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Qwest Misses SEC Deadline

DENVER -- Qwest Communications International Inc. (NYSE: Q) told the Securities and Exchange Commission (SEC) on Tuesday that it won’t be able to meet the deadline for its 2002 annual report because of continuing audits of its financial statements.

In a press release issued after the market closed, the company stated that its auditor, KPMG, is still in the middle of the complex and time-consuming audit, which will examine three years of financial data.

At a press event at Qwest headquarters here yesterday, Richard C. Notebaert, the company’s chairman and CEO, refused to answer questions about the filing of the 10-Q, citing SEC restrictions on fair disclosure. But he did talk about the audit.

“It’s a lot slower than anyone would like, and it’s something that we would like to get behind us,” he said. “Obviously, investors, employees, retirees, and bondholders would like to see us have audited financials affirmed by the CFO and CEO of the company. By the way, I would too.”

Notebaert would not give a target date for completion of the audit.

“You have to understand that, although we as a company may be working very hard on this, we have an external monitor,” he said. “And the most important thing we can do is to ensure the quality and credibility and transparency of the process. So we aren’t going to artificially create something.”

For about a year, Qwest’s accounting practices have been under investigation by, not only the SEC, but also the U.S. Justice Department. The company has said it expects to restate about $2.2 billion in sales in 2000 and 2001.

Specifically, investigators have been looking into deals between carriers that may have incorrectly inflated revenues by booking fiber swaps as sales. Other carriers like WorldCom Inc. (OTC: WCOEQ) have also come under fire for similar practices.

Back in February, a federal grand jury indicted four former Qwest executives for alleged false reporting of $33 million in revenues in 2001 (see Prosecutors' Party at Qwest). On the same day, the SEC filed civil fraud charges against seven former and one current Qwest employee, accusing them of artificially inflating the company’s revenues by about $144 million in 2000 and 2001.

According to its unaudited end-of-year results, the company lost about $35.9 billion in 2002, compared to a loss of $4.8 billion in 2001 (see Qwest: Decent Quarter, Drab Outlook). The 2002 loss included huge accounting charges, such as a $30 billion goodwill reduction and $10.9 billion in asset impairments.

In the fourth quarter of 2002, the company actually posted its first profit in 11 quarters with net income of $2.7 billion. This compares with a net loss of $214 million the previous quarter. But revenue actually dropped 3.1 percent from the third quarter to $3.7 billion.

On Tuesday, before the news was announced, Qwest’s stock closed up slightly $0.09 (2.58%) to $3.58.

— Marguerite Reardon, Senior Editor, Light Reading

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