July 29, 2002, 9:20 AM — Qwest Communications International Inc. has admitted that it wrongly booked certain sales of optical capacity assets and other telecommunication equipment in 1999, 2000 and 2001, the company said in a statement late Sunday in the U.S.
"Accounting errors were made. They will be corrected," said Dick Notebaert, Qwest's chairman and chief executive officer, on a conference call held early Monday.
The U.S. Securities and Exchange Commission (SEC) began an investigation in April into those matters. That investigation is continuing, Qwest said in its statement.
Qwest will now have to restate its financial results for those years, once its analysis of its accounting policies is completed together with its new accountant KPMG LLP, a process that may take some time, according to the statement.
Notebaert said he did not know when the restatement would be completed, though Chief Financial Officer Oren Shaffer, also speaking on the conference call, said "I think that's going to take months."
Qwest said it had identified that it:
-- applied its accounting policies incorrectly with respect to certain optical capacity asset sale transactions in 1999, 2000 and 2001, with the disputed revenue totaling US$1.16 billion. Eighteen percent of optical capacity sales over this period were accounted for incorrectly, Notebaert said on the call.
-- incorrectly recorded certain sales of equipment in 2000 and 2001 amounting to $283 million, and will have to adjust revenue figures accordingly.
-- in a limited number of transactions it did not properly account for certain expenses incurred for telecommunication services in 2000 and 2001. The company overstated costs by $15 million in 2000 and understated them by $113 million in 2001.
KPMG will be unable to sign off Qwest's second-quarter results -- due next week -- because of the ongoing uncertainty and continuing analysis of the company's figures for past years, according to the statement. KPMG is Qwest's new accountant. The company had previously employed Arthur Andersen LLP as its accountant.
Qwest also said it is withdrawing its financial guidance for the full year 2002 due to continuing weakness in the telecommunications sector and also to competitive pressure, and will issue a revised guidance along with its second-quarter results, on Aug. 8. The company is expected by the 27 analysts polled by Thomson Financial/First Call to post a loss of $0.07 per share for the quarter.
"We are committed to completing this analysis as expeditiously as possible," Notebaert said.
Qwest's disclosure comes about a month after another major telecommunication provider, WorldCom Inc., announced its own accounting problems, problems that will cause the company to restate its earnings for 2001 and the first quarter of 2002 by nearly $4 billion. Arthur Andersen was also WorldCom's accountant, though WorldCom has since contracted KPMG as well.
Notebaert was quick to stress, however, that Qwest's situation was not the same as WorldCom's.
Much of the issue at hand "is purely and simply an accounting error," unlike the WorldCom situation, he said.
Markets reacted badly to the news, sending Qwest's stock (Q) down $0.35, or 23 percent, to $1.15.
