Level 3 Communications Inc

LEVEL 3 COMMUNICATIONS INC FORM 10-K (Annual Report) Filed 3/2/2006 For Period Ending 12/31/2005 Address 1025 ELDORADO BOULEVARD BLDG 2000 BROOMFIELD, Colorado 80021 Telephone 720-888-1000 CIK 0000794323 Industry Communications Services Sector Services Fiscal Year 12/31 Use these links to rapidly review the document Table of Contents LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2005 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-15658 Level 3 Communications, Inc. (Exact name of Registrant as specified in its charter) Delaware 47-0210602 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1025 Eldorado Boulevard, Broomfield, Colorado 80021-8869 (Address of principal executive offices) (Zip code) (720) 888-1000 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /x/ Yes / / No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No As of June 30, 2005 the aggregate market value of common stock held by non-affiliates of the registrant approximated $670 million based upon the closing price of the common stock as reported on the Nasdaq National Market as of the close of business on that date. Shares of common stock held by each executive officer and director and by each entity that owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Title Outstanding Common Stock, par value $.01 per share 819,625,992 as of March 1, 2006 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). Portions of the Company's Definitive Proxy Statement for the 2005 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K Table of Contents Part I Item 1 Business Item 1A Risk Factors Item 1B Unresolved Staff Comments Item 2 Properties Item 3 Legal Proceedings Item 4 Submission of Matters to a Vote of Security Holders Part II Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6 Selected Financial Data Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation Item 7A Quantitative and Qualitative Disclosures About Market Risk Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A Controls and Procedures Item 9B Other Information Part III Item 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13 Certain Relationships and Related Transactions Item 14 Principal Accounting Fees and Services Part IV Item 15. Exhibits, Financial Statement Schedules Index to Consolidated Financial Statements i Unless the context otherwise requires, when we use the words "Level 3," "we," "us" or "our company" in this Form 10-K, we are referring to Level 3 Communications, Inc., a Delaware corporation, and its subsidiaries, unless it is clear from the context or expressly stated that these references are only to Level 3 Communications, Inc. References to our subsidiaries, in addition to our other subsidiaries, include WilTel Communications Group, LLC, a Nevada limited liability company and its subsidiaries, which we acquired on December 23, 2005. In this 10-K, we may refer to WilTel Communications Group, LLC and its subsidiaries as "WilTel" or "WilTel Communications" and Software Spectrum, Inc. and its subsidiaries as "Software Spectrum." The Level 3 logo and Level 3 are registered service marks of Level 3 Communications, Inc. in the United States and/or other countries. Media Plane ™ is a service mark of Software Spectrum, and we are applying for registration of that mark with the U.S. Patent and Trademark Office. All rights are reserved. This Form 10-K refers to trade names and trademarks of other companies. The mention of these trade names and trademarks in this Form 10-K is made with due recognition of the rights of these companies and without any intent to misappropriate those names or marks. All other trade names and trademarks appearing in this Form 10-K are the property of their respective owners. Cautionary Factors That May Affect Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995) This Form 10-K contains forward-looking statements and information that are based on the beliefs of our management as well as assumptions made by and information currently available to us. When we use the words "anticipate", "believe", "plan", "estimate" and "expect" and similar expressions in this Form 10-K, as they relate to us or our management, we are intending to identify forward-looking statements. These statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results may vary materially from those described in this document. These forward-looking statements include, among others, statements concerning: • our communications and information services business, its advantages and our strategy for continuing to pursue our business; • anticipated development and launch of new services in our business; • anticipated dates on which we will begin providing certain services or reach specific milestones in the development and implementation of our business strategy; • growth and recovery of the communications and information services industry; • expectations as to our future revenue, margins, expenses and capital requirements; and • other statements of expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These forward-looking statements are subject to risks and uncertainties, including financial, regulatory, environmental, industry growth and trend projections, that could cause actual events or results to differ materially from those expressed or implied by the statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to, our failure to: • increase the volume of traffic on our network; • develop new products and services that meet customer demands and generate acceptable margins; 1 • successfully complete commercial testing of new technology and information systems to support new products and services, including voice transmission services; • stabilize or reduce the rate of price compression on certain of our communications services; • integrate strategic acquisitions, including the recently completed acquisition of WilTel Communications; • attract and retain qualified management and other personnel; • meet all of the terms and conditions of our debt obligations; • overcome Software Spectrum's reliance on financial incentives, volume discounts and marketing funds from software publishers; and • reduce downward pressure on Software Spectrum's margins as a result of the use of volume licensing and maintenance agreements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Further disclosures that we make on related subjects in our additional filings with the SEC or Securities and Exchange Commission should be consulted. For further information regarding the risks and uncertainties that may affect our future results, please review the information set forth below under "ITEM 1A.

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