Another Shoe Drops
The news keeps getting bad for the telecom sector, as Qwest Communications
After beginning a review earlier this year, Qwest, a Denver-based telecom
operating in 14 western states, determined that it had incorrectly accounted
for sales of optical capacity assets (usually known as Indefeasible Rights
of Use, or IRUs), in addition to some equipment transactions. The company
said it, along with auditor KPMG, would continue to probe the transactions,
but it expects to restate its financial results at the end of the
investigation.
"We are committed to completing this analysis," CEO Richard Notebaert said
in a conference call Monday morning. "We will provide transparency in our
financial" reporting.
The accounting scandals that have engulfed the telecom industry were
expected to touch Qwest, which has been the subject of numerous federal and
state investigations into its financial-reporting practices. In March, the
Securities and Exchange Commission (SEC) began informally investigating the
company's2000
and 2001 earning reports. The SEC has also probed Qwest's dealings with
bankrupt telecommunications firm Global Grossing. Earlier this year, the SEC issued staff recommendation
that action should be taken against the company for not releasing some
information when it acquired U.S. West in Jan. 2001 for $44 billion.
How to
treat IRUs has become a thorn in the side of telecom companies, since
they can easily be used to inflate earnings by selling them back and forth.
In February, the SEC began to probe
Global Crossing's use of IRUs, subpoenaing documents
from Qwest in the process.
The company's myriad of woes forced out CEO Joseph Naccio last month.
Naccio's replacement, Notebaert, said the restatements would not force Qwest
into bankruptcy, but he declined to discuss Qwest's negotiations with its
creditors. In addition to the accounting errors and the many investigations
into other aspects of its business conduct, Qwest has a mountain of
long-term debt, $25 billion at the end of last year.
In addition to announcing the anticipated restatement, Qwest withdrew its
2002 financial guidance and announced it would report its second-quarter
earnings on Aug. 8.
announced late Sunday it would restate its earnings from 1999
to 2001, slicing off nearly $1.1 billion of transactions.