LEVEL 3 COMMUNICATIONS INC, 10-Q filed on 11/8/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Nov. 2, 2012
Document And Entity Information [Abstract]
 
 
Entity Registrant Name
LEVEL 3 COMMUNICATIONS INC 
 
Entity Central Index Key
0000794323 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2012 
 
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
 
217,902,512 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q3 
 
Consolidated Statements of Operations (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenue
$ 1,590 
$ 927 
$ 4,762 
$ 2,754 
Total Costs and Expenses Exclusive of Depreciation and Amortization shown separately below:
 
 
 
 
Cost of Revenue
642 
342 
1,947 
1,046 
Depreciation and Amortization
185 
203 
563 
612 
Selling, General and Administrative
619 
375 
1,851 
1,089 
Restructuring Charges
6 
0 
14 
0 
Total Costs and Expenses
1,452 
920 
4,375 
2,747 
Operating Income (Loss)
138 
7 
387 
7 
Other Income (Expense):
 
 
 
 
Interest income
0 
0 
2 
0 
Interest expense
(188)
(178)
(558)
(495)
Loss on extinguishment of debt, net
(49)
(30)
(110)
(73)
Other, net
(54)
(1)
(52)
5 
Nonoperating Income (Expense)
(291)
(209)
(718)
(563)
Loss Before Income Taxes
(153)
(202)
(331)
(556)
Income Tax (Expense) Benefit
(13)
(6)
(35)
(36)
Loss from Continuing Operations
(166)
(208)
(366)
(592)
Income (Loss) from Discontinued Operations, Net
0 
1 
0 
(1)
Net Loss
$ (166)
$ (207)
$ (366)
$ (593)
Loss per Share from Continuing Operations, Basic (in dollars per share)
$ (0.76)
$ (1.76)1
$ (1.71)
$ (5.17)1
Income (Loss) per Share from Discontinued Operations, Basic (in dollars per share)
$ 0.00 
$ 0.01 1
$ 0.00 
$ (0.01)1
Basic and Diluted Loss per Share (in dollars per share)
$ (0.76)
$ (1.75)1
$ (1.71)
$ (5.18)1
Shares Used to Compute Basic Loss per Share: (in shares)
217,301,000 
118,067,000 1
214,498,000 
114,585,000 1
Consolidated Statements of Comprehensive Loss (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Net Loss
$ (166)
$ (207)
$ (366)
$ (593)
Other Comprehensive Income (Loss) Before Income Taxes:
 
 
 
 
Foreign Currency Translation
48 
(40)
16 
10 
Holding gain on interest rate swaps
74 
2 
90 
10 
Other, net
0 
14 
2 
13 
Other Comprehensive Income (Loss) Before Income Taxes
122 
(24)
108 
33 
Income Tax Related to Items of Other Comprehensive Income (Loss)
0 
0 
0 
0 
Other Comprehensive Income (Loss), Net of Income Taxes
122 
(24)
108 
33 
Comprehensive Loss
$ (44)
$ (231)
$ (258)
$ (560)
Supplementary Stockholders' Equity Information Accumulated Other Comprehensive Income (Loss) (USD $)
In Millions, unless otherwise specified
Total
Net Foreign Currency Translation Adjustment
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges
Other
Beginning Balance, Accumulated Other Comprehensive Income (Loss) at Dec. 31, 2011
$ (80)
$ 39 
$ (90)
$ (29)
Change In Accumulated Other Comprehensive Income [Roll Forward]
 
 
 
 
Change
108 
16 
90 
2 
Ending Balance, Accumulated Other Comprehensive Income (Loss) at Sep. 30, 2012
$ 28 
$ 55 
$ 0 
$ (27)
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Statement of Financial Position [Abstract]
 
 
Receivables, allowances for doubtful accounts (in dollars)
$ 27 
$ 21 
Property, Plant and Equipment, accumulated depreciation (in dollars)
$ 8,183 
$ 7,678 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, authorized shares
10,000,000 
10,000,000 
Preferred stock, shares issued
0 
0 
Preferred stock, shares outstanding
0 
0 
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, authorized shares
343,333,333 
293,333,333 
Common stock, shares issued
217,710,720 
207,913,428 
Common stock, shares outstanding
217,710,720 
207,913,428 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Current Assets:
 
 
Cash and cash equivalents
$ 793 
$ 918 
Restricted cash and securities
8 
10 
Receivables, less allowances for doubtful accounts of $27 and $21, respectively
748 
648 
Other
186 
131 
Total Current Assets
1,735 
1,707 
Property, Plant and Equipment, net of accumulated depreciation of $8,183 and $7,678, respectively
8,191 
8,136 
Restricted Cash and Securities
39 
51 
Goodwill
2,565 
2,541 
Other Intangibles, net
287 
358 
Other Assets, net
399 
395 
Total Assets
13,216 
13,188 
Current Liabilities:
 
 
Accounts payable
719 
747 
Current portion of long-term debt
213 
65 
Accrued payroll and employee benefits
163 
209 
Accrued interest
166 
216 
Current portion of deferred revenue
260 
264 
Other
122 
157 
Total Current Liabilities
1,643 
1,658 
Long-Term Debt, less current portion
8,496 
8,385 
Deferred Revenue, less current portion
841 
885 
Other Liabilities
1,032 
1,067 
Total Liabilities
12,012 
11,995 
Stockholders' Equity (Deficit):
 
 
Preferred stock, $.01 par value, authorized 10,000,000 shares: no shares issued or oustanding
0 
0 
Common stock, $.01 par value, authorized 343,333,333 shares at September 30, 2012 and 293,333,333 at December 31, 2011: 217,710,720 issued and outstanding at September 30, 2012 and 207,913,428 issued and outstanding at December 31, 2011
2 
2 
Additional paid-in capital
13,975 
13,706 
Accumulated other comprehensive income (loss)
28 
(80)
Accumulated deficit
(12,801)
(12,435)
Total Stockholders' Equity (Deficit)
1,204 
1,193 
Total Liabilities and Stockholders' Equity (Deficit)
$ 13,216 
$ 13,188 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash Flows from Operating Activities:
 
 
Net Loss
$ (366)
$ (593)
(Income) loss from discontinued operations
0 
1 
Loss from Continuing Operations
(366)
(592)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities of continuing operations:
 
 
Depreciation and amortization
563 
612 
Non-cash compensation expense attributable to stock awards
102 
68 
Loss on extinguishment of debt, net
110 
73 
Non-cash loss on ineffective hedging instrument
60 
0 
Accretion of debt discount and amortization of debt issuance costs
33 
45 
Accrued interest on long-term debt, net
(47)
36 
Deferred income taxes
18 
34 
Loss (gain) on sale of property, plant, and equipment and other assets
0 
(2)
Other, net
(16)
(6)
Changes in working capital items:
 
 
Receivables
(120)
(70)
Other current assets
(28)
(12)
Payables
(42)
10 
Deferred revenue
(45)
(6)
Other current liabilities
(44)
9 
Net Cash Provided by (Used in) Operating Activities of Continuing Operations
178 
199 
Cash Flows from Investing Activities:
 
 
Capital expenditures
(545)
(346)
Decrease (increase) in restricted cash and securities, net
15 
(63)
Proceeds from the sale of property, plant and equipment and other assets
5 
4 
Payments for (Proceeds from) Other Investing Activities
(13)
0 
Net Cash Used in Investing Activities in Investing Activities of Continuing Operations
(538)
(405)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
3,317 
765 
Payments on and repurchases of long-term debt, including current portion and refinancing costs
(3,088)
(711)
Proceeds from Stock Options Exercised
5 
0 
Net Cash Provided by (Used in) Financing Activities of Continuing Operations
234 
54 
Discontinued Operations:
 
 
Cash Provided by (Used in) Investing Activities, Discontinued Operations
0 
(4)
Net Cash Provided by (Used in) Discontinued Operations
0 
(4)
Effect of Exchange Rates on Cash and Cash Equivalents
1 
1 
Net Change in Cash and Cash Equivalents
(125)
(155)
Cash and Cash Equivalents at Beginning of Period
918 
616 
Cash and Cash Equivalents at End of Period
793 
461 
Supplemental Disclosure of Cash Flow Information:
 
 
Cash interest paid
572 
414 
Income taxes paid, net of refunds
25 
1 
Non-cash Investing and Financing Activities:
 
 
Non Cash, Long-Term Debt Issued and Proceeds Placed into Escrow
0 
1,200 
Long-term debt issued in exchange transaction
0 
300 
Long-term debt retired in exchange transaction
0 
295 
Long-term debt conversion into equity
100 
128 
Premium on long-term debt conversion into equity
39 
0 
Accrued Interest on conversion into equity
$ 2 
$ 0 
Organization and Summary of Significant Accounting Policies
Organization and Summary of Significant Accounting Policies
(1) Organization and Summary of Significant Accounting Policies
Description of Business
Level 3 Communications, Inc. and subsidiaries (the "Company" or "Level 3") is a 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. Level 3's network is an international, facilities based communications network. 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.
On October 4, 2011, a subsidiary of Level 3 completed its amalgamation with Global Crossing Limited ("Global Crossing"), which thereby became a wholly owned indirect subsidiary of the Company through a tax free, stock for stock transaction (the "Amalgamation"). See Note 2 - Events Associated with the Amalgamation of Global Crossing.

Until November 2011, the Company also was engaged in coal mining through its two 50% owned joint-venture surface mines, one each in Montana and Wyoming. The Company completed the sale of its coal mining business on November 14, 2011. See Note 4 - Dispositions.
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. Prior to the disposition of the coal mining business during the fourth quarter of 2011, the Company's 50% owned mining joint ventures were consolidated on a pro rata basis. 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 accompanying consolidated balance sheet as of December 31, 2011, which was derived from audited consolidated financial statements, and the unaudited interim consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 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, as amended, for the year ended December 31, 2011. In the opinion of the Company’s management, these financial statements contain all adjustments (consisting only of normal recurring 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.
Effective after the close of trading on October 19, 2011, the Company completed a 1 for 15 reverse stock split as previously approved by the Company's stockholders. Proportional adjustments were made to the Company's outstanding convertible debt, warrants, equity awards and to its equity compensation plans to reflect the reverse stock split. No fractional shares were issued in connection with the reverse stock split, as stockholders who would otherwise hold a fractional share of common stock received a cash payment in lieu of that fractional share. All references herein to common stock and per share data have been retrospectively adjusted to reflect the reverse stock split.

Reclassifications
Certain amounts in the prior period consolidated financial statements and accompanying footnotes have been reclassified to conform to the current period's presentation.
Recently Issued Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board ("FASB") issued guidance that allows companies to consider qualitative factors when testing indefinite-lived intangible assets for impairment. Current GAAP requires an entity to perform a two step test in which the first step involves estimating the fair value of indefinite-lived intangible assets and comparing it to the carrying value. The recently issued guidance allows an entity to assess qualitative factors to determine whether it is more likely than not that the fair value exceeds the carrying value prior to performing the two step evaluation required as part of the quantitative assessment. If it is determined that it is unlikely that the carrying value exceeds the fair value, then the entity is no longer required to complete the two step indefinite-lived intangible assets impairment evaluation, or the quantitative assessment. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.
Events Associated with the Amalgamation of Global Crossing
Events Associated with the Amalgamation of Global Crossing
Events Associated with the Amalgamation of Global Crossing

On October 4, 2011, a subsidiary of Level 3 completed its amalgamation with Global Crossing, which became a wholly owned indirect subsidiary of the Company through a tax free, stock for stock transaction. As a result of the Amalgamation, (i) each issued and outstanding common share of Global Crossing was exchanged for 16 shares of Level 3 common stock (unadjusted for the 1 for 15 reverse stock split completed on October 19, 2011), including the associated rights under the Company’s Rights Agreement with Wells Fargo Bank, N.A., as rights agent (the “Amalgamation Consideration”) and (ii) each issued and outstanding share of Global Crossing’s 2% cumulative senior convertible preferred stock was exchanged for the Amalgamation Consideration, plus an amount equal to the aggregate accrued and unpaid dividends thereon. In addition, (i) the outstanding vested options to purchase Global Crossing common shares were modified into vested options to purchase a number of shares of Level 3's common stock equal to 16 times the number of Global Crossing common shares covered by such Global Crossing options, and (ii) the issued and outstanding restricted stock units covering Global Crossing common shares, to the extent applicable in accordance with their terms, vested and settled for a number of shares of Level 3's common stock equal to 16 times the number of Global Crossing common shares covered by such restricted stock units.

In connection with the closing of the Amalgamation, Level 3 Financing, Inc. ("Level 3 Financing") amended its existing credit agreement to incur an additional $650 million of borrowings through an additional tranche (the "Tranche B II Term Loan."). In addition, the $1.2 billion of proceeds from the initial and additional issuance of 8.125% Senior Notes due 2019 in June and July 2011 (see Note 8 — Long-Term Debt) by an indirect wholly owned subsidiary were deposited into an escrow account. On October 4, 2011, following the consummation of the Amalgamation and the satisfaction of certain escrow release conditions, the 8.125% Senior Notes were assumed by Level 3 Financing (the “Notes Assumption”), and the funds were released from the escrow account. The net aggregate proceeds from the Tranche B II Term Loan and 8.125% Senior Notes were used to refinance certain existing indebtedness of Global Crossing in connection with the closing of the Amalgamation and for general corporate purposes.

As a result of the Amalgamation, the Company issued approximately 88.53 million shares of common stock, adjusted for the October 19, 2011 1 for 15 reverse stock split, to former holders of Global Crossing common shares and Global Crossing’s 2% cumulative senior convertible preferred stock, and Level 3 caused the refinancing of approximately $1.36 billion of Global Crossing's outstanding consolidated debt.

Based on (i) the number of Level 3 shares issued (88.53 million as adjusted for the 1 for 15 reverse stock split completed on October 19, 2011), (ii) the closing stock price of Level 3 common stock as of October 3, 2011 ($21.15 as adjusted for the 1 for 15 reverse stock split completed on October 19, 2011), and (iii) the debt of Global Crossing refinanced ($1.36 billion), the Company determined that the aggregate consideration for acquisition accounting, including assumed debt, approximated $3.4 billion. The restricted stock units covering Global Crossing common shares settled for Level 3 shares of common stock were reduced in settlement of employee income and payroll tax withholding obligations and the corresponding amounts of approximately $81 million were paid in cash. The premium paid by Level 3 in this transaction is attributable to strategic benefits, including a significantly expanded IP/optical network with global reach including South America, Asia and the Pacific region, an improved credit profile and reduced financial leverage attributed to enhanced financial and operational scale, and the opportunity for investment and network expansion. The Company has a comprehensive portfolio of voice, video and data services, which operates on a unique global services platform anchored by subsea and terrestrial fiber optic networks in North America, Europe and Latin America. The goodwill associated with this transaction is not expected to be deductible for income tax purposes.

The combined results of operations of Level 3 and Global Crossing are included in the Company's consolidated results of operations beginning in October 2011. The assets acquired and liabilities assumed of Global Crossing were recognized at their acquisition date fair value. The purchase price allocation of acquired assets and assumed liabilities, including the assignment of goodwill to reporting units was completed in October 2012. The following is the final allocation of the purchase price.

 
Purchase Price Allocation
 
(dollars in millions)
Assets:
 
  Cash, Cash Equivalents, and Restricted Cash
$
226

  Property, Plant, and Equipment
3,098

  Goodwill
1,123

  Identifiable Intangibles
106

  Other Assets
651

Total Assets
5,204

 
 
Liabilities:
 
  Long-term Debt
(1,554
)
  Other Liabilities
(1,688
)
Total Liabilities
(3,242
)
Total Estimated Consideration
$
1,962


Level 3 entered into certain transactions with Global Crossing prior to completing the Amalgamation, whereby Level 3 received cash for communications services to be provided in the future, which it accounted for as deferred revenue. As a result of the Amalgamation, Level 3 could no longer amortize this deferred revenue into earnings and accordingly, reduced the purchase price applied to the net assets acquired in the Amalgamation by $77 million, the amount of the unamortized deferred revenue as of the acquisition date.

As a result of refinements to the preliminary purchase price allocation that were made during the nine months ended September 30, 2012, there were changes to the initial amount of goodwill determined in the fourth quarter of 2011, which have been reflected in the above table. The refinements were primarily a result of changes in the purchase price allocation for estimated tax valuation allowances and reserves. These changes are the result of additional information obtained since the filing of the Company's Form 10-K for the year ended December 31, 2011. The effect of the adjustments did not result in a material change to previously reported amounts.

The following unaudited pro forma financial information presents the combined results of Level 3 and Global Crossing as if the completion of the Amalgamation had occurred as of January 1, 2010.

(dollars in millions, except per share data)
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2011
Total Revenue
 
$
1,606

 
$
4,739

Net Loss
 
$
(224
)
 
$
(652
)
Net Loss per share
 
$
(1.08
)
 
$
(3.21
)

These results include certain adjustments, primarily due to a net decrease in depreciation and amortization expense due to the Company, in connection with the Amalgamation, increasing the estimated useful lives of the acquired conduit, fiber and certain transmission equipment while increasing the fair value of tangible and intangible assets, decreases in interest expense due to Level 3's issuance of incremental debt in order to redeem and refinance Global Crossing debt that had higher interest rates than the incremental financing, and to eliminate historical transactions between Level 3 and Global Crossing. The unaudited pro forma financial 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 Amalgamation been completed on January 1, 2010, nor is it representative of future operating results of the Company. The unaudited 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 selling, general and administrative expense and restructuring charges in the Company's consolidated statements of operations during the period that such costs were incurred. Since the acquisition date, Level 3 incurred total acquisition related transaction costs of approximately $49 million through September 30, 2012, which is unchanged from December 31, 2011. Since the acquisition date, Level 3 incurred total acquisition related integration costs of approximately $82 million through September 30, 2012. In addition, Level 3 expects to incur additional integration related costs through the remainder of 2012.

In April 2011, Level 3 adopted a Stockholder Rights Plan to protect its U.S. federal net operating loss carryforwards from certain Internal Revenue Code Section 382 limitations. On May 24, 2012, the stockholders of the Company ratified such adoption. This plan was designed to deter trading that would result in a change of control (as defined in that Code Section), and therefore protect the Company's ability to use its historical U.S. federal net operating loss carryforwards in the future.
Loss Per Share
Loss Per Share
Loss Per Share
The Company computes basic net loss per share by dividing net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss 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, stock based compensation awards and other dilutive securities. The effect of approximately 35 million and 47 million shares issuable pursuant to the various series of convertible notes outstanding at September 30, 2012 and September 30, 2011, respectively, have not been included in the computation of diluted loss per share because their inclusion would have been anti-dilutive to the computation. In addition, the effect of the approximately 7 million and 3 million stock options, outperform stock options, restricted stock units and warrants outstanding at September 30, 2012 and September 30, 2011, respectively, have not been included in the computation of diluted loss per share because their inclusion would have been anti-dilutive to the computation.
Dispositions
Dispositions
Dispositions

Level 3, through its two 50% owned joint-venture surface mines, one each in Montana and Wyoming, sold coal primarily through long-term contracts with public utilities. In November 2011, Level 3 completed the sale of its coal mining business to Ambre Energy Limited as part of its long-term strategy to focus on core business operations. As a result of the transaction, all of the assets and liabilities associated with the coal mining business have been removed from Level 3's balance sheet and the Company recognized a gain on the transaction of approximately $72 million, which was included in the consolidated statements of operations within "Income from Discontinued Operations" in the fourth quarter of 2011. The financial results of the coal mining business were included in the Company's consolidated results of operations through the date of sale, and the three and nine month periods ended September 30, 2011 have been revised to reflect the presentation within discontinued operations.

The following amounts relate to the operations of the coal business and were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations in the Consolidated Statements of Operations (dollars in millions):


 
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2011
Revenue
 
$
20

 
$
54

 
 
 
 
 
Cost of Revenue
 
18

 
52

Depreciation and Amortization
 
1

 
3

Selling, General, and Administrative
 
—

 
—

Total Costs and Expenses
 
19

 
55

 
 
 
 
 
Operating Income (Loss)
 
1

 
(1
)
 
 
 
 
 
Total Other Expense
 
—

 
—

Income (Loss) From Discontinued Operations, Net
 
$
1

 
$
(1
)
Acquired Intangible Assets
Acquired Intangible Assets
Acquired Intangible Assets

Identifiable acquisition-related intangible assets as of September 30, 2012 and December 31, 2011 were as follows (dollars in millions):

 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
September 30, 2012
 

 
 

 
 

Finite-Lived Intangible Assets:
 

 
 

 
 

Customer Contracts and Relationships
$
776

 
$
(620
)
 
$
156

Trademarks
55

 
(14
)
 
41

Patents and Developed Technology
158

 
(100
)
 
58

 
989

 
(734
)
 
255

Indefinite-Lived Intangible Assets:
 

 
 

 
 

Vyvx Trade Name
32

 
—

 
32

 
$
1,021

 
$
(734
)
 
$
287

December 31, 2011
 

 
 

 
 

Finite-Lived Intangible Assets:
 

 
 

 
 

Customer Contracts and Relationships
$
776

 
$
(571
)
 
$
205

Trademarks
55

 
(3
)
 
52

Patents and Developed Technology
158

 
(89
)
 
69

 
989

 
(663
)
 
326

Indefinite-Lived Intangible Assets:
 

 
 

 
 

Vyvx Trade Name
32

 
—

 
32

 
$
1,021

 
$
(663
)
 
$
358



The gross carrying amount of identifiable acquisition-related intangible assets in the table above is subject to change due to foreign currency fluctuations, as a portion of the Company's identifiable acquisition-related intangible assets are related to foreign subsidiaries.

