FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period__________to__________
Commission file number 0-15658
LEVEL 3 COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0210602
(State of Incorporation) (I.R.S. Employer
Identification No.)
1025 Eldorado Blvd., Broomfield, Colorado 80021
(Address of principal executive offices)
(720) 888-1000
(Registrant's telephone number,
including area code)
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(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each class of the issuer's common stock, as
of May 1, 2000
Common Stock 365,713,340 shares
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Operations
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Cash Flows
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statements of Comprehensive Loss
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
<PAGE>
<TABLE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
<S> <C> <C>
Three Months Ended
March 31,
(dollars in millions, except share data) 2000 1999
- -----------------------------------------------------------------
Revenue $ 177 $ 102
Costs and Expenses:
Cost of revenue 130 62
Depreciation and amortization 88 41
Selling, general and administrative 236 125
------ ------
Total costs and expenses 454 228
------ ------
Loss from Operations (277) (126)
Other Income (Expense):
Interest income 64 50
Interest expense, net (50) (53)
Equity in losses of unconsolidated subsidiaries,net (55) (25)
Gain on equity investee stock transactions 38 -
Other, net - 2
------ ------
Total other expense (3) (26)
------ ------
Loss Before Income Taxes (280) (152)
Income Tax Benefit 9 47
------- ------
Net Loss $ (271) $ (105)
======= =======
Net Loss Per Share (Basic and Diluted) $ (.77) $ (.33)
======== =======
Total Number of Weighted Average Shares
Outstanding Used to Compute Basic and Diluted
Loss Per Share (in thousands) 350,285 316,288
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
<TABLE>
<S> <C> <C>
March 31, December 31,
(dollars in millions, except share data) 2000 1999
- ----------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 2,527 $ 1,214
Marketable securities 5,153 2,227
Restricted securities 51 51
Accounts receivable, less allowances
of $11 and $9, respectively 302 148
Income taxes receivable 9 241
Other 69 55
------ ------
Total Current Assets 8,111 3,936
Property, Plant and Equipment, net 5,453 4,287
Investments 286 300
Other Assets, net 514 381
------ ------
$ 14,364 $ 8,904
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
<TABLE>
<S> <C> <C>
March 31, December 31,
(dollars in millions, except share data) 2000 1999
- -------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 963 $ 830
Current portion of long-term debt 6 6
Accrued payroll and employee benefits 53 43
Accrued interest 109 47
Deferred revenue 156 111
Other 105 88
------ ------
Total Current Liabilities 1,392 1,125
Long-Term Debt, less current portion 7,047 3,989
Deferred Income Taxes 68 68
Accrued Reclamation Costs 100 99
Other Liabilities 186 218
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.01 par value,
authorized 10,000,000 shares;
no shares outstanding in 2000 and 1999 - -
Common Stock:
Common Stock, $.01 par value, authorized
1,500,000,000 shares; 365,296,239 shares
outstanding in 2000 and 341,396,727
outstanding in 1999 4 3
Class R, $.01 par value, authorized
8,500,000 shares; no shares outstanding in
2000 and 1999 - -
Additional paid-in capital 4,959 2,501
Accumulated other comprehensive loss (27) (5)
Retained earnings 635 906
-------- --------
Total Stockholders' Equity 5,571 3,405
-------- --------
$ 14,364 $ 8,904
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
(dollars in millions) 2000 1999
- ------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net cash provided by operating activities $ 151 $ 55
Cash Flows from Investing Activities:
Proceeds from sales and maturities
of marketable securities 1,490 518
Purchases of marketable securities (4,396) (1,652)
Capital expenditures (1,286) (407)
Investments (3) (2)
Proceeds from sale of property, plant
and equipment and other assets - 5
Other (2) 2
---------- ----------
Net cash used in investing activities (4,197) (1,536)
Cash Flows from Financing Activities:
Payments on long-term debt including
current portion (2) (3)
Long-term debt borrowings,net 2,956 -
Issuances of common stock,net 2,407 1,496
Proceeds from exercise of stock options 6 8
Net cash provided by financing activities 5,367 1,501
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (8) -
---------- -----------
Net Increase in Cash and Cash Equivalents 1,313 20
Cash and Cash Equivalents at Beginning of Year 1,214 842
------- --------
Cash and Cash Equivalents at End of Period $ 2,527 $ 862
======= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 2000
(unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Accumulated
Additional Other
Common Paid-in Comprehensive Retained
(dollars in millions) Stock Capital Loss Earnings Total
- -----------------------------------------------------------------------------
Balance at
December 31, 1999 $ 3 $ 2,501 $ (5) $ 906 $ 3,405
Issuances, net 1 2,406 - - 2,407
Stock options exercised - 6 - - 6
Stock option grants - 46 - - 46
Net Loss - - - (271) (271)
Other Comprehensive Loss - - (22) - (22)
---------- ----------- --------- ----------- ---------
Balance at
March 31, 2000 $ 4 $ 4,959 $ (27) $ 635 $ 5,571
====== ======= ========= ======== =======
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
(dollars in millions) 2000 1999
- -------------------------------------------------------------------
Net Loss $ (271) $ (105)
Other Comprehensive Loss, before tax:
Foreign currency translation adjustments (19) (2)
Unrealized holding loss arising during period (3) (3)
Reclassification adjustment for gains included
in net loss - 2
---------- ---------
Other Comprehensive Loss, before tax (22) (3)
Income Tax Benefit Related to Items of Other
Comprehensive Loss - 1
---------- ---------
Other Comprehensive Loss, net of tax (22) (2)
-------- ---------
Comprehensive Loss $ (293) $ (107)
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated condensed financial statements include the accounts of Level 3
Communications, Inc. and subsidiaries (the "Company" or "Level 3") in which it
has control, which are engaged in enterprises primarily related to
communications and information services, and coal mining. Fifty-percent-owned
mining joint ventures are consolidated on a pro rata basis. Investments in other
companies in which the Company exercises significant influence over operating
and financial policies are accounted for by the equity method. All significant
intercompany accounts and transactions have been eliminated.
The consolidated condensed balance sheet of Level 3 Communications, Inc. and
subsidiaries at December 31, 1999, has been condensed from the Company's audited
balance sheet as of that date. All other financial statements contained herein
are unaudited and, in the opinion of management, contain all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of financial position, results of operations and cash flows for the periods
presented. The Company's accounting policies and certain other disclosures are
set forth in the notes to the consolidated financial statements contained in the
Company's Annual Report on Form 10-K, for the year ended December 31, 1999 as
amended by the Company's Annual Report on Form 10-K/A-1. These financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto. The preparation of the consolidated
condensed financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amount of revenue and expenses during the reported
period. Actual results could differ from these estimates.
The Company has embarked on a plan to become a facilities-based provider (that
is, a provider that owns or leases a substantial portion of the property, plant
and equipment necessary to provide its services) of a broad range of integrated
communications services in the United States, Europe and Asia. To reach this
goal, the Company is expanding substantially the business of its PKS Information
Services, Inc. subsidiary and creating, through a combination of construction,
purchase and leasing of facilities and other assets, an advanced international,
end-to-end, facilities-based communications network (the "Business Plan"). The
Company is building the network based on Internet Protocol technology in order
to leverage the efficiencies of this technology to provide lower cost
communications services.
The Company expects taxable losses for fiscal 2000 to exceed available taxable
income in the carryback period. For fiscal 2000, Level 3 will recognize a
portion of the expected annual benefit in each period equal to the ratio
of pre-tax loss for the period divided by the total estimated annual loss for
the year.
The results of operations for the three months ended March 31, 2000, are not
necessarily indicative of the results expected for the full year.
Where appropriate, items within the consolidated condensed financial statements
have been reclassified from the previous periods to conform to current period
presentation.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
2. Loss Per Share
Basic loss per share amounts have been computed using the weighted average
number of shares during each period. The Company had a net loss for the three
month periods ended March 31, 2000 and 1999. Therefore, the dilutive impact of
the approximate 19 million shares attributable to the convertible subordinated
notes issued in September 1999, and February 2000 (Note 6), and the approximate
21 million options and warrants outstanding at March 31, 2000 and approximate 22
million options and warrants outstanding at March 31, 1999, have not been
included in the computation of diluted loss per share because the resulting
computation would have been anti-dilutive.
3. Property, Plant and Equipment, net
Construction-in-Progress
The Company is currently constructing its communications network. Costs
associated directly with the uncompleted network and interest expense incurred
during construction are capitalized based on the weighted average accumulated
construction expenditures and the interest rates related to borrowings
associated with the construction (Note 6). Certain intercity segments, gateway
facilities, local networks and operating equipment have been placed in service.
