Qwest Communications’ accounting woes continue to mount, as the No. 4 local phone company said Thursday that a federal probe of its books has widened and its planned restatement for 2000-2002 has grown yet again.
Qwest said it is cooperating with investigators and its auditor, KPMG, but gave no hint of when it will have audited books. It says the restatement could grow. Qwest CFO Oren Shaffer calls the process a ”massive undertaking.”
The gloomy update overshadowed first-quarter results in which Qwest posted net income of $150 million, or 9 cents a share, in part helped by an accounting change. Qwest reversed a $23.9 billion year-earlier loss largely because of an asset write-down. Revenue fell 9% to $3.6 billion, as Qwest, like its peers, suffers from slack customer spending and tough competition.
”These investigations are undermining a decent operational performance in a tough environment,” says Guzman & Co. analyst Patrick Comack. ”Investors believed that this would be all done by now, and it just seems far from done.” Qwest shares fell 2% to $4.60.
The latest changes cut revenue for 2000 and 2001 a total of $74 million, in addition to the $2.2 billion in affected revenue that Qwest had earlier identified. The changes add $47 million in revenue to 2002. Also, Qwest’s net loss for 2000 through 2002 increased $3.1 billion because of new adjustments to its balance sheet. The adjustments include changes in how Qwest accounted for its US West merger, as well as write-downs of assets that have lost value.
Qwest says the Securities and Exchange Commission expanded its ”inquiry into further adjustments and restatements the company has made, as well as additional transactions.” It didn’t specify what’s new in the investigation, now more than a year old. Qwest says it thinks the U.S. attorney in Denver is looking at similar things.
Qwest didn’t address settlement talks with the SEC, now stalled as the SEC seeks an internal Qwest report saying accounting changes for certain deals were unneeded. Accounting on many deals has since been deemed improper.
So far, prosecutors and the SEC have accused eight former and current managers of improperly booking $144 million in revenue in 2000 and 2001 so Qwest could meet its growth targets.
Qwest has disclosed that investigators are looking at how it booked revenue from network capacity and equipment sales, as well as in its publishing unit. Prosecutors and the SEC are also looking at deals in which Qwest officials got stock in companies that sold equipment to Qwest, people familiar with the matter say. One issue is whether Qwest wasted cash on equipment so individuals could benefit, these people say.
While its accounting woes linger, Qwest needs to clear other hurdles.