Acquired finite-lived intangible asset amortization expense was $21 million and $71 million for the three and nine months ended September 30, 2012 and $23 million and $72 million for the three and nine months ended September 30, 2011.
At September 30, 2012, the weighted average remaining useful lives of the Company's acquired finite-lived intangible assets was 3.2 years for customer contracts and relationships, 4.2 years for patents and developed technology and 3 years for trademarks.
As of September 30, 2012, estimated amortization expense for the Company’s finite-lived acquisition-related intangible assets over the next five years and thereafter is as follows (dollars in millions):

2012 (remaining three months)
$
18

2013
73

2014
62

2015
45

2016
28

2017
13

Thereafter
16

 
$
255

Fair Value of Financial Instruments
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, accounts receivable, accounts payable, capital leases, other liabilities, interest rate swaps and long-term debt (including the current portion) as of September 30, 2012 and December 31, 2011. The carrying values of cash and cash equivalents, restricted cash and securities, accounts receivable, accounts payable, capital leases and other liabilities approximated their fair values at September 30, 2012 and December 31, 2011. The interest rate swaps are recorded in the consolidated balance sheets at fair value. See Note 7 - Derivative Financial Instruments and Note 8 - Long-Term Debt. The carrying value of the Company’s long-term debt, including the current portion, reflects the original amounts borrowed net of unamortized discounts and premiums and was $8.7 billion and $8.5 billion as of September 30, 2012 and December 31, 2011, respectively.

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 inherent risk, transfer restrictions, and risk of nonperformance.

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—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The table below presents the fair values for each class of Level 3’s liabilities as well as the input levels used to determine these fair values as of September 30, 2012 and December 31, 2011:

 
 
 
 
 
Fair Value Measurement Using
 
Total
Carrying Value
in Consolidated
Balance Sheet
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
 
(dollars in millions)
Liabilities Recorded at Fair Value in the Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swap Liabilities (included in other non-current liabilities)
$
63

 
$
90

 
$
—

 
$
—

 
$
63

 
$
90

Total Derivative Liabilities Recorded at Fair Value in the Financial Statements
$
63

 
$
90

 
$
—

 
$
—

 
$
63

 
$
90

Liabilities Not Recorded at Fair Value in the Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt, including the current portion:
 
 
 
 
 
 
 
 
 
 
 
Term Loans
$
2,574

 
$
2,567

 
$
2,627

 
$
2,518

 
$
—

 
$
—

Senior Notes
5,183

 
4,716

 
5,590

 
4,822

 
—

 
—

Convertible Notes
845

 
939

 
291

 
247

 
763

 
834

Commercial Mortgage
—

 
65

 
—

 
—

 
—

 
73

Capital Leases and Other
107

 
163

 
—

 
—

 
107

 
163

Total Long-term Debt, including the current portion:
$
8,709

 
$
8,450

 
$
8,508

 
$
7,587

 
$
870

 
$
1,070


The Company does not have any assets or liabilities measured using significant unobservable inputs (Level 3).

Derivatives

The fair value of interest rate swaps are estimated in accordance with the GAAP Fair Value Measurements and Disclosures guidance using discounted cash flow techniques that use observable market inputs, such as LIBOR-based forward yield curves, forward rates, and the specific swap rate stated in each of the swap agreements.

Term Loans

The fair value of the Term Loans was approximately $2.6 billion and $2.5 billion at September 30, 2012 and December 31, 2011, respectively. The fair value of each loan is based on the September 30, 2012 and December 31, 2011 trading quotes as provided by large financial institutions that trade in the Company’s Term Loans. The pricing quotes provided by these market participants incorporate LIBOR curve expectations, interest spread, corporate and loan credit ratings, maturity date (March 2014, February 2016, September 2018 and August 2019) and liquidity, among other loan characteristics and relative value across other instruments of similar terms. The interest spreads for the $1.4 billion Tranche A Term Loan was LIBOR plus 2.25% (aggregate principal value) and is LIBOR plus 4.25% with a LIBOR floor of 1.5% for the Tranche B II and Tranche B III Term Loans, respectively. The interest spreads are LIBOR plus 3.25% for the Tranche B 2016 Term Loan and LIBOR plus 3.75% for the Tranche B 2019 Term Loan, with the LIBOR floor set at a minimum of 1.5% on both loans.

On August 6, 2012, the Tranche A Term Loan was refinanced. See Note 8 - Long-Term Debt for details.

The Term Loans are secured by a pledge of the equity interests in certain U.S.-based subsidiaries of Level 3 Financing; 65% of the equity interests in each of Level 3 Financing’s Canadian subsidiary and its Bermuda subsidiary that indirectly owns Global Crossing's non-U.S. subsidiaries; and liens on the assets of Level 3 Communications, Inc. and certain U.S.-based subsidiaries of Level 3 Financing.  In addition, Level 3 Communications, Inc. and certain U.S.-based subsidiaries of Level 3 Financing have provided full and unconditional guarantees of the obligations under the Term Loans. However, the Tranche B 2016 Term Loan and the Tranche B 2019 Term Loan have not yet been guaranteed by Level 3 Communications, LLC, an indirect, wholly owned subsidiary of the Company, and certain of its domestic subsidiaries due to the need for regulatory approvals, which are being sought.

Senior Notes

The estimated fair value of the Company’s Senior Notes approximated $5.6 billion and $4.8 billion at September 30, 2012 and December 31, 2011, respectively, based on market prices. The fair value of each instrument was based on the September 30, 2012 and December 31, 2011 trading quotes as provided by large financial institutions that trade in the Company’s securities. The pricing quotes provided by these market participants incorporate spreads to the Treasury curve, security coupon (which ranges from LIBOR plus 3.75% to 11.875%), corporate and security credit ratings, maturity date (ranging from 2014 to 2020) and liquidity, among other security characteristics and relative value at both the borrower entity level and across other securities of similar terms.

The 11.875% Senior Notes due 2019 and the 8.875% Senior Notes due 2019 were issued by the Company and are not guaranteed by any of the Company's subsidiaries. The remaining Senior Notes are obligations of Level 3 Financing, Inc. and are all fully and unconditionally guaranteed by Level 3 Communications, Inc. and, other than the 7% Senior Notes due 2020, by Level 3 Communications, LLC. Regulatory approval is being sought to enable Level 3 Communications, LLC to guarantee the 7% Senior Notes due 2020.

Convertible Notes

The estimated fair value of the Company’s actively traded 6.5% Convertible Senior Notes due 2016 was approximately $291 million at September 30, 2012 and $247 million at December 31, 2011. The fair value of the Company’s actively traded Convertible Notes is based on the trading quotes as of September 30, 2012 and December 31, 2011 provided by large financial institutions that trade in the Company’s securities. The estimated fair value of the Company’s Convertible Notes that are not actively traded, such as the 7% Convertible Senior Notes due 2015, the 7% Convertible Senior Notes due 2015, Series B, and the 15% Convertible Senior Notes due 2013, approximated $763 million at September 30, 2012 and $834 million at December 31, 2011. A portion of the Company's 15% Convertible Senior Notes due 2013 were exchanged for equity during the first quarter of 2012, as discussed in Note 8 - Long-Term Debt. To estimate the fair value of the Convertible Notes that are not actively traded, Level 3 used a Black-Scholes valuation model and an income approach using discounted cash flows. The most significant inputs affecting the valuation are the pricing quotes provided by market participants that incorporate spreads to the Treasury curve, security coupon (ranging from 7% to 15%), convertible optionality, corporate and security credit ratings, maturity date (ranging from 2013 to 2015), liquidity, and other equity option inputs, such as the risk-free rate, underlying stock price, strike price of the embedded derivative, estimated volatility and maturity inputs for the option component and for the bond component, among other security characteristics and relative value at both the borrower entity level and across other securities with similar terms. The fair value of each instrument is obtained by adding together the value derived by discounting the security’s coupon or interest payment using a risk-adjusted discount rate and the value calculated from the embedded equity option based on the estimated volatility of the Company’s stock price, conversion rate of the particular Convertible Note, remaining time to maturity, and risk-free rate. The Convertible Notes are unsecured obligations of Level 3 Communications, Inc. No subsidiary of Level 3 Communications, Inc. has provided a guarantee of the Convertible Notes.

Commercial Mortgage

During the third quarter of 2012, the outstanding principal of the Commercial Mortgage was fully repaid. See Note 8 - Long Term Debt for additional information. The fair value of the Commercial Mortgage was approximately $73 million at December 31, 2011 as compared to the carrying amount of $65 million. The Commercial Mortgage was not actively traded and its fair value was estimated by management using a valuation model based on an income approach. The significant inputs used to estimate fair value of this debt instrument using discounted cash flows included the anticipated scheduled mortgage payments and observable market yields on other actively traded debt of similar characteristics and collateral type.

Prior to its repayment, the Commercial Mortgage was a secured obligation of HQ Realty, Inc., a wholly owned subsidiary of the Company. HQ Realty, Inc.’s obligations under the Commercial Mortgage were secured by a first priority lien on the Company’s headquarters campus located at 1025 Eldorado Boulevard, Broomfield, Colorado 80021 and certain HQ Realty, Inc. restricted cash and reserve accounts.
Derivative Financial Instruments
Derivative Financial Instruments
Derivative Financial Instruments

The Company has floating rate long-term debt (see Note 8 - Long-Term Debt). Such debt exposes the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. The Company uses derivative financial instruments, primarily interest rate swaps, in an attempt to manage its exposure to fluctuations in interest rate movements. The Company’s primary objective in managing interest rate risk is to decrease the volatility of its earnings and cash flows affected by changes in the underlying rates. To achieve this objective, the Company enters into financial derivatives, primarily interest rate swap agreements, the values of which change in the opposite direction of the anticipated future cash flows. The Company does not use derivative financial instruments for speculative purposes. See Note 8 - Long-Term Debt.

In March 2007, Level 3 Financing Inc. entered into two interest rate swap agreements to hedge the interest payments on $1 billion notional amount of floating rate debt. The Company had designated these interest rate swap agreements as cash flow hedges. The two interest rate swap agreements are with different counterparties and are for $500 million each. The arrangements began in April 2007 and mature in January 2014. Under the terms of theses arrangements, the Company receives interest payments based on rolling three month LIBOR terms and pays interest at the fixed rate of 4.93% under one arrangement and 4.92% under the other.

On a quarterly basis, the Company evaluates the effectiveness of the hedges by measuring the extent to which the change in the variable portion of the interest rate swaps offsets the changes in interest expense paid due to fluctuations in the LIBOR-based interest rate. Prior to August 6, 2012, these derivatives were deemed effective cash flow hedges and hedge ineffectiveness was not material in any periods presented. As a result, the change in the fair value of the interest rate swap agreements was reflected in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and was subsequently reclassified into earnings through an interest expense yield adjustment in respect of the hedged debt obligation as periodic settlements occurred throughout the term of the swaps by the making of interest payments on such debt.

As a result of the refinancing of the Tranche A Term Loan on August 6, 2012, the two interest rate swap agreements maturing in early 2014 that had effectively hedged changes in the interest rate on a portion of the Tranche A Term Loan were deemed "ineffective" under GAAP. The Company recognized a non-cash loss on the agreements of approximately $60 million (excluding accrued interest) in the third quarter of 2012, which represented the cumulative loss recorded in AOCI at the date the instruments ceased to qualify as hedges. After August 6, 2012, the Company will reflect the change in the fair value of the swaps in Other Income in its Consolidated Statement of Operations until maturity of the swaps in early 2014. For both the three and nine months ended September 30, 2012, the Company recognized $3 million of Other Income in the Company's Consolidated Statement of Operations.

Interest Rate Derivative
 
Number of
Instruments
 
Notional
(dollars in millions)
Interest rate swaps
 
Two
 
$
1,000



The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as follows (dollars in millions):

 
 
Liability Derivatives
 
 
September 30, 2012
 
December 31, 2011
Derivatives designated as
hedging instruments
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
 
 
 
 
 
 
 
 
Cash flow hedging contracts
 
Other noncurrent liabilities
 
$
—

 
Other noncurrent liabilities
 
$
90



The amount of gains (losses) recognized in Other Comprehensive Loss consists of the following (dollars in millions):

Derivatives designated as hedging instruments
 
2012
 
2011
 
 
 
 
 
Cash flow hedging contracts
 
 
 
 
Three Months Ended September 30,
 
$
74

 
$
2

Nine Months Ended September 30,
 
$
90

 
$
10



The amount of gains (losses) reclassified from AOCI to Income/Loss (effective portions) consists of the following (dollars in millions):

Derivatives designated as hedging instruments
 
Income Statement Location
 
2012
 
2011
 
 
 
 
 
 
 
Cash flow hedging contracts:
 
 
 
 
 
 
Three Months Ended September 30,
 
Interest Expense
 
$
(4
)
 
$
(12
)
Nine Months Ended September 30,
 
Interest Expense
 
$
(26
)
 
$
(35
)


The Company is exposed to credit related losses in the event of non-performance by counterparties. The counterparties to the financial derivatives the Company has entered into are major institutions with investment grade credit ratings. The Company evaluates counterparty credit risk before entering into any hedge transaction and continues to closely monitor the financial market and the risk that its counterparties will default on their obligations. This credit risk is generally limited to the unrealized gains in such contracts, should any of these counterparties fail to perform as contracted.
Long-Term Debt
Long-Term Debt
Long-Term Debt

As of September 30, 2012 and December 31, 2011, long-term debt was as follows:

(dollars in millions)
 
September 30, 2012
 
December 31, 2011
Senior Secured Term Loan*
 
$
2,615

 
$
2,600

Senior Notes due 2014 (9.25%)
 
—

 
807

Floating Rate Senior Notes due 2015 (4.469% as of September 30, 2012 and 4.202% as of December 31, 2011)
 
300

 
300

Senior Notes due 2017 (8.75%)
 
—

 
700

Senior Notes due 2018 (10.0%)
 
640

 
640

Senior Notes due 2019 (11.875%)
 
605

 
605

Senior Notes due 2019 (9.375%)
 
500

 
500

Senior Notes due 2019 (8.125%)
 
1,200

 
1,200

Senior Notes due 2019 (8.875%)
 
300

 
—

Senior Notes due 2020 (8.625%)
 
900

 
—

Senior Notes due 2020 (7%)
 
775

 
—

Convertible Senior Notes due 2013 (15.0%)
 
172

 
272

Convertible Senior Notes due 2015 (7.0%)
 
200

 
200

Convertible Senior Notes due 2015 Series B (7.0%)
 
275

 
275

Convertible Senior Notes due 2016 (6.5%)
 
201

 
201

Commercial Mortgage due 2015 (9.86%)
 
—

 
65

Capital Leases
 
92

 
131

Other
 
15

 
32

Total Debt Obligations
 
8,790

 
8,528

Unamortized (Discount) Premium:
 
 
 
 
Discount on Senior Secured Term Loan
 
(41
)
 
(33
)
Premium on Senior Notes due 2014 (9.25%)
 
—

 
3

Discount on Senior Notes due 2018 (10.0%)
 
(10
)
 
(11
)
Discount on Senior Notes due 2019 (11.875%)
 
(10
)
 
(10
)
Discount on Senior Notes due 2019 (9.375%)
 
(9
)
 
(9
)
Discount on Senior Notes due 2019 (8.125%)
 
(8
)
 
(9
)
Discount on Convertible Senior Notes due 2015 (7.0%)
 
(2
)
 
(2
)
Discount due to embedded derivative contracts
 
(1
)
 
(7
)
Total Unamortized (Discount) Premium
 
(81
)
 
(78
)
Carrying Value of Debt
 
8,709

 
8,450

Less current portion
 
(213
)
 
(65
)
Long-term Debt, less current portion
 
$
8,496

 
$
8,385


* The $1.4 billion Tranche A Term Loan due 2014 had an effective interest rate of 2.65% as of December 31, 2011, excluding the effect of the $1 billion notional amount interest rate swaps. The $650 million Tranche B II Term Loan due 2018 and the $550 million Tranche B III Term Loan due 2018 had an interest rate of 5.75% as of September 30, 2012 and December 31, 2011. The $600 million Tranche B 2016 Term Loan and the $815 million Tranche B 2019 Loan had interest rates of 4.75% and 5.25%, respectively, as of September 30, 2012.

2012 Debt Issuances, Related Redemptions, and Registrations

Senior Secured Tranche B 2016 and Tranche B 2019 Term Loans
On August 6, 2012, Level 3 Financing, Inc. refinanced its existing $1.4 billion Tranche A Term Loan under its existing senior secured credit facility through the creation of new term loans in the aggregate principal amount of $1.415 billion (the "New Term Loans"). The New Term Loans were borrowed pursuant to an amended and restated credit agreement, which reflects the amendments approved by the lenders. The New Term Loans consist of: (a) a $600 million senior secured term loan which matures on February 1, 2016 (the “Tranche B 2016 Loan”), and (b) a $815 million senior secured term loan which matures on August 1, 2019 (the “Tranche B 2019 Loan”). The interest rates on the loans are LIBOR plus 3.25% for the Tranche B 2016 Loan and LIBOR plus 3.75% for the Tranche B 2019 Loan, with LIBOR set at a minimum of 1.5% on both loans. The Tranche B 2016 Loan and the Tranche B 2019 Loan were priced at 99.5% and 99.0% of par, respectively.
The Company used the net proceeds from the New Term Loans, along with cash on hand, to repay Level 3 Financing, Inc.'s $1.4 billion Tranche A Term Loan under the existing credit agreement maturing in March 2014 and used remaining net proceeds to repay $15 million in principal amount plus premium for existing vendor financing obligations. The Company recognized a loss on the extinguishment of debt of $9 million in the third quarter of 2012 as a result of refinancing the $1.4 billion Tranche A Term Loan and repayment of existing vendor financing obligations. In addition, in connection with the refinancing of the Tranche A Term Loan, the Company recognized a $60 million non-cash loss on two interest rate swap agreements that had previously hedged changes in the interest rate on $1 billion notional amount of floating rate debt. See Note 7 - Derivative Financial Instruments.
The net discounts for the Tranche B 2016 Loan and the Tranche B 2019 Loan of approximately $3 million and $8 million, respectively, are reflected as a reduction in long-term debt and are being amortized as interest expense over the terms of the Tranche B 2016 Loan and Tranche B 2019 Loan using the effective interest method. Debt issuance costs for the Tranche B 2016 Loan and the Tranche B 2019 Loan of approximately $9 million and $12 million, respectively, were capitalized and are being amortized as interest expense using the effective interest method over the respective terms of those term loans.

7% Senior Notes due 2020

On August 6, 2012, Level 3 Financing, Inc. completed the offering of $775 million aggregate principal amount of its 7% Senior Notes due 2020 (the "7% Senior Notes"). Debt issuance costs of approximately $15 million were capitalized and are being amortized as interest expense over the term of the 7% Senior Notes. The net proceeds from the offering of the notes, along with cash on hand were used to redeem all of the outstanding 8.75% Senior Notes due 2017 issued by Level 3 Financing, Inc., including the payment of accrued interest and applicable premiums, and in connection with that redemption, the indenture relating to the 8.75% Senior Notes due 2017 was discharged. The Company recognized a loss on extinguishment of debt of $40 million in the third quarter of 2012 as a result of the redemption of the 8.75% Senior Notes due 2017.

The 7% Senior Notes were priced at 100% of their principal amount and will mature on June 1, 2020. Interest on the notes will accrue from August 6, 2012 and will be payable on June 1 and December 1 of each year, beginning on December 1, 2012. The notes are senior unsecured obligations of Level 3 Financing, Inc., ranking equal in right of payment with all other senior unsecured obligations of Level 3 Financing, Inc. The 7% Senior Notes are guaranteed on an unsecured basis by Level 3 Communications, Inc., and subject to receipt of applicable regulatory approvals will be guaranteed on an unsecured basis by Level 3 Communications, LLC.

