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Level 3 Warns of Revenue Shortfall

The networker narrowed its loss, but said AOL's spending cuts will crimp '04 sales.
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Level 3 Communications


posted a narrower-than-expected loss for the fourth quarter, but the fiber-optic networker tamped down revenue expectations for the first half of 2004 because big customer AOL was cutting its purchases. The company's stock was off 11% in premarket trading.

The Broomfield, Colo.-based company posted a fourth-quarter loss of $121 million, or 18 cents a share, compared with a year-earlier loss of $313 million, or 73 cents a share. Excluding certain one-time items, the company's loss was 30 cents a share, better than the 32 cents a share Wall Street expected, according to the Thomson Financial/First Call estimate.

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Revenue rose 13% to $988 million, above the $935 million Thomson Financial estimate. Level 3 said consolidated free cash flow was negative $15 million, and net cash provided by operating activities was $29 million.

"Our unlevered cash flow performance was better than expected this quarter," said James Q. Crowe, CEO of Level 3. "We generated $25 million of positive consolidated free cash flow for the last half of 2003."

Looking forward, Crowe said "demand and pricing for basic optical transport and IP services remained challenging during the fourth quarter and we expect these market conditions to remain unchanged through 2004."

The company said that AOL planned to reduce dial-up capacity. While AOL, a unit of Time Warner, didn't give an exact number on the spending cuts, Level 3 said AOL's cut and "other factors" could reduce modem revenue by $100 million to $150 million. The company said it expects communications revenue to decline a high-single-digit percentage in 2004 versus 2003," said Crowe. "However, our goal is to report positive growth in fourth quarter 2004 revenue vs. fourth quarter 2003 as a result of the expected contribution from new services, as well as growth in existing businesses, excluding managed modem."

Level 3's stock was off 60 cents to $5.01 in premarket trading, according to Yahoo!.