10-Q 1 a05-18237_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

 

FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

(Mark One)

 

ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2005

 

or

 

o        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, CO

 

80021

(Address of principal executive offices)

 

(Zip Code)

 

(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), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ý  No o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No ý

 

The number of shares outstanding of each class of the issuer’s common stock, as of November 1, 2005:

 

Common Stock: 701,257,122 shares

 

 



 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES

 

Part I - Financial Information

 

 

 

Item 1.

Unaudited Financial Statements:

 

 

 

 

 

Consolidated Statements of Operations

 

 

Consolidated Balance Sheets

 

 

Consolidated Statements of Cash Flows

 

 

Consolidated Statement of Changes in Stockholders’ Deficit

 

 

Consolidated Statements of Comprehensive Loss

 

 

Notes to Consolidated Financial Statements

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

 

 

 

Part II - Other Information

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 6.

Exhibits

 

 

 

 

Signatures

 

 

 

 

Certifications

 

 

2



 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(dollars in millions, except per share data)

 

2005

 

2004

 

2005

 

2004

 

Revenue:

 

 

 

 

 

 

 

 

 

Communications

 

$

364

 

$

423

 

$

1,245

 

$

1,203

 

Information Services

 

415

 

392

 

1,418

 

1,389

 

Coal Mining

 

20

 

25

 

56

 

65

 

Total revenue

 

799

 

840

 

2,719

 

2,657

 

Costs and Expenses (exclusive of depreciation and amortization shown separately below):

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

Communications

 

112

 

116

 

338

 

316

 

Information Services

 

368

 

353

 

1,279

 

1,257

 

Coal Mining

 

15

 

18

 

37

 

48

 

Total cost of revenue

 

495

 

487

 

1,654

 

1,621

 

Depreciation and amortization

 

163

 

170

 

500

 

526

 

Selling, general and administrative

 

220

 

234

 

663

 

712

 

Restructuring and impairment charges

 

5

 

 

24

 

2

 

Total costs and expenses

 

883

 

891

 

2,841

 

2,861

 

Operating Loss

 

(84

)

(51

)

(122

)

(204

)

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest income

 

11

 

3

 

25

 

9

 

Interest expense

 

(138

)

(120

)

(391

)

(365

)

Other, net

 

8

 

(3

)

23

 

181

 

Total other income (expense)

 

(119

)

(120

)

(343

)

(175

)

Loss Before Income Tax

 

(203

)

(171

)

(465

)

(379

)

Income Tax Expense

 

(1

)

 

(4

)

(2

)

Net Loss

 

$

(204

)

$

(171

)

$

(469

)

$

(381

)

 

 

 

 

 

 

 

 

 

 

Loss per Share of Level 3 Common Stock:

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(0.29

)

$

(0.25

)

$

(0.67

)

$

(0.56

)

 

See accompanying notes to consolidated financial statements.

 

3



 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

 

 

September 30,

 

December 31,

 

(dollars in millions)

 

2005

 

2004

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

490

 

$

443

 

Marketable securities

 

403

 

225

 

Restricted cash and securities

 

38

 

48

 

Receivables, less allowances of $21 and $23, respectively

 

407

 

545

 

Other

 

162

 

141

 

Total Current Assets

 

1,500

 

1,402

 

 

 

 

 

 

 

Property, Plant and Equipment, net

 

5,101

 

5,408

 

Marketable Securities

 

408

 

114

 

Restricted Cash and Securities

 

71

 

67

 

Goodwill and Other Intangibles, net

 

401

 

457

 

Other Assets, net

 

99

 

96

 

Total Assets

 

$

7,580

 

$

7,544

 

 

See accompanying notes to consolidated financial statements.

 

4



 

 

 

September 30,

 

December 31,

 

(dollars in millions, except per share data)

 

2005

 

2004

 

 

 

(unaudited)

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

 

$

492

 

$

614

 

Current portion of long-term debt

 

 

144

 

Accrued payroll and employee benefits

 

66

 

82

 

Accrued interest

 

130

 

73

 

Deferred revenue

 

208

 

255

 

Other

 

102

 

134

 

Total Current Liabilities

 

998

 

1,302

 

 

 

 

 

 

 

Long-Term Debt, less current portion

 

6,020

 

5,067

 

Deferred Revenue

 

734

 

840

 

Other Liabilities

 

460

 

492

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

Preferred stock, $.01 par value, authorized 10,000,000 shares: no shares outstanding

 

 

 

Common stock:

 

 

 

 

 

Common stock, $.01 par value, authorized 1,500,000,000 shares: 700,505,763 outstanding in 2005 and 686,496,721 outstanding in 2004

 

7

 

7

 

Class R, $.01 par value, no shares authorized in 2005, authorized 8,500,000 shares: no shares outstanding in 2004

 

 

 

Additional paid-in capital

 

7,429

 

7,371

 

Accumulated other comprehensive income (loss)

 

(45

)

19

 

Accumulated deficit

 

(8,023

)

(7,554

)

Total Stockholders’ Deficit

 

(632

)

(157

)

Total Liabilities and Stockholders’ Deficit

 

$

7,580

 

$

7,544

 

 

See accompanying notes to consolidated financial statements.

