Qwest admits to accounting errors, pulls guidance

Qwest Communications today said an internal investigation has determined that it misapplied its accounting policies in relation to optical capacity asset sale transactions in 1999, 2000 and 2001 and that it may be forced to restate earnings for those years.

The company also announced that further adjustments are required to account for certain sales of equipment in 2000 and 2001.

Additionally, Qwest said it investigation found in a few transactions, it did not properly account for certain expenses incurred for services from telecommunications providers in 2000 and 2001.

Furthermore, the company has pulled its previously stated financial guidance for the rest of this year and will provide new numbers when it reports second quarter results on Aug. 8.

In a conference call this morning, Qwest Chairman and CEO Richard Notebaert said the company is not restating its earnings, just updating the investing public on its internal investigation.

“We cannot restate until we complete the internal investigation,” he said.

At the core of that investigation are revenues recognized from optical capacity sales and sales of equipment. As part of today’s announcement, the company said it has concluded that $1.16 billion in revenue was recognized as a result of misapplied revenue recognition policies approved by its previous auditor, Arthur Andersen in 1999, 2000 and 2001. Of that amount, $591 million was recognized by the company after its merger with U S West.

“This has nothing to do with someone transferring amounts,” said Oren Shaffer, vice chairman and CFO. “This is purely and simply an accounting error. These things happen.”--Vince Vittore