These assets are being depreciated over their useful lives, primarily ranging
from 3-25 years. As other segments are placed in service, the assets will be
depreciated over their useful lives.
The Company is currently developing business support systems required for its
Business Plan. The external direct costs of software, materials and services,
payroll and payroll related expenses for employees directly associated with such
projects and interest costs incurred when developing the business support
systems are capitalized. Upon completion of the projects, the total cost of the
business support systems are amortized over their useful lives of 3 years.
For the three months ended March 31, 2000, the Company invested $1,220 million
in its communications business, including $586 million on the U.S. intercity
network, $122 million on the Pan European intercity network, $88 million on
transoceanic networks, $193 million on U.S. gateway facilities and local
networks, and $71 million on European gateway facilities and local networks.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
Capitalized business support systems and network construction costs that have
not been placed in service have been classified as construction-in-progress
within Property, Plant and Equipment below.
<TABLE>
<S> <C> <C> <C>
Accumulated Book
(dollars in millions) Cost Depreciation Value
- -------------------------------------------------------------------------
March 31, 2000
Land and Mineral Properties $ 61 $ (11) $ 50
Facility and Leasehold Improvements
Communications 511 (18) 493
Information Services 26 (3) 23
Coal Mining 73 (64) 9
CPTC 92 (10) 82
Operating Equipment:
Communications 934 (137) 797
Information Services 52 (36) 16
Coal Mining 109 (98) 11
CPTC 17 (7) 10
Network Construction Equipment 108 (13) 95
Furniture and Office Equipment 201 (79) 122
Other 141 (31) 110
Construction-in-Progress 3,635 - 3,635
------- -------- -------
$ 5,960 $ (507) $ 5,453
December 31, 1999
Land and Mineral Properties $ 60 $ (15) $ 45
Facility and Leasehold Improvements:
Communications 400 (14) 386
Information Services 26 (3) 23
Coal Mining 73 (64) 9
CPTC 92 (9) 83
Operating Equipment:
Communications 686 (83) 603
Information Services 54 (37) 17
Coal Mining 115 (103) 12
CPTC 17 (7) 10
Network Construction Equipment 98 (10) 88
Furniture and Office Equipment 150 (66) 84
Other 155 (28) 127
Construction-in-Progress 2,800 - 2,800
------- -------- -------
$ 4,726 $ (439) $ 4,287
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
4. Investments
The Company holds significant equity positions in two publicly traded companies;
RCN Corporation ("RCN") and Commonwealth Telephone Enterprises, Inc.
("Commonwealth Telephone"). RCN is a facilities-based provider of bundled local
and long distance phone, cable television and Internet services to residential
markets primarily on the East and West coasts as well as Chicago.
Commonwealth Telephone holds Commonwealth Telephone Company, an incumbent local
exchange carrier operating in various rural Pennsylvania markets, and CTSI,
Inc., a competitive local exchange carrier which commenced operations in 1997.
On March 31, 2000, Level 3 owned approximately 33% and 48% of the outstanding
shares of RCN and Commonwealth Telephone, respectively, and accounts for each
entity using the equity method. The market value of the Company's investment in
RCN and Commonwealth Telephone was $1,435 million and $500 million,
respectively, on March 31, 2000. Due to a decrease in RCN's stock price, the
market value of the Company's investment in RCN was $738 million as of May 1,
2000. The market value of the Company's investment in Commonwealth Telephone was
$515 million as of May 1, 2000.
The Company recognizes gains from the sale, issuance and repurchase of stock by
its subsidiaries and equity method investees in its statements of operations.
During 2000, RCN issued stock for certain transactions which diluted the
Company's ownership of RCN from 35% at December 31, 1999 to 33% at March 31,
2000. The increase in the Company's proportionate share of RCN's net assets as a
result of these transactions resulted in a pre-tax gain of $38 million. The
Company did not recognize any gains for the three months ended March 31, 1999.
The Company's investment in RCN, including goodwill, was $148 million and $166
million at March 31, 2000 and December 31, 1999, respectively.
In October 1999, RCN announced that Vulcan Ventures, Inc. had agreed to invest
$1.65 billion in RCN. The investment, which closed on February 28, 2000, is in
the form of mandatorily convertible preferred stock convertible into 26.6
million shares of RCN common stock. The preferred shares must be converted to
common shares within a three to seven year period at $62 per share.
In December 1999, RCN announced that it was acquiring 21st Century Telecom
Group, Inc. ("21st Century") in a transaction valued at approximately $500
million, payable in RCN stock and assumed debt. The acquisition was completed on
April 28, 2000. RCN issued approximately 6.5 million shares for this
transaction.
Level 3, based on current market conditions, expects to recognize significant
gains when Vulcan Ventures, Inc. converts its RCN preferred stock to RCN common
stock and in the second quarter of 2000 when the 21st Century transaction
closed.
The Company's investment in Commonwealth Telephone, including goodwill, was $127
million and $126 million at March 31, 2000 and December 31, 1999, respectively.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
The following is summarized financial information of RCN for the three months
ended March 31, 2000 and 1999, and as of March 31, 2000 and December 31, 1999.
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
-----------------
Operations 2000 1999
- ---------------------------------------------------------------------
RCN Corporation:
Revenue $ 71 $ 67
Net loss available to common stockholders (154) (68)
Level 3's share:
Net loss (56) (27)
Goodwill amortization - -
-------- ---------
Equity in net loss $ (56) $ (27)
========= =========
- -----------------------------------------------------------------------
Financial Position 2000 1999
- ----------------------------------------------------------------------
Current Assets $ 3,273 $ 1,905
Other Assets 1,485 1,287
------- -------
Total assets 4,758 3,192
Current Liabilities 229 249
Other Liabilities 2,193 2,168
Minority Interest 95 130
Preferred Stock 1,883 253
------- --------
Total liabilities and preferred stock 4,400 2,800
------- -------
Common equity $ 358 $ 392
======== ========
Level 3's Investment:
Equity in net assets $ 123 $ 139
Goodwill 25 27
--------- ---------
$ 148 $ 166
======== ========
</TABLE>
In July 1999, the Company and Data Return Corporation ("Data Return") entered
into an agreement whereby Data Return would purchase $5 million of capacity from
the Company by December 31, 2001. In lieu of cash, the Company agreed to accept,
at the time, approximately 1.9 million shares of Data Return restricted common
stock as payment for services to be provided. The Company recorded the
transaction as an investment and deferred revenue at the value of the services
to be provided. In October 1999, Data Return conducted an initial public
offering. The market value of the Company's investment in Data Return at March
31, 2000 was approximately $72 million. The Company, however, cannot reflect the
fair value of the Data Return investment in its financial statements until it
provides the services to Data Return or certain restrictions expire in 2001. Due
to a decline in Data Return's stock price, the market value of the Company's
investment in Data Return was $58 million at May 1, 2000.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
5. Other Assets, net
At March 31, 2000 and December 31, 1999 other assets consisted of the following:
<TABLE>
<S> <C> <C>
(in millions) 2000 1999
- -------------------------------------------------------------------------
Goodwill:
XCOM, net of accumulated amortization
of $43 and $37 $ 69 $ 75
GeoNet, net of accumulated amortization
of $7 and $5 15 17
BusinessNet, net of accumulated amortization
of $4 and $4 12 12
Other, net of accumulated amortization
of $8 and $6 12 14
Prepaid Network Assets 55 30
Deposits 113 64
Debt Issuance Costs,net 172 101
Pavilion Towers Office Complex 23 23
CPTC Deferred Development and Financing Costs 14 15
Unrecovered Mine Development Costs 14 14
Other 15 16
--------- ---------
Total other assets $ 514 $ 381
======== ========
Goodwill amortization expense, excluding amortization expense attributable to
equity method investees, was $10 million for the three months ended March 31,
2000 and 1999.