 

5



 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

(dollars in millions)

 

2005

 

2004

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net Loss

 

$

(469

)

$

(381

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

500

 

526

 

Loss on impairments

 

6

 

 

Gain on debt extinguishments, net

 

 

(147

)

Gain on sale of property, plant and equipment, and other assets

 

(9

)

(32

)

Non-cash compensation expense attributable to stock awards

 

35

 

29

 

Deferred revenue

 

(140

)

 

Amortization of debt issuance costs

 

12

 

11

 

Accreted interest on long-term discount debt

 

28

 

55

 

Accrued interest on long-term debt

 

58

 

(4

)

Change in working capital items net of amounts acquired:

 

 

 

 

 

Receivables

 

123

 

176

 

Other current assets

 

(19

)

32

 

Payables

 

(111

)

(204

)

Other liabilities

 

(25

)

(112

)

Other

 

(19

)

(2

)

Net Cash Used in Operating Activities

 

(30

)

(53

)

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Purchases of marketable securities

 

(648

)

(410

)

Proceeds from sales and maturities of marketable securities

 

179

 

61

 

(Increase) decrease in restricted cash and securities, net

 

(8

)

20

 

Capital expenditures, net

 

(241

)

(194

)

Investments and acquisitions

 

(10

)

(30

)

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

 

11

 

19

 

Net Cash Used in Investing Activities

 

$

(717

)

$

(534

)

 

See accompanying notes to consolidated financial statements.

 

6



 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Long-term debt borrowings, net of issuance costs

 

$

944

 

$

 

Payments on long-term debt, including current portion (net of restricted cash)

 

(131

)

(77

)

Net Cash Provided by (Used in) Financing Activities

 

813

 

(77

)

 

 

 

 

 

 

Effect of Exchange Rates on Cash and Cash Equivalents

 

(19

)

2

 

 

 

 

 

 

 

Net Change in Cash and Cash Equivalents

 

47

 

(662

)

 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

443

 

1,129

 

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

$

490

 

$

467

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash interest paid

 

$

293

 

$

300

 

Non Cash Financing and Investing Activities:

 

 

 

 

 

Use of restricted securities to repay long-term debt

 

$

13

 

$

 

 

See accompanying notes to consolidated financial statements.

 

7



 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Deficit

For the nine months ended September 30, 2005

(unaudited)

 

(dollars in millions)

 



Common
Stock

 


Additional
Paid-in
Capital

 

Accumulated
Other
Comprehensive
Income (Loss)

 



Accumulated
Deficit

 



Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2004

 

$

7

 

$

7,371

 

$

19

 

$

(7,554

)

$

(157

)

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock:

 

 

 

 

 

 

 

 

 

 

 

Stock plan grants

 

 

26

 

 

 

26

 

Shareworks plan

 

 

20

 

 

 

20

 

401(k) plan

 

 

12

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

 

(469

)

(469

)

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Loss

 

 

 

(64

)

 

(64

)

 

 

 

 

 

 

 

 

 

 

 

 

Balances at September 30, 2005

 

$

7

 

$

7,429

 

$

(45

)

$

(8,023

)

$

(632

)

 

See accompanying notes to consolidated financial statements.

 

8



 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Loss

(unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(dollars in millions)

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(204

)

$

(171

)

$

(469

)

$

(381

)

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss) Before Tax:

 

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses)

 

(2

)

7

 

(66

)

 

Unrealized holding losses and other arising during period

 

 

 

(1

)

(2

)

Reclassification adjustment for (gains) losses included in net loss

 

1

 

3

 

3

 

(14

)

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Before Tax

 

(1

)

10

 

(64

)

(16

)

 

 

 

 

 

 

 

 

 

 

Income Tax Benefit Related to Items of Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss) Net of Taxes

 

(1

)

10

 

(64

)

(16

)

 

 

 

 

 

 

 

 

 

 

Comprehensive Loss

 

$

(205

)

$

(161

)

$

(533

)

$

(397

)

 

See accompanying notes to consolidated financial statements.

 

9



 

LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

(unaudited)

 

1.  Summary of Significant Accounting Policies

 

The consolidated 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, 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 or has significant equity ownership are accounted for by the equity method.  All significant intercompany accounts and transactions have been eliminated.

 

The consolidated balance sheet of Level 3 Communications, Inc. and subsidiaries at December 31, 2004 has been taken 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, 2004.  These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto.  The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of the results expected for the full year.

 

Termination revenue is recognized when a customer disconnects service prior to the end of the contract period, for which Level 3 had previously received consideration and for which revenue recognition was deferred. Termination revenue is also recognized when customers make termination penalty payments to Level 3 to settle contractually committed purchase amounts that the customer no longer expects to meet or when a customer and Level 3 renegotiate a contract under which Level 3 is no longer obligated to provide product or services for consideration previously received and for which revenue recognition has been deferred.  Termination revenue is reported in the same manner as the original product or service provided, and amounted to $1 million and $132 million during the three and nine months ended September 30, 2005, respectively, and less than $1 million and $13 million during the three and nine months ended September 30, 2004, respectively (See Note 4).

 

Emerging Issues Task Force (“EITF”) Issue No. 04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry” (“EITF No. 04-6”) establishes appropriate accounting for stripping costs incurred during the production phase and is effective for the first reporting period in fiscal years beginning after December 15, 2005, with early adoption permitted.  EITF No. 04-6 concludes that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs are incurred.  EITF No. 04-6 further defines inventory produced as mineral that has been extracted.  As a result, stripping costs related to exposed, but not extracted mineral will be expensed as incurred rather than deferred until the mineral is extracted.  The Company’s coal mining business currently defers stripping costs and amortizes these costs over the period in which the underlying coal is mined.  The Company expects to adopt EITF No. 04-6 beginning January 1, 2006 and the adoption will not have a significant impact on the Company’s financial position or results of operations.