The 7% Senior Notes are subject to redemption at the option of Level 3 Financing, Inc. in whole or in part, at any time before June 1, 2016 at the redemption price equal to 100% of their principal amount, plus a make-whole premium and accrued and unpaid interest. On or after June 1, 2016, Level 3 Financing may redeem all or part of the 7% Senior Notes, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon (if any) to, but not including, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve months beginning June 1, of the years indicated below:

Year
Redemption Price
2016
103.500
%
2017
101.750
%
2018
100.000
%


In addition, at any time or from time to time on or prior to June 1, 2015, Level 3 Financing may redeem up to 35% of the original aggregate principal amount of the 7% Senior Notes (including any additional 7% Senior Notes) at a redemption price equal to 107% of the principal amount of the 7% Senior Notes so redeemed, plus accrued and unpaid interest thereon (if any) to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), with the net cash proceeds contributed to the capital of Level 3 Financing of one or more private placements to persons other than affiliates of Level 3 or underwritten public offerings of common stock of Level 3 resulting, in each case, in gross proceeds of at least $100 million in aggregate; provided, however, that at least 65% of the original aggregate principal amount of the 7% Senior Notes (including any additional 7% Senior Notes) would remain outstanding immediately after giving effect to such redemption. Any such redemption shall be made within 90 days of such private placement or public offering upon not less than 30 nor more than 60 days' prior notice.
The 7% Senior Notes are not registered under the Securities Act of 1933 or any state securities laws and, unless so registered, may not be offered or sold except pursuant to an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. In connection with the offering, the Company and Level 3 Financing, Inc. entered into a registration rights agreement pursuant to which Level 3 and Level 3 Financing, Inc. agreed to file a registration statement to exchange the offered notes with new notes that are substantially identical in all material respects, and to use commercially reasonable efforts to cause the registration statement to be declared effective no later than 270 days after the issuance of the 7% Senior Notes.

8.875% Senior Notes due 2019

On August 1, 2012, Level 3 Communications, Inc. completed the offering of $300 million aggregate principal amount of its 8.875% Senior Notes due 2019 (the "8.875% Senior Notes"). Debt issuance costs of approximately $7 million were capitalized and are being amortized as interest expense using the effective interest method over the term of the 8.875% Senior Notes. The net proceeds from the offering of the notes will be used for general corporate purposes, including the potential repurchase, redemption, repayment or refinancing of the Company's and its subsidiaries' existing indebtedness from time to time.

The 8.875% Senior Notes were priced at 100% of their principal amount and will mature on June 1, 2019. Interest on the notes will accrue from August 1, 2012 and will be payable on June 1 and December 1 of each year, beginning on December 1, 2012. The notes are senior unsecured obligations of Level 3 Communications, Inc., ranking equal in right of payment with all other senior unsecured obligations of Level 3. The notes will not be guaranteed by any of the Company's subsidiaries.

The 8.875% Senior Notes are subject to redemption at the option of Level 3 in whole or in part, at any time before June 1, 2015 at the redemption price equal to 100% of their principal amount, plus a make-whole premium and accrued and unpaid interest. On and after June 1, 2015, Level 3 may redeem all or part of the 8.875% Senior Notes, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon (if any) to, but not including, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve months beginning June 1, of the years indicated below:

Year
Redemption Price
2015
104.438
%
2016
102.219
%
2017
100.000
%


In addition, at any time or from time to time on or prior to June 1, 2015, Level 3 may redeem up to 35% of the original aggregate principal amount of the 8.875% Senior Notes (including any additional 8.875% Senior Notes) at a redemption price equal to 108.875% of the principal amount of the 8.875% Senior Notes so redeemed, plus accrued and unpaid interest thereon (if any) to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), with the net cash proceeds contributed to the capital of Level 3 of one or more private placements to persons other than affiliates of Level 3 or underwritten public offerings of common stock of Level 3 resulting, in each case, in gross proceeds of at least $100 million in aggregate; provided, however, that at least 65% of the original aggregate principal amount of the 8.875% Senior Notes (including any additional 8.875% Senior Notes) would remain outstanding immediately after giving effect to such redemption. Any such redemption shall be made within 90 days of such private placement or public offering upon not less than 30 nor more than 60 days' prior notice.

The 8.875% Senior Notes are not registered under the Securities Act of 1933 or any state securities laws and, unless so registered, may not be offered or sold except pursuant to an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. In connection with the offering, Level 3 entered into a registration rights agreement pursuant to which Level 3 agreed to file a registration statement to exchange the offered notes with new notes that are substantially identical in all material respects, and to use commercially reasonable efforts to cause the registration statement to be declared effective no later than 270 days after the issuance of the offered notes.

8.125% Senior Notes due 2019

The 8.125% Senior Notes due 2019 issued by Level 3 Financing, Inc. were not originally registered under the Securities Act of 1933, as amended. During the second quarter of 2012, all of the originally placed notes were exchanged for a new issue of 8.125% Senior Notes due 2019 with identical terms and conditions, other than those related to registration rights, in a registered exchange offer and now are freely tradeable. The 8.125% Senior Notes became fully and unconditionally guaranteed by Level 3 Communications, LLC during the first quarter of 2012.

8.625% Senior Notes due 2020

On January 13, 2012, Level 3 Financing completed the offering of $900 million aggregate principal amount of its 8.625% Senior Notes due 2020 (the "8.625% Senior Notes"). Debt issuance costs of approximately $20 million were capitalized and are being amortized as interest expense using the effective interest method over the term of the 8.625% Senior Notes. In February 2012, a portion of the net proceeds from the offering of the 8.625% Senior Notes were used to redeem all of Level 3 Financing's outstanding 9.25% Senior Notes due 2014 in aggregate principal amount of $807 million. The Company recognized a loss on extinguishment of debt of $22 million in the first quarter of 2012 as a result of the redemption of the 9.25% Senior Notes due 2014.

The remaining net proceeds constitute purchase money indebtedness under the existing senior secured credit agreement and indentures of the Company and Level 3 Financing and are being used solely to fund the cost of construction, installation, acquisition, lease, development or improvement of any Telecommunications/IS assets (as defined in the existing senior secured credit agreement and indentures of Level 3), including cash purchase price of any past, pending or future acquisitions.

The 8.625% Senior Notes will mature on July 15, 2020. Interest on the notes will accrue from January 13, 2012 and will be payable on January 15 and July 15 of each year, beginning on July 15, 2012. The notes are fully and unconditionally guaranteed on an unsubordinated and unsecured basis by the Company and became fully and unconditionally guaranteed by Level 3 Communications, LLC in the second quarter of 2012. The notes are unsecured, unsubordinated obligations of Level 3 Financing, ranking equal in right of payment with all existing and future unsubordinated indebtedness of Level 3 Financing, and are senior in right of payment to all existing and future indebtedness of Level 3 Financing expressly subordinated in right of payment to the notes.

The 8.625% Senior Notes are subject to redemption at the option of Level 3 Financing in whole or in part, at any time before January 15, 2016 at the redemption price equal to 100% of their principal amount, plus a make-whole premium and accrued and unpaid interest. On and after January 15, 2016, Level 3 Financing may redeem all or part of the 8.625% Senior Notes, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon (if any) to, but not including, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve months beginning January 15, of the years indicated below:

Year
Redemption
Price
2016
104.313
%
2017
102.156
%
2018
100.000
%


In addition, at any time or from time to time on or prior to January 15, 2015, Level 3 Financing may redeem up to 35% of the original aggregate principal amount of the 8.625% Senior Notes (including any additional 8.625% Senior Notes) at a redemption price equal to 108.625% of the principal amount of the 8.625% Senior Notes so redeemed, plus accrued and unpaid interest thereon (if any) to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), with the net cash proceeds contributed to the capital of Level 3 Financing of one or more private placements to persons other than affiliates of Level 3 or underwritten public offerings of common stock of Level 3 resulting, in each case, in gross proceeds of at least $100 million in aggregate; provided, however, that at least 65% of the original aggregate principal amount of the 8.625% Senior Notes (including any additional 8.625% Senior Notes) would remain outstanding immediately after giving effect to such redemption. Any such redemption shall be made within 90 days of such private placement or public offering upon not less than 30 nor more than 60 days' prior notice.

The 8.625% Senior Notes due 2020 issued by Level 3 Financing, Inc. were not originally registered under the Securities Act of 1933, as amended. During the second quarter of 2012, all of the originally placed notes were exchanged for a new issue of 8.625% Senior Notes due 2020 with identical terms and conditions, other than those related to registration rights, in a registered exchange offer and are now freely tradeable. The 8.625% Senior Notes became fully and unconditionally guaranteed by Level 3 Communications, LLC during the second quarter of 2012.

Commercial Mortgage due 2015

During the third quarter of 2012, the outstanding principal of the Commercial Mortgage due 2015 was fully repaid along with accrued interest.


2012 Debt Exchange

On March 13, 2012, the Company entered into an exchange agreement for a portion of its 15% Convertible Senior Notes due 2013. Pursuant to the agreement, the holder of approximately $100 million aggregate principal amount of Level 3's outstanding 15% Convertible Senior Notes due 2013 agreed to exchange that debt for approximately 3.7 million shares of Level 3's common stock into which the notes were convertible plus an additional 1.7 million shares for a total of approximately 5.4 million shares. The consideration was based on the market price for these notes which included an inducement premium and included a payment for accrued and unpaid interest from January 15, 2012 through March 15, 2012 of approximately $2 million. This transaction did not include the payment by the Company of any cash. The Company recognized a loss on inducement included in loss on extinguishment of debt of $39 million in the first quarter of 2012 as a result of the exchange of the 15% Convertible Senior Notes due 2013.

Long-Term Debt Maturities

Aggregate future contractual maturities of long-term debt and capital leases (excluding issue discounts, premiums and fair value adjustments) were as follows as of September 30, 2012 (dollars in millions):

2012 (remaining three months)
 
$
11

2013
 
210

2014
 
16

2015
 
782

2016
 
807

2017
 
6

Thereafter
 
6,958

 
 
$
8,790

Stock-based Compensation
Stock-Based Compensation
Stock-Based Compensation
The following table summarizes non-cash compensation expense and capitalized non-cash compensation for three and nine months ended September 30, 2012 and 2011 (dollars in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
OSO
$
4

 
$
3

 
$
10

 
$
7

Restricted Stock Units and Shares
21

 
11

 
39

 
18

401(k) Match Expense
5

 
3

 
18

 
10

Restricted Stock Unit Bonus Grant
20

 
9

 
36

 
33

 
50

 
26

 
103

 
68

Capitalized Noncash Compensation
(1
)
 
—

 
(1
)
 
—

 
$
49

 
$
26

 
$
102

 
$
68



The Company capitalizes non-cash compensation for those employees directly involved in the construction of the network, installation of services for customers or development of business support systems. As of September 30, 2012, there were approximately 2 million outperform stock options (“OSOs”) outstanding. As of September 30, 2012, there were approximately 5 million nonvested restricted stock and restricted stock units (“RSUs”) outstanding. In addition, as of September 30, 2012, there were approximately seventy-eight thousand non-qualified stock options outstanding.
During 2012, the Company adopted cash and share-based incentive and retention plans to encourage certain levels of management to remain employed with the Company and to award the achievement of established performance criteria. The non-cash compensation expense for the awards is included in the restricted stock units and shares information above.
Segment Information
Segment Information
Segment Information

Accounting guidance for the disclosures about segments of an enterprise defines operating segments as components of an enterprise for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker, or decision making group, in deciding how to allocate resources and assess performance. As a result of the integration of Global Crossing (see Note 2 - Events Associated with the Amalgamation of Global Crossing) and the sale of the coal business during the fourth quarter of 2011, the Company reorganized its management reporting structure to reflect the way in which it allocates resources and assesses performance. As a result of these changes, the Company is now comprised of one reportable segment for financial reporting purposes, representing its communications services business. The prior year reportable segment information has been revised to conform with this presentation.
The data presented in the following table includes information for the three and nine months ended September 30, 2012 and September 30, 2011. Information related to the acquired business is included from the date of acquisition.
Total revenue consists of:

1)
Core Network Services revenue from colocation and data center services, transport and fiber, IP and data services, and voice services.

2)  
Wholesale Voice Services and Other revenue from long distance voice services, revenue from managed modem and its related intercarrier compensation services and revenue from the "SBC Master Services Agreement", which was obtained through an acquisition in 2005.

The following table provides revenue (dollars in millions):

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Core Network Services
$
1,395

 
$
758

 
$
4,163

 
$
2,231

Wholesale Voice Services and Other
195

 
169

 
599

 
523

 
$
1,590

 
$
927

 
$
4,762

 
$
2,754



The prior year's revenue by service offering has been revised to conform to the current year's presentation.
Commitments, Contingencies and Other Items
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 $296 million and are included in “Other” current liabilities and “Other Liabilities” in the Company's consolidated balance sheet as of September 30, 2012. 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 may have no effect on the Company's results of operations but could materially adversely affect its cash flows for the affected period.
In accordance with the accounting guidance for contingencies, the Company accrues its estimate of a contingent liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Where it is probable that a liability has been incurred and there is a range of expected loss for which no amount in the range is more likely than any other amount, the Company accrues at the low end of the range. 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 September 30, 2012. 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 below 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 its 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 in the states of Idaho, Illinois, and Alabama have received final court approval and the parties are engaged in the claims process for those states. The settlement has been presented to federal courts in multiple states for approval.

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.

Derivative Action

In March 2009, Level 3 Communications, Inc., as a nominal defendant, certain of its directors and its current officers, and a former officer, were named as defendants in purported stockholder derivative actions in the District Court, Broomfield County, Colorado, which were consolidated as In  re Level 3 Communications, Inc. Derivative Litigation (Lead Case No. 2009CV59) (the “State Derivative Action”). The plaintiffs in the action alleged that during the period specified in the complaints the named defendants failed to disclose material adverse facts about the Company's integration activities, business and operations. The complaint sought damages on behalf of the Company based on purported breaches of fiduciary duties for disseminating false and misleading statements and failing to maintain internal controls; unjust enrichment; abuse of control; gross mismanagement; waste of corporate assets; and, with respect to certain defendants, breach of fiduciary duties in connection with the resignation of Kevin O'Hara. The plaintiffs undertook further assessment of the State Derivative Action following the final dismissal of a related securities class action lawsuit which was based upon similar allegations, and determined not to pursue the action further. The plaintiffs filed a motion for voluntary dismissal and the action was dismissed by the court on June 26, 2012.

Peruvian Tax Litigation
Beginning in 2005, one of the Company's Peruvian subsidiaries received a number of assessments for tax, penalty 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. Due to accrued interest and foreign exchange effects, and taking into account the developments described below, the total amount of exposure has increased to $94 million.
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 in the Tax Court, which is the highest administrative authority. In October 2011, the Tax Court issued a ruling regarding VAT, associated penalties and penalties associated with withholding taxes, adjudicating 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. Other than an immaterial amount, all assessed items dismissed by the Tax Court in this ruling remain open for reassessment by SUNAT. While this Tax Court ruling applies only to 2002, the Company believes the Tax Court will issue a similar ruling with respect to 2001, and all material amounts likely to be waived due to procedural defects similarly remain open for reassessment.
In November 2011, the Tax Court issued a ruling with respect to assessed 2001 withholding tax, holding that the statute of limitations had run prior to assessment by SUNAT. The Company believes that this adjudication of the withholding tax issue is likely to be final, and the Company expects to win a similar verdict with respect to assessed 2002 withholding tax. However, penalties with respect to withholding tax are not time-barred, and were confirmed in the Tax Court's October 2011 ruling.
The Company has appealed the Tax Court's October 2011 decision to the judicial court in Peru. The Company has not received Tax Court rulings for all periods, but it has received adjudications of each substantive issue for at least one period. As a result, the Company expects decisions for the remaining open periods to be consistent with decisions already rendered. The Company intends to appeal any Tax Court verdict with respect to 2001 to the extent consistent with the October 2011 decision in the government's favor and will protest any reassessment of amounts dismissed by the Tax Court on procedural grounds.
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 $42 million.
Brazilian Tax Claims
In December 2004, March 2009 and April 2009, 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 revenues from leasing movable properties (in the case of the December 2004 and March 2009 assessments) and revenues from the provision of internet access services (in the case of the April 2009 assessment), by treating such activities as the provision of communications services, to which the ICMS tax applies. 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 December 2004 and September 2002 assessments have been rejected by the respective state administrative courts, and the Company has appealed those decisions to the judicial courts. The objections to the March, April and July 2009 and May 2012 assessments are still pending final administrative decisions.
The Company is vigorously contesting all such assessments in both states, and in particular, views the assessment of ICMS on revenues 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 $57 million in excess of the accruals established for these matters.
Customer Bankruptcy Claim
During 2007, one of the Company's U.S. subsidiaries commenced default and disconnect procedures against a customer for breach of a sales contract for termination of international and domestic wireless and wireline phone service based on the nature of the customer's traffic, which rendered the contract highly unprofitable to the Company. After the process was begun, the customer filed for bankruptcy protection, thereby barring the Company from taking further disconnection actions against it. The Company commenced an adversary proceeding in the bankruptcy court, asserting a claim for damages for the customer's alleged breaches of the contract and for a declaration that, as a result of these breaches, the customer was prohibited from assuming the contract in its reorganization proceedings.
The customer filed several counterclaims against the Company alleging various breaches of contract for attempting improperly to terminate service, for improperly blocking international traffic, for violations of the Communications Act of 1934 and for related tort-based claims. The Company notified the customer that the Company would be raising its rates for certain of the services and filed a motion with the bankruptcy court seeking additional adequate assurance for the rate change, or an order allowing the Company to terminate the customer's service. The customer amended its counter claims to assert claims for breach of contract based upon the rate increase. On July 3, 2008, the Court issued an opinion holding that the agreement did not permit the Company to increase the rates in the manner it did and that the Company: (a) breached the sales contract in so doing; and (b) was therefore not entitled to additional adequate assurance or an order terminating service. The Court did, however, permit the Company to amend its complaint to plead a rescission claim (which was filed on July 14, 2008) and to assert other defenses.
The Court dismissed the customer's bankruptcy case by order dated November 25, 2009, and retained the adversary proceeding (including the customer's counterclaim). On December 26, 2009, the Company terminated service to the customer. The Company amended its complaint to include allegations relating to the manipulation of traffic data, so called “ANI stripping,” and the customer filed an amended answer, affirmative defenses and counterclaims.
On January 14, 2011, the Company filed a motion for summary judgment asserting that the customer was not entitled to recover any damages (other than those based on rescission-type theories) by reason of a limitation of liability provision in the contract and applicable law. On July 22, 2011, the Court issued its decision on the motion. Although the Court held that the limitation of liability provision of the contract was valid and enforceable and barred the customer from pursuing all forms of lost profit damages, the Court refused to exclude the customer's claim for general damages at that point, and permitted that issue to proceed.
After discovery in the action concluded, the Court ordered trial to proceed in three separate phases. Trial of the first set of issues commenced on November 14, 2011. After the Court heard testimony from four witnesses, the matter was adjourned until January 23, 2012, at which time further testimony was taken for three days. The customer's most recent damage estimate ranged from approximately $150 million to approximately $450 million. While the final outcome of this matter was uncertain, the Company believed Global Crossing had good defenses that would have limited substantially the amount of damages recoverable by the customer, including defenses based upon the limitation of liability provisions in the contract. However, the precise effect of the application of these defenses was unclear, and the Company therefore elected to settle the case for an amount approximately equal to the accrual that the Company had established for the matter. The settlement agreement was entered into by the parties effective on April 11, 2012, and the parties filed a stipulation with the Court on April 13, 2012, pursuant to which the case was dismissed with prejudice and payment was rendered during the second quarter of 2012.
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 September 30, 2012 and December 31, 2011, Level 3 had outstanding letters of credit of approximately $32 million and $33 million, respectively, of which $30 million and $29 million, are collateralized by cash, that is reflected on the consolidated balance sheets as restricted cash. The Company does not believe it is reasonable to estimate the fair value of the letters of credit and does not believe exposure to loss is reasonably possible nor material.
Condensed Consolidating Financial Information
9 Months Ended 12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Condensed Consolidating Financial Information
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.

