Qwest to take up to $30 billion goodwill charge

Citing an accounting rule change, Qwest Communications will be forced to take a $20 billion to $30 billion write down in goodwill related to its merger with U S West.

The charge will be recorded in the second quarter of 2002 and comes as a result of accounting rule change SFAS 142, which requires companies to evaluate the goodwill on their books by the end of the year. Substantially, the entire write down that Qwest will take comes as a result of the devalued Qwest/U S West merger.

The new accounting change also eliminates further amortization of goodwill, a change that will reduce Qwest’s amortization expense by $900 million a year. As a result, the company’s net will increase the same amount.

In addition to the accounting rule change, Qwest also said it is the subject of an informal inquiry by the SEC, which is looking into the company’s fourth-quarter and year-end 2000 earnings reports. In those reports, the company presented only pro forma numbers, leaving off reported generally accepted accounting principal (GAAP) numbers.

“The [SEC] staff believes we should have disclosed GAAP numbers as well as pro forma and that we should have reconciled the two in our full-year and fourth-quarter reports,” said Robin Szeliga, Qwest’s chief financial officer, during a conference call.

Szeliga said the company expects an action to be taken against Qwest, though she did not go into specifics about what that action might be.

Qwest also announced that it has made adjustments to its fourth-quarter and full-year earnings report after auditing. The company’s net loss during the fourth quarter rose $13 million to $529 million. Net loss for full 2001 now stands at $4.023 billion.