 

10



 

In March 2005, the FASB issued FASB Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations”, (“FIN 47”).  FIN 47 provides additional clarification as to when companies should recognize asset retirement obligations pursuant to SFAS No. 143, “Accounting for Asset Retirement Obligations.”  The Company expects to adopt FIN 47 effective December 31, 2005.  The adoption of FIN 47 is not expected to have a material effect on the Company’s results of operations or financial position as Level 3 recognized the discounted value of its conditional asset retirement obligations when it adopted SFAS No. 143 at the beginning of 2003.

 

In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3”, (“SFAS No. 154”).  This Statement requires retrospective application to prior period financial statements of a voluntary change in accounting principle unless it is impracticable and is effective for fiscal years beginning after December 15, 2005. Previously, most voluntary changes in accounting principle were recognized by including the cumulative effect of changing to the new accounting principle in net income of the period of the change.  The adoption of SFAS No. 154 is not expected to have a significant impact on the Company’s financial position or results of operations.

 

The FASB issued SFAS No. 153, “Exchanges of Non-Monetary Assets” (“SFAS No. 153”), which is effective for Level 3 starting January 1, 2006. In the past, the Company was required to measure the value of assets exchanged in non-monetary transactions by using the net book value of the asset relinquished. Under SFAS No. 153, the Company will measure assets exchanged at fair value, as long as the transaction has commercial substance and the fair value of the assets exchanged is determinable within reasonable limits. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The adoption of SFAS No. 153 is not anticipated to have a material effect on the Company’s financial position or results of operations as Level 3 is a party to a limited number of non-monetary transactions and those transactions have not been material.

 

In December 2004, the FASB issued SFAS No. 123R, “Share Based Payment” (“SFAS No. 123R”). SFAS No. 123R requires that compensation cost relating to share-based payment transactions be recognized in the financial statements based on the fair value of equity or liability instruments issued. The U.S. Securities and Exchange Commission extended the effective date of SFAS No. 123R such that the Company is first required to adopt SFAS No. 123R beginning January 1, 2006 although the Company is permitted to adopt SFAS No. 123R in periods prior to this effective date.  The Company expects to adopt SFAS No. 123R beginning January 1, 2006.  The Company is evaluating the impact of SFAS No. 123R on its calculation of non-cash compensation expense.  However, adoption is not expected to have a significant impact on the Company’s financial position or results of operations as the Company adopted the expense recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” in 1998.

 

Where appropriate, items within the consolidated financial statements have been reclassified from the previous periods to conform to current period presentation.

 

2.  Acquisitions

 

On October 1, 2004, the Company acquired the wholesale dial internet access business of Sprint Communications Company, L.P. (“Sprint”).  Level 3 paid $34 million in cash to acquire the business, which provides dial-up Internet access to leading Internet service providers throughout the United States and agreed to provide discounted services to Sprint that were valued at $5 million, which was accounted for as part of the purchase price.  Level 3 and Sprint entered into a transition services agreement for the migration of customers onto the Level 3 network, which Level 3 completed in the third quarter of 2005.  During the migration period, until such time as a customer contract is assumed or assigned, amounts received for services provided by Sprint are accounted for as a reduction in purchase price as opposed to revenue.  The net amount received during the migration period and prior to the assumption or assignment of these contracts totaled $5 million through September 30, 2005 and therefore reduced the purchase

 

11



 

price to $29 million.  With the completion of the migration activities, Level 3 expects to recognize as revenue, amounts received from all customer contracts acquired in this transaction.  The results of operations attributable to the Sprint assets acquired and liabilities assumed are included in the consolidated financial statements from the date of assumption or assignment of contracts.

 

On April 1, 2004, the Company acquired the wholesale dial-up internet access customer contracts of ICG Communications, Inc. (“ICG”).  The Company agreed to pay approximately $35 million in cash to acquire the contracts and related equipment, which provide dial-up Internet access to various large customers and other leading ISPs. The purchase price was subject to post-closing adjustments, but those adjustments were not material.  Level 3 migrated the traffic from the customer contracts acquired from ICG onto its own network infrastructure and the migration was substantially complete by the end of 2004.  The results of operations attributable to the ICG assets acquired and liabilities assumed are included in the consolidated financial statements from the date of acquisition.

 

The following is unaudited pro-forma financial information of the Company assuming the Sprint and ICG transactions occurred at the beginning of the period presented:

 

 

 

Pro-Forma

 

(dollars in millions, except per share data)

 

Three Months
Ended
September 30, 2004

 

Nine Months Ended
September 30, 2004

 

 

 

 

 

 

 

Revenue

 

$

849

 

$

2,701

 

Net Loss

 

(167

)

(368

)

Net Loss per Share

 

$

(0.24

)

$

(0.54

)

 

3.  Restructuring and Impairment Charges

 

The Company recognized impairment charges of $3 million in the third quarter of 2005 for estimated future cash payments.  This charge resulted from the difference between the Company’s obligations to the landlord for newly vacated leased property no longer needed by the Company and the expected sublease income.

