Qwest in Talks to Settle SEC Investigation

Qwest Communications International Inc. reportedly is in talks to reach a settlement agreement with the Securities and Exchange Commission over an investigation into the company’s accounting practices.

The talks are in the early stages, The Wall Street Journal reported Thursday, citing people familiar with the matter. The Justice Department also is investigating Denver-based Qwest.

The shares of Qwest plummeted to a record low in late July following the latest accounting scandal to contaminate the telecommunications sector. Qwest shares were trading Friday afternoon at $1.52 on the New York Stock Exchange.

On July 28 Qwest announced it had improperly accounted for up to $1.16 billion in optical sales revenue over three years. Sales of optical capacity in 2000 and 2001, including swaps, represented 2.8 percent and 5.1 percent of total reported revenue in those periods, or $468 million and $1.013 billion respectively.

Qwest also withdrew its annual forecast and noted it would restate financial results - a move analysts said could result in lower earnings and bank covenant violations. The company said it is continuing to analyze its accounting policies and practices in consultation with its new auditor, KPMG LLP.

Qwest will release its second quarter results Thursday at 6 a.m. