DENVER -- Qwest Communications International Inc., the subject of a Securities and Exchange Commission accounting inquiry, said yesterday that regulators may force the phone company to restate financial results for the past three years.

The investigation might "have a material effect on Qwest's reported net income or earnings per share," from 1999 through 2001, Qwest said in an SEC filing.

The fourth-biggest U.S. local-phone company -- Washington state's largest -- also disclosed that it had revised last year's revenue lower, resulting in a wider loss.

Regulators are looking at transactions in which Qwest sold space on its fiber-optic network to other carriers and then agreed to buy a similar amount of capacity from them.

Qwest was denied access to the commercial paper market in February after investors questioned whether the Denver-based company used the swaps to improperly inflate sales. Qwest says its accounting is proper.

"Any types of restatements aren't good news," Standard & Poor's analyst Greg Zappin said. "I'm not sure it has a credit (rating) impact, but cumulatively, all these things start to add up." Zappin talks with Qwest several times a week.

The company also said its adoption of an accounting change regarding good will, or the difference between the price paid for an asset and its book value, may result in a write-down of $20 billion to $30 billion this year. The write-down would reflect a drop in the value of local-phone company US West Inc., which Qwest acquired in 2000 for $44 billion. Qwest also expects to write down the value of its investment in the KPNQwest NV venture, Europe's second-biggest provider of Internet access to businesses. The write-down "may be significant," the company said in the filing. It didn't elaborate.

Last year, Qwest took a $3 billion write-down for KPNQwest, whose shares have dropped 68 percent in the past year. Qwest owns about 214 million shares of the venture.

Standard & Poor's rates Qwest's debt two notches above junk with a negative outlook, meaning it's more likely than not to be downgraded. Moody's Investors Service rates it one level above junk and has it on review for a possible downgrade.

"One of the two biggest things the bond market is looking for is how the rating agencies handle this," said Robert Rock, a fixed-income analyst at John Hancock Advisers, which owns Qwest bonds as part of a $30 billion portfolio.

The other is the company's progress in reducing the $24.9 billion in debt it had at year's end, he said.

Qwest revised its 2001 loss to $4.02 billion from the reported $4.01 billion because of "year-end adjustments we made when we closed our books," Chief Executive Officer Joseph Nacchio said yesterday. "We do not believe these adjustments are material."

In 2000, Qwest reported a loss of $81 million, or 6 cents a share. In 1999, the company had net income of $1.34 billion, or $1.52 a share.

Seattle P-I

-- Anonymous, April 03, 2002