 

In the first quarter of 2005, the Company initiated a workforce reduction of approximately 470 employees in its North American and European communications business. As a result of the reduction, Level 3 incurred severance and related charges of approximately $15 million in the first quarter of 2005.  As of September 30, 2005, the Company has satisfied its remaining obligations associated with the workforce reduction.

 

For the nine month period ended September 30, 2004, the information services business recognized approximately $2 million of restructuring charges related to the ongoing integration and restructuring of Software Spectrum announced in 2003.  As of December 31, 2004, the Company had completed the workforce reductions and paid the remaining severance and employee related obligations associated with the actions announced in 2003 and 2004.

 

12



 

A summary of the restructuring charges and related activity follows:

 

 

 

Severance and Related

 

Facilities Related

 

 

 

Number of
Employees

 

Amount

 

Amount

 

 

 

 

 

(in millions)

 

(in millions)

 

Balance December 31, 2003

 

109

 

$

7

 

$

12

 

2004 Charges

 

80

 

1

 

15

 

2004 Payments

 

(189

)

(8

)

(8

)

Balance December 31, 2004

 

 

 

19

 

2005 Charges

 

472

 

15

 

3

 

2005 Payments

 

(472

)

(15

)

(5

)

Balance September 30, 2005

 

 

$

 

$

17

 

 

Non-cash impairment charges were $2 million and $6 million for the three and nine months ended September 30, 2005 and primarily resulted from the decision to terminate projects for certain voice products in the communications business.  The costs incurred for these projects, including capitalized labor, were impaired as the carrying value of these projects exceeded their estimated fair value.

 

Level 3 continues to periodically conduct comprehensive reviews of the long-lived assets of its businesses, specifically communications assets deployed along its intercity network and in its gateway facilities.  It is possible that assets may be identified as impaired and additional impairment charges may be recorded to reflect the realizable value of these assets in future periods.

 

4.  Termination Revenue

 

On March 1, 2005, Level 3 entered into an agreement with 360networks (USA), Inc. (“360networks”) in which both parties agreed to terminate a 20-year IRU agreement. Under the new agreement 360networks returned the dark fiber originally provided by Level 3. Under the original IRU agreement, signed in 2000, the cash received by Level 3 was deferred and amortized to revenue over the 20-year term of the agreement. As a result of this transaction, Level 3 recognized the unamortized deferred revenue of approximately $86 million as non-cash termination revenue in the first quarter of 2005.

 

On February 22, 2005, France Telecom Long Distance USA, LLC (“France Telecom”) and Level 3 finalized an agreement to terminate a dark fiber agreement signed in 2000. Under the terms of the agreement France Telecom returned the fiber to Level 3.  Under the original IRU agreement, the cash received by Level 3 was deferred and amortized to revenue over the 20-year term of the agreement. As a result of this transaction, Level 3 recognized the unamortized deferred revenue of approximately $40 million of unamortized deferred revenue as non-cash termination revenue in the first quarter of 2005.

 

5.  Loss Per Share

 

The Company had a net loss for the three and nine months ended September 30, 2005 and 2004.  Therefore, the dilutive effect of the approximately 417 million and 84 million shares issuable pursuant to the convertible debt securities at September 30, 2005 and 2004, respectively, have not been included in the computation of diluted loss per share because their inclusion would have been anti-dilutive to the computation.  In addition, the dilutive effect of the approximately 64 million and 51 million options and warrants outstanding at September 30, 2005 and 2004, respectively, have not been included in the computation of diluted loss per share because their inclusion would have been anti-dilutive to the computation.

 

13



 

The following details the loss per share calculations for the Level 3 common stock:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(dollars in millions, except per share data)

 

2005

 

 

 

2004

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(204

)

$

(171

)

$

(469

)

$

(381

)

 

 

 

 

 

 

 

 

 

 

Total Number of Weighted Average Shares Outstanding used to Compute Basic and Dilutive Loss Per Share (in thousands)

 

699,332

 

685,074

 

695,060

 

682,568

 

 

 

 

 

 

 

 

 

 

 

Loss Per Share of Level 3 Common Stock:

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(0.29

)

$

(0.25

)

$

(0.67

)

$

(0.56

)

 

6.  Receivables

 

Receivables at September 30, 2005 and December 31, 2004 were as follows (dollars in millions):

 

 

 

Communications

 

Information
Services

 

Coal

 

Total

 

September 30, 2005

 

 

 

 

 

 

 

 

 

Accounts Receivable – Trade:

 

 

 

 

 

 

 

 

 

Services and Software Sales

 

$

128

 

$

291

 

$

9

 

$

428

 

Allowance for Doubtful Accounts

 

(14

)

(7

)

 

(21

)

 

 

$

114

 

$

284

 

$

9

 

$

407

 

 

 

 

 

 

 

 

 

 

 

December 31, 2004

 

 

 

 

 

 

 

 

 

Accounts Receivable – Trade:

 

 

 

 

 

 

 

 

 

Services and Software Sales

 

$

138

 

$

418

 

$

12

 

$

568

 

Allowance for Doubtful Accounts

 

(17

)

(6

)

 

(23

)

 

 

$

121

 

$

412

 

$

12

 

$

545

 

 

The Company recognized bad debt expense in selling, general and administrative expenses of less than $1 million for the three and nine month periods ended September 30, 2005, respectively and $1 million and $5 million for the three and nine month periods ended September 30, 2004, respectively.  Level 3 received proceeds for amounts previously deemed uncollectible of less than $1 million and $1 million for the three and nine months ended September 30, 2005, respectively, and $1 million and $2 million for the three and nine months ended September 30, 2004, respectively.  The Company decreased accounts receivable and allowance for doubtful accounts by approximately $3 million and $6 million for the nine months ended September 30, 2005 and 2004, respectively, for previously reserved amounts the Company deemed as uncollectible.

 

7.  Property, Plant and Equipment

 

Costs associated directly with expansions and improvements to the network and customer installations, including employee related costs, have been capitalized. The Company generally capitalizes costs associated with network construction, installation services and software development.  Capitalized labor and related costs associated with employees and contract labor working on capital projects were approximately $14 million and $37 million for the three and nine months ended September 30, 2005, respectively.  Included in capitalized labor and related costs was less than $1 million and $2 million of capitalized non-cash compensation costs related to options and warrants for the three and nine month periods ended September 30, 2005, respectively. Capitalized labor and related costs associated with employees and contract labor working on capital projects were approximately $17 million and $51 million for the three and nine months ended September 30, 2004, respectively.  Included in capitalized labor and

 

14



 

related costs was less than $1 million and $2 million of capitalized non-cash compensation costs related to options and warrants for the three and nine months ended September 30, 2004, respectively.

 

The Company continues to develop business support systems required for its business. The external direct costs of software, materials and services, and payroll and payroll related expenses for employees directly associated with the project incurred when developing the business support systems are capitalized and included in the capitalized costs above. Upon completion of a project, the total cost of the business support system is amortized over a useful life of three years.

 

The Company reviews its capitalized projects at least annually or when events and circumstances indicate that the assets may be impaired.  When previously capitalized software development costs are considered to be impaired, the Company calculates and recognizes an impairment loss in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

 

Depreciation expense was $146 million and $448 million for the three and nine months ended September 30, 2005, respectively.  Depreciation expense was $155 million and $478 million for the three and nine months ended September 30, 2004, respectively.

 

8.  Goodwill and Other Intangibles, net

 

Goodwill and Other Intangibles, net at September 30, 2005 and December 31, 2004 were as follows (dollars in millions):

 

 

 

Goodwill

 

Other
Intangibles

 

September 30, 2005

 

 

 

 

 

360networks

 

$

 

$

4

 

Sprint

 

 

19

 

ICG

 

 

9

 

Telverse

 

 

18

 

Genuity

 

 

36

 

McLeod

 

39

 

 

Software Spectrum (including Corpsoft)

 

196

 

50

 

XCOM

 

30

 

 

 

 

$

265

 

$

136

 

December 31, 2004

 

 

 

 

 

Sprint

 

$

 

$

28

 

ICG

 

 

23

 

Telverse

 

 

23

 

Genuity

 

 

55

 

McLeod

 

41

 

 

Software Spectrum (including Corpsoft)

 

202

 

55

 

XCOM

 

30

 

 

 

 

$

273

 

$

184

 

 

During the third quarter of 2005, Level 3 determined that the remaining costs accrued for the integration of the McLeod business were no longer required.  As a result, the Company reduced, by $2 million, the goodwill attributable to the McLeod transaction.

 

In the first quarter of 2005, Level 3 purchased a customer contract from 360networks for cash and future services valued at $4 million.  The total purchase price was recorded as an intangible asset and will be amortized over the remaining four year term of the customer contract.

 

15



 

During the first quarter of 2005, the Company determined that $6 million of income tax obligations recorded in the original purchase price allocation for the 2002 acquisitions of CorpSoft, Inc. and Software Spectrum, Inc. were no longer required. As a result, the Company reduced the goodwill attributable to the acquisitions by $6 million in 2005.

 

Goodwill has been or will be assessed at least annually for impairment in accordance with SFAS No. 142, beginning with the first anniversary of the acquisition and December 31 of each year thereafter.  As of September 30, 2005, the Company has not recorded impairment expenses for the goodwill or intangible assets identified in the previous table.

 

Intangible asset amortization expense was $17 million and $52 million for the three and nine months ended September 30, 2005, respectively.  Intangible asset amortization expense was $15 million and $48 million for the three and nine months ended September 30, 2004, respectively.

 

The amortization expense related to intangible assets currently recorded on the Company’s books for each of the five succeeding years is estimated to be the following for the years ended December 31: 2005-$69 million; 2006-$55 million; 2007-$26 million; 2008-$12 million and 2009-$8 million.

 

9.  Long-Term Debt

 

At September 30, 2005 and December 31, 2004, long-term debt was as follows:

 

 

 

September 30,

 

December 31,

 

(dollars in millions)

 

2005

 

2004

 

 

 

 

 

 

 

Senior Secured Term Loan (10.87% due 2011)

 

$

730

 

$

730

 

Senior Notes (9.125% due 2008)

 

954

 

954

 

Senior Notes (11.0% due 2008)

 

132

 

132

 

Senior Discount Notes (10.5% due 2008)

 

144

 

144

 

Senior Euro Notes (10.75% due 2008)

 

60

 

68

 

Convertible Senior Notes (2.875% due 2010)

 

374

 

374

 

Senior Discount Notes (12.875% due 2010)

 

487

 

475

 

Senior Euro Notes (11.25% due 2010)

 

125

 

142

 

Senior Notes (11.25% due 2010)

 

96

 

96

 

Senior Notes (10.75% due 2011)

 

