Attention Hippy Lawyer..Please read and comment
Here's a question for you? If I use my car to commit a crime, the law can legally confiscate it. If Qwest, Enron(PGE) and other corporations used the infrastructure here in Oregon to commit the crimes they are accused of, could it be confiscated? With public owned utilities all around, we could all pay less for services and fund all of the important stuff we all talk about so much.
Qwest Communications Mulls Restating 2001 Results
By: Shawn Young, Staff Reporter of The Wall Street Journal
NEW YORK -- Richard Notebaert, Qwest Communications International Inc.'s new chairman and chief executive, is considering restating the company's 2001 financial results, erasing more than $1 billion in revenue in a bold but potentially risky bid to restore the company's damaged credibility, said people familiar with the matter.
Qwest, the Denver -based Baby Bell that serves 14 West ern and Mountain states and is the nation's fourth-largest long-distance carrier, is the target of a Securities and Exchange Commission accounting investigation and a criminal probe by the Justice Department.
The company's new management hasn't yet made a final decision on the restatement, said people with knowledge of the matter, but analysts believe a restatement is likely, and that Qwest could trim projections for the remainder of 2002.
A Qwest spokesman declined to comment, citing a quiet period before the company releases its second-quarter results later this month.
In 2001, Qwest posted revenue of $19.74 billion and a net loss of $4.01 billion, or $2.41 a share. A restatement could add about $800 million, or 50 cents a share to that loss, analysts estimated. The restatement would primarily involve revenue from so-called "swap transactions" and would have no impact on results in the current year.
A restatement could provide Mr. Notebaert with an opportunity to give Qwest a fresh start with investors and could be viewed by positively by the SEC. But it is a bold step that could backfire if more accounting problems surface. For that reason, it make take the company several weeks to make a decision about whether, and by how much, to restate, said people familiar with the matter.
Mr. Notebaert, a veteran Bell executive who ran Ameritech Corp. until shortly after SBC Communications (NYSE: SBC - News) Inc. bought in 1999, took over at Qwest last month after former Chairman and CEO Joseph Nacchio resigned under pressure.
Mr. Notebaert quickly named his former Chief Financial Officer at Ameritech, Oren Shaffer, to that post at Qwest, succeeding Robin Szeliga. Mr. Shaffer has been on the job less than a week and needs time to sort through the company's previous results, said people familiar with the matter.
Any restatement of 2001 results would most likely back out some or all of the revenue from long-term contracts for the use of Qwest's telecommunications network and certain equipment deals. The revenue from the long-term contracts is controversial because the company booked it all upfront instead of booking it in stages over the lives of the contracts, as peers like Global Crossing Ltd. (GX - News) did.
Also, some of the transactions were parts of swaps in which Qwest sold capacity on its network at the same time it agreed to buy about the same amount of capacity from its customer. Regulators and investors have questioned the legitimacy of such deals, fearing their primary purpose was to inflate revenue and give a distorted picture of the company's growth.
If Qwest restates last year's results to include only a small portion of the revenue from capacity sales, it will be booking that revenue in increments over the coming years, which could help brighten financial results in the future, analysts said.
As Mr. Notebaert begins to assert his leadership, restating the old regime's financial results is appealing, many experts say. It could help restore battered investor confidence, though there is no guarantee it would assuage investigators at the SEC or the Justice Department.
The focus of the Justice Department's inquiry remains unclear. Analysts have been expecting a restatement as a result of the SEC's inquiry, but until the recent management changes, most analysts expected any restatement to come at the behest of the SEC. In its first-quarter filing with the SEC, Qwest had said a restatement was possible.
Susan Kalla, an analyst at Friedman Billings & Ramsey, estimates the bottom- line impact of a restatement at closer to $600 million than $800 million.
Investors have been concerned Qwest could be the next to explode, in the wake of accounting scandals at Global Crossing Ltd. and WorldCom Inc. (NasdaqNM: WCOM - News) (WCOME), which is hovering at the edge of a bankruptcy filing.
In addition to concerns about its accounting, the company is struggling with a $26.6 billion debt load, the demotion of its debt to "junk" status and a severe slump in its core business. That would make the coming weeks an excellent time for Mr. Notebaert to reduce earnings expectations for the remainder of the year.
"He has one opportunity to reset the bar, and it would be in his best interest to set it early and set it low," said Ms. Kalla.
In April, the company said it expected 2002 revenue of $18 billion to $18.4 billion, which was at least $1 billion lower than its projection earlier in the year.
Qwest also expects to post a charge of $20 billion to $30 billion to write down the goodwill on its balance sheet in accordance with new accounting rules. In its first-quarter report to the SEC, Qwest said it would likely take the charge in the second quarter. Analysts are also expecting the company to write off its entire remaining investment in Dutch carrier KPNQwest, which is in bankruptcy. Qwest had already written down much of the KPNQwest investment, and is expected to write off the remaining $706 million.
Investors are expecting Mr. Notebaert to outline some of the specifics of his plans for Qwest in the coming weeks, possibly before or when the company releases its second-quarter results. Upcoming announcements could include a deal to sell all or part of Qwest's phone-directory business in order to help pay off debt. Final bids for the closely watched sale were expected Friday.
Mr. Notebaert has also indicated that he will take a more selective approach to Qwest's long-distance operation, but he isn't expected to dismantle or sell it.
"We're rationalizing the business to better serve customers," said Qwest spokesman Tyler Gronbach. That means the company will continue to maintain facilities and operations in top markets, but could decrease its presence or aggressiveness in smaller cities.
-Shawn Young, The Wall Street Journal; 212-274-7749
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