On the surface, it looks as though Qwest is adjusting its stance and working with the SEC on some controversial accounting practices. The market impact so far has been muted, with Qwest's stock off only slightly. At press time, Qwest shares were trading at $7.75, down $0.25 (-3.13%).
After market close last night, Qwest CEO Joseph Nacchio took to the phones with CFO Robin Szeliga to present the news to Wall Street and answer analysts' questions. Four key points emerged:
CFO Szeliga says the move will cut amortization expense by $900 million annually. Either way, analysts say, the non-cash adjustments won't sustantially affect the company's financials.
Nacchio stressed that he didn't regret the merger. He asserted that Qwest is working to obtain FCC approval for running long-distance as well as local service in the 14-state US West region. If approved later this year, he says, "That will give us access to a $10 billion market."
Even Qwest's astronomical goodwill writedown has drawn little more than a sniff from observers. "It does appear high," acknowledges Frank G. Louthan IV of Raymond James Capital Markets. "But it should come as no surprise when valuations in the whole sector have come down." Analysts seem particularly uninterested in the writedown since it's not likely to affect Qwest's newly reestablished debt covenants (see Qwest Gets a Reprieve).
Few seem to care whether the ongoing SEC inquiries and accounting adjustments call into question the judgment or integrity of Qwest's executive team. "We keep our emotions out of the game," Robinson says. "We ignore the overall noise and focus on the value to investors."
— Mary Jander, Senior Editor, Light Reading