500

 

500

 

Convertible Senior Notes (10.0% due 2011)

 

880

 

 

Convertible Senior Notes (5.25% due 2011)

 

345

 

345

 

Convertible Senior Discount Notes (9.0% due 2013)

 

246

 

230

 

Convertible Subordinated Notes (6.0% due 2009)

 

362

 

362

 

Convertible Subordinated Notes (6.0% due 2010)

 

514

 

514

 

Commercial Mortgage:

 

 

 

 

 

CBRE (6.86% due 2015)

 

70

 

 

GMAC (due 2005)

 

 

117

 

Capital leases assumed in Genuity transaction

 

 

24

 

Other

 

1

 

4

 

 

 

6,020

 

5,211

 

Less current portion

 

 

(144

)

 

 

$

6,020

 

$

5,067

 

 

In the third quarter of 2005, the Company completed a refinancing of the mortgage on its corporate headquarters.  On September 27, 2005, HQ Realty, Inc. (a wholly owned subsidiary of the Company) entered into a $70 million loan at an initial fixed rate of 6.86% through 2010, the anticipated repayment date, as defined in the loan agreement (“CBRE Commercial Mortgage”).  After 2010 through maturity in 2015, the interest rate will adjust to the greater of 9.86% or the five year US Treasury rate plus 300 basis

 

16



 

points.  HQ Realty, Inc. received $67 million of net proceeds after transaction costs and $2 million deposited into restricted cash accounts for future facility improvements and property taxes.  HQ Realty, Inc. is required to make interest only payments in the first year with monthly principal payments beginning in the second year based on a 30-year amortization schedule.

 

Debt issuance costs of $1 million were capitalized and are being amortized as interest expense over the term of the CBRE Commercial Mortgage.

 

The assets of HQ Realty Inc. are not available to satisfy any third party obligations other than those of HQ Realty, Inc.  In addition, the assets of the Company are not available to satisfy the obligations of HQ Realty, Inc.

 

On April 4, 2005, Level 3 completed the offering of $880 million of 10% Convertible Senior Notes due 2011 to institutional investors.  Interest on the notes will be payable semi-annually beginning on November 1, 2005.  The notes will be convertible by holders at any time after January 1, 2007 (or sooner if certain corporate events occur) into shares of Level 3 common stock at a conversion price of $3.60 per share (subject to adjustment in certain events).  This is equivalent to a conversion rate of approximately 277.77 shares per $1,000 principal amount of notes.

 

The net proceeds from this offering were approximately $877 million after giving effect to offering expenses.  Level 3 intends to use the net proceeds from this offering for general corporate purposes, including possible acquisitions, working capital, capital expenditures, debt refinancing and debt repurchases.

 

On June 30, 2005, the GMAC Commercial Mortgage matured and HQ Realty, Inc. repaid the outstanding balance of $116 million with $103 million in cash and $13 million in restricted securities.

 

The debt instruments above contain certain financial and non-financial covenants with which the Company believes it is in full compliance as of September 30, 2005.

 

10.  Stock-Based Awards

 

The Company recognized in the consolidated statement of operations a total of $14 million and $35 million of non-cash compensation for the three and nine months ended September 30, 2005, respectively. In addition, the Company capitalized less than $1 million and $2 million of non-cash compensation for those employees and contractors directly involved in the construction of the network, installation of customers or development of the business support systems for the three and nine months ended September 30, 2005, respectively.

 

The Company recognized on the consolidated statement of operations a total of $10 million and $29 million of non-cash compensation for the three and nine months ended September 30, 2004, respectively. In addition, the Company capitalized less than $1 million and $2 million of non-cash compensation for those employees and contractors directly involved in the construction of the network, installation of customers or development of the business support systems for the three and nine months ended September 30, 2004, respectively.

 

The following table summarizes non-cash compensation expense and capitalized non-cash compensation for the three and nine months ended September 30, 2005 and 2004.

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(dollars in millions)

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

OSO

 

$

5

 

$

5

 

$

14

 

$

12

 

C-OSO

 

 

 

 

1

 

Restricted Stock and Units

 

6

 

1

 

12

 

3

 

Shareworks Match Plan

 

 

2

 

(2

)

4

 

401(k) Match Expense

 

4

 

4

 

12

 

13

 

Shareworks Grant Plan and Profit Sharing

 

 

(1

)

1

 

(2

)

 

 

15

 

11

 

37

 

31

 

Capitalized Non-cash Compensation

 

(1

)

(1

)

(2

)

(2

)

 

 

$

 14

 

$

 10

 

$

 35

 

$

 29

 

 

17



 

Warrants

 

At September 30, 2005, there were approximately 14.9 million warrants outstanding ranging in exercise price from $4.00 to $60.06.  All of the warrants were exercisable at September 30, 2005, with a weighted average exercise price of $8.08 per warrant.

 

Outperform Stock Option Plan

 

The fair value under SFAS No. 123 for the approximately 4.0 million Outperform Stock Options (“OSOs”) awarded to participants in the first and third quarters of 2005 was approximately $13 million using a modified Black-Scholes valuation model with a S&P 500 volatility rate of 13% over the term, a Level 3 common stock volatility rate of 55%, an expected correlation factor of 30% and a S&P 500 dividend yield of 1.99%, which resulted in a decrease in the theoretical value per option to 116% of the stock price on the date of grant, from 120% in 2004.  As of September 30, 2005, the Company had not yet reflected $8 million of unamortized compensation expense in its financial statements for previously granted OSOs.

