Level 3 Communications Inc

LEVEL 3 COMMUNICATIONS INC FORM 10-K (Annual Report) Filed 3/16/2005 For Period Ending 12/31/2004 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 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (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, 2004 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 of incorporation or organization) (I.R.S. Employer Identification No.) 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 (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. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 an accelerated filer (as defined in Rule 12b-2 of the Act). As of June 30, 2004 the aggregate market value of common stock held by non-affiliates of the registrant approximated $1.55 billion 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 688,776,596 as of March 2, 2005 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 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K Table of Contents Part 1 Item 1 Business 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 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 Cautionary Factors That May Affect Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995) This report contains forward looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to Level 3 Communications, Inc. and its subsidiaries ("Level 3" or the "Company"). When used in this report, the words "anticipate", "believe", "plans", "estimate" and "expect" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company 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, actual results may vary materially from those described in this document. These forward-looking statements include, among others, statements concerning: • the Company's communications and information services business, its advantages and the Company's strategy for continuing to pursue its business; • anticipated development and launch of new services in the communications portion of the Company's business; • anticipated dates on which the Company will begin providing certain services or reach specific milestones in the development and implementation of its business; • growth and recovery of the communications and information services industry; • expectations as to the Company's 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 Level 3 from achieving its stated goals include, but are not limited to, the Company's failure to: • develop new products and services that meet customer demands and generate acceptable margins; • increase the volume of traffic on Level 3's network; • overcome the softness in the economy given its disproportionate effect on the telecommunications industry; • integrate strategic acquisitions; • attract and retain qualified management and other personnel; • successfully complete commercial testing of new technology and information systems to support new products and services, including voice transmission services; • ability to meet all of the terms and conditions of the Company's debt obligations; • overcome Software Spectrum's reliance on financial incentives, volume discounts and marketing funds from software publishers; 1 • reduce downward pressure of Software Spectrum's margins as a result of the use of volume licensing and maintenance agreements; and • reduce rate of price compression on certain of the Companies existing transport and IP services. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Further disclosures that the Company makes on related subjects in its additional filings with the Securities and Exchange Commission should be consulted. For further information regarding the risks and uncertainties that may affect the Company's future results, please review the information set forth below under "Forward Looking Statements." ITEM 1. BUSINESS Level 3 Communications, Inc. through its operating subsidiaries, engages primarily in the communications and information services businesses. References to Level 3 or the Company refer to Level 3 Communications, Inc. and its subsidiaries unless the context requires otherwise. The Company 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 has created, generally by constructing its own assets, but also through a combination of purchasing and leasing facilities, the Level 3 network—an advanced, international, facilities based communications network. The Company has designed Level 3's network to provide communications services, which employ and leverage rapidly improving underlying optical and Internet Protocol technologies. Market and Technology Opportunity. The Company believes that ongoing technology advances in both Internet Protocol and optical technologies have been revolutionizing the communications industry. The Company also believes that these advances have, and will continue to, facilitate decreases in unit costs for communications service providers that are able

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