Qwest to restate earnings; accounting cited

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DENVER -- Qwest Communications International Inc. said yesterday it expects to restate its earnings for 1999 to 2001 because of accounting errors.

The company said accounting policies were incorrectly applied to fiber-optical swaps in 1999, 2000 and 2001 totaling about $1.1 billion.

Company officials declined to estimate the effect of the revenue adjustment or when a possible restatement of the revenue would be done.

"Most of these things are going to deal with timing," Qwest's chief financial officer, Oren Shaffer, told The Associated Press last night. "Should this have been in this period or in another period."

"We would rather it happen sooner than later, and we have a great sense of urgency," Qwest Chief Executive Dick Notebaert said in an interview. "But we do want to do it with diligence. We do imagine it will take months and not days."

Qwest, whose accounting practices are under investigation by federal regulators and prosecutors, also said it would miss the Aug. 14 deadline set by the Securities and Exchange Commission for the nation's biggest companies to certify the accuracy of their financial statements.

The SEC is investigating Qwest's fiber-optics swaps with Global Crossing, Enron and others in 2000 and 2001.

At issue is whether the fiber-optic capacity swaps were done for legitimate business reasons, were priced at fair market values and were properly accounted for.

Qwest bought telephonic capacity on another company's system and booked it as a capital expense, which is recorded slowly over several years, while selling the same amount of capacity to the other firm, and booking that immediately as revenue.

The expected restatement comes at a time when the federal government is pledging a thorough crackdown on corporate misdeeds after a series of scandals at major companies has eroded investor confidence.

The Justice Department is investigating Qwest, and the General Services Administration is reviewing government contracts with the Denver-based telecom company.

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The expected restatement of the company's financial reports will also include adjustments for three transactions relating to equipment sales that totaled $283 million in 2000 and 2001. The company has determined that revenue and profit in those transactions were incorrectly recognized upfront.

Additionally, Qwest improperly recorded cost entries for services it purchased in 2000 and 2001. In 2000, Qwest overstated costs by $15 million and in 2001 Qwest understated costs by $113 million.

Seattle P-I

-- Anonymous, July 29, 2002


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