 

As part of a comprehensive review of its long-term compensation program, the Company temporarily suspended awards of OSOs in April 2005.  During the second quarter of 2005, the Company granted participants of the plan restricted stock units, discussed below.

 

Beginning in the third quarter 2005, the Company issued both restricted stock units and OSOs as part of its long-term compensation program.  The Company plans to make annual grants of restricted stock units that vest ratably over four years.  In addition, the Company will continue to make quarterly OSO grants to employees.  The OSOs granted in the third quarter have similar terms as those OSOs granted in the first quarter of 2005.

 

Restricted Stock and Units

 

During the nine months of 2005, approximately 23.9 million shares of restricted stock or restricted stock units were granted to the recipients and independent members of the Board of Directors. The restricted stock units and shares were granted to the recipients at no cost. The instruments vest over one to four year periods.  The fair value of restricted units and stock granted in 2005 was $48 million as calculated using the value of the Level 3 common stock the day prior to the grant and is being amortized over the vesting periods of the options in accordance with FIN 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.”  As of September 30, 2005, the Company had not yet reflected $35 million of unamortized compensation expense in its financial statements for restricted stock instruments previously granted.

 

401(k) Plan

 

The Company and its subsidiaries offer their qualified employees the opportunity to participate in a defined contribution retirement plan qualifying under the provisions of Section 401(k) of the Internal Revenue Code. Each employee is eligible to contribute, on a tax deferred basis, a portion of annual earnings not to exceed $14,000 in 2005. The Company matches 100% of employee contributions up to 7% of eligible earnings or applicable regulatory limits.  Employees of Software Spectrum are eligible to receive matching contributions of $.50 for every dollar contributed up to 6% of eligible earnings.  The Company’s matching contribution is made with Level 3 common stock based on the closing stock price on each pay date.

 

18



 

Subject to insider trading restrictions, employees are able to diversify the Company’s matching contribution as soon as it is made, even if they are not fully vested.  The Company’s matching contributions will be fully vested upon completion of three years of service.  The Company made matching contributions of $4 million and $12 million for the three and nine months ended September 30, 2005, respectively, and $4 million and $13 million for the three and nine months ended September 30, 2004, respectively, which were recorded as selling, general and administrative expenses.

 

The Company made a discretionary contribution to the 401(k) Plan in Level 3 common stock as of December 31, 2004, equal to two percent of eligible employees’ 2004 eligible earnings.  The deposit was made into the employees’ 401(k) accounts during the first quarter of 2005.

 

11.  Industry and Segment Data

 

SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” defines operating segments as components of an enterprise for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker, or decision making group, in deciding how to allocate resources and assess performance. Operating segments are managed separately and represent separate business units that offer different products and serve different markets. The Company’s reportable segments include: communications, information services and coal mining. Other primarily includes other corporate assets and overhead not attributable to a specific segment.  The geographic region Other primarily includes the Asia-Pacific region.

 

Adjusted OIBDA, as defined by the Company, consists of income (loss) from operations before (1) depreciation and amortization expense, (2) stock-based compensation expense included within selling, general and administrative expenses on the consolidated statements of operations and (3) any non-cash impairment costs included within restructuring and impairment expenses all as reported on the consolidated statements of operations.  The Company excludes stock-based compensation due to the recording of non-cash compensation expense under the provisions of SFAS No. 123.  Adjusted OIBDA is an important part of the Company’s internal reporting and is an indicator of profitability and operating performance used by the chief operating decision maker or decision making group to evaluate performance and allocate resources.  It is a commonly used indicator in the capital-intensive communications industry to analyze companies on the basis of operating performance over time. Adjusted OIBDA is not intended to represent net income or cash flow for the periods presented, is not calculated consistently with the commonly used metric “EBITDA”, and is not recognized under Generally Accepted Accounting Principles (“GAAP”) but is used by management to assess segment results and allocate resources.

 

The data presented in the following tables includes information for the three and nine months ended September 30, 2005 and 2004 for all statement of operations and cash flow information presented, and as of September 30, 2005 and December 31, 2004 for all balance sheet information presented.  Information related to acquired businesses is included from their respective acquisition dates.  Revenue and the related expenses are attributed to countries based on where services are provided.

 

19



 

Industry and geographic segment financial information follows. Certain prior period information has been reclassified to conform to the 2005 presentation.

 

 

 

 

 

Information

 

Coal

 

 

 

 

 

(dollars in millions)

 

Communications

 

Services

 

Mining

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

327

 

$

281

 

$

20

 

$

 

$

628

 

Europe

 

37

 

114

 

 

 

151

 

Other

 

 

20

 

 

 

20

 

 

 

$

364

 

$

415

 

$

20

 

$

 

$

799

 

Adjusted OIBDA:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

77

 

$

10

 

$

4

 

$

(4

)

 

 

Europe

 

7

 

 

 

 

 

 

Other

 

 

1

 

 

 

 

 

 

 

$

84

 

$

11

 

$

4

 

$

(4

)

 

 

Gross Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

89

 

$

2

 

$

 

$

 

$

91

 

Europe

 

5

 

 

 

 

5

 

Other

 

 

 

 

 

 

 

 

$

94

 

$

2

 

$

 

$

 

$

96

 

Depreciation and Amortization:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

142

 

$

5

 

