payments on and repurchases of long-term debt, including current portion and refinancing costs	(197		)	(463		)	—			(2		)	—		(662		)
Increase (decrease) due from affiliates, net	(30		)	169			8			(147		)	—		—
Net Cash Provided by (Used in) Financing Activities	65			180			8			(149		)	—		104
Effect of Exchange Rates on Cash and Cash Equivalents	—			—			—			3			—		3
Net Change in Cash and Cash Equivalents	(17		)	—			—			(15		)	—		(32		)
Cash and Cash Equivalents at Beginning of Period	173			7			350			86			—		616
Cash and Cash Equivalents at End of Period	$	156		$	7		$	350		$	71		$	—	$	584

Condensed Consolidating Statements of Cash Flows

For the six months ended June 30, 2010

	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	$	(83	)	$	(176	)	$	(62	)	$	398		$	—	$	77
Cash Flows from Investing Activities:
Capital expenditures	—			—			(72		)	(114		)	—		(186		)
Decrease in restricted cash and securities, net	—			—			2			2			—		4
Net Cash Used in Investing Activities	—			—			(70		)	(112		)	—		(182		)
Cash Flows from Financing Activities:
Long-term debt borrowings, net of issuance costs	—			613			—			—			—		613
Payments on and repurchases of long-term debt, including current portion and refinancing costs	(290		)	(599		)	(1		)	—			—		(890		)
Increase (decrease) due from affiliates, net	138			161			50			(349		)	—		—
Net Cash Provided by (Used in) Financing Activities	(152		)	175			49			(349		)	—		(277		)
Effect of Exchange Rates on Cash and Cash Equivalents	—			—			—			(12		)	—		(12		)
Net Change in Cash and Cash Equivalents	(235		)	(1		)	(83		)	(75		)	—		(394		)
Cash and Cash Equivalents at Beginning of Period	236			8			431			161			—		836
Cash and Cash Equivalents at End of Period	$	1		$	7		$	348		$	86		$	—	442