6. Long-Term Debt
At March 31, 2000 and December 31, 1999, long-term debt was as follows:
(in millions) 2000 1999
- ------------------------------------------------------------------------
Senior Notes (9.125% due 2008) $ 2,000 $ 2,000
Senior Notes (11% due 2008) 800 -
Senior Discount Notes (10.5% due 2008) 573 559
Senior Euro Notes (10.75% due 2008) 480 -
Senior Discount Notes (12.875% due 2010) 364 -
Senior Euro Notes(11.25% due 2010) 288 -
Senior Secured Credit Facility:
Term Loan Facility:
Tranche A (8.75% due 2007) 200 200
Tranche B (9.50% due 2008) 275 275
Senior Notes (11.25% due 2010) 250 -
Convertible Subordinated Notes (6.0% due 2010) 863 -
Convertible Subordinated Notes (6.0% due 2009) 823 823
CPTC Long-Term Debt (with recourse only to CPTC)
(7.6%-9.5% due 2004-2017) 114 115
Other 23 23
--------- ---------
7,053 3,995
Less current portion (6) (6)
--------- ---------
$ 7,047 $ 3,989
========= =========
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
11% Senior Notes due 2008
On February 29, 2000, the Company received $779 million of net proceeds, after
transaction costs, from a private offering of $800 million aggregate principal
amount of its 11% Senior Notes due 2008 ("11% Senior Notes"). Interest on the
notes accrues at 11% per year and is payable semi-annually in arrears on March
15 and September 15 in cash beginning September 15, 2000. The 11% Senior Notes
are senior, unsecured obligations of the Company, ranking pari passu with all
existing and future senior debt. The 11% Senior Notes cannot be prepaid, and
mature on March 15, 2008. The 11% Senior Notes contain certain covenants, which
among other things, limit additional indebtedness, dividend payments, certain
investments and transactions with affiliates.
Debt issue costs of $21 million were capitalized and are being amortized as
interest expense over the term of the 11% Senior Notes.
10.75% Senior Euro Notes due 2008
On February 29, 2000, the Company received(Euro)488 million ($478 million when
issued) of net proceeds, after debt issuance costs, from an offering of(Euro)500
million aggregate principal amount 10.75% Senior Euro Notes due 2008 ("10.75%
Senior Euro Notes"). Interest on the notes accrues at 10.75% per year and is
payable in Euros semi-annually in arrears on March 15 and September 15 each year
in cash beginning on September 15, 2000. The 10.75% Senior Euro Notes are not
redeemable by the Company prior to maturity. Debt costs of (Euro)12 million
($12 million) were capitalized and are being amortized over the term of the
10.75% Senior Euro Notes.
The 10.75% Senior Euro Notes are senior, unsecured obligations of the Company,
ranking pari passu with all existing and future senior debt. The 10.75% Senior
Euro Notes contain certain covenants, which among other things, limit additional
indebtedness, dividend payments, certain investments and transactions with
affiliates.
The issuance of the (Euro)500 million Senior Euro Notes has been designated as,
and is effective as, an economic hedge against the investment in certain of the
Company's foreign subsidiaries. Therefore, foreign currency gains and losses
resulting from the translation of the debt have been recorded in other
comprehensive income (loss) to the extent of translation gains or losses on such
investment. The 10.75% Senior Euro Notes were valued, based on current exchange
rates, at $480 million in the Company's financial statements at March 31, 2000.
12.875% Senior Discount Notes due 2010
On February 29, 2000, the Company sold in a private offering $675 million
aggregate principal amount at maturity of its 12.875% Senior Discount Notes due
2010 ("12.875% Senior Discount Notes"). The sale proceeds of $360 million,
excluding debt issuance costs, were recorded as long term debt. Interest on the
12.875% Senior Discount Notes accretes at a rate of 12.875% per year, compounded
semi-annually, to an aggregate principal amount of $675 million by March 15,
2005. Cash interest will not accrue on the 12.875% Senior Discount Notes prior
to March 15, 2005. However, the Company may elect to commence the accrual of
cash interest on all outstanding 12.875% Senior Discount Notes on or after March
15, 2003. In which case, the outstanding principal amount at maturity of each
12.875% Senior Discount Note will on the elected commencement date be reduced to
the accreted value of the 12.875% Senior Discount Note as of that date and cash
interest shall be payable on the 12.875% Senior Discount Notes on March 15 and
September 15 thereafter. Commencing September 15, 2005, interest on the 12.875%
Senior Discount Notes will accrue at the rate of 12.875% per year and will be
payable in cash semi-annually in arrears. Accrued interest expense for the three
months ended March 31, 2000 on the 12.875% Senior Discount Notes of $4 million
was added to long-term debt.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
The 12.875% Senior Discount Notes are subject to redemption at the option of the
Company, in whole or in part, at any time or from time to time on or after March
15, 2005. The Company may redeem the 12.875% Senior Discount Notes at the
redemption prices set forth below, plus accrued and unpaid interest, if any, to
the redemption date. The following prices are for 12.875% Senior Discount Notes
redeemed during the 12-month period commencing on March 15 of the years set
forth below:
<TABLE>
<S> <C> <C>
Year Redemption Price
2005 106.438%
2006 104.292%
2007 102.146%
2008 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time, prior to March 15, 2003, the
Company may redeem up to a maximum of 35% of the aggregate principal amount at
maturity of the 12.875% Senior Discount Notes with the proceeds of one or more
private placements to persons other than affiliates of the Company or
underwritten public offerings of common stock of the Company resulting in gross
proceeds of at least $100 million in the aggregate. The Company may redeem the
12.875% Senior Discount Notes at a redemption price equal to 112.875% of the
accreted value of the notes plus accrued interest, if any, to the redemption
date.
The 12.875% Senior Discount Notes are senior, unsecured obligations of the
Company, ranking pari passu with all existing and future senior debt. The
12.875% Senior Discount Notes contain certain covenants, which among other
things, limit additional indebtedness, dividend payments, certain investments
and transactions with affiliates.
Debt issuance costs of $9 million were capitalized and are being amortized as
interest expense over the term of the 12.875% Senior Discount Notes.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
11.25% Senior Euro Notes due 2010
On February 29, 2000, the Company received (Euro)293 million ($285 million
when issued) of net proceeds, after debt issuance costs, from an offering of
(Euro)300 million aggregate principal amount 11.25% Senior Euro Notes due
2010 ("11.25% Senior Euro Notes"). Interest on the notes accrues at 11.25%
per year and is payable semi-annually in arrears on March 15 and September 15
each year in cash beginning September 15, 2000.
The 11.25% Senior Euro Notes are subject to redemption at the option of the
Company, in whole or in part, at any time or from time to time on or after March
15, 2005. The 11.25% Senior Euro Notes may be redeemed at the redemption prices
set forth below, plus accrued and unpaid interest, if any, to the redemption
date. The following prices are for 11.25% Senior Euro Notes redeemed during the
12-month period commencing on March 15 of the years set forth below, and are
expressed as percentages of principal amount.
<TABLE>
<S> <C> <C>
Year Redemption Price
2005 105.625%
2006 103.750%
2007 101.875%
2008 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time, prior to March 15, 2003, the
Company may redeem up to a maximum of 35% of the original aggregate principal
amount of the 11.25% Senior Euro Notes. The Notes may be redeemed at a
redemption price equal to 111.25% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the redemption date. The redemption must
be made with the proceeds of one or more private placements to persons other
than affiliates of the Company or underwritten public offerings of common stock
of the Company resulting in gross proceeds of at least $100 million in the
aggregate.
Debt issuance costs of (Euro)7 million ($7 million) were capitalized and are
being amortized over the term of the 11.25% Senior Euro Notes. The 11.25% Senior
Euro Notes are senior, unsecured obligations of the Company, ranking pari passu
with all existing and future senior debt. The 11.25% Senior Euro Notes contain
certain covenants, which among other things, limit additional indebtedness,
dividend payments, certain investments and transactions with affiliates.
The issuance of the (Euro)300 million Senior Euro Notes has been designated as,
and is effective as, an economic hedge against the investment in certain of the
Company's foreign subsidiaries. Therefore, foreign currency gains and losses
resulting from the translation of the debt have been recorded in other
comprehensive income (loss) to the extent of translation gains or losses on such
net investment. The 11.25% Senior Euro Notes were valued, based on current
exchange rates, at $288 million in the Company's financial statements at March
31, 2000.
11.25% Senior Notes due 2010
On February 29, 2000, the Company received $243 million of net proceeds, after
transaction costs, from a private offering of $250 million aggregate principal
amount of its 11.25% Senior Notes due 2010 ("11.25% Senior Notes"). Interest on
the notes accrues at 11.25% per year and is payable semi-annually in arrears on
March 15 and September 15 in cash beginning September 15, 2000.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
The 11.25% Senior Notes are subject to redemption at the option of the Company,
in whole or in part, at any time or from time to time on or after March 15,
2005. The Company may redeem the 11.25% Senior Notes at the redemption prices
set forth below, plus accrued and unpaid interest, if any, to the redemption
date. The following prices are for 11.25% Senior Notes redeemed during the
12-month period commencing on March 15 of the years set forth below:
<TABLE>
<S> <C> <C>
Year Redemption Price
2005 105.625%
2006 103.750%
2007 101.875%
2008 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time, prior to March 15, 2003, the
Company may redeem up to a maximum of 35% of the original aggregate principal
amount of the 11.25% Senior Notes. The redemption must be made with the proceeds
of one or more private placements to persons other than affiliates of the
Company or underwritten public offerings of common stock of the Company
resulting in gross proceeds of at least $100 million in the aggregate. The
Company may redeem the 11.25% Senior Notes at a redemption price equal to
111.25% of the principal amount of the notes plus accrued interest, if any, to
the redemption date.
