Qwest misses but shores up liquidity

Qwest Communications reported revenues for the second quarter that were down more than 17% year over year.

For the quarter ending June 30, the company’s revenues were $4.32 billion, down from $5.22 billion in the same period last year. The drop was due mainly to a lack of demand for optical capacity and IP equipment sales. Net loss for the quarter was $1.14 billion or 68 cents per share, compared with a net loss of $3.31 billion or $1.99 per share a year ago.

Included in these figures are non-operating items that accounted for $926 million of the company’s net loss, or 55 cents per share. The most significant of these was a $740 million writedown of the company’s bankrupt European joint venture, KPNQwest. Qwest also increased its bad debt reserves by $119 million to account for the WorldCom bankruptcy.

Excluding these charges, the company posted a normalized loss per share of 13 cents, significantly worse than the analyst consensus 7-cent loss as compiled by First Call.

Qwest changed the manner in which it reported results by business segment. Instead of dividing the company by U S West, the ILEC business, and Classic Qwest, the long-haul business, it will now report in the three “customer-facing” segments of business, consumer and wholesale.

Recurring revenues for business services for the quarter were $1.55 billion. Excluding optical capacity asset and certain IP equipment sales, revenues declined 2.4% year-over-year. Wholesale serves revenues were $995 million. Again excluding optical capacity asset and certain IP equipment sales, revenues for the unit were down 12%. Consumer revenue was down 4.8% to $1.41 billion, largely due to a 4.6% decline in consumer access lines.

The poor performance for the quarter was expected, however. Late last month, Qwest withdrew its guidance for the full year 2002 while announcing it would restate earnings for 1999 through 2001. In addition, because of the ouster of Joe Nacchio and appointment of Dick Notebaert as CEO midway through the quarter, many analysts were prepared to give the company a pass, allowing the new management team to start with a clean slate for the second half of the year.

On the positive side for Qwest, the company said it has been discussing extending the term and loosening the covenants on its credit facility with Banc of America, the lead bank on the facility.

“Along with our lead bank, we will begin obtaining approvals from the rest of the banks and our credit syndicate beginning next week,” Notebaert said.

In addition, Banc of America has committed to providing $200 million of a proposed $500 million senior secured credit facility at Qwest’s directory unit. The sale of this unit is proceeding, said Notebaert, and the company hopes to make an announcement shortly. If the directory unit is sold, Qwest will try to move the facility to another unit of the company, he said.

According to Notebaert, these moves will alleviate any near term liquidity issues at Qwest.

“Once we restructure our credit facility, we believe that cash flow from operations and available debt financing will be sufficient to satisfy our liquidity needs for at least the next twelve months,” he said.