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)
For the three months ended September 30, 2012


 
Level 3 Communications, Inc
 
Level 3 Financing, Inc
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
672

 
$
981

 
$
(63
)
 
$
1,590

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Cost of Revenue
—

 
—

 
256

 
447

 
(61
)
 
642

Depreciation and Amortization
—

 
—

 
63

 
122

 
—

 
185

Selling, General and Administrative
1

 
1

 
406

 
213

 
(2
)
 
619

Restructuring Charges
—

 
—

 
4

 
2

 
—

 
6

Total Costs and Expenses
1

 
1

 
729

 
784

 
(63
)
 
1,452

Operating Income (Loss)
(1
)
 
(1
)
 
(57
)
 
197

 
—

 
138

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(43
)
 
(137
)
 
(1
)
 
(7
)
 
—

 
(188
)
Interest income (expense) affiliates, net
244

 
400

 
(561
)
 
(83
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(365
)
 
(516
)
 
40

 
—

 
841

 
—

Other income (expense), net
—

 
(111
)
 
3

 
5

 
—

 
(103
)
Total Other Expense
(164
)
 
(364
)
 
(519
)
 
(85
)
 
841

 
(291
)
Income (Loss) before Income Taxes
(165
)
 
(365
)
 
(576
)
 
112

 
841

 
(153
)
Income Tax Expense
(1
)
 
—

 
(1
)
 
(11
)
 
—

 
(13
)
Net Income (Loss)
(166
)
 
(365
)
 
(577
)
 
101

 
841

 
(166
)
Other Comprehensive Income, Net of Income Taxes
122

 
122

 
—

 
48

 
(170
)
 
122

Comprehensive Income (Loss)
$
(44
)
 
$
(243
)
 
$
(577
)
 
$
149

 
$
671

 
$
(44
)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the nine months ended September 30, 2012


 
Level 3 Communications, Inc
 
Level 3 Financing, Inc
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
1,957

 
$
2,995

 
$
(190
)
 
$
4,762

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Cost of Revenue
—

 
—

 
736

 
1,393

 
(182
)
 
1,947

Depreciation and Amortization
—

 
—

 
196

 
367

 
—

 
563

Selling, General and Administrative
2

 
1

 
1,197

 
659

 
(8
)
 
1,851

Restructuring Charges
—

 
—

 
10

 
4

 
—

 
14

Total Costs and Expenses
2

 
1

 
2,139

 
2,423

 
(190
)
 
4,375

Operating Income (Loss)
(2
)
 
(1
)
 
(182
)
 
572

 
—

 
387

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
1

 
1

 
—

 
2

Interest expense
(123
)
 
(410
)
 
(2
)
 
(23
)
 
—

 
(558
)
Interest income (expense) affiliates, net
734

 
1,202

 
(1,678
)
 
(258
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(935
)
 
(1,593
)
 
101

 
—

 
2,427

 
—

Other income (expense), net
(39
)
 
(133
)
 
6

 
4

 
—

 
(162
)
Total Other Expense
(363
)
 
(934
)
 
(1,572
)

(276
)
 
2,427

 
(718
)
Income (Loss) before Income Taxes
(365
)
 
(935
)
 
(1,754
)
 
296

 
2,427

 
(331
)
Income Tax Expense
(1
)
 
—

 
(3
)
 
(31
)
 
—

 
(35
)
Net Income (Loss)
(366
)
 
(935
)
 
(1,757
)
 
265

 
2,427

 
(366
)
Other Comprehensive Income, Net of Income Taxes
108

 
108

 
—

 
18

 
(126
)
 
108

Comprehensive Income (Loss)
$
(258
)
 
$
(827
)
 
$
(1,757
)
 
$
283

 
$
2,301

 
$
(258
)
Condensed Consolidating Balance Sheets
September 30, 2012


 
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
$
296

 
$
5

 
$
215

 
$
277

 
$
—

 
$
793

Restricted cash and securities
—

 
—

 
1

 
7

 
—

 
8

Receivables, less allowances for doubtful accounts
—

 
—

 
103

 
645

 
—

 
748

Due from (to) affiliates
14,188

 
15,405

 
(29,446
)
 
(147
)
 
—

 
—

Other
7

 
34

 
55

 
90

 
—

 
186

Total Current Assets
14,491

 
15,444

 
(29,072
)
 
872

 
—

 
1,735

Property, Plant, and Equipment, net
—

 
—

 
2,893

 
5,298

 
—

 
8,191

Restricted Cash and Securities
15

 
—

 
18

 
6

 
—

 
39

Goodwill and Other Intangibles, net
—

 
—

 
438

 
2,414

 
—

 
2,852

Investment in Subsidiaries
(11,505
)
 
(19,998
)
 
3,267

 
—

 
28,236

 
—

Other Assets, net
17

 
115

 
11

 
256

 
—

 
399

Total Assets
$
3,018

 
$
(4,439
)
 
$
(22,445
)
 
$
8,846

 
$
28,236

 
$
13,216

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
1

 
$
2

 
$
32

 
$
684

 
$
—

 
$
719

Current portion of long-term debt
175

 
—

 
2

 
36

 
—

 
213

Accrued payroll and employee benefits
—

 
—

 
121

 
42

 
—

 
163

Accrued interest
54

 
112

 
—

 
—

 
—

 
166

Current portion of deferred revenue
—

 
—

 
102

 
158

 
—

 
260

Other
1

 
1

 
24

 
96

 
—

 
122

Total Current Liabilities
231

 
115

 
281

 
1,016

 
—

 
1,643

Long-Term Debt, less current portion
1,569

 
6,862

 
20

 
45

 
—

 
8,496

Deferred Revenue, less current portion
—

 
—

 
593

 
248

 
—

 
841

Other Liabilities
14

 
92

 
141

 
785

 
—

 
1,032

Commitments and Contingencies
 
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity (Deficit)
1,204

 
(11,508
)
 
(23,480
)
 
6,752

 
28,236

 
1,204

Total Liabilities and Stockholders' Equity (Deficit)
$
3,018

 
$
(4,439
)
 
$
(22,445
)
 
$
8,846

 
$
28,236

 
$
13,216

Condensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2012


 
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
$
(48
)
 
$
(442
)
 
$
80

 
$
588

 
$
—

 
$
178

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital Expenditures
—

 
—

 
(199
)
 
(346
)
 
—

 
(545
)
Decrease in restricted cash and securities, net
3

 
—

 
1

 
11

 
—

 
15

Proceeds from sale of property, plant, and equipment and other assets
—

 
—

 
—

 
5

 
—

 
5

Other
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Net Cash Provided by (Used in) Investing Activities
3

 
—

 
(198
)
 
(343
)
 
—

 
(538
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
293

 
3,024

 
—

 
—

 
—

 
3,317

Payments on and repurchases of long-term debt, including current portion and refinancing costs
—

 
(2,960
)
 
—

 
(128
)
 
—

 
(3,088
)
Proceeds from stock options exercised
5

 
—

 
—

 
—

 
—

 
5

Increase (decrease) due from affiliates, net
41

 
377

 
(285
)
 
(133
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities
339

 
441

 
(285
)
 
(261
)
 
—

 
234

Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
1

 
—

 
1

Net Change in Cash and Cash Equivalents
294

 
(1
)
 
(403
)
 
(15
)
 
—

 
(125
)
Cash and Cash Equivalents at Beginning of Period
2

 
6

 
618

 
292

 
—

 
918

Cash and Cash Equivalents at End of Period
$
296

 
$
5

 
$
215

 
$
277

 
$
—

 
$
793

Condensed Consolidating Financial Information
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the three months ended September 30, 2011


 
Level 3 Communications, Inc
 
Level 3 Financing, Inc
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
605

 
$
379

 
$
(57
)
 
$
927

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Cost of Revenue
—

 
—

 
222

 
174

 
(54
)
 
342

Depreciation and Amortization
—

 
—

 
102

 
101

 
—

 
203

Selling, General and Administrative
—

 
—

 
328

 
50

 
(3
)
 
375

Restructuring Charges
—

 
—

 
—

 
—

 
—

 
—

Total Costs and Expenses
—

 
—

 
652

 
325

 
(57
)
 
920

Operating Income (Loss)
—

 
—

 
(47
)
 
54

 
—

 
7

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(51
)
 
(99
)
 
—

 
(28
)
 
—

 
(178
)
Interest income (expense) affiliates, net
212

 
350

 
(514
)
 
(48
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(338
)
 
(589
)
 
29

 
—

 
898

 
—

Other income (expense), net
(30
)
 
—

 
2

 
(3
)
 
—

 
(31
)
Total Other Expense
(207
)
 
(338
)
 
(483
)
 
(79
)
 
898

 
(209
)
Loss before Income Taxes
(207
)
 
(338
)
 
(530
)
 
(25
)
 
898

 
(202
)
Income Tax Expense
—

 
—

 
(1
)
 
(5
)
 
—

 
(6
)
Loss from Continuing Operations
(207
)
 
(338
)
 
(531
)
 
(30
)
 
898

 
(208
)
Income From Discontinued Operations, Net
—

 
—

 
—

 
1

 
—

 
1

Net Loss
(207
)
 
(338
)
 
(531
)
 
(29
)
 
898

 
(207
)
Other Comprehensive Loss, Net of Income Taxes
(24
)
 
(24
)
 
—

 
(26
)
 
50

 
(24
)
Comprehensive Loss
$
(231
)
 
$
(362
)
 
$
(531
)
 
$
(55
)
 
$
948

 
$
(231
)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the nine months ended September 30, 2011


 
Level 3 Communications, Inc
 
Level 3 Financing, Inc
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
1,741

 
$
1,182

 
$
(169
)
 
$
2,754

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Cost of Revenue
—

 
—

 
658

 
548

 
(160
)
 
1,046

Depreciation and Amortization
—

 
—

 
309

 
303

 
—

 
612

Selling, General and Administrative
1

 
—

 
941

 
156

 
(9
)
 
1,089

Restructuring Charges
—

 
—

 
—

 
—

 
—

 
—

Total Costs and Expenses
1

 
—

 
1,908

 
1,007

 
(169
)
 
2,747

Operating Income (Loss)
(1
)
 
—

 
(167
)
 
175

 
—

 
7

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(163
)
 
(296
)
 
(2
)
 
(34
)
 
—

 
(495
)
Interest income (expense) affiliates, net
633

 
1,069

 
(1,545
)
 
(157
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(1,011
)
 
(1,761
)
 
107

 
—

 
2,665

 
—

Other income (expense), net
(51
)
 
(23
)
 
8

 
(2
)
 
—

 
(68
)
Total Other Expense
(592
)
 
(1,011
)
 
(1,432
)
 
(193
)
 
2,665

 
(563
)
Loss before Income Taxes
(593
)
 
(1,011
)
 
(1,599
)
 
(18
)
 
2,665

 
(556
)
Income Tax Expense
—

 
—

 
(21
)
 
(15
)
 
—

 
(36
)
Loss from Continuing Operations
(593
)
 
(1,011
)
 
(1,620
)
 
(33
)
 
2,665

 
(592
)
Loss From Discontinued Operations, Net
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Net Loss
(593
)
 
(1,011
)
 
(1,620
)
 
(34
)
 
2,665

 
(593
)
Other Comprehensive Income, Net of Income Taxes
33

 
33

 
—

 
23

 
(56
)
 
33

Comprehensive Loss
$
(560
)
 
$
(978
)
 
$
(1,620
)
 
$
(11
)
 
$
2,609

 
$
(560
)
Condensed Consolidating Statements of Cash Flows
For the nine months ended September 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 of Continuing Operations
$
(129
)
 
$
(279
)
 
$
153

 
$
454

 
$
—

 
$
199

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital Expenditures
—

 
—

 
(146
)
 
(200
)
 
—

 
(346
)
Increase in restricted cash and securities, net
—

 
—

 
—

 
(63
)
 
—

 
(63
)
Proceeds from sale of property, plant, and equipment and other assets
—

 
—

 
1

 
3

 
—

 
4

Net Cash Used in Investing Activities of Continuing Operations
—

 
—

 
(145
)
 
(260
)
 
—

 
(405
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
292

 
474

 
—

 
(1
)
 
—

 
765

Payments on and repurchases of long-term debt, including current portion and refinancing costs
(245
)
 
(463
)
 
—

 
(3
)
 
—

 
(711
)
Increase (decrease) due from affiliates, net
(47
)
 
267

 
(29
)
 
(191
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities of Continuing Operations
—

 
278

 
(29
)
 
(195
)
 
—

 
54

Net Cash Used in Discontinued Operations
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
1

 
—

 
1

Net Change in Cash and Cash Equivalents
(129
)
 
(1
)
 
(21
)
 
(4
)
 
—

 
(155
)
Cash and Cash Equivalents at Beginning of Period
173

 
7

 
350

 
86

 
—

 
616

Cash and Cash Equivalents at End of Period
$
44

 
$
6

 
$
329

 
$
82

 
$
—

 
$
461

Condensed Consolidating Financial Information
Condensed Consolidating Balance Sheets
December 31, 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
$
2

 
$
6

 
$
618

 
$
292

 
$
—

 
$
918

Restricted cash and securities
—

 
—

 
1

 
9

 
—

 
10

Receivables, less allowances for doubtful accounts
—

 
—

 
59

 
589

 
—

 
648

Due from (to) affiliates
13,472

 
14,584

 
(28,092
)
 
36

 
—

 
—

Other
3

 
16

 
48

 
64

 
—

 
131

Total Current Assets
13,477

 
14,606

 
(27,366
)
 
990

 
—

 
1,707

Property, Plant, and Equipment, net
—

 
—

 
2,823

 
5,313

 
—

 
8,136

Restricted Cash and Securities
18

 
—

 
19

 
14

 
—

 
51

Goodwill and Other Intangibles, net
—

 
—

 
481

 
2,418

 
—

 
2,899

Investment in Subsidiaries
(10,718
)
 
(18,467
)
 
3,412

 
—

 
25,773

 
—

Other Assets, net
13

 
109

 
6

 
267

 
—

 
395

Total Assets
$
2,790

 
$
(3,752
)
 
$
(20,625
)
 
$
9,002

 
$
25,773

 
$
13,188

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
—

 
$
37

 
$
710

 
$
—

 
$
747

Current portion of long-term debt
—

 
—

 
2

 
63

 
—

 
65

Accrued payroll and employee benefits
—

 
—

 
116

 
93

 
—

 
209

Accrued interest
50

 
165

 
—

 
1

 
—

 
216

Current portion of deferred revenue
—

 
—

 
107

 
157

 
—

 
264

Other
—

 
1

 
52

 
104

 
—

 
157

Total Current Liabilities
50

 
166

 
314

 
1,128

 
—

 
1,658

Long-Term Debt, less current portion
1,533

 
6,688

 
22

 
142

 
—

 
8,385

Deferred Revenue, less current portion
—

 
—

 
612

 
273

 
—

 
885

Other Liabilities
14

 
116

 
146

 
791

 
—

 
1,067

Commitments and Contingencies
 
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity (Deficit)
1,193

 
(10,722
)
 
(21,719
)
 
6,668

 
25,773

 
1,193

Total Liabilities and Stockholders' Equity (Deficit)
$
2,790

 
$
(3,752
)
 
$
(20,625
)
 
$
9,002

 
$
25,773

 
$
13,188

Subsequent Events
Subsequent Events
Subsequent Events

In October 2012, Level 3 Financing, Inc. refinanced its existing $650 million Tranche B II and $550 million Tranche B III Term Loans under its existing senior secured credit facility through the creation of a new term loan in the aggregate principal amount of $1.2 billion (the "Tranche B-II 2019 Term Loan"). The new Tranche B-II 2019 Term Loan was borrowed pursuant to an amended and restated credit agreement. The new Tranche B-II 2019 Term Loan consists of a $1.2 billion senior secured term loan which matures on August 1, 2019. The interest rate on the loan is LIBOR plus 3.25%, with LIBOR set at a minimum of 1.5%. The Tranche B-II 2019 Term Loan was priced at par. The Company used the net proceeds from the Tranche B-II 2019 Term Loan, along with cash on hand, to repay Level 3 Financing, Inc.'s $650 million Tranche B II and $550 million Tranche B III Term Loans under the existing credit agreement maturing in September 2018. The Company expects to recognize a loss on the extinguishment of debt of approximately $50 million in the fourth quarter of 2012 as a result of this transaction.

Organization and Summary of Significant Accounting Policies (Policies)
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. Prior to the disposition of the coal mining business during the fourth quarter of 2011, the Company's 50% owned mining joint ventures were consolidated on a pro rata basis. 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.
Events Associated with the Amalgamation of Global Crossing (Tables)
Schedule of preliminary purchase price allocation 
The following is the final allocation of the purchase price.

 
Purchase Price Allocation
 
(dollars in millions)
Assets:
 
  Cash, Cash Equivalents, and Restricted Cash
$
226

  Property, Plant, and Equipment
3,098

  Goodwill
1,123

  Identifiable Intangibles
106

  Other Assets
651

Total Assets
5,204

 
 
Liabilities:
 
  Long-term Debt
(1,554
)
  Other Liabilities
(1,688
)
Total Liabilities
(3,242
)
Total Estimated Consideration
$
1,962


Schedule of unaudited pro forma financial information for the amalgamation 
The following unaudited pro forma financial information presents the combined results of Level 3 and Global Crossing as if the completion of the Amalgamation had occurred as of January 1, 2010.

(dollars in millions, except per share data)
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2011
Total Revenue
 
$
1,606

 
$
4,739

Net Loss
 
$
(224
)
 
$
(652
)
Net Loss per share
 
$
(1.08
)
 
$
(3.21
)

Dispositions (Tables)
Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures
The following amounts relate to the operations of the coal business and were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations in the Consolidated Statements of Operations (dollars in millions):


 
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2011
Revenue
 
$
20

 
$
54

 
 
 
 
 
Cost of Revenue
 
18

 
52

Depreciation and Amortization
 
1

 
3

Selling, General, and Administrative
 
—

 
—

Total Costs and Expenses
 
19

 
55

 
 
 
 
 
Operating Income (Loss)
 
1

 
(1
)
 
 
 
 
 
Total Other Expense
 
—

 
—

Income (Loss) From Discontinued Operations, Net
 
$
1

 
$
(1
)
Acquired Intangible Assets (Tables)
Schedule of acquisition-related intangible assets 
Identifiable acquisition-related intangible assets as of September 30, 2012 and December 31, 2011 were as follows (dollars in millions):

 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
September 30, 2012
 

 
 

 
 

Finite-Lived Intangible Assets:
 

 
 

 
 

Customer Contracts and Relationships
$
776

 
$
(620
)
 
$
156

Trademarks
55

 
(14
)
 
41

Patents and Developed Technology
158

 
(100
)
 
58

 
989

 
(734
)
 
255

Indefinite-Lived Intangible Assets:
 

 
 

 
 

Vyvx Trade Name
32

 
—

 
32

 
$
1,021

 
$
(734
)
 
$
287

December 31, 2011
 

 
 

 
 

Finite-Lived Intangible Assets:
 

 
 

 
 

Customer Contracts and Relationships
$
776

 
$
(571
)
 
$
205

Trademarks
55

 
(3
)
 
52

Patents and Developed Technology
158

 
(89
)
 
69

 
989

 
(663
)
 
326

Indefinite-Lived Intangible Assets:
 

 
 

 
 

Vyvx Trade Name
32

 
—

 
32

 
$
1,021

 
$
(663
)
 
$
358

Schedule of estimated amortization expense of acquired finite-lived intangible asset 
As of September 30, 2012, estimated amortization expense for the Company’s finite-lived acquisition-related intangible assets over the next five years and thereafter is as follows (dollars in millions):

2012 (remaining three months)
$
18

2013
73

2014
62

2015
45

2016
28

2017
13

Thereafter
16

 
$
255

Fair Value of Financial Instruments (Tables)
Schedule of fair value of liabilities measured on a recurring basis
The table below presents the fair values for each class of Level 3’s liabilities as well as the input levels used to determine these fair values as of September 30, 2012 and December 31, 2011:

 
 
 
 
 
Fair Value Measurement Using
 
Total
Carrying Value
in Consolidated
Balance Sheet
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
 
(dollars in millions)
Liabilities Recorded at Fair Value in the Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swap Liabilities (included in other non-current liabilities)
$
63

 
$
90

 
$
—

 
$
—

 
$
63

 
$
90

Total Derivative Liabilities Recorded at Fair Value in the Financial Statements
$
63

 
$
90

 
$
—

 
$
—

 
$
63

 
$
90

Liabilities Not Recorded at Fair Value in the Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt, including the current portion:
 
 
 
 
 
 
 
 
 
 
 
Term Loans
$
2,574

 
$
2,567

 
$
2,627

 
$
2,518

 
$
—

 
$
—

Senior Notes
5,183

 
4,716

 
5,590

 
4,822

 
—

 
—

Convertible Notes
845

 
939

 
291

 
247

 
763

 
834

Commercial Mortgage
—

 
65

 
—

 
—

 
—

 
73

Capital Leases and Other
107

 
163

 
—

 
—

 
107

 
163

Total Long-term Debt, including the current portion:
$
8,709

 
$
8,450

 
$
8,508

 
$
7,587

 
$
870

 
$
1,070


Derivative Financial Instruments (Tables)
Schedule of outstanding interest rate derivatives designated as cash flow hedges 