The 11.25% Senior Notes are senior, unsecured obligations of the Company,
ranking pari passu with all existing and future senior debt. The 11.25% Senior
Notes contain certain covenants, which among other things, limit additional
indebtedness, dividend payments, certain investments and transactions with
affiliates.
Debt issuance costs of $7 million were capitalized and are being amortized as
interest expense over the term of the 11.25% Senior Notes.
6% Convertible Subordinated Notes due 2010
On February 29, 2000, the Company received $836 million of net proceeds, after
transaction costs, from a public offering of $863 million aggregate principal
amount of its 6% Convertible Subordinated Notes due 2010 ("Subordinated Notes").
The Subordinated Notes are unsecured and subordinated to all existing and future
senior indebtedness of the Company. Interest on the Subordinated Notes accrues
at 6% per year and is payable semi-annually in cash on March 15 and September 15
beginning September 15, 2000. The principal amount of the Subordinated Notes
will be due on March 15, 2010.
The Subordinated Notes may be converted into shares of common stock of the
Company at any time prior to the close of business on the business day
immediately preceding maturity, unless previously redeemed, repurchased or the
Company has caused the conversion rights to expire. The conversion rate is 7.416
shares per each $1,000 principal amount of Subordinated Notes, subject to
adjustment in certain events.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
Prior to March 18, 2003 Level 3, at its option, may redeem the notes, in whole
or in part, at the redemption prices specified below plus accrued interest.
Level 3 may exercise this option if the current market price of Level 3's common
stock equals or exceeds triggering levels specified below for at least 20
trading days within any period of 30 consecutive trading days, including the
last trading day of the period.
<TABLE>
<S> <C> <C>
Trigger Redemption
Percentage Price
Period
February 29, 2000 through March 14, 2001 170% ($229.23) 106.0%
March 15, 2001 through March 14, 2002 160% ($215.74) 105.4%
March 15, 2002 through March 17, 2003 150% ($202.26) 104.8%
</TABLE>
On or after March 18, 2003, Level 3, at its option, may cause the conversion
rights to expire. Level 3 may exercise this option only if the current market
price exceeds approximately $188.78 (which represents 140% of the conversion
price) for at least 20 trading days within any period of 30 consecutive trading
days, including the last trading day of that period. At March 31, 2000, no debt
had been converted into shares of common stock.
Debt issue costs of $27 million were capitalized and are being amortized as
interest expense over the term of the Subordinated Notes.
Level 3 currently is using the proceeds from the debt issuances for working
capital, capital expenditures and other general corporate purposes in connection
with the implementation of its business plan, including the acquisition of
telecommunications assets.
The Company capitalized $67 million and $11 million of interest expense and
amortized debt issuance costs related to network construction and business
systems development projects for the three months ended March 31, 2000 and 1999,
respectively.
7. Employee Benefit Plans
The Company adopted the recognition provisions of SFAS No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123") in 1998. Under SFAS No. 123, the fair
value of an option (as computed in accordance with accepted option valuation
models) on the date of grant is amortized over the vesting periods of the
options in accordance with FASB Interpretation No. 28 "Accounting For Stock
Appreciation Rights and Other Variable Stock Option or Award Plans" ("FIN 28").
The recognition provisions of SFAS No. 123 are applied prospectively upon
adoption. As a result, the recognition provisions are applied to all stock
awards granted in the year of adoption and are not applied to awards granted in
previous years unless those awards are modified or settled in cash after
adoption of the recognition provisions. Although the recognition of the value of
the instruments results in compensation or professional expenses in an entity's
financial statements, the expense differs from other compensation and
professional expenses in that these charges may not be settled in cash, but
rather, generally, are settled through issuance of common stock.
The Company believes that SFAS No. 123 will continue to result in material
non-cash charges to operations in 2000 and thereafter. The amount of the
non-cash charges will be dependent upon a number of factors, including the
number of grants and the fair value of each grant estimated at the time of its
award.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
The Company recognized a total of $48 million and $18 million of non-cash
compensation for the three months ended March 31, 2000 and 1999, respectively.
In addition, the Company capitalized $3 million and $2 million of non-cash
compensation for those employees directly involved in the construction of the
network or development of the business support systems for the three months
ended March 31, 2000 and 1999, respectively.
Non-Qualified Stock Options and Warrants
The Company did not grant any nonqualified stock options ("NQSO") or warrants to
employees during the three months ended March 31, 2000. The expense recognized
for the three months ended March 31, 2000 for NQSOs and warrants outstanding at
March 31, 2000 in accordance with SFAS No. 123 was $1 million. In addition to
the expense recognized, the Company capitalized less than $1 million of non-cash
compensation costs related to NQSOs and warrants for employees directly involved
in the construction of the network and the development of the business support
systems. As of March 31, 2000, the Company had not reflected $4 million of
unamortized compensation expense in its financial statements for NQSOs and
warrants granted from 1998 to 1999. The Company recognized $3 million of expense
for the three months ended March 31, 1999 for NQSOs and warrants granted in 1998
and 1999. In addition to the expense recognized, the Company capitalized less
than $1 million of non-cash compensation costs for the three months ended March
31, 1999.
Outperform Stock Option Plan
In April 1998, the Company adopted an outperform stock option ("OSO") program
that was designed so that the Company's stockholders would receive a market
return on their investment before OSO holders receive any return on their
options. The Company believes that the OSO program aligns directly management's
and stockholders' interests by basing stock option value on the Company's
ability to outperform the market in general, as measured by the Standard &
Poor's ("S&P") 500 Index. Participants in the OSO program do not realize any
value from awards unless the Common Stock price outperforms the S&P 500 index.
When the stock price gain is greater than the corresponding gain on the S&P 500
Index, the value received for awards under the OSO plan is based on a formula
involving a multiplier related to the level by which the Common Stock
outperforms the S&P 500 Index. To the extent that the Common Stock outperforms
the S&P 500, the value of OSOs to a holder may exceed the value of non-qualified
stock options.
OSO grants are made quarterly to participants employed on the date of the grant.
Each award vests in equal quarterly installments over two years and has a
four-year life. Each award has a two-year moratorium on exercise from the date
of grant. As a result, once a participant is 100% vested in the grant, the
two-year moratorium expires. Therefore, each grant has an exercise window of two
years.
The fair value recognized under SFAS No. 123 for the approximately 530,000 OSOs
granted to employees for services performed for the three months ended March 31,
2000 was approximately $58 million. The Company recognized $42 million of
compensation expense in the first quarter of 2000 for OSOs granted from 1998 to
2000. In addition to the expense recognized, $2 million of non-cash compensation
was capitalized for the three months ended March 31, 2000 for employees directly
involved in the construction of the network and development of business support
systems. As of March 31, 2000, the Company had not reflected $180 million of
unamortized compensation expense in its financial statements for OSOs granted
from 1998 to 2000. The Company recognized $14 million of expense for the three
months ended March 31, 1999 for OSOs outstanding at March 31, 1999. In addition
to the expense recognized the Company capitalized $1 million of non-cash
compensation for the three months ended March 31, 1999.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
Shareworks and Restricted Stock
The Company recorded $5 million of non-cash compensation expense for the quarter
ended March 31, 2000 related to the Shareworks and restricted stock programs. In
addition to the expense recognized, less than $1 million of non-cash
compensation was capitalized for the three months ended March 31, 2000 for
employees directly involved in the construction of the network and development
of business support systems. The non-cash compensation expense for the
Shareworks and restricted stock programs was $1 million for the quarter ended
March 31, 1999.
Foreign subsidiaries of the Company adopted Shareworks programs in the first
quarter of 2000. Foreign subsidiaries of PKS Systems Integration adopted
Shareworks Grant Plans enabling the Company to grant shares of Level 3 common
stock to eligible employees based upon a percentage of that employee's eligible
salary up to a maximum of 3%. The annual grant is expensed in the year of the
grant. Less than $1 million was recorded in the first quarter of 2000 related to
the plans. In addition, the PKS Systems Integration subsidiaries adopted a plan
whereby eligible employees may defer up to 7% of their eligible compensation to
purchase Level 3 common stock at the share price at the end of the quarter.
In addition, European subsidiaries of the communications segment adopted
Shareworks Grant Plans in the first quarter of 2000 enabling the Company to
grant shares of Level 3 common stock to eligible employees based upon a
percentage of that employee's eligible salary up to a maximum of 5%.
Approximately $3 million was recorded in the first quarter of 2000 related to
the European subsidiaries' Grant Plans.
As of March 31, 2000, the Company had unamortized compensation costs reflected
on the consolidated condensed balance sheet of $12 million for Shareworks and
restricted stock granted from 1998 to 2000.
8. Stockholders' Equity
On February 29, 2000, the Company raised $2.4 billion, after underwriting
discounts and offering expenses, from the offering of 23 million shares of its
common stock through an underwritten public offering. In March 1999 the Company
raised $1.5 billion, after underwriting discounts and offering expenses, from
the offering of 28.75 million shares of its common stock through an underwritten
public offering. The net proceeds from both offerings will be used for working
capital, capital expenditures, acquisitions and other general corporate purposes
in connection with the implementation of the Company's Business Plan.
9. Industry Data
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders.
Operating segments are 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. Operating segments are managed separately and
represent strategic business units that offer different products and serve
different markets.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
The Company's reportable segments include: communications and information
services (including communications, outsourcing and applications segments), and
coal mining. Other primarily includes California Private Transportation Company
L.P. ("CPTC"), a privately owned tollroad in southern California, equity
investments and other corporate assets and overhead not attributable to a
specific segment.
EBITDA, as defined by the Company, consists of earnings (loss) before interest,
income taxes, depreciation, amortization, non-cash operating expenses (including
stock-based compensation and in-process research and development charges) and
other non-operating income or expense. The Company excludes noncash compensation
due to its adoption of the expense recognition provisions of SFAS No. 123.
EBITDA is commonly used in the communications industry to analyze companies on
the basis of operating performance. EBITDA is not intended to represent cash
flow for the periods and is not GAAP.
The information presented in the tables below includes information for the three
months ended March 31, 2000 and 1999 for all income statement and cash flow
information presented, and for the three months ended March 31, 2000 and 1999
for all income statement and cash flow information presented and as of March 31,
2000 and December 31, 1999 for all balance sheet information presented. Revenue
and the related expenses are attributed to foreign countries based on where
services are provided.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Communications & Information Services
----------------------------------------- Coal
(in millions) Communications Outsourcing Applications Mining Other Total
- ------------------------------------------------------------------------------
2000
- ----
Revenue:
North
America $ 84 $ 14 $ 10 $ 48 $ 6 $ 162
Europe 13 - 2 - - 15
Other - - - - - -
-------- -------- -------- -------- ------ -------
Total $ 97 $ 14 $ 12 $ 48 $ 6 $ 177
======== ======== ======== ======== ====== =======
EBITDA:
North
America $ (131) $ (1) $ 3 $ 22 $ 2 $ (105)
Europe (31) - - - - (31)
Other (5) - - - - (5)
-------- -------- -------- ------- ------ -------
Total $ (167) $ (1) $ 3 $ 22 $ 2 $ (141)
======== ======== ======== ======= ====== =======
Capital Expenditures:
North
America $ 904 $ 1 $ - $ - $ 65 $ 970
Europe 289 - - - - 289
Other 27 - - - - 27
------- ------- ------- ------ ------ -------
Total $1,220 $ 1 $ - $ - $ 65 $ 1,286
======= ======= ======= ====== ====== =======
Depreciation and Amortization:
North
America $ 71 $ 2 $ 1 $ 1 $ 2 $ 77
Europe 11 - - - - 11
Other - - - - - -
------- ------- ------ ------ ------ -------
Total $ 82 $ 2 $ 1 $ 1 $ 2 $ 88
======= ======= ====== ====== ====== =======
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Communications & Information Services Coal
(in millions) Communications Outsourcing Applications Mining Other Total
- ------------------------------------------------------------------------------
1999
- ----
Revenue:
North
America $ 13 $ 16 $ 14 $ 51 $ 5 $ 99
Europe 2 - 1 - - 3
Other - - - - - -
--------- -------- -------- ------ ----- -----
Total $ 15 $ 16 $ 15 $ 51 $ 5 $ 102
========= ======== ======== ====== ===== =======
EBITDA:
North
America $ (82) $ 4 $ (3) $ 20 $ 3 $ (58)
Europe (9) - - - - (9)
Other - - - - - -
--------- -------- -------- ------ ----- --------
Total $ (91) $ 4 $ (3) $ 20 $ 3 $ (67)
========= ======== ======== ====== ===== ========
Capital Expenditures:
North
America $ 299 $ 3 $ - $ - $ 30 $ 332
Europe 60 - - - - 60
Other 15 - - - - 15
--------- ------- ------- ----- ----- -------
Total $ 374 $ 3 $ - $ - $ 30 $ 407
========= ======= ======= ===== ===== =======
Depreciation and Amortization:
North
America $ 31 $ 2 $ 1 $ 1 $ 4 $ 39
Europe 2 - - - - 2
Other - - - - - -
--------- ------- ------ ----- ----- -------
Total $ 33 $ 2 $ 1 $ 1 $ 4 $ 41
========= ======= ====== ===== ===== ========
Identifiable Assets
March 31, 2000
North
America $ 4,748 $ 75 $ 17 $ 323 $7,706 $12,869
Europe 1,021 - 9 - - 1,030
Other 465 - - - - 465
-------- ------ ----- ----- ------ -------
Total $ 6,234 $ 75 $ 26 $ 323 $7,706 $14,364
======== ======= ===== ===== ====== =======
December 31, 1999
North
America $ 3,935 $ 61 $ 20 $ 345 $3,467 $ 7,828
Europe 723 - 10 - - 733
Other 343 - - - - 343
------- ------ ----- ------ ------- -------
Total $ 5,001 $ 61 $ 30 $ 345 $3,467 $ 8,904
======= ====== ===== ===== ====== =======
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
The following information provides a reconciliation of EBITDA to loss from
continuing operations for the three months ended March 31, 2000 and 1999:
<TABLE>
<S> <C> <C>
(in millions) 2000 1999
- ------------------------------------------------------------------------
EBITDA $ (141) $ (67)
Depreciation and Amortization Expense (88) (41)
Non-Cash Compensation Expense (48) (18)
------- ------
Loss from Operations (277) (126)
Other Expense (3) (26)
Income Tax Benefit 9 47
------- ------
Net Loss $ (271) $ (105)
======= =======
</TABLE>
- ------------------------------------------------------------------------
10. Related Party Transactions
Peter Kiewit Sons', Inc. ("Kiewit") acted as the general contractor on several
significant projects for the Company in 2000 and 1999. These projects include
the intercity network, local loops and gateway sites, the Company's new
corporate headquarters in Colorado and a new data center in Tempe, Arizona.
Kiewit provided approximately $462 million and $186 million of construction
services related to these projects in the first quarter of 2000 and 1999,
respectively.
Level 3 also receives certain mine management services from Kiewit. The expense
for these services was $8 million and $7 million for the three months ended
March 31, 2000 and 1999, respectively, and is recorded in selling, general and
administrative expenses.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
11. Other Matters
In August 1999 the Company was named as a defendant in Schweizer vs. Level 3
Communications, Inc. et.al., a purported national class action, filed in the
District Court, County of Boulder, State of Colorado which involves the
Company's right to install its fiber optic cable network in easements and
right-of-ways crossing the plaintiff's land. In general, the Company obtained
the rights to construct its network from railroads, utilities, and others, and
is installing its network along the rights-of-way so granted. Plaintiffs in the
purported class action assert that they are the owners of the lands over which
the Company's fiber optic cable network passes, and that the railroads,
utilities and others who granted the Company the right to construct and maintain
its network did not have the legal ability to do so. The action purports to be
on behalf of a national class of landowners of land over which the Company's
network passes or will pass. The complaint seeks damages on theories of
trespass, unjust enrichment and slander of title and property, as well as
punitive damages. Although the Company is not aware of any additional similar
claims, the Company may in the future receive claims and demands related to the
rights of way issues similar to the issues in the Schweizer litigation that may
be based on similar or different legal theories. Although it is too early for
the Company to reach a conclusion as to the ultimate outcome of this litigation,
management believes the Company has substantial defenses to the claims asserted
in the Schweizer action (and any similar claims which may be named in the
future), and intends to defend them vigorously.
