Qwest forced to adjust financial results

A change in US accounting rules has forced Internet carrier Qwest Communications International to take a write-down of up to...

A change in US accounting rules has forced Internet carrier Qwest Communications International to take a write-down of up to $30bn (£21bn) for the value of the assets acquired when it bought telephone company US West three years ago.

Qwest, which is the world's third-largest carrier of Internet traffic, paid $44bn (£31bn) for US West in 1999.

Earlier this week, Qwest executives revealed that they expect the US Securities and Exchange Commission (SEC) to recommend administrative or legal action against the company regarding the reporting of pro forma financial results for the fourth quarter of 2000.

Qwest should have disclosed results more clearly under generally accepted accounting principles (GAAP) as well as pro forma accounting for the fourth quarter of 2000, a spokeswoman said. Qwest disclosed only pro forma results.

GAAP results are standardised earnings reports filed quarterly by companies with the SEC, while pro forma results usually reflect the structural changes of a company after merging with another company or selling or closing part of its business.

Joe Nacchio, Qwest's chairman and chief executive officer, said that there was no SEC rule or proposed rule at the time that required GAAP earnings to be stated in a press release. He added that GAAP numbers would not have made sense to analysts and investors wanting to compare the company's performance with that of the previous year, he said.

The SEC could hold a hearing or take action in federal court, Nacchio said. Fines are a possibility, but Nacchio expects the SEC to fail in a court challenge because, he insists, Qwest did nothing illegal with its press releases.

The write-down of goodwill comes from accounting rules passed last year by the Financial Accounting Standards Board (FASB) requiring companies to review the value of their mergers periodically and to take write-downs immediately.

Goodwill reflects the difference between what a company paid for an acquisition and its value as reflected on the company's books. FASB is an independent, private-sector board responsible for setting financial accounting and reporting standards governing financial report preparation.

Qwest expects the charge to come during the second quarter of 2002; Nacchio said existing operations would be unaffected by the charge.

"When Qwest merged with US West, we agreed to terms at the time that reflected the fair value of the transaction," Nacchio said.

He added that in 1999 no one could have predicted the tough economy and overcapacity problems that damaged the long-distance data transportation market and investor confidence in telecoms companies.

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