Interest Rate Derivative
 
Number of
Instruments
 
Notional
(dollars in millions)
Interest rate swaps
 
Two
 
$
1,000

Schedule of fair value of derivative financial instruments 
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as follows (dollars in millions):

 
 
Liability Derivatives
 
 
September 30, 2012
 
December 31, 2011
Derivatives designated as
hedging instruments
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
 
 
 
 
 
 
 
 
Cash flow hedging contracts
 
Other noncurrent liabilities
 
$
—

 
Other noncurrent liabilities
 
$
90

Schedule of the amount of gains (losses) recognized in Other Comprehensive Loss 
The amount of gains (losses) recognized in Other Comprehensive Loss consists of the following (dollars in millions):

Derivatives designated as hedging instruments
 
2012
 
2011
 
 
 
 
 
Cash flow hedging contracts
 
 
 
 
Three Months Ended September 30,
 
$
74

 
$
2

Nine Months Ended September 30,
 
$
90

 
$
10

Schedule of the amount of gains (losses) reclassified from AOCI to Income/Loss 
The amount of gains (losses) reclassified from AOCI to Income/Loss (effective portions) consists of the following (dollars in millions):

Derivatives designated as hedging instruments
 
Income Statement Location
 
2012
 
2011
 
 
 
 
 
 
 
Cash flow hedging contracts:
 
 
 
 
 
 
Three Months Ended September 30,
 
Interest Expense
 
$
(4
)
 
$
(12
)
Nine Months Ended September 30,
 
Interest Expense
 
$
(26
)
 
$
(35
)
Long-Term Debt (Tables)
Schedule of long-term debt 
As of September 30, 2012 and December 31, 2011, long-term debt was as follows:

(dollars in millions)
 
September 30, 2012
 
December 31, 2011
Senior Secured Term Loan*
 
$
2,615

 
$
2,600

Senior Notes due 2014 (9.25%)
 
—

 
807

Floating Rate Senior Notes due 2015 (4.469% as of September 30, 2012 and 4.202% as of December 31, 2011)
 
300

 
300

Senior Notes due 2017 (8.75%)
 
—

 
700

Senior Notes due 2018 (10.0%)
 
640

 
640

Senior Notes due 2019 (11.875%)
 
605

 
605

Senior Notes due 2019 (9.375%)
 
500

 
500

Senior Notes due 2019 (8.125%)
 
1,200

 
1,200

Senior Notes due 2019 (8.875%)
 
300

 
—

Senior Notes due 2020 (8.625%)
 
900

 
—

Senior Notes due 2020 (7%)
 
775

 
—

Convertible Senior Notes due 2013 (15.0%)
 
172

 
272

Convertible Senior Notes due 2015 (7.0%)
 
200

 
200

Convertible Senior Notes due 2015 Series B (7.0%)
 
275

 
275

Convertible Senior Notes due 2016 (6.5%)
 
201

 
201

Commercial Mortgage due 2015 (9.86%)
 
—

 
65

Capital Leases
 
92

 
131

Other
 
15

 
32

Total Debt Obligations
 
8,790

 
8,528

Unamortized (Discount) Premium:
 
 
 
 
Discount on Senior Secured Term Loan
 
(41
)
 
(33
)
Premium on Senior Notes due 2014 (9.25%)
 
—

 
3

Discount on Senior Notes due 2018 (10.0%)
 
(10
)
 
(11
)
Discount on Senior Notes due 2019 (11.875%)
 
(10
)
 
(10
)
Discount on Senior Notes due 2019 (9.375%)
 
(9
)
 
(9
)
Discount on Senior Notes due 2019 (8.125%)
 
(8
)
 
(9
)
Discount on Convertible Senior Notes due 2015 (7.0%)
 
(2
)
 
(2
)
Discount due to embedded derivative contracts
 
(1
)
 
(7
)
Total Unamortized (Discount) Premium
 
(81
)
 
(78
)
Carrying Value of Debt
 
8,709

 
8,450

Less current portion
 
(213
)
 
(65
)
Long-term Debt, less current portion
 
$
8,496

 
$
8,385


* The $1.4 billion Tranche A Term Loan due 2014 had an effective interest rate of 2.65% as of December 31, 2011, excluding the effect of the $1 billion notional amount interest rate swaps. The $650 million Tranche B II Term Loan due 2018 and the $550 million Tranche B III Term Loan due 2018 had an interest rate of 5.75% as of September 30, 2012 and December 31, 2011. The $600 million Tranche B 2016 Term Loan and the $815 million Tranche B 2019 Loan had interest rates of 4.75% and 5.25%, respectively, as of September 30, 2012.

Schedule of Debt Instrument Redemption Prices [Table Text Block] 
The 8.875% Senior Notes are subject to redemption at the option of Level 3 in whole or in part, at any time before June 1, 2015 at the redemption price equal to 100% of their principal amount, plus a make-whole premium and accrued and unpaid interest. On and after June 1, 2015, Level 3 may redeem all or part of the 8.875% Senior Notes, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon (if any) to, but not including, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve months beginning June 1, of the years indicated below:

Year
Redemption Price
2015
104.438
%
2016
102.219
%
2017
100.000
%
The 7% Senior Notes are subject to redemption at the option of Level 3 Financing, Inc. in whole or in part, at any time before June 1, 2016 at the redemption price equal to 100% of their principal amount, plus a make-whole premium and accrued and unpaid interest. On or after June 1, 2016, Level 3 Financing may redeem all or part of the 7% Senior Notes, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon (if any) to, but not including, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve months beginning June 1, of the years indicated below:

Year
Redemption Price
2016
103.500
%
2017
101.750
%
2018
100.000
%
The 8.625% Senior Notes are subject to redemption at the option of Level 3 Financing in whole or in part, at any time before January 15, 2016 at the redemption price equal to 100% of their principal amount, plus a make-whole premium and accrued and unpaid interest. On and after January 15, 2016, Level 3 Financing may redeem all or part of the 8.625% Senior Notes, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon (if any) to, but not including, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve months beginning January 15, of the years indicated below:

Year
Redemption
Price
2016
104.313
%
2017
102.156
%
2018
100.000
%
Schedule of aggregate future contractual maturities of long-term debt and capital leases (excluding issue discounts, premiums and fair value adjustments) 

Aggregate future contractual maturities of long-term debt and capital leases (excluding issue discounts, premiums and fair value adjustments) were as follows as of September 30, 2012 (dollars in millions):

2012 (remaining three months)
 
$
11

2013
 
210

2014
 
16

2015
 
782

2016
 
807

2017
 
6

Thereafter
 
6,958

 
 
$
8,790

Stock-based Compensation (Tables)
Schedule of non-cash compensation expense and capitalized non-cash compensation
The following table summarizes non-cash compensation expense and capitalized non-cash compensation for three and nine months ended September 30, 2012 and 2011 (dollars in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
OSO
$
4

 
$
3

 
$
10

 
$
7

Restricted Stock Units and Shares
21

 
11

 
39

 
18

401(k) Match Expense
5

 
3

 
18

 
10

Restricted Stock Unit Bonus Grant
20

 
9

 
36

 
33

 
50

 
26

 
103

 
68

Capitalized Noncash Compensation
(1
)
 
—

 
(1
)
 
—

 
$
49

 
$
26

 
$
102

 
$
68

Segment Information (Tables)
Revenue from External Customers by Products and Services
The data presented in the following table includes information for the three and nine months ended September 30, 2012 and September 30, 2011. Information related to the acquired business is included from the date of acquisition.
Total revenue consists of:

1)
Core Network Services revenue from colocation and data center services, transport and fiber, IP and data services, and voice services.

2)  
Wholesale Voice Services and Other revenue from long distance voice services, revenue from managed modem and its related intercarrier compensation services and revenue from the "SBC Master Services Agreement", which was obtained through an acquisition in 2005.

The following table provides revenue (dollars in millions):

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Core Network Services
$
1,395

 
$
758

 
$
4,163

 
$
2,231

Wholesale Voice Services and Other
195

 
169

 
599

 
523

 
$
1,590

 
$
927

 
$
4,762

 
$
2,754

Condensed Consolidating Financial Information (Tables)
9 Months Ended 12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Condensed Consolidating Financial Information [Abstract]
 
 
 
Schedule of Condensed Consolidating Statements of Comprehensive Income (Loss) [Table Text Block]
Text Block 
Text Block 
 
Schedule of Condensed Consolidating Balance Sheets
Text Block 
 
Text Block 
Schedule of Condensed Consolidating Statements of Cash Flows
Text Block 
Text Block 
 
Schedule of Condensed Consolidating Statements of Comprehensive Income (Loss) [Table Text Block] 
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the three months ended September 30, 2012


 
Level 3 Communications, Inc
 
Level 3 Financing, Inc
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
672

 
$
981

 
$
(63
)
 
$
1,590

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Cost of Revenue
—

 
—

 
256

 
447

 
(61
)
 
642

Depreciation and Amortization
—

 
—

 
63

 
122

 
—

 
185

Selling, General and Administrative
1

 
1

 
406

 
213

 
(2
)
 
619

Restructuring Charges
—

 
—

 
4

 
2

 
—

 
6

Total Costs and Expenses
1

 
1

 
729

 
784

 
(63
)
 
1,452

Operating Income (Loss)
(1
)
 
(1
)
 
(57
)
 
197

 
—

 
138

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(43
)
 
(137
)
 
(1
)
 
(7
)
 
—

 
(188
)
Interest income (expense) affiliates, net
244

 
400

 
(561
)
 
(83
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(365
)
 
(516
)
 
40

 
—

 
841

 
—

Other income (expense), net
—

 
(111
)
 
3

 
5

 
—

 
(103
)
Total Other Expense
(164
)
 
(364
)
 
(519
)
 
(85
)
 
841

 
(291
)
Income (Loss) before Income Taxes
(165
)
 
(365
)
 
(576
)
 
112

 
841

 
(153
)
Income Tax Expense
(1
)
 
—

 
(1
)
 
(11
)
 
—

 
(13
)
Net Income (Loss)
(166
)
 
(365
)
 
(577
)
 
101

 
841

 
(166
)
Other Comprehensive Income, Net of Income Taxes
122

 
122

 
—

 
48

 
(170
)
 
122

Comprehensive Income (Loss)
$
(44
)
 
$
(243
)
 
$
(577
)
 
$
149

 
$
671

 
$
(44
)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the nine months ended September 30, 2012


 
Level 3 Communications, Inc
 
Level 3 Financing, Inc
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
1,957

 
$
2,995

 
$
(190
)
 
$
4,762

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Cost of Revenue
—

 
—

 
736

 
1,393

 
(182
)
 
1,947

Depreciation and Amortization
—

 
—

 
196

 
367

 
—

 
563

Selling, General and Administrative
2

 
1

 
1,197

 
659

 
(8
)
 
1,851

Restructuring Charges
—

 
—

 
10

 
4

 
—

 
14

Total Costs and Expenses
2

 
1

 
2,139

 
2,423

 
(190
)
 
4,375

Operating Income (Loss)
(2
)
 
(1
)
 
(182
)
 
572

 
—

 
387

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
1

 
1

 
—

 
2

Interest expense
(123
)
 
(410
)
 
(2
)
 
(23
)
 
—

 
(558
)
Interest income (expense) affiliates, net
734

 
1,202

 
(1,678
)
 
(258
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(935
)
 
(1,593
)
 
101

 
—

 
2,427

 
—

Other income (expense), net
(39
)
 
(133
)
 
6

 
4

 
—

 
(162
)
Total Other Expense
(363
)
 
(934
)
 
(1,572
)

(276
)
 
2,427

 
(718
)
Income (Loss) before Income Taxes
(365
)
 
(935
)
 
(1,754
)
 
296

 
2,427

 
(331
)
Income Tax Expense
(1
)
 
—

 
(3
)
 
(31
)
 
—

 
(35
)
Net Income (Loss)
(366
)
 
(935
)
 
(1,757
)
 
265

 
2,427

 
(366
)
Other Comprehensive Income, Net of Income Taxes
108

 
108

 
—

 
18

 
(126
)
 
108

Comprehensive Income (Loss)
$
(258
)
 
$
(827
)
 
$
(1,757
)
 
$
283

 
$
2,301

 
$
(258
)
Schedule of Condensed Consolidating Statements of Comprehensive Income (Loss) [Table Text Block] 
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the three months ended September 30, 2011


 
Level 3 Communications, Inc
 
Level 3 Financing, Inc
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
605

 
$
379

 
$
(57
)
 
$
927

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Cost of Revenue
—

 
—

 
222

 
174

 
(54
)
 
342

Depreciation and Amortization
—

 
—

 
102

 
101

 
—

 
203

Selling, General and Administrative
—

 
—

 
328

 
50

 
(3
)
 
375

Restructuring Charges
—

 
—

 
—

 
—

 
—

 
—

Total Costs and Expenses
—

 
—

 
652

 
325

 
(57
)
 
920

Operating Income (Loss)
—

 
—

 
(47
)
 
54

 
—

 
7

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(51
)
 
(99
)
 
—

 
(28
)
 
—

 
(178
)
Interest income (expense) affiliates, net
212

 
350

 
(514
)
 
(48
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(338
)
 
(589
)
 
29

 
—

 
898

 
—

Other income (expense), net
(30
)
 
—

 
2

 
(3
)
 
—

 
(31
)
Total Other Expense
(207
)
 
(338
)
 
(483
)
 
(79
)
 
898

 
(209
)
Loss before Income Taxes
(207
)
 
(338
)
 
(530
)
 
(25
)
 
898

 
(202
)
Income Tax Expense
—

 
—

 
(1
)
 
(5
)
 
—

 
(6
)
Loss from Continuing Operations
(207
)
 
(338
)
 
(531
)
 
(30
)
 
898

 
(208
)
Income From Discontinued Operations, Net
—

 
—

 
—

 
1

 
—

 
1

Net Loss
(207
)
 
(338
)
 
(531
)
 
(29
)
 
898

 
(207
)
Other Comprehensive Loss, Net of Income Taxes
(24
)
 
(24
)
 
—

 
(26
)
 
50

 
(24
)
Comprehensive Loss
$
(231
)
 
$
(362
)
 
$
(531
)
 
$
(55
)
 
$
948

 
$
(231
)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the nine months ended September 30, 2011


 
Level 3 Communications, Inc
 
Level 3 Financing, Inc
 
Level 3 Communications, LLC
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Total
 
(dollars in millions)
Revenue
$
—

 
$
—

 
$
1,741

 
$
1,182

 
$
(169
)
 
$
2,754

Costs and Expense:
 
 
 
 
 
 
 
 
 
 
 
Cost of Revenue
—

 
—

 
658

 
548

 
(160
)
 
1,046

Depreciation and Amortization
—

 
—

 
309

 
303

 
—

 
612

Selling, General and Administrative
1

 
—

 
941

 
156

 
(9
)
 
1,089

Restructuring Charges
—

 
—

 
—

 
—

 
—

 
—

Total Costs and Expenses
1

 
—

 
1,908

 
1,007

 
(169
)
 
2,747

Operating Income (Loss)
(1
)
 
—

 
(167
)
 
175

 
—

 
7

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
—

 
—

 
—

 
—

 
—

 
—

Interest expense
(163
)
 
(296
)
 
(2
)
 
(34
)
 
—

 
(495
)
Interest income (expense) affiliates, net
633

 
1,069

 
(1,545
)
 
(157
)
 
—

 
—

Equity in net earnings (losses) of subsidiaries
(1,011
)
 
(1,761
)
 
107

 
—

 
2,665

 
—

Other income (expense), net
(51
)
 
(23
)
 
8

 
(2
)
 
—

 
(68
)
Total Other Expense
(592
)
 
(1,011
)
 
(1,432
)
 
(193
)
 
2,665

 
(563
)
Loss before Income Taxes
(593
)
 
(1,011
)
 
(1,599
)
 
(18
)
 
2,665

 
(556
)
Income Tax Expense
—

 
—

 
(21
)
 
(15
)
 
—

 
(36
)
Loss from Continuing Operations
(593
)
 
(1,011
)
 
(1,620
)
 
(33
)
 
2,665

 
(592
)
Loss From Discontinued Operations, Net
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Net Loss
(593
)
 
(1,011
)
 
(1,620
)
 
(34
)
 
2,665

 
(593
)
Other Comprehensive Income, Net of Income Taxes
33

 
33

 
—

 
23

 
(56
)
 
33

Comprehensive Loss
$
(560
)
 
$
(978
)
 
$
(1,620
)
 
$
(11
)
 
$
2,609

 
$
(560
)
Schedule of Condensed Consolidating Balance Sheets 
Condensed Consolidating Balance Sheets
September 30, 2012


 
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
$
296

 
$
5

 
$
215

 
$
277

 
$
—

 
$
793

Restricted cash and securities
—

 
—

 
1

 
7

 
—

 
8

Receivables, less allowances for doubtful accounts
—

 
—

 
103

 
645

 
—

 
748

Due from (to) affiliates
14,188

 
15,405

 
(29,446
)
 
(147
)
 
—

 
—

Other
7

 
34

 
55

 
90

 
—

 
186

Total Current Assets
14,491

 
15,444

 
(29,072
)
 
872

 
—

 
1,735

Property, Plant, and Equipment, net
—

 
—

 
2,893

 
5,298

 
—

 
8,191

Restricted Cash and Securities
15

 
—

 
18

 
6

 
—

 
39

Goodwill and Other Intangibles, net
—

 
—

 
438

 
2,414

 
—

 
2,852

Investment in Subsidiaries
(11,505
)
 
(19,998
)
 
3,267

 
—

 
28,236

 
—

Other Assets, net
17

 
115

 
11

 
256

 
—

 
399

Total Assets
$
3,018

 
$
(4,439
)
 
$
(22,445
)
 
$
8,846

 
$
28,236

 
$
13,216

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
1

 
$
2

 
$
32

 
$
684

 
$
—

 
$
719

Current portion of long-term debt
175

 
—

 
2

 
36

 
—

 
213

Accrued payroll and employee benefits
—

 
—

 
121

 
42

 
—

 
163

Accrued interest
54

 
112

 
—

 
—

 
—

 
166

Current portion of deferred revenue
—

 
—

 
102

 
158

 
—

 
260

Other
1

 
1

 
24

 
96

 
—

 
122

Total Current Liabilities
231

 
115

 
281

 
1,016

 
—

 
1,643

Long-Term Debt, less current portion
1,569

 
6,862

 
20

 
45

 
—

 
8,496

Deferred Revenue, less current portion
—

 
—

 
593

 
248

 
—

 
841

Other Liabilities
14

 
92

 
141

 
785

 
—

 
1,032

Commitments and Contingencies
 
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity (Deficit)
1,204

 
(11,508
)
 
(23,480
)
 
6,752

 
28,236

 
1,204

Total Liabilities and Stockholders' Equity (Deficit)
$
3,018

 
$
(4,439
)
 
$
(22,445
)
 
$
8,846

 
$
28,236

 
$
13,216

Schedule of Condensed Consolidating Balance Sheets 
Condensed Consolidating Balance Sheets
December 31, 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
$
2

 
$
6

 
$
618

 
$
292

 
$
—

 
$
918

Restricted cash and securities
—

 
—

 
1

 
9

 
—

 
10

Receivables, less allowances for doubtful accounts
—

 
—

 
59

 
589

 
—

 
648

Due from (to) affiliates
13,472

 
14,584

 
(28,092
)
 
36

 
—

 
—

Other
3

 
16

 
48

 
64

 
—

 
131

Total Current Assets
13,477

 
14,606

 
(27,366
)
 
990

 
—

 
1,707

Property, Plant, and Equipment, net
—

 
—

 
2,823

 
5,313

 
—

 
8,136

Restricted Cash and Securities
18

 
—

 
19

 
14

 
—

 
51

Goodwill and Other Intangibles, net
—

 
—

 
481

 
2,418

 
—

 
2,899

Investment in Subsidiaries
(10,718
)
 
(18,467
)
 
3,412

 
—

 
25,773

 
—

Other Assets, net
13

 
109

 
6

 
267

 
—

 
395

Total Assets
$
2,790

 
$
(3,752
)
 
$
(20,625
)
 
$
9,002

 
$
25,773

 
$
13,188

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
—

 
$
37

 
$
710

 
$
—

 
$
747

Current portion of long-term debt
—

 
—

 
2

 
63

 
—

 
65

Accrued payroll and employee benefits
—

 
—

 
116

 
93

 
—

 
209

Accrued interest
50

 
165

 
—

 
1

 
—

 
216

Current portion of deferred revenue
—

 
—

 
107

 
157

 
—

 
264

Other
—

 
1

 
52

 
104

 
—

 
157

Total Current Liabilities
50

 
166

 
314

 
1,128

 
—

 
1,658

Long-Term Debt, less current portion
1,533

 
6,688

 
22

 
142

 
—

 
8,385

Deferred Revenue, less current portion
—

 
—

 
612

 
273

 
—

 
885

Other Liabilities
14

 
116

 
146

 
791

 
—

 
1,067

Commitments and Contingencies
 
 
 