Level 3 filed with the Securities and Exchange Commission a "universal" shelf
registration statement covering up to $3.5 billion of common stock, preferred
stock, debt securities and depository shares that became effective February 17,
1999. On March 9, 1999 the Company received approximately $1.5 billion from the
sale of 28.75 million shares of Common Stock and on September 14, 1999 the
Company sold $823 million aggregate principal amount of its 6% Convertible
Subordinated Notes due 2009 under the "universal" shelf registration statement.
On December 10, 1999 Level 3 filed with the SEC a second "universal" shelf
registration covering up to $2.375 billion of common stock, preferred stock,
debt securities and depository shares. On February 29, 2000 the Company received
approximately $2.5 billion of gross proceeds from the sale of 23 million shares
of common stock and the Company sold $863 million aggregate principal amount of
6% Convertible Subordinated Notes due 2010 under the "universal" shelf
registration statement. Combined with the remaining availability under the
initial universal shelf registration statement, Level 3 may offer an aggregate
of up to approximately $190 million of additional securities.
On February 17, 2000, Level 3 announced a co-build agreement whereby Global
Crossing will acquire a 50% ownership interest in the previously announced Level
3 transatlantic fiber optic cable now under construction. Level 3 also announced
that it will acquire capacity on Global Crossing's transatlantic cable Atlantic
Crossing 1. Under the co-build agreement, Level 3 and Global Crossing will each
separately own and operate two of the four fiber pairs on this transatlantic
cable. At March 31, 2000 the Company had decreased construction-in-progress and
increased accounts receivable for Global Crossing's portion of the transatlantic
fiber optic cable (approximately $105 million).
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
12. Subsequent Event
On April 12, 2000, Level 3 signed an agreement with Viatel whereby Viatel agreed
to purchase an ownership interest, valued at over $150 million, in one fiber
pair on the transatlantic fiber optic cable system now under construction by
Level 3. As a result of this agreement, both companies will own and operate one
fiber pair on the transatlantic cable. Global Crossings is also participating in
the transatlantic cable system. The cable connecting Europe and the United
States is expected to be ready for operation by September 2000.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the Company's
consolidated condensed financial statements (including the notes thereto),
included elsewhere herein.
This document 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 the Company. When used in this document, 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. For a
more detailed description of these risks and factors, please see the Company's
additional filings with the Securities and Exchange Commission.
Recent Developments
Northern Asia Undersea Cable System
On January 24, 2000, Level 3 announced its intention to develop and construct a
Northern Asia undersea cable system initially connecting Hong Kong and Tokyo.
This connection is expected to be in service by the end of the second quarter of
2001. The Hong Kong-Tokyo cable is intended to be the first stage of the
Company's construction of an undersea network in the region. The Company plans
to share construction and operating expenses of the system with one or more
industry partners.
Expansion of Business Plan
On January 24, 2000, Level 3 announced the expansion of its Business Plan to
increase the amount of gateway and technical space it intends to secure to
approximately 6.5 million square feet. In addition, the expansion includes plans
to build-out seven additional local markets in Europe and Asia, the third ring
of the European intercity network, and the expansion of existing local
facilities. At the end of the first quarter, Level 3 had operational Gateways in
30 U.S. markets and five European markets.
Global Crossing Co-Build Agreement
On February 17, 2000, Level 3 announced a co-build agreement whereby Global
Crossing will acquire a 50% ownership interest in the previously announced Level
3 transatlantic fiber optic cable now under construction. Under the co-build
agreement, Level 3 and Global Crossing will each separately own and operate two
of the four fiber pairs on this transatlantic cable. At March 31, 2000 the
Company had decreased construction-in-progress and increased accounts receivable
for Global Crossing's portion of the transatlantic fiber optic cable
(approximately $105). Level 3 also announced that it will acquire additional
capacity on Global Crossing's transatlantic cable Atlantic Crossing 1.
Common Stock Offering
On February 29, 2000, the Company closed the sale of 23 million shares of its
common stock through an under-written public offering. The net proceeds from the
offering of approximately $2.4 billion, after underwriting discounts and
offering expenses, are being used for working capital, capital expenditures,
acquisitions and other general corporate purposes in connection with the
implementation of the Business Plan.
<PAGE>
Debt Offerings
On February 29, 2000, the Company issued in private and public offerings
convertible subordinated notes, senior notes and senior discount notes which
generated aggregate gross proceeds of approximately $2.3 billion. The net
proceeds from the offerings of approximately $2.2 billion, after discounts and
offering expenses, are being used for working capital, capital expenditures,
acquisitions and other general corporate purposes in connection with the
implementation of the Business Plan. The debt offerings consisted of the
following:
o $863 million aggregate principal amount of its 6% Convertible
Subordinated Notes due 2010
o $800 million aggregate principal amount of its 11% Senior Notes due 2008
o $250 million aggregate principal amount of its 11.25% Senior Notes due 2010
o $675 million aggregate principal amount at maturity of its 12.875%
Senior Discount Notes due 2010
Euro Denominated Debt Offerings
On February 29, 2000, the Company issued in private offerings Euro denominated
senior notes which generated aggregate gross proceeds of approximately (Euro)800
million ($780 million at issuance). The net proceeds from the offerings of
approximately (Euro)780 million ($761 million at issuance), after underwriting
discounts and offering expenses, are being used for working capital, capital
expenditures, acquisitions and other general corporate purposes of the Company's
European subsidiaries. The debt offerings consisted of the following:
o (Euro)500 million aggregate principal amount of its 10.75%
Senior Euro Notes due 2008
o (Euro)300 million aggregate principal amount of its 11.25%
Senior Euro Notes due 2010
The Company has filed an application to have these Euro denominated securities
listed on the Luxembourg Stock Exchange.
Viatel Agreement
On April 12, 2000, Level 3 signed an agreement with Viatel whereby Viatel agreed
to purchase an ownership interest, valued at over $150 million, in one fiber
pair on the transatlantic fiber optic cable system now under construction by
Level 3. As a result of this agreement, both companies will own and operate one
fiber pair on the transatlantic cable. Global Crossing is also participating in
the transatlantic cable system. The cable connecting Europe and the United
States is expected to be ready for operation by September 2000.
Recent Accounting Developments
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosures of
revenue in the financial statements. The financial statements for the three
months ended March 31, 2000 have been prepared in compliance with SAB 101. The
Company does not believe that the adoption of SAB 101 in the second quarter of
2000 will have a material affect on the Company's financial results.
Effective July 1, 1999, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 43, "Real Estate Sales, an Interpretation of FASB Statement
No. 66." Certain sale and long-term right-to-use agreements of dark fiber and
capacity entered into after June 30, 1999 are required to be accounted for in
the same manner as sales of real estate with property improvements or integral
equipment. Failure to satisfy the requirements of the FASB Interpretation will
result in the deferral of revenue recognition for these contracts. The adoption
of this FASB Interpretation does not have a current effect on the Company's cash
flows.
Accounting practice and guidance with respect to the accounting treatment of the
above transactions is evolving. Any changes in the accounting treatment could
affect the way the Company accounts for revenue and expenses associated with
these agreements in the future.
Results of Operations 2000 vs 1999
First Quarter 2000 vs. First Quarter 1999
Revenue for the quarters ended March 31, is summarized as follows (in millions):
<TABLE>
<S> <C> <C>
2000 1999
Communications and Information Services $ 123 $ 46
Coal Mining 48 51
Other 6 5
------- ------
$ 177 $ 102
======= ======
</TABLE>
Communications and information services revenue for the three months ended March
31, 2000 increased 167% compared to the same period in 1999. This increase was
due to growth in the communications business; communications revenue increased
by $82 million, or 547 percent from the same quarter last year. Revenue from
communications services only, excluding dark fiber sales and reciprocal
compensation, was $76 million. Included in total communications revenue was $13
million of non-recurring revenue from U.S. dark fiber and transatlantic undersea
contracts. Also included in total communications revenue for the quarter was $8
million attributable to reciprocal compensation.
Information Services revenue, which is comprised of applications and outsourcing
businesses decreased from $31 million in 1999 to $26 million in 2000. This $5
million decrease, 16 percent, is due in part to a decrease in outsourcing
revenue from $16 million in 1999 to $14 million in 2000. Outsourcing revenue
decreased due to the expiration of contracts and certain current clients
negotiating new contracts and extending the contract life at lower rates.
Outsourcing revenue was also affected by the completion in 1999 of Year 2000
computer processing work. Applications revenue decreased from $15 million in
1999 to $12 million in 2000 largely due to Year 2000 computer consulting work
that was completed in 1999.