$

2

 

$

 

$

149

 

Europe

 

14

 

 

 

 

14

 

Other

 

 

 

 

 

 

 

 

$

156

 

$

5

 

$

2

 

$

 

$

163

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

1,136

 

$

904

 

$

56

 

$

 

$

2,096

 

Europe

 

109

 

460

 

 

 

569

 

Other

 

 

54

 

 

 

54

 

 

 

$

1,245

 

$

1,418

 

$

56

 

$

 

$

2,719

 

Adjusted OIBDA:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

363

 

$

24

 

$

14

 

$

(1

)

 

 

Europe

 

10

 

7

 

 

 

 

 

Other

 

 

2

 

 

 

 

 

 

 

$

373

 

$

33

 

$

14

 

$

(1

)

 

 

Gross Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

215

 

$

8

 

$

1

 

$

 

$

224

 

Europe

 

21

 

 

 

 

21

 

Other

 

 

 

 

 

 

 

 

$

236

 

$

8

 

$

1

 

$

 

$

245

 

Depreciation and Amortization:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

425

 

$

14

 

$

4

 

$

 

$

443

 

Europe

 

57

 

 

 

 

57

 

Other

 

 

 

 

 

 

 

 

$

482

 

$

14

 

$

4

 

$

 

$

500

 

 

20



 

 

 

 

 

Information

 

Coal

 

 

 

 

 

(dollars in millions)

 

Communications

 

Services

 

Mining

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended September 30, 2004

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

390

 

$

263

 

$

25

 

$

 

$

678

 

Europe

 

33

 

114

 

 

 

147

 

Other

 

 

15

 

 

 

15

 

 

 

$

423

 

$

392

 

$

25

 

$

 

$

840

 

Adjusted OIBDA:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

109

 

$

8

 

$

5

 

$

2

 

 

 

Europe

 

4

 

1

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

$

113

 

$

9

 

$

5

 

$

2

 

 

 

Gross Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

72

 

$

2

 

$

 

$

 

$

74

 

Europe

 

10

 

 

 

 

10

 

Other

 

 

 

 

 

 

 

 

$

82

 

$

2

 

$

 

$

 

$

84

 

Depreciation and Amortization:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

142

 

$

5

 

$

2

 

$

 

$

149

 

Europe

 

21

 

 

 

 

21

 

Other

 

 

 

 

 

 

 

 

$

163

 

$

5

 

$

2

 

$

 

$

170

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended September 30, 2004

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

1,101

 

$

905

 

$

65

 

$

 

$

2,071

 

Europe

 

102

 

444

 

 

 

546

 

Other

 

 

40

 

 

 

40

 

 

 

$

1,203

 

$

1,389

 

$

65

 

$

 

$

2,657

 

Adjusted OIBDA:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

304

 

$

25

 

$

12

 

$

 

 

 

Europe

 

4

 

6

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

$

308

 

$

31

 

$

12

 

$

 

 

 

Gross Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

175

 

$

4

 

$

 

$

 

$

179

 

Europe

 

23

 

 

 

 

23

 

Other

 

 

 

 

 

 

 

 

$

198

 

$

4

 

$

 

$

 

$

202

 

Depreciation and Amortization:

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

434

 

$

19

 

$

4

 

$

 

$

457

 

Europe

 

69

 

 

 

 

69

 

Other

 

 

 

 

 

 

 

 

$

503

 

$

19

 

$

4

 

$

 

$

526

 

 

Communications Revenue and Adjusted OIBDA include termination revenue of $1 million and $132 million for the three and nine months ended September 30, 2005, respectively, and less than $1 million and $9 million for the three and nine months ended September 30, 2004, respectively.  Communications Revenue and Adjusted OIBDA for both periods in 2004 also includes $71 million of revenue attributable to an agreement reached with a local carrier.

 

21



 

 

 

 

 

Information

 

Coal

 

 

 

 

 

(dollars in millions)

 

Communications

 

Services

 

Mining

 

Other

 

Total

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

 

September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

4,770

 

$

553

 

$

88

 

$

1,278

 

$

6,689

 

Europe

 

757

 

90

 

 

27

 

874

 

Other

 

 

13

 

 

4

 

17

 

 

 

$

5,527

 

$

656

 

$

88

 

$

1,309

 

$

7,580

 

December 31, 2004

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

4,909

 

$

600

 

$

84

 

$

785

 

$

6,378

 

Europe

 

906

 

196

 

 

42

 

1,144

 

Other

 

 

14

 

 

8

 

22

 

 

 

$

5,815

 

$

810

 

$

84

 

$

835

 

$

7,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Lived Assets (excluding Goodwill)

 

 

 

 

 

 

 

 

 

 

 

September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

4,903

 

$

110

 

$

72

 

$

 

$

5,085

 

Europe

 

728

 

1

 

 

 

729

 

Other

 

 

1

 

 

 

1

 

 

 

$

5,631

 

$

112

 

$

72

 

$

 

$

5,815

 

December 31, 2004

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

4,824

 

$

119

 

$

66

 

$

 

$

5,009

 

Europe

 

859

 

1

 

 

 

860

 

Other

 

 

 

 

 

 

 

 

$

5,683

 

$

120

 

$

66

 

$

 

$

5,869

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

 

 

 

 

 

 

 

 

September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

69

 

$

196

 

$

 

$

 

$

265

 

Europe

 

 

 

 

 

 

 

 

$