 
 
 
 
 
 
 
 
Stockholders' Equity (Deficit)
1,193

 
(10,722
)
 
(21,719
)
 
6,668

 
25,773

 
1,193

Total Liabilities and Stockholders' Equity (Deficit)
$
2,790

 
$
(3,752
)
 
$
(20,625
)
 
$
9,002

 
$
25,773

 
$
13,188

Schedule of Condensed Consolidating Statements of Cash Flows 
Condensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2012


 
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
$
(48
)
 
$
(442
)
 
$
80

 
$
588

 
$
—

 
$
178

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital Expenditures
—

 
—

 
(199
)
 
(346
)
 
—

 
(545
)
Decrease in restricted cash and securities, net
3

 
—

 
1

 
11

 
—

 
15

Proceeds from sale of property, plant, and equipment and other assets
—

 
—

 
—

 
5

 
—

 
5

Other
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Net Cash Provided by (Used in) Investing Activities
3

 
—

 
(198
)
 
(343
)
 
—

 
(538
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
293

 
3,024

 
—

 
—

 
—

 
3,317

Payments on and repurchases of long-term debt, including current portion and refinancing costs
—

 
(2,960
)
 
—

 
(128
)
 
—

 
(3,088
)
Proceeds from stock options exercised
5

 
—

 
—

 
—

 
—

 
5

Increase (decrease) due from affiliates, net
41

 
377

 
(285
)
 
(133
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities
339

 
441

 
(285
)
 
(261
)
 
—

 
234

Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
1

 
—

 
1

Net Change in Cash and Cash Equivalents
294

 
(1
)
 
(403
)
 
(15
)
 
—

 
(125
)
Cash and Cash Equivalents at Beginning of Period
2

 
6

 
618

 
292

 
—

 
918

Cash and Cash Equivalents at End of Period
$
296

 
$
5

 
$
215

 
$
277

 
$
—

 
$
793

Schedule of Condensed Consolidating Statements of Cash Flows 
Condensed Consolidating Statements of Cash Flows
For the nine months ended September 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 of Continuing Operations
$
(129
)
 
$
(279
)
 
$
153

 
$
454

 
$
—

 
$
199

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
Capital Expenditures
—

 
—

 
(146
)
 
(200
)
 
—

 
(346
)
Increase in restricted cash and securities, net
—

 
—

 
—

 
(63
)
 
—

 
(63
)
Proceeds from sale of property, plant, and equipment and other assets
—

 
—

 
1

 
3

 
—

 
4

Net Cash Used in Investing Activities of Continuing Operations
—

 
—

 
(145
)
 
(260
)
 
—

 
(405
)
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt borrowings, net of issuance costs
292

 
474

 
—

 
(1
)
 
—

 
765

Payments on and repurchases of long-term debt, including current portion and refinancing costs
(245
)
 
(463
)
 
—

 
(3
)
 
—

 
(711
)
Increase (decrease) due from affiliates, net
(47
)
 
267

 
(29
)
 
(191
)
 
—

 
—

Net Cash Provided by (Used in) Financing Activities of Continuing Operations
—

 
278

 
(29
)
 
(195
)
 
—

 
54

Net Cash Used in Discontinued Operations
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Effect of Exchange Rates on Cash and Cash Equivalents
—

 
—

 
—

 
1

 
—

 
1

Net Change in Cash and Cash Equivalents
(129
)
 
(1
)
 
(21
)
 
(4
)
 
—

 
(155
)
Cash and Cash Equivalents at Beginning of Period
173

 
7

 
350

 
86

 
—

 
616

Cash and Cash Equivalents at End of Period
$
44

 
$
6

 
$
329

 
$
82

 
$
—

 
$
461

Organization and Summary of Significant Accounting Policies (Details)
0 Months Ended 1 Months Ended
Nov. 14, 2011
jointventures
Oct. 19, 2011
Description of Business
 
 
Number of joint-venture surface mines
2 
 
Reverse stock split ratio (in shares)
 
15 
Montana
 
 
Description of Business
 
 
Number of joint-venture surface mines
1 
 
Percentage of ownership of common stock in a joint-venture (as a percent)
50.00% 
 
Wyoming
 
 
Description of Business
 
 
Number of joint-venture surface mines
1 
 
Percentage of ownership of common stock in a joint-venture (as a percent)
50.00% 
 
Events Associated with the Amalgamation of Global Crossing (Details) (USD $)
1 Months Ended 3 Months Ended 9 Months Ended 1 Months Ended 12 Months Ended 0 Months Ended 1 Months Ended 0 Months Ended
Oct. 19, 2011
Sep. 30, 2011
Mar. 31, 2011
Sep. 30, 2012
Sep. 30, 2011
Oct. 4, 2011
Oct. 3, 2011
Oct. 31, 2011
Senior Secured Term Loan
Tranche B II Term Loan
Dec. 31, 2011
Senior Notes due 2019 (8.125%)
Sep. 30, 2012
Senior Notes due 2019 (8.125%)
Oct. 4, 2011
Common stock
Oct. 31, 2011
Common stock
Nov. 30, 2011
Global Crossing
Oct. 4, 2011
Global Crossing
Oct. 4, 2011
Global Crossing
2% Cumulative convertible preferred stock
Acquisition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amalgamation stock exchange ratio (in shares)
 
 
 
 
 
 
 
 
 
 
16 
 
 
 
 
Preferred stock dividend rate (as a percent)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.00% 
Additional principal amount of debt issued
 
 
 
 
 
 
 
$ 650,000,000 
 
 
 
 
 
 
 
Proceeds from issuance of 8.125% Senior Notes due 2019 in June and July 2011
 
 
 
 
 
 
 
 
1,200,000,000 
 
 
 
 
 
 
Debt instrument, stated interest rate (as a percent)
 
 
 
 
 
 
 
 
 
8.125% 
 
 
 
 
 
Shares issued in Amalgamation transaction (in shares)
 
 
 
 
 
 
 
 
 
 
 
88,530,000 
 
 
 
Reverse stock split ratio (in shares)
15 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of outstanding debt redeemed and refinanced
 
 
 
 
 
 
 
 
 
 
 
 
1,360,000,000 
 
 
Closing stock price
 
 
 
 
 
 
$ 21.15 
 
 
 
 
 
 
 
 
Estimated total Amalgamation transaction consideration
 
 
 
3,400,000,000 
 
 
 
 
 
 
 
 
 
 
 
Cash Paid for Employee Income and Payroll Tax Witholdings
81,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial Purchase Price Allocation [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash, Cash Equivalents, and Restricted Cash
 
 
 
 
 
226,000,000 
 
 
 
 
 
 
 
 
 
Property, Plant, and Equipment
 
 
 
 
 
3,098,000,000 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
 
 
 
1,123,000,000 
 
 
 
 
 
 
 
 
 
Identifiable Intangibles
 
 
 
 
 
106,000,000 
 
 
 
 
 
 
 
 
 
Other Assets
 
 
 
 
 
651,000,000 
 
 
 
 
 
 
 
 
 
Total Assets
 
 
 
 
 
5,204,000,000 
 
 
 
 
 
 
 
 
 
Long-term Debt
 
 
 
 
 
(1,554,000,000)
 
 
 
 
 
 
 
 
 
Other Liabilities
 
 
 
 
 
(1,688,000,000)
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
 
 
 
(3,242,000,000)
 
 
 
 
 
 
 
 
 
Total Estimated Consideration
 
 
 
 
 
1,962,000,000 
 
 
 
 
 
 
 
 
 
Business Acquisition, Purchase Price Allocation, Reduction Due to Un Amortizable Deferred Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
77,000,000 
 
Pro Forma Financial Information [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue
 
1,606,000,000 
 
 
4,739,000,000 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
(224,000,000)
 
 
(652,000,000)
 
 
 
 
 
 
 
 
 
 
Net Loss per share (in dollars per share)
 
$ (1.08)
 
 
$ (3.21)
 
 
 
 
 
 
 
 
 
 
Acquisition related costs incurred
 
 
0 
49,000,000 
 
 
 
 
 
 
 
 
 
 
 
Acquisition related integration costs
 
 
 
$ 82,000,000 
 
 
 
 
 
 
 
 
 
 
 
Loss Per Share (Details)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Convertible notes
 
 
Loss per share
 
 
Securities not included in computation of diluted loss per share (in shares)
35 
47 
Stock options, restricted stock units and warrants
 
 
Loss per share
 
 
Securities not included in computation of diluted loss per share (in shares)
7 
3 
Dispositions (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Ownership Interest in Joint Venture Surface Mines
Sep. 30, 2011
Ownership Interest in Joint Venture Surface Mines
Sep. 30, 2011
Ownership Interest in Joint Venture Surface Mines
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
 
 
 
 
 
 
 
Discontinued Operation, Gain (Loss) on Disposal of Discontinued Operation, Net of Tax
 
 
 
 
$ 72 
 
 
Revenue
 
 
 
 
 
20 
54 
Cost of Revenue
 
 
 
 
 
18 
52 
Depreciation and Amortization
 
 
 
 
 
1 
3 
Selling, General, and Administrative Costs
 
 
 
 
 
0 
0 
Total Operating Expenses
 
 
 
 
 
19 
55 
Operating Income (Loss)
 
 
 
 
 
1 
(1)
Other Income
 
 
 
 
 
0 
0 
Income (Loss) From Discontinued Operations
$ 0 
$ 1 
$ 0 
$ (1)
 
$ 1 
$ (1)
Acquired Intangible Assets (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Finite-Lived Intangible Assets:
 
 
 
 
 
Finite-Lived Intangible Assets, Gross Carrying Amount
$ 989 
 
$ 989 
 
$ 989 
Finite-Lived Intangible Assets, Accumulated Amortization
(734)
 
(734)
 
(663)
Finite-Lived Intangible Assets, Net
255 
 
255 
 
326 
Acquired finite-lived intangible asset amortization expense
21 
23 
71 
72 
 
Total Acquired Intangible Assets
 
 
 
 
 
Total Intangible assets, Gross Carrying Amount
1,021 
 
1,021 
 
1,021 
Total intangible assets, Net
287 
 
287 
 
358 
Estimated amortization expense of acquired finite-lived intangible asset
 
 
 
 
 
Future Amortization Expense, Remainder of Fiscal Year
 
 
18 
 
 
Future Amortization Expense, Year One
 
 
73 
 
 
Future Amortization Expense, Year Two
 
 
62 
 
 
Future Amortization Expense, Year Three
 
 
45 
 
 
Future Amortization Expense, Year Four
 
 
28 
 
 
Future Amortization Expense, Year Five
 
 
13 
 
 
Thereafter
 
 
16 
 
 
Total
 
 
255 
 
 
Vyvx Trade Name
 
 
 
 
 
Indefinite-Lived Intangible Assets:
 
 
 
 
 
Indefinite-Lived Intangible Assets, Net
32 
 
32 
 
32 
Customer Contracts and Relationships
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Finite-Lived Intangible Assets, Gross Carrying Amount
776 
 
776 
 
776 
Finite-Lived Intangible Assets, Accumulated Amortization
(620)
 
(620)
 
(571)
Finite-Lived Intangible Assets, Net
156 
 
156 
 
205 
Acquired finite-lived intangible assets, amortization period (in years)
 
 
0 
 
 
Trademarks
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Finite-Lived Intangible Assets, Gross Carrying Amount
55 
 
55 
 
55 
Finite-Lived Intangible Assets, Accumulated Amortization
(14)
 
(14)
 
(3)
Finite-Lived Intangible Assets, Net
41 
 
41 
 
52 
Acquired finite-lived intangible assets, amortization period (in years)
 
 
0 
 
 
Patents and Developed Technology
 
 
 
 
 
Finite-Lived Intangible Assets:
 
 
 
 
 
Finite-Lived Intangible Assets, Gross Carrying Amount
158 
 
158 
 
158 
Finite-Lived Intangible Assets, Accumulated Amortization
(100)
 
(100)
 
(89)
Finite-Lived Intangible Assets, Net
$ 58 
 
$ 58 
 
$ 69 
Acquired finite-lived intangible assets, amortization period (in years)
 
 
0 
 
 
Fair Value of Financial Instruments - Liabilities, Recurring (Details) (Recurring basis, USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Total Carrying Value in Consolidated Balance Sheet
 
 
Liabilities Recorded at Fair Value in the Financial Statements:
 
 
Interest Rate Swap Liabilities (included in other non-current liabilities)
$ 63 
$ 90 
Total Derivative Liabilities Recorded at Fair Value in the Financial Statements
63 
90 
Long-term Debt, including the current portion:
 
 
Senior Notes
5,183 
4,716 
Convertible Notes
845 
939 
Term Loans
2,574 
2,567 
Commercial Mortgage
0 
65 
Capital Leases and Other
107 
163 
Total Long-term Debt, including the current portion:
8,709 
8,450 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
Liabilities Recorded at Fair Value in the Financial Statements:
 
 
Interest Rate Swap Liabilities (included in other non-current liabilities)
0 
0 
Total Derivative Liabilities Recorded at Fair Value in the Financial Statements
0 
0 
Long-term Debt, including the current portion:
 
 
Senior Notes
5,590 
4,822 
Convertible Notes
291 
247 
Term Loans
2,627 
2,518 
Commercial Mortgage
0 
0 
Capital Leases and Other
0 
0 
Total Long-term Debt, including the current portion:
8,508 
7,587 
Significant Other Observable Inputs (Level 2)
 
 
Liabilities Recorded at Fair Value in the Financial Statements:
 
 
Interest Rate Swap Liabilities (included in other non-current liabilities)
63 
90 
Total Derivative Liabilities Recorded at Fair Value in the Financial Statements
63 
90 
Long-term Debt, including the current portion:
 
 
Senior Notes
0 
0 
Convertible Notes
763 
834 
Term Loans
0 
0 
Commercial Mortgage
0 
73 
Capital Leases and Other
107 
163 
Total Long-term Debt, including the current portion:
$ 870 
$ 1,070 
Fair Value of Financial Instruments - Liabilities, Non Recurring (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 3 Months Ended 3 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Sep. 30, 2012
Senior Notes
Sep. 30, 2012
Senior Notes due 2019 (11.875%)
Sep. 30, 2012
Senior Notes due 2019 (8.875%)
Sep. 30, 2012
Senior Notes due 2020 (7%)
Sep. 30, 2012
Convertible Senior Notes due 2016 (6.5%)
Sep. 30, 2012
Not actively traded convertible notes
Sep. 30, 2012
Convertible Senior Notes due 2015 (7.0%)
Sep. 30, 2012
Convertible Senior Notes due 2015 Series B (7.0%)
Sep. 30, 2012
Convertible Senior Notes due 2013 (15.0%)
Sep. 30, 2012
Term Loans
Sep. 30, 2012
Tranche A Term Loan
Sep. 30, 2012
Tranche B Term Loan
Sep. 30, 2012
Tranche B II Term Loan
Sep. 30, 2012
Term Loans
Tranche B 2016
New Senior Secured Term Loan
Aug. 31, 2012
Term Loans
Tranche B 2016
New Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Tranche B 2019
New Senior Secured Term Loan
Liabilities measured on a recurring basis
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt and Capital Lease Obligations
$ 8,709 
$ 8,450 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basis of interest rate on debt
 
 
LIBOR 
 
 
 
 
 
 
 
 
 
LIBOR 
LIBOR 
 
 
 
 
Interest spread on debt, low end of range
 
 
3.75% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest spread on debt, high end of range
 
 
11.875% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
$ 1,400 
 
 
 
 
 
Security coupon rates used for valuation, lowest interest rate
 
 
 
 
 
 
 
7.00% 
 
 
 
 
 
 
 
 
 
 
Security coupon rates used for valuation, highest interest rate
 
 
 
 
 
 
 
15.00% 
 
 
 
 
 
 
 
 
 
 
Debt instrument, stated interest rate (as a percent)
 
 
 
11.875% 
8.875% 
7.00% 
6.50% 
 
7.00% 
7.00% 
15.00% 
 
 
 
 
 
 
 
Interest spread on debt
 
 
 
 
 
 
 
 
 
 
 
 
2.25% 
 
4.25% 
3.25% 
 
3.75% 
Basis floor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.50% 
 
1.50% 
1.50% 
Collateral for debt, Equity interest in Level 3 Financing, Inc's Canadian subsidiary (as a percent)
 
 
 
 
 
 
 
 
 
 
 
65.00% 
 
 
 
 
 
 
Derivative Financial Instruments (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 1 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Other noncurrent liabilities
Dec. 31, 2011
Other noncurrent liabilities
Sep. 30, 2012
Interest Expense
Sep. 30, 2011
Interest Expense
Sep. 30, 2012
Interest Expense
Sep. 30, 2011
Interest Expense
Mar. 31, 2007
Level 3 Financing, Inc.
derivatives
Mar. 31, 2007
Level 3 Financing, Inc.
Interest Rate Swap, Agreement One
Mar. 31, 2007
Level 3 Financing, Inc.
Interest Rate Swap, Agreement Two
Derivative [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Instruments, Gain (Loss) Recognized in Income, Net
$ 3 
 
$ 3 
 
 
 
 
 
 
 
 
 
 
Notional Amount of Interest Rate Cash Flow Hedge Derivatives
1,000 
 
1,000 
 
 
 
 
 
 
 
1,000 
500 
500 
Basis of interest payment
 
 
 
 
 
 
 
 
 
 
LIBOR 
 
 
Fixed interest rate paid under agreement (as a percent)
 
 
 
 
 
 
 
 
 
 
 
4.93% 
4.92% 
Interest Rate Derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps, Number of Instruments
 
 
 
 
 
 
 
 
 
 
2 
 
 
Fair value, Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedging contracts
 
 
 
 
0 
90 
 
 
 
 
 
 
 
Amount of gains (losses) recognized in Other Comprehensive Loss, Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedging contracts
74 
2 
90 
10 
 
 
 
 
 
 
 
 
 
Amount of gains (losses) reclassified from AOCI to Income/Loss (effective portions), Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedging contracts - Interest Expense
 
 
 
 
 
 
(4)
(12)
(26)
(35)
 
 
 
Loss on Cash Flow Hedge Ineffectiveness
$ 60 
 
 
 
 
 
 
 
 
 
 
 
 
Long-Term Debt - Schedule of Long Term Debt (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Sep. 30, 2012
Senior Notes due 2014 (9.25%)
Sep. 30, 2012
Senior Notes due 2017 (8.75%)
Sep. 30, 2012
Senior Notes due 2019 (11.875%)
Sep. 30, 2012
Senior Notes due 2019 (8.125%)
Sep. 30, 2012
Senior Notes due 2020 (8.625%)
Sep. 30, 2012
Convertible Senior Notes due 2013 (15.0%)
Sep. 30, 2012
Convertible Senior Notes due 2015 (7.0%)
Sep. 30, 2012
Convertible Senior Notes due 2015 Series B (7.0%)
Sep. 30, 2012
Convertible Senior Notes due 2016 (6.5%)
Sep. 30, 2012
Other
Dec. 31, 2011
Other
Sep. 30, 2012
Embedded derivative contracts
Dec. 31, 2011
Embedded derivative contracts
Sep. 30, 2012
Term Loans
Senior Secured Term Loan
Dec. 31, 2011
Term Loans
Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Senior Secured Term Loan
Tranche A Term Loan
Aug. 6, 2012
Term Loans
Senior Secured Term Loan
Tranche A Term Loan
Sep. 30, 2012
Term Loans
Senior Secured Term Loan
Tranche-A Term Loan One Billion Dollars
Sep. 30, 2012
Term Loans
Senior Secured Term Loan
Tranche-B II Term Loan Six Hundred Fifty Million Dollars
Dec. 31, 2011
Term Loans
Senior Secured Term Loan
Tranche-B II Term Loan Six Hundred Fifty Million Dollars
Sep. 30, 2012
Term Loans
Senior Secured Term Loan
Tranche-B III Term Loan Five Hundred Fifty Million Dollars
Dec. 31, 2011
Term Loans
Senior Secured Term Loan
Tranche-B III Term Loan Five Hundred Fifty Million Dollars
Sep. 30, 2012
Senior Notes
Senior Notes due 2014 (9.25%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2014 (9.25%)
Sep. 30, 2012
Senior Notes
Floating Rate Senior Notes due 2015
Dec. 31, 2011
Senior Notes
Floating Rate Senior Notes due 2015
Sep. 30, 2012
Senior Notes
Senior Notes due 2017 (8.75%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2017 (8.75%)
Sep. 30, 2012
Senior Notes
Senior Notes due 2018 (10.0%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2018 (10.0%)
Sep. 30, 2012
Senior Notes
Senior Notes due 2019 (11.875%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2019 (11.875%)
Sep. 30, 2012
Senior Notes
Senior Notes due 2019 (9.375%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2019 (9.375%)
Sep. 30, 2012
Senior Notes
Senior Notes due 2019 (8.125%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2019 (8.125%)
Sep. 30, 2012
Senior Notes
Senior Notes due 2019 (8.875%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2019 (8.875%)
Sep. 30, 2012
Senior Notes
Senior Notes due 2020 (8.625%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2020 (8.625%)
Sep. 30, 2012
Senior Notes
Senior Notes due 2020 (7%)
Dec. 31, 2011
Senior Notes
Senior Notes due 2020 (7%)
Sep. 30, 2012
Convertible Senior Notes
Convertible Senior Notes due 2013 (15.0%)
Dec. 31, 2011
Convertible Senior Notes
Convertible Senior Notes due 2013 (15.0%)
Sep. 30, 2012
Convertible Senior Notes
Convertible Senior Notes due 2015 (7.0%)
Dec. 31, 2011
Convertible Senior Notes
Convertible Senior Notes due 2015 (7.0%)
Sep. 30, 2012
Convertible Senior Notes
Convertible Senior Notes due 2015 Series B (7.0%)
Dec. 31, 2011
Convertible Senior Notes
Convertible Senior Notes due 2015 Series B (7.0%)
Sep. 30, 2012
Convertible Senior Notes
Convertible Senior Notes due 2016 (6.5%)
Dec. 31, 2011
Convertible Senior Notes
Convertible Senior Notes due 2016 (6.5%)
Sep. 30, 2012
Commercial Mortgage
Commercial Mortgage due 2015 (9.86%)
Dec. 31, 2011
Commercial Mortgage
Commercial Mortgage due 2015 (9.86%)
Sep. 30, 2012
Capital Leases
Dec. 31, 2011
Capital Leases
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Debt Obligations
$ 8,790 
$ 8,528 
 