Coal mining revenue decreased $3 million in the first quarter of 2000 compared
to the same period in 1999. Full year coal revenue is expected to be
approximately 10 percent less than full year 1999 coal revenue due to reduced
shipments under long-term coal contracts in 2000. If current market conditions
continue, the Company will experience a significant decline in coal revenue and
earnings beginning in 2001 as long-term contracts begin to expire.
Other revenue was similar to 1999 and is primarily attributable to California
Private Transportation Company, L.P. ("CPTC") the owner-operator of the SR91
tollroad in southern California.
Cost of Revenue for the first quarter 2000 was $130 million, representing a 110
percent increase over first quarter 1999 cost of revenue of $62 million as a
result of the expanding communications business. The cost of revenue for the
information services businesses, as a percentage of its revenue, was 73 percent
for the first quarter 2000 compared to 68 percent for the same period in 1999.
The cost of revenue for the coal mining business, as a percentage of revenue,
was 40% for the first quarter 2000 down from 47% for the same period in 1999. In
December 1999 Commonwealth Edison Company ("Commonwealth") and the Company
renegotiated certain coal contracts whereby Commonwealth Edison is no longer
required to take delivery of its coal commitments but still must pay Level 3 the
margins Level 3 would have earned had the coal been delivered. Thus, cost of
revenue for the coal mining business, as a percentage of revenue, decreased in
2000 compared to 1999.
Depreciation and Amortization expenses for the quarter were $88 million, a 115
percent increase from the first quarter 1999 deprecation and amortization
expenses of $41 million. These charges reflect the significant increase in
capital spending to support the growth of the communications business.
Selling, General and Administrative expenses were $236 million in 2000, a 89
percent increase over first quarter 1999. This increase primarily results from
the Company's addition of over 1,600 employees since the end of first quarter
1999. The Company added over 450 employees to the communications business during
the quarter ending March 31, 2000, bringing the total number of Level 3
employees to approximately 4,300. Compensation, travel and facilities costs
increased substantially due to the additional employees. The Company also
recorded $48 million in non-cash compensation for the first quarter of 2000 for
expenses recognized under SFAS No. 123 related to grants of stock options and
warrants; $18 million of non-cash compensation was recorded for the same period
in 1999. The increase in non-cash compensation is due predominantly to an
increase in the Company's stock price and number of employees. Professional
fees, including consulting fees, incurred to develop and implement the Company's
business support systems, and advertising, marketing and other selling costs
contributed to the higher selling, general and administrative expenses. As the
Company continues to implement the Business Plan, selling, general and
administrative costs are expected to continue to increase significantly.
EBITDA, as defined by the Company, consists of earnings (losses) before
interest, income taxes, depreciation, amortization, non-cash operating expenses
(including stock-based compensation and in-process research and development
charges) and other non-operating income or expenses. The Company excludes
non-cash compensation due to its adoption of the expense recognition provisions
of SFAS No. 123. EBITDA decreased to a loss of $(141) million in 2000 from $(67)
million for the same period in 1999. This decrease was predominantly due to the
increase in selling, general and administrative expenses resulting from the
rapid expansion of the communications business. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance. EBITDA is not intended to represent cash flow for the periods
indicated. See Consolidated Condensed Statement of Cash Flows.
Interest Income increased 25 percent in 2000 to $64 million from $50 million in
1999 predominantly due to the Company's increasing average cash, cash
equivalents and marketable securities balances. The Company's average cash
balance increased as a result of the March 1999 equity offering and the
September 1999 Subordinated Notes offering and Senior Secured Credit Facility
agreement. The Company also received approximately $5.4 billion in net cash
proceeds from debt and equity offerings at the end of February 2000. The
increase in interest income is also due to increasing yields on the Company's
investments due to increased market rates.
Interest Expense, net decreased by $3 million due to the Company capitalizing
approximately $67 million of interest expense on network construction and
business support systems in the first quarter of 2000 compared to $11 million in
1999. Gross interest expense increased from $64 million for the first quarter of
1999 to $117 million for the first quarter 2000. Interest expense increased
substantially due to the 6% Convertible Subordinated Notes issued in September
1999 as well as the Senior Secured Credit Facility entered into in September
1999. First quarter 2000 also includes one month of interest expense for the
debt offerings completed in February 2000. The Company issued approximately $3
billion in debt securities on February 29, 2000 at rates ranging from 6.0
percent to 12.875 percent; approximately $25 million of interest expense was
recorded in the first quarter of 2000 for these debt securities. The
amortization of the related debt issuance costs also contributed to the
increased interest expense in 2000.
Equity in Losses of Unconsolidated Subsidiaries was $55 million in 2000,
compared to $25 million in 1999. The equity losses are predominantly
attributable to RCN Corporation, Inc. ("RCN"). RCN is a facilities-based
provider of communications services to the residential markets primarily on the
East and West coasts as well as in Chicago and the largest regional Internet
service provider in the Northeast. RCN is also incurring significant costs in
developing its business plan. The Company's share of RCN's losses increased by
$29 million from first quarter 1999 to $56 million for the first quarter 2000.
Gains on Equity Investee Stock Transactions was $38 million for the first
quarter 2000. No gain on equity investee stock transactions was recorded for the
first quarter 1999. RCN issued stock for certain transactions in the first
quarter of 2000 which diluted the Company's ownership of RCN from 35% at
December 31, 1999 to 33% at March 31, 2000. The increase in the Company's
proportionate share of RCN's net assets as a result of these transactions
resulted in a pre-tax gain for the Company of $38 million from subsidiary stock
sales in 2000.
Income Tax Benefit for the first quarter of 2000 differs from the statutory rate
due to the limited availability of taxable income in the carryback period for
which current year losses can be offset. The income tax benefit in 1999 differs
from the statutory rate of 35% primarily due to losses incurred by the Company's
international subsidiaries which cannot be included in the consolidated U.S.
federal return, nondeductible goodwill amortization expense and state income
taxes. For fiscal 2000, Level 3 will recognize a portion of the expected annual
benefit in each period equal to the ratio of pre-tax loss for the period divided
by the total estimated loss for the year as the Company is currently unable to
conclude that it is more likely than not that the net operating losses will be
realizable.
Financial Condition--March 31, 2000
The Company's working capital increased from $2.8 billion at December 31, 1999
to $6.7 billion at March 31, 2000 due primarily to the proceeds from the debt
and equity offerings completed in February 2000. In February 2000, the Company
issued approximately 23 million shares of common stock with net proceeds of
approximately $2.4 billion, $863 million in Convertible Subordinated Notes, $1.4
billion in three tranches of U.S. dollar denominated debt securities, and $780
million from two tranches of Euro denominated senior debt securities.
Cash provided by operations increased from $55 million in 1999 to $151 million
in 2000. Changes in components of working capital, including the receipt of $245
million in federal income tax refunds, are primarily responsible for the
increase in cash provided by operations. The increase was also partially due to
additional interest income in 2000 as a result of the proceeds received from the
debt and equity offerings. The increase was partially offset by increased
interest expense paid during the first quarter 2000. Interest paid during the
first quarter of 2000 increased due to cash payments on the Senior Secured
Credit Facility and semi-annual payments on the 6.0% Convertible Subordinated
Notes due 2009.
Investing activities include using the proceeds from the debt and equity
offerings to purchase $4.4 billion of marketable securities and $1.3 billion of
capital expenditures, primarily for the expanding communications and information
services business. The Company also realized $1.5 billion of proceeds from the
sales and maturities of marketable securities.
Financing sources in 1999 consisted primarily of the net proceeds of $2.4
billion from the issuance of 23 million shares of Level 3 common stock, total
net proceeds of approximately $3 billion from debt borrowings and the exercise
of the Company's stock options for $6 million. The Company also repaid long-term
debt of $2 million during the first quarter of 2000 primarily related to CPTC.
Liquidity and Capital Resources
Since late 1997, the Company has substantially increased the emphasis it places
on and the resources devoted to its communications and information services
business. The Company has commenced the implementation of a plan to become a
facilities-based provider (that is, a provider that owns or leases a substantial
portion of the property, plant and equipment necessary to provide its services)
of a broad range of integrated communications services. To reach this goal, the
Company is expanding substantially the business of its subsidiary, PKS
Information Services, Inc., ("PKSIS") to create, through a combination of
construction, purchase and leasing of facilities and other assets, an advanced,
international, end-to-end, facilities-based communications network. The Company
is designing its network based on Internet Protocol technology in order to
leverage the efficiencies of this technology to provide lower cost
communications services.
