LEVEL 3 COMMUNICATIONS FILES 1998 FORM 10-K
Previously Stated Research & Development Charge Adjusted in Accordance with new SEC Guidelines Board Approves Increase to Number of Authorized Shares
OMAHA, NE, March 31, 1999 – Level 3 Communications, Inc. (Nasdaq: LVLT) today filed its 1998 Form 10-K with the Securities and Exchange Commission (SEC). The filing reflects an anticipated adjustment to the in-process research and development charge taken in the second quarter of 1998 in conjunction with the company's acquisition of XCOM Technologies, Inc. (XCOM).
This adjustment results in a change to full year 1998 earnings per share from the previously reported $0.40 per share to $0.64 per share.
XCOM Technologies Acquisition:
On April 23, 1998, Level 3 acquired XCOM, a privately held company that was developing technology which
Level 3 believed would provide certain key components necessary to develop an interface between its IP-based network and the existing public switched telephone network. The company accounted for this transaction, valued at $154 million, as a purchase. Of the total purchase price, $115 million was originally allocated to in-process research and development and was taken as a nondeductible charge to earnings in the second quarter of 1998. The purchase price exceeded the fair value of the net assets acquired by $30 million, which was recognized as goodwill.
In October 1998, the SEC issued new guidelines, which are to be applied retroactively, for valuing acquired research and development. The company believes its treatment of the acquisition was made in accordance with generally accepted accounting principles and established appraisal practices at the time of the acquisition. However, due to the significance of the charge relative to the total value of the acquisition, the company reviewed the facts and assumptions with the SEC. Consequently, using revised guidelines and assumptions suggested by the SEC, the company reduced the charge for in-process research and development from $115 million to $30 million and recorded an increase to goodwill of $85 million. The goodwill associated with the XCOM transaction is being amortized over a period of five years.
This revised charge is still subject to final SEC review, however the company does not expect that any subsequent adjustment would be significant. The change to the company's previously reported fourth quarter and year end 1998 results due to the reduction of the research and development charge and the offsetting increase in amortization are shown in attachment 1.
In connection with SEC guidelines, the quarterly reports on Form 10-Q for the second and third quarter of 1998 will be amended and restated to reflect these changes.
Increase in Authorized Shares:
On February 25, 1999, the Level 3 Board of Directors approved an increase in the number of authorized common shares outstanding from 500 million to 1 billion. This increase is still subject to the approval of stockholders, which will be voted on at the company's 1999 Annual Meeting on May 27, 1999. The increase in authorized shares outstanding will have no affect on the company's current operations or financial condition.
About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT), an international communications company, operates one of the largest Internet backbones in the world, connecting 180 markets in 18 countries. The company serves a broad range of wholesale, enterprise and content customers with a comprehensive suite of services including: Internet Protocol (IP) services, broadband transport and infrastructure services, colocation services, voice and voice over IP services, content delivery and media distribution services. These services provide the building blocks to enable Level 3’s customers to meet their growing demands for advanced communications solutions. The company’s Web address is www.Level3.com.
"Level 3 Communications,” "Level 3," the red 3D brackets and the Level 3 Communications logo are registered service marks of Level 3 Communications, LLC in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service, product or company names recited herein may be trademarks or service marks of their respective owners.
Forward-Looking Statement
Some of the statements that we make in this press release are forward looking in nature. These statements are based on management’s current expectations or beliefs. These forward looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual events to differ materially from those expressed or implied by the statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to our ability to: successfully integrate acquisitions; increase the volume of traffic on our network; defend our intellectual property and proprietary rights; develop new products and services that meet customer demands and generate acceptable margins; successfully complete commercial testing of new technology and information systems to support new products and services; attract and retain qualified management and other personnel; and meet all of the terms and conditions of our debt obligations. Additional information concerning these and other important factors can be found within Level 3’s filings with the Securities and Exchange Commission. Statements in this press release should be evaluated in light of these important factors. Level 3 is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