 
 
 
 
 
 
 
 
$ 15 
$ 32 
 
 
$ 2,615 
$ 2,600 
$ 1,400 
$ 1,400 
$ 1,000 
$ 650 
 
$ 550 
 
$ 0 
$ 807 
$ 300 
$ 300 
$ 0 
$ 700 
$ 640 
$ 640 
$ 605 
$ 605 
$ 500 
$ 500 
$ 1,200 
$ 1,200 
$ 300 
$ 0 
$ 900 
$ 0 
$ 775 
$ 0 
$ 172 
$ 272 
$ 200 
$ 200 
$ 275 
$ 275 
$ 201 
$ 201 
$ 0 
$ 65 
$ 92 
$ 131 
Total Unamortized (Discount) Premium
(81)
(78)
 
 
 
 
 
 
 
 
 
 
 
(1)
(7)
(41)
(33)
 
 
 
 
 
 
 
0 
3 
 
 
 
 
(10)
(11)
(10)
(10)
(9)
(9)
(8)
(9)
 
 
 
 
 
 
 
 
(2)
(2)
 
 
 
 
 
 
 
 
Carrying Value of Debt
8,709 
8,450 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less current portion
(213)
(65)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-Term Debt, less current portion
$ 8,496 
$ 8,385 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate at Period End
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.75% 
5.75% 
5.75% 
5.75% 
 
 
4.469% 
4.202% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate, Stated Percentage
 
 
9.25% 
8.75% 
11.875% 
8.125% 
8.625% 
15.00% 
7.00% 
7.00% 
6.50% 
 
 
 
 
 
 
 
 
 
 
 
 
 
9.25% 
 
 
 
8.75% 
 
10.00% 
 
11.875% 
 
9.375% 
 
8.125% 
 
8.875% 
 
8.625% 
 
7.00% 
 
15.00% 
 
7.00% 
 
7.00% 
 
6.50% 
 
9.86% 
 
 
 
Long-Term Debt - Textuals (Details) (USD $)
Share data in Millions, unless otherwise specified
0 Months Ended 1 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 1 Months Ended 1 Months Ended 1 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended 1 Months Ended 1 Months Ended 0 Months Ended 1 Months Ended 1 Months Ended 3 Months Ended
Mar. 13, 2012
Aug. 31, 2012
Sep. 30, 2012
Mar. 31, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Sep. 30, 2012
Senior Notes due 2017 (8.75%)
Aug. 31, 2012
Senior Notes due 2020 (7%)
days
Sep. 30, 2012
Senior Notes due 2020 (7%)
Aug. 6, 2012
Senior Notes due 2020 (7%)
Jan. 31, 2012
Senior Notes due 2020 (8.625%)
days
Sep. 30, 2012
Senior Notes due 2020 (8.625%)
Jan. 13, 2012
Senior Notes due 2020 (8.625%)
Feb. 28, 2012
Senior Notes due 2014 (9.25%)
Mar. 31, 2012
Senior Notes due 2014 (9.25%)
Sep. 30, 2012
Senior Notes due 2014 (9.25%)
Mar. 13, 2012
Convertible Senior Notes due 2013 (15.0%)
Mar. 31, 2012
Convertible Senior Notes due 2013 (15.0%)
Sep. 30, 2012
Convertible Senior Notes due 2013 (15.0%)
Aug. 31, 2012
Senior Notes due 2019 (8.875%)
days
Sep. 30, 2012
Senior Notes due 2019 (8.875%)
Jul. 31, 2012
Senior Notes due 2019 (8.875%)
Aug. 31, 2012
Twelve Months Beginning June 1, 2015
Senior Notes due 2019 (8.875%)
Aug. 31, 2012
Twelve Months Beginning June 1, 2016
Senior Notes due 2019 (8.875%)
Aug. 31, 2012
Twelve Months Beginning June 1, 2016
Senior Notes due 2020 (7%)
Jan. 31, 2012
Prior to January 15 2016
Senior Notes due 2020 (8.625%)
Jan. 31, 2012
Twelve Months Beginning January 15 2016
Senior Notes due 2020 (8.625%)
Jan. 31, 2012
Twelve Months Beginning January 15 2017
Senior Notes due 2020 (8.625%)
Jan. 31, 2012
Twelve Months Beginning January 15 2018
Senior Notes due 2020 (8.625%)
Aug. 31, 2012
Twelve Months Beginning June 1, 2017
Senior Notes due 2019 (8.875%)
Aug. 31, 2012
Twelve Months Beginning June 1, 2017
Senior Notes due 2020 (7%)
Aug. 31, 2012
Twelve Months Beginning June 1, 2018
Senior Notes due 2020 (7%)
Mar. 13, 2012
Shares issued upon conversion of debt instrument face amount
Mar. 13, 2012
Shares issued upon conversion of debt instrument premium
Sep. 30, 2012
Term Loans
Senior Secured Term Loan
Dec. 31, 2011
Term Loans
Senior Secured Term Loan
Aug. 6, 2012
Term Loans
New Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Tranche B 2016
Senior Secured Term Loan
Aug. 6, 2012
Term Loans
Tranche B 2016
Senior Secured Term Loan
Aug. 31, 2012
Term Loans
Tranche B 2016
New Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Tranche B 2016
New Senior Secured Term Loan
Aug. 6, 2012
Term Loans
Tranche B 2016
New Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Tranche B 2019
Senior Secured Term Loan
Aug. 6, 2012
Term Loans
Tranche B 2019
Senior Secured Term Loan
Aug. 31, 2012
Term Loans
Tranche B 2019
New Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Tranche B 2019
New Senior Secured Term Loan
Aug. 6, 2012
Term Loans
Tranche B 2019
New Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Tranche-A Term Loan One Billion Dollars
Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Tranche A Term Loan
Senior Secured Term Loan
Aug. 6, 2012
Term Loans
Tranche A Term Loan
Senior Secured Term Loan
Sep. 30, 2012
Term Loans
Tranche A Term Loan including $1 billion and $400 million tranches
Senior Secured Term Loan
Mar. 31, 2007
Level 3 Financing, Inc.
Debt and Capital Lease Obligations by Maturity [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012 (Remaining Months)
 
 
$ 11,000,000 
 
 
$ 11,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
 
210,000,000 
 
 
210,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
 
16,000,000 
 
 
16,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
782,000,000 
 
 
782,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 
807,000,000 
 
 
807,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
6,000,000 
 
 
6,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thereafter
 
 
6,958,000,000 
 
 
6,958,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate, Stated Percentage
 
 
 
 
 
 
 
 
8.75% 
 
7.00% 
 
 
8.625% 
 
 
 
9.25% 
 
 
15.00% 
 
8.875% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Period Maximum
 
 
 
 
 
 
 
 
 
90 
 
 
 
 
 
 
 
 
 
 
 
90 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Period Notice Minimum Number of Days
 
 
 
 
 
 
 
 
 
30 
 
 
 
 
 
 
 
 
 
 
 
30 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum Number of Days for Notice of Redemption of Debt Instrument
 
 
 
 
 
 
 
 
 
60 
 
 
 
 
 
 
 
 
 
 
 
60 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Price if Redeemed Prior to June 1, 2015
 
 
 
 
 
 
 
 
 
107.00% 
 
 
 
 
 
 
 
 
 
 
 
108.875% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Conversion, Converted Instrument, Shares Issued
5.4 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.7 
1.7 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued Interest on conversion into equity
 
 
 
2,000,000 
 
2,000,000 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Conversion, Original Debt, Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Minimum Gross Proceeds from Equity Offering
 
 
 
 
 
 
 
 
 
100,000,000 
 
 
100,000,000 
 
 
 
 
 
 
 
 
100,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum Percentage of Principal That Must Remain Outstanding After Redemption
 
 
 
 
 
 
 
 
 
65.00% 
 
 
 
 
 
 
 
 
 
 
 
65.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Price As Percentage Of Original Principal Prior to January 15 2016
 
 
 
 
 
 
 
 
 
 
 
 
108.625% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Period Maximum Prior to January 15 2016
 
 
 
 
 
 
 
 
 
 
 
 
90 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum percentage of principal that must remain outstanding after redemption
 
 
 
 
 
 
 
 
 
 
 
 
65.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Period Notice Minimum Number of Days Prior to January 15 2016
 
 
 
 
 
 
 
 
 
 
 
 
30 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Period Notice Maximum Number of Days Prior to January 15 2016
 
 
 
 
 
 
 
 
 
 
 
 
60 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum Principal That Can Be Redeemed Prior To June 1, 2015
 
 
 
 
 
 
 
 
 
0.35 
 
 
 
 
 
 
 
 
 
 
 
0.35 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum Principal that can be redeemed prior to January 15 2015
 
 
 
 
 
 
 
 
 
 
 
 
35.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument Redemption Price as Percentage of Principal Amount
 
 
 
 
 
 
 
 
 
100.00% 
 
 
 
 
 
 
 
 
 
 
 
100.00% 
 
 
104.438% 
102.219% 
103.50% 
100.00% 
104.313% 
102.156% 
100.00% 
100.00% 
101.75% 
100.00% 
 
 
 
 
 
 
 
99.50% 
 
 
 
 
99.00% 
 
 
 
 
 
 
 
Repayments of Long-term Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
807,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on extinguishment of debt, net
 
 
(49,000,000)
 
(30,000,000)
(110,000,000)
(73,000,000)
 
40,000,000 
 
 
 
 
 
 
 
22,000,000 
 
 
39,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,000,000 
 
 
 
Unamortized Debt Issuance Expense
 
 
 
 
 
 
 
 
 
 
 
15,000,000 
 
 
20,000,000 
 
 
 
 
 
 
 
 
7,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,000,000 
 
 
 
 
12,000,000 
 
 
 
 
 
 
 
 
Debt Instrument, Face Amount
 
 
 
 
 
 
 
 
 
 
 
775,000,000 
 
 
900,000,000 
 
 
 
 
 
 
 
 
300,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt, Gross
 
 
8,790,000,000 
 
 
8,790,000,000 
 
8,528,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,615,000,000 
2,600,000,000 
1,415,000,000 
 
 
 
600,000,000 
600,000,000 
 
 
 
815,000,000 
815,000,000 
1,000,000,000 
1,400,000,000 
1,400,000,000 
 
 
Loss on Cash Flow Hedge Ineffectiveness
 
 
60,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notional Amount of Interest Rate Cash Flow Hedge Derivatives
 
 
1,000,000,000 
 
 
1,000,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,000,000,000 
Debt Instrument, Unamortized Discount (Premium), Net
 
 
81,000,000 
 
 
81,000,000 
 
78,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41,000,000 
33,000,000 
 
 
(3,000,000)
 
 
 
 
(8,000,000)
 
 
 
 
 
 
 
 
Repayments of Debt
 
$ 15,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest spread on debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.25% 
 
 
 
 
3.75% 
 
 
 
 
 
 
Basis floor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.50% 
 
 
 
 
 
1.50% 
 
 
 
 
 
 
Debt Instrument Maximum Number of Days Following Issuance for Registration Statement to be Declared Effective
 
 
 
 
 
 
 
 
 
270 
 
 
 
 
 
 
 
 
 
 
 
270 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate at Period End
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.75% 
 
 
 
 
5.25% 
 
 
 
 
 
 
 
2.65% 
 
Stock-based Compensation - Non-cash compensation expensed and capitalized (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Stock-based compensation expense
 
 
 
 
Stock- based compensation expense
$ 50 
$ 26 
$ 103 
$ 68 
Capitalized Noncash Compensation
(1)
0 
(1)
0 
Non-cash compensation expense
49 
26 
102 
68 
Number of OSOs outstanding as of the balance sheet date
2.0 
 
2.0 
 
Number of RSUs outstanding as of balance sheet date
5 
 
5 
 
Outperform Stock Options
 
 
 
 
Stock-based compensation expense
 
 
 
 
Stock- based compensation expense
4 
3 
10 
7 
Restricted Stock Units and Shares
 
 
 
 
Stock-based compensation expense
 
 
 
 
Stock- based compensation expense
21 
11 
39 
18 
401(k) Match Expense
 
 
 
 
Stock-based compensation expense
 
 
 
 
Stock- based compensation expense
5 
3 
18 
10 
Restricted Stock Unit Bonus Grant
 
 
 
 
Stock-based compensation expense
 
 
 
 
Stock- based compensation expense
$ 20 
$ 9 
$ 36 
$ 33 
Non Qualified Stock Options
 
 
 
 
Stock-based compensation expense
 
 
 
 
Number of OSOs outstanding as of the balance sheet date
0.1 
 
0.1 
 
Segment Information - Total Revenue by Service Offering (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
$ 1,590 
$ 927 
$ 4,762 
$ 2,754 
Core Network Service
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
1,395 
758 
4,163 
2,231 
Wholesale Voice Services and Other
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
$ 195 
$ 169 
$ 599 
$ 523 
Commitments, Contingencies and Other Items - Lawsuits (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Loss Contingencies
 
Estimated Litigation Liability
$ 296 
Peruvian Tax Litigation |
Pending or Threatened Litigation
 
Loss Contingencies
 
Loss Contingency, Asserted Claim
94 
Peruvian Tax Litigation, Before Interest |
Pending or Threatened Litigation
 
Loss Contingencies
 
Loss Contingency, Asserted Claim
26 
Peruvian Tax Litigation, Income Taxwitholding 2001 and 2002 |
Pending or Threatened Litigation
 
Loss Contingencies
 
Loss Contingency, Asserted Claim
3 
Peruvian Tax Litigation, Disallowance of VAT in 2005 |
Pending or Threatened Litigation
 
Loss Contingencies
 
Loss Contingency, Asserted Claim
16 
Peruvian Tax Litigation, Vat for 2001 and 2002 |
Pending or Threatened Litigation
 
Loss Contingencies
 
Loss Contingency, Asserted Claim
7 
Employee Severance and Contractor Termination Disputes |
Pending or Threatened Litigation
 
Loss Contingencies
 
Loss Contingency, Asserted Claim
42 
Customer Bankruptcy Claim |
Pending or Threatened Litigation
 
Loss Contingencies
 
Loss Contingency, Range of Possible Loss, Minimum
150 
Loss Contingency, Range of Possible Loss, Maximum
450 
Maximum |
Brazilian Tax Claims |
Pending or Threatened Litigation
 
Loss Contingencies
 
Loss Contingency, Range of Possible Loss, Portion Not Accrued
$ 57 
Commitments, Contingencies and Other Items - Other Commitments (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Commitments and Contingencies Disclosure [Abstract]
 
 
Amount outstanding under letters of credit
$ 32 
$ 33 
Collateralized Financings
$ 30 
$ 29 
Condensed Consolidating Financial Information - Statements of Operations (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Condensed Consolidating Financial Information
 
 
 
 
Revenue
$ 1,590 
$ 927 
$ 4,762 
$ 2,754 
Costs and Expenses:
 
 
 
 
Cost of Revenue
642 
342 
1,947 
1,046 
Depreciation and Amortization
185 
203 
563 
612 
Selling, General and Administrative
619 
375 
1,851 
1,089 
Restructuring Charges
6 
0 
14 
0 
Total Costs and Expenses
1,452 
920 
4,375 
2,747 
Operating Income (Loss)
138 
7 
387 
7 
Other Income (Expense):
 
 
 
 
Interest Income
0 
0 
2 
0 
Interest expense
(188)
(178)
(558)
(495)
Interest income (expense) affiliates, net
0 
0 
0 
0 
Equity in net earnings (losses) of subsidiaries
0 
0 
0 
0 
Other income (expense), net
(103)
(31)
(162)
(68)
Nonoperating Income (Expense)
(291)
(209)
(718)
(563)
Income (Loss) Before Income Taxes
(153)
(202)
(331)
(556)
Income Tax (Expense) Benefit
(13)
(6)
(35)
(36)
Income (Loss) from Continuing Operations
(166)
(208)
(366)
(592)
Income (Loss) from Discontinued Operations, Net
0 
1 
0 
(1)
Net Loss
(166)
(207)
(366)
(593)
Other Comprehensive Income (Loss), Net of Income Taxes
122 
(24)
108 
33 
Comprehensive Loss
(44)
(231)
(258)
(560)
Level 3 Communications, Inc.
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
Revenue
0 
0 
0 
0 
Costs and Expenses:
 
 
 
 
Cost of Revenue
0 
0 
0 
0 
Depreciation and Amortization
0 
0 
0 
0 
Selling, General and Administrative
1 
0 
2 
1 
Restructuring Charges
0 
0 
0 
0 
Total Costs and Expenses
1 
0 
2 
1 
Operating Income (Loss)
(1)
0 
(2)
(1)
Other Income (Expense):
 
 
 
 
Interest Income
0 
0 
0 
0 
Interest expense
(43)
(51)
(123)
(163)
Interest income (expense) affiliates, net
244 
212 
734 
633 
Equity in net earnings (losses) of subsidiaries
(365)
(338)
(935)
(1,011)
Other income (expense), net
0 
(30)
(39)
(51)
Nonoperating Income (Expense)
(164)
(207)
(363)
(592)
Income (Loss) Before Income Taxes
(165)
(207)
(365)
(593)
Income Tax (Expense) Benefit
(1)
0 
(1)
0 
Income (Loss) from Continuing Operations
 
(207)
 
(593)
Income (Loss) from Discontinued Operations, Net
 
0 
 
0 
Net Loss
(166)
(207)
(366)
(593)
Other Comprehensive Income (Loss), Net of Income Taxes
122 
(24)
108 
33 
Comprehensive Loss
(44)
(231)
(258)
(560)
Level 3 Financing, Inc.
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
Revenue
0 
0 
0 
0 
Costs and Expenses:
 
 
 
 
Cost of Revenue
0 
0 
0 
0 
Depreciation and Amortization
0 
0 
0 
0 
Selling, General and Administrative
1 
0 
1 
0 
Restructuring Charges
0 
0 
0 
0 
Total Costs and Expenses
1 
0 
1 
0 
Operating Income (Loss)
(1)
0 
(1)
0 
Other Income (Expense):
 
 
 
 
Interest Income
0 
0 
0 
0 
Interest expense
(137)
(99)
(410)
(296)
Interest income (expense) affiliates, net
400 
350 
1,202 
1,069 
Equity in net earnings (losses) of subsidiaries
(516)
(589)
(1,593)
(1,761)
Other income (expense), net
(111)
0 
(133)
(23)
Nonoperating Income (Expense)
(364)
(338)
(934)
(1,011)
Income (Loss) Before Income Taxes
(365)
(338)
(935)
(1,011)
Income Tax (Expense) Benefit
0 
0 
0 
0 
Income (Loss) from Continuing Operations
 
(338)
 
(1,011)
Income (Loss) from Discontinued Operations, Net
 
0 
 
0 
Net Loss
(365)
(338)
(935)
(1,011)
Other Comprehensive Income (Loss), Net of Income Taxes
122 
(24)
108 
33 
Comprehensive Loss
(243)
(362)
(827)
(978)
Level 3 Communications, LLC
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
Revenue
672 
605 
1,957 
1,741 
Costs and Expenses:
 