The development of the Business Plan will require significant capital
expenditures, a substantial portion of which will be incurred before any
significant related revenues from the Business Plan are expected to be realized.
These expenditures, together with the associated early operating expenses, may
result in substantial negative operating cash flow and substantial net operating
losses for the Company for the foreseeable future. Although the Company believes
that its cost estimates and build-out schedule are reasonable, the actual
construction costs or the timing of the expenditures may deviate from current
estimates. The Company's capital expenditures in connection with the Business
Plan were approximately $1.3 billion during the first quarter of 2000. The
majority of the spending was for construction of the U.S. and European intercity
networks, certain local networks in the U.S. and Europe, and the transatlantic
cable network. Total capital expenditures for 2000 are expected to be
approximately $4.5 billion versus the previously announced total of $3.5
billion. This increase in the rate of capital expenditures is the result of
acceleration of the Company's Business Plan. The proceeds received from the
February 2000 debt and equity offerings combined with the cash on hand and the
undrawn commitments under the senior secured credit facility, provided Level 3
with approximately $8.6 billion of funds available at the end of the quarter.
The Company's current liquidity and the agreement with INTERNEXT should be
sufficient to fund the currently committed portions of the Business Plan.
On January 24, 2000, the Company announced that it was expanding the scope of
its Business Plan to include a significant increase in the amount of colocation
space available to the Company's web-centric customers, and additional local
fiber facilities. The Company currently estimates that the implementation of the
Business Plan will require between $13 and $14 billion over the 10-year period
of the Business Plan. The Company's successful debt and equity offerings in
February of 2000 have given the Company the ability to implement the committed
portions of the Business Plan. However, if additional opportunities should
present themselves, the Company may be required to secure additional financing
in the future. The Company expects to meet its additional capital needs with the
proceeds from sales or issuance of additional equity securities, credit
facilities and other borrowings, or additional debt securities.
In addition, the Company may sell or dispose of existing businesses or
investments to fund portions of the Business Plan. The Company may also sell or
lease fiber optic capacity, or access to its conduits. The Company may not be
successful in producing sufficient cash flow, raising sufficient debt or equity
capital on terms that it will consider acceptable, or selling or leasing fiber
optic capacity or access to its conduits. In addition, proceeds from
dispositions of the Company's assets may not reflect the assets' intrinsic
values. Further, expenses may exceed the Company's estimates and the financing
needed may be higher than estimated. Failure to generate sufficient funds may
require the Company to delay or abandon some of its future expansion or
expenditures, which could have material adverse effect on the implementation of
the Business Plan.
The Company may not be able to obtain such financing if and when it is needed or
that, if available, such financing will be on terms acceptable to the Company.
If the Company is unable to obtain additional financing when needed, it may be
required to scale back its Business Plan and, depending upon cash flow from its
existing businesses, reduce the scope of its plans and operations.
In connection with implementing the Business Plan, management will continue
reviewing the existing businesses of the Company to determine how those
businesses will complement the Company's focus on communications and information
services. If it is decided that an existing business is not compatible with the
communications and information services business and if a suitable buyer can be
found, the Company may dispose of that business.
<PAGE>
Year 2000
Level 3 Communications, LLC.
Level 3's wholly owned subsidiary, Level 3 Communications, LLC, is a new company
that is implementing new technologies to provide Internet Protocol
technology-based communications services to its customers. The expenses
associated with Level 3 Communications, LLC's year 2000 remediation program did
not have a material effect on the operating results or financial condition of
Level 3 Communications, LLC through March 31, 2000. Level 3 Communications, LLC
is not aware of any problems associated with Year 2000 issues. There can be no
assurance, however, that the Year 2000 problem, and any loss incurred by any
customers of Level 3 as a result of the Year 2000 problem, will not have a
material adverse effect on Level 3 Communications, LLC's financial condition or
results of operations in the future.
PKSIS.
PKS Information Services, Inc. provides a wide variety of information
technology services. PKSIS has two main lines of business: outsourcing and
applications. The outsourcing business is managed by PKS Computer Services
LLC. The applications business is managed by PKS Systems
Integration LLC ("PKSSI").
PKSIS derived a substantial portion of its revenues in 1999 from projects that
its subsidiary, PKSSI, conducted involving Year 2000 assessment and renovation
services. This exposes PKSSI to potential risks that may include problems with
services provided by PKSSI to its customers and the potential claims arising
under PKSSI's customer contracts. PKSSI attempts to contractually limit its
exposure to liability for Year 2000 compliance issues. However, these
contractual limitations may not be effective.
The expenses associated with PKSIS' Year 2000 efforts, did not, and the related
potential effect on PKSIS' earnings are not expected to, have a material effect
on the future operating results or financial condition of Level 3. PKSIS is not
aware of any problems concerning Year 2000 issues. There can be no assurance,
however, that the Year 2000 problem, and any loss incurred by any customers of
PKSIS as a result of the Year 2000 problem, will not have a material adverse
effect on Level 3's financial condition or results of operations in the future.
Market Risk
Level 3 is subject to market risks arising from changes in interest rates,
equity prices and foreign exchange rates. The Company's exposure to interest
rate risk increased due to the $1.375 billion Senior Secured Credit Facility
entered into by the Company in September 1999. As of March 31, 2000, the Company
had borrowed $475 million under the Senior Secured Credit Facility. Amounts
drawn on the term loan and revolving credit facilities bear interest at the
alternate base rate or LIBOR rate plus applicable margins. As the alternate base
rate and LIBOR rate fluctuate, so too will the interest expense on amounts
borrowed under the facility. A hypothetical 10 percent increase in interest
rates would increase annual interest expense of the Company by approximately $5
million. The Company continues to evaluate alternatives to limit interest rate
risk.
Level 3 continues to hold positions in certain publicly traded entities,
primarily Commonwealth Telephone and RCN. The Company accounts for these two
investments using the equity method. The market value of these investments is
approximately $1.9 billion as of March 31, 2000, which is significantly higher
than their carrying value of $275 million. The Company does not currently have
plans to dispose of these investments, however, if any such transaction
occurred, the value received for the investments would be affected by the market
value of the underlying stock at the time of any such transaction. A 20%
decrease in the price of Commonwealth Telephone and RCN stock would result in
approximately a $387 million decrease in fair value of these investments. Due to
a decline in RCN's stock price, the Company's investment in RCN had a market
value of $738 million at May 1, 2000. The market value of the Company's
investment in Commonwealth Telephone was $515 million at May 1, 2000. The
Company does not currently utilize financial instruments to minimize its
exposure to price fluctuations in equity securities.
The Company's Business Plan includes developing and constructing networks in
Europe and Asia. As of March 31, 2000, the Company had invested significant
amounts of capital in Europe and will continue to expand its presence in Europe
and Asia in 2000. The Company issued (Euro)800 million in Senior Euro Notes in
February 2000 as an economic hedge against its net investment in its European
subsidiaries. Other than the issuance of the Euro denominated debt, the Company
has not made significant use of financial instruments to minimize its exposure
to foreign currency fluctuations. The Company continues to analyze risk
management strategies to reduce foreign currency exchange risk.
The change in interest rates and equity security prices is based on hypothetical
movements and are not necessarily indicative of the actual results that may
occur. Future earnings and losses will be affected by actual fluctuations in
interest rates, equity prices and foreign currency rates.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed as part of this report are listed below.
Exhibit
Number
------
27 Financial Data Schedule.
(b) On February 4, February 25, and February 29, 2000, the Company filed
Current Reports on Form 8-K relating to the offering, pricing and sale,
respectively, of dollar-denominated senior notes and senior discount
notes, Euro denominated senior notes, convertible subordinated notes, and
Level 3 common stock.
On February 7, 2000, the Company filed a Current Report on Form 8-K,
excerpts from a conference hosted by the Company on January 24, entitled
"Silicon Economics II: Supply, Demand and Disaggregation".
On February 18, 2000, the Company filed a Current Report on Form 8-K
announcing that Global Crossing Ltd. would acquire a 50% ownership
interest in Level 3's transatlantic fiber optic cable system currently
under construction. In addition, Level 3 announced that it had acquired
additional capacity on Global Crossing Ltd.'s transatlantic cable Atlantic
Crossing 1.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEVEL 3 COMMUNICATIONS, INC.
Dated: May 10, 2000 \s\ Eric J. Mortensen
----------------------
Eric J. Mortensen
Vice President, Controller
and Principal Accounting Officer
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No.
- -------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-Q for the period ending March 31, 2000 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
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<PERIOD-START> Jan-01-2000
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