 
 
 
Cost of Revenue
256 
222 
736 
658 
Depreciation and Amortization
63 
102 
196 
309 
Selling, General and Administrative
406 
328 
1,197 
941 
Restructuring Charges
4 
0 
10 
0 
Total Costs and Expenses
729 
652 
2,139 
1,908 
Operating Income (Loss)
(57)
(47)
(182)
(167)
Other Income (Expense):
 
 
 
 
Interest Income
0 
0 
1 
0 
Interest expense
(1)
0 
(2)
(2)
Interest income (expense) affiliates, net
(561)
(514)
(1,678)
(1,545)
Equity in net earnings (losses) of subsidiaries
40 
29 
101 
107 
Other income (expense), net
3 
2 
6 
8 
Nonoperating Income (Expense)
(519)
(483)
(1,572)
(1,432)
Income (Loss) Before Income Taxes
(576)
(530)
(1,754)
(1,599)
Income Tax (Expense) Benefit
(1)
(1)
(3)
(21)
Income (Loss) from Continuing Operations
 
(531)
 
(1,620)
Income (Loss) from Discontinued Operations, Net
 
0 
 
0 
Net Loss
(577)
(531)
(1,757)
(1,620)
Other Comprehensive Income (Loss), Net of Income Taxes
0 
0 
0 
0 
Comprehensive Loss
(577)
(531)
(1,757)
(1,620)
Other Non-Guarantor Subsidiaries
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
Revenue
981 
379 
2,995 
1,182 
Costs and Expenses:
 
 
 
 
Cost of Revenue
447 
174 
1,393 
548 
Depreciation and Amortization
122 
101 
367 
303 
Selling, General and Administrative
213 
50 
659 
156 
Restructuring Charges
2 
0 
4 
0 
Total Costs and Expenses
784 
325 
2,423 
1,007 
Operating Income (Loss)
197 
54 
572 
175 
Other Income (Expense):
 
 
 
 
Interest Income
0 
0 
1 
0 
Interest expense
(7)
(28)
(23)
(34)
Interest income (expense) affiliates, net
(83)
(48)
(258)
(157)
Equity in net earnings (losses) of subsidiaries
0 
0 
0 
0 
Other income (expense), net
5 
(3)
4 
(2)
Nonoperating Income (Expense)
(85)
(79)
(276)
(193)
Income (Loss) Before Income Taxes
112 
(25)
296 
(18)
Income Tax (Expense) Benefit
(11)
(5)
(31)
(15)
Income (Loss) from Continuing Operations
 
(30)
 
(33)
Income (Loss) from Discontinued Operations, Net
 
1 
 
(1)
Net Loss
101 
(29)
265 
(34)
Other Comprehensive Income (Loss), Net of Income Taxes
48 
(26)
18 
23 
Comprehensive Loss
149 
(55)
283 
(11)
Eliminations
 
 
 
 
Condensed Consolidating Financial Information
 
 
 
 
Revenue
(63)
(57)
(190)
(169)
Costs and Expenses:
 
 
 
 
Cost of Revenue
(61)
(54)
(182)
(160)
Depreciation and Amortization
0 
0 
0 
0 
Selling, General and Administrative
(2)
(3)
(8)
(9)
Restructuring Charges
0 
0 
0 
0 
Total Costs and Expenses
(63)
(57)
(190)
(169)
Operating Income (Loss)
0 
0 
0 
0 
Other Income (Expense):
 
 
 
 
Interest Income
0 
0 
0 
0 
Interest expense
0 
0 
0 
0 
Interest income (expense) affiliates, net
0 
0 
0 
0 
Equity in net earnings (losses) of subsidiaries
841 
898 
2,427 
2,665 
Other income (expense), net
0 
0 
0 
0 
Nonoperating Income (Expense)
841 
898 
2,427 
2,665 
Income (Loss) Before Income Taxes
841 
898 
2,427 
2,665 
Income Tax (Expense) Benefit
0 
0 
0 
0 
Income (Loss) from Continuing Operations
 
898 
 
2,665 
Income (Loss) from Discontinued Operations, Net
 
0 
 
0 
Net Loss
841 
898 
2,427 
2,665 
Other Comprehensive Income (Loss), Net of Income Taxes
(170)
50 
(126)
(56)
Comprehensive Loss
$ 671 
$ 948 
$ 2,301 
$ 2,609 
Condensed Consolidating Financial Information - Balance Sheets (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Sep. 30, 2011
Dec. 31, 2010
Current Assets:
 
 
 
 
Cash and cash equivalents
$ 793 
$ 918 
$ 461 
$ 616 
Restricted cash and securities
8 
10 
 
 
Receivables, less allowances for doubtful accounts
748 
648 
 
 
Due from (to) affiliates
0 
0 
 
 
Other
186 
131 
 
 
Total Current Assets
1,735 
1,707 
 
 
Property, Plant and Equipment, net of accumulated depreciation
8,191 
8,136 
 
 
Restricted Cash and Securities
39 
51 
 
 
Goodwill and Other Intangibles Assets, net
2,852 
2,899 
 
 
Investment in Subsidiaries
0 
0 
 
 
Other Assets, net
399 
395 
 
 
Total Assets
13,216 
13,188 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
719 
747 
 
 
Current portion of long-term debt
213 
65 
 
 
Accrued payroll and employee benefits
163 
209 
 
 
Accrued interest
166 
216 
 
 
Current portion of deferred revenue
260 
264 
 
 
Other
122 
157 
 
 
Total Current Liabilities
1,643 
1,658 
 
 
Long-Term Debt, less current portion
8,496 
8,385 
 
 
Deferred Revenue, less current portion
841 
885 
 
 
Other Liabilities
1,032 
1,067 
 
 
Stockholders' Equity (Deficit)
1,204 
1,193 
 
 
Total Liabilities and Stockholders' Equity (Deficit)
13,216 
13,188 
 
 
Level 3 Communications, Inc.
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
296 
2 
44 
173 
Restricted cash and securities
0 
0 
 
 
Receivables, less allowances for doubtful accounts
0 
0 
 
 
Due from (to) affiliates
14,188 
13,472 
 
 
Other
7 
3 
 
 
Total Current Assets
14,491 
13,477 
 
 
Property, Plant and Equipment, net of accumulated depreciation
0 
0 
 
 
Restricted Cash and Securities
15 
18 
 
 
Goodwill and Other Intangibles Assets, net
0 
0 
 
 
Investment in Subsidiaries
(11,505)
(10,718)
 
 
Other Assets, net
17 
13 
 
 
Total Assets
3,018 
2,790 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
1 
0 
 
 
Current portion of long-term debt
175 
0 
 
 
Accrued payroll and employee benefits
0 
0 
 
 
Accrued interest
54 
50 
 
 
Current portion of deferred revenue
0 
0 
 
 
Other
1 
0 
 
 
Total Current Liabilities
231 
50 
 
 
Long-Term Debt, less current portion
1,569 
1,533 
 
 
Deferred Revenue, less current portion
0 
0 
 
 
Other Liabilities
14 
14 
 
 
Stockholders' Equity (Deficit)
1,204 
1,193 
 
 
Total Liabilities and Stockholders' Equity (Deficit)
3,018 
2,790 
 
 
Level 3 Financing, Inc.
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
5 
6 
6 
7 
Restricted cash and securities
0 
0 
 
 
Receivables, less allowances for doubtful accounts
0 
0 
 
 
Due from (to) affiliates
15,405 
14,584 
 
 
Other
34 
16 
 
 
Total Current Assets
15,444 
14,606 
 
 
Property, Plant and Equipment, net of accumulated depreciation
0 
0 
 
 
Restricted Cash and Securities
0 
0 
 
 
Goodwill and Other Intangibles Assets, net
0 
0 
 
 
Investment in Subsidiaries
(19,998)
(18,467)
 
 
Other Assets, net
115 
109 
 
 
Total Assets
(4,439)
(3,752)
 
 
Current Liabilities:
 
 
 
 
Accounts payable
2 
0 
 
 
Current portion of long-term debt
0 
0 
 
 
Accrued payroll and employee benefits
0 
0 
 
 
Accrued interest
112 
165 
 
 
Current portion of deferred revenue
0 
0 
 
 
Other
1 
1 
 
 
Total Current Liabilities
115 
166 
 
 
Long-Term Debt, less current portion
6,862 
6,688 
 
 
Deferred Revenue, less current portion
0 
0 
 
 
Other Liabilities
92 
116 
 
 
Stockholders' Equity (Deficit)
(11,508)
(10,722)
 
 
Total Liabilities and Stockholders' Equity (Deficit)
(4,439)
(3,752)
 
 
Level 3 Communications, LLC
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
215 
618 
329 
350 
Restricted cash and securities
1 
1 
 
 
Receivables, less allowances for doubtful accounts
103 
59 
 
 
Due from (to) affiliates
(29,446)
(28,092)
 
 
Other
55 
48 
 
 
Total Current Assets
(29,072)
(27,366)
 
 
Property, Plant and Equipment, net of accumulated depreciation
2,893 
2,823 
 
 
Restricted Cash and Securities
18 
19 
 
 
Goodwill and Other Intangibles Assets, net
438 
481 
 
 
Investment in Subsidiaries
3,267 
3,412 
 
 
Other Assets, net
11 
6 
 
 
Total Assets
(22,445)
(20,625)
 
 
Current Liabilities:
 
 
 
 
Accounts payable
32 
37 
 
 
Current portion of long-term debt
2 
2 
 
 
Accrued payroll and employee benefits
121 
116 
 
 
Accrued interest
0 
0 
 
 
Current portion of deferred revenue
102 
107 
 
 
Other
24 
52 
 
 
Total Current Liabilities
281 
314 
 
 
Long-Term Debt, less current portion
20 
22 
 
 
Deferred Revenue, less current portion
593 
612 
 
 
Other Liabilities
141 
146 
 
 
Stockholders' Equity (Deficit)
(23,480)
(21,719)
 
 
Total Liabilities and Stockholders' Equity (Deficit)
(22,445)
(20,625)
 
 
Other Non-Guarantor Subsidiaries
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
277 
292 
82 
86 
Restricted cash and securities
7 
9 
 
 
Receivables, less allowances for doubtful accounts
645 
589 
 
 
Due from (to) affiliates
(147)
36 
 
 
Other
90 
64 
 
 
Total Current Assets
872 
990 
 
 
Property, Plant and Equipment, net of accumulated depreciation
5,298 
5,313 
 
 
Restricted Cash and Securities
6 
14 
 
 
Goodwill and Other Intangibles Assets, net
2,414 
2,418 
 
 
Investment in Subsidiaries
0 
0 
 
 
Other Assets, net
256 
267 
 
 
Total Assets
8,846 
9,002 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
684 
710 
 
 
Current portion of long-term debt
36 
63 
 
 
Accrued payroll and employee benefits
42 
93 
 
 
Accrued interest
0 
1 
 
 
Current portion of deferred revenue
158 
157 
 
 
Other
96 
104 
 
 
Total Current Liabilities
1,016 
1,128 
 
 
Long-Term Debt, less current portion
45 
142 
 
 
Deferred Revenue, less current portion
248 
273 
 
 
Other Liabilities
785 
791 
 
 
Stockholders' Equity (Deficit)
6,752 
6,668 
 
 
Total Liabilities and Stockholders' Equity (Deficit)
8,846 
9,002 
 
 
Eliminations
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
0 
0 
0 
0 
Restricted cash and securities
0 
0 
 
 
Receivables, less allowances for doubtful accounts
0 
0 
 
 
Due from (to) affiliates
0 
0 
 
 
Other
0 
0 
 
 
Total Current Assets
0 
0 
 
 
Property, Plant and Equipment, net of accumulated depreciation
0 
0 
 
 
Restricted Cash and Securities
0 
0 
 
 
Goodwill and Other Intangibles Assets, net
0 
0 
 
 
Investment in Subsidiaries
28,236 
25,773 
 
 
Other Assets, net
0 
0 
 
 
Total Assets
28,236 
25,773 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
0 
0 
 
 
Current portion of long-term debt
0 
0 
 
 
Accrued payroll and employee benefits
0 
0 
 
 
Accrued interest
0 
0 
 
 
Current portion of deferred revenue
0 
0 
 
 
Other
0 
0 
 
 
Total Current Liabilities
0 
0 
 
 
Long-Term Debt, less current portion
0 
0 
 
 
Deferred Revenue, less current portion
0 
0 
 
 
Other Liabilities
0 
0 
 
 
Stockholders' Equity (Deficit)
28,236 
25,773 
 
 
Total Liabilities and Stockholders' Equity (Deficit)
$ 28,236 
$ 25,773 
 
 
Condensed Consolidating Financial Information - Statements of Cash Flows (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities of Continuing Operations
$ 178 
$ 199 
Cash Flows from Investing Activities:
 
 
Capital expenditures
(545)
(346)
(Increase) Decrease in restricted cash and securities, net
15 
(63)
Proceeds from the sale of property, plant and equipment and other assets
5 
4 
Payments for (Proceeds from) Other Investing Activities
(13)
0 
Net Cash Used in Investing Activities in Investing Activities of Continuing Operations
(538)
(405)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
3,317 
765 
Payments on and repurchases of long-term debt, including current portions and refinancing costs
(3,088)
(711)
Proceeds from Stock Options Exercised
5 
0 
Increase (decrease) due from affiliates, net
0 
0 
Net Cash Provided by (Used in) Financing Activities of Continuing Operations
234 
54 
Net Cash Provided by (Used in) Discontinued Operations
0 
(4)
Effect of Exchange Rates on Cash and Cash Equivalents
1 
1 
Net Change in Cash and Cash Equivalents
(125)
(155)
Cash and Cash Equivalents at Beginning of Period
918 
616 
Cash and Cash Equivalents at End of Period
793 
461 
Level 3 Communications, Inc.
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities of Continuing Operations
(48)
(129)
Cash Flows from Investing Activities:
 
 
Capital expenditures
0 
0 
(Increase) Decrease in restricted cash and securities, net
3 
0 
Proceeds from the sale of property, plant and equipment and other assets
0 
0 
Payments for (Proceeds from) Other Investing Activities
0 
 
Net Cash Used in Investing Activities in Investing Activities of Continuing Operations
3 
0 
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
293 
292 
Payments on and repurchases of long-term debt, including current portions and refinancing costs
0 
(245)
Proceeds from Stock Options Exercised
5 
 
Increase (decrease) due from affiliates, net
41 
(47)
Net Cash Provided by (Used in) Financing Activities of Continuing Operations
339 
0 
Net Cash Provided by (Used in) Discontinued Operations
 
0 
Effect of Exchange Rates on Cash and Cash Equivalents
0 
0 
Net Change in Cash and Cash Equivalents
294 
(129)
Cash and Cash Equivalents at Beginning of Period
2 
173 
Cash and Cash Equivalents at End of Period
296 
44 
Level 3 Financing, Inc.
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities of Continuing Operations
(442)
(279)
Cash Flows from Investing Activities:
 
 
Capital expenditures
0 
0 
(Increase) Decrease in restricted cash and securities, net
0 
0 
Proceeds from the sale of property, plant and equipment and other assets
0 
0 
Payments for (Proceeds from) Other Investing Activities
0 
 
Net Cash Used in Investing Activities in Investing Activities of Continuing Operations
0 
0 
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
3,024 
474 
Payments on and repurchases of long-term debt, including current portions and refinancing costs
(2,960)
(463)
Proceeds from Stock Options Exercised
0 
 
Increase (decrease) due from affiliates, net
377 
267 
Net Cash Provided by (Used in) Financing Activities of Continuing Operations
441 
278 
Net Cash Provided by (Used in) Discontinued Operations
 
0 
Effect of Exchange Rates on Cash and Cash Equivalents
0 
0 
Net Change in Cash and Cash Equivalents
(1)
(1)
Cash and Cash Equivalents at Beginning of Period
6 
7 
Cash and Cash Equivalents at End of Period
5 
6 
Level 3 Communications, LLC
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities of Continuing Operations
80 
153 
Cash Flows from Investing Activities:
 
 
Capital expenditures
(199)
(146)
(Increase) Decrease in restricted cash and securities, net
1 
0 
Proceeds from the sale of property, plant and equipment and other assets
0 
1 
Payments for (Proceeds from) Other Investing Activities
0 
 
Net Cash Used in Investing Activities in Investing Activities of Continuing Operations
(198)
(145)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
0 
0 
Payments on and repurchases of long-term debt, including current portions and refinancing costs
0 
0 
Proceeds from Stock Options Exercised
0 
 
Increase (decrease) due from affiliates, net
(285)
(29)
Net Cash Provided by (Used in) Financing Activities of Continuing Operations
(285)
(29)
Net Cash Provided by (Used in) Discontinued Operations
 
0 
Effect of Exchange Rates on Cash and Cash Equivalents
0 
0 
Net Change in Cash and Cash Equivalents
(403)
(21)
Cash and Cash Equivalents at Beginning of Period
618 
350 
Cash and Cash Equivalents at End of Period
215 
329 
Other Non-Guarantor Subsidiaries
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities of Continuing Operations
588 
454 
Cash Flows from Investing Activities:
 
 
Capital expenditures
(346)
(200)
(Increase) Decrease in restricted cash and securities, net
11 
(63)
Proceeds from the sale of property, plant and equipment and other assets
5 
3 
Payments for (Proceeds from) Other Investing Activities
13 
 
Net Cash Used in Investing Activities in Investing Activities of Continuing Operations
(343)
(260)
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
0 
(1)
Payments on and repurchases of long-term debt, including current portions and refinancing costs
(128)
(3)
Proceeds from Stock Options Exercised
0 
 
Increase (decrease) due from affiliates, net
(133)
(191)
Net Cash Provided by (Used in) Financing Activities of Continuing Operations
(261)
(195)
Net Cash Provided by (Used in) Discontinued Operations
 
(4)
Effect of Exchange Rates on Cash and Cash Equivalents
1 
1 
Net Change in Cash and Cash Equivalents
(15)
(4)
Cash and Cash Equivalents at Beginning of Period
292 
86 
Cash and Cash Equivalents at End of Period
277 
82 
Eliminations
 
 
Condensed Consolidating Financial Information
 
 
Net Cash Provided by (Used in) Operating Activities of Continuing Operations
0 
0 
Cash Flows from Investing Activities:
 
 
Capital expenditures
0 
0 
(Increase) Decrease in restricted cash and securities, net
0 
0 
Proceeds from the sale of property, plant and equipment and other assets
0 
0 
Payments for (Proceeds from) Other Investing Activities
0 
 
Net Cash Used in Investing Activities in Investing Activities of Continuing Operations
0 
0 
Cash Flows from Financing Activities:
 
 
Long-term debt borrowings, net of issuance costs
0 
0 
Payments on and repurchases of long-term debt, including current portions and refinancing costs
0 
0 
Proceeds from Stock Options Exercised
0 
 
Increase (decrease) due from affiliates, net
0 
0 
Net Cash Provided by (Used in) Financing Activities of Continuing Operations
0 
0 
Net Cash Provided by (Used in) Discontinued Operations
 
0 
Effect of Exchange Rates on Cash and Cash Equivalents
0 
0 
Net Change in Cash and Cash Equivalents
0 
0 
Cash and Cash Equivalents at Beginning of Period
0 
0 
Cash and Cash Equivalents at End of Period
$ 0 
$ 0 
Subsequent Events (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Sep. 30, 2012
Senior Secured Term Loan
Term Loans
Dec. 31, 2011
Senior Secured Term Loan
Term Loans
Sep. 30, 2012
Senior Secured Term Loan
Tranche-B II Term Loan Six Hundred Fifty Million Dollars
Term Loans
Sep. 30, 2012
Senior Secured Term Loan
Tranche-B III Term Loan Five Hundred Fifty Million Dollars
Term Loans
Oct. 4, 2012
Senior Secured Term Loan
Tranche-BII 2019 Term Loan
Term Loans
Dec. 31, 2012
Senior Secured Term Loan
Tranche B II and Tranche B III Term Loans
Term Loans
Oct. 4, 2012
Tranche-BII 2019 Term Loan
Term Loans
Subsequent Event [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Long-term Debt, Gross
$ 8,790 
 
$ 8,790 
 
$ 8,528 
$ 2,615 
$ 2,600 
$ 650 
$ 550 
$ 1,200 
 
 
Interest spread on debt
 
 
 
 
 
 
 
 
 
 
 
3.25% 
Basis floor
 
 
 
 
 
 
 
 
 
 
 
1.50% 
Loss on extinguishment of debt, net
$ (49)
$ (30)
$ (110)
$ (73)
 
 
 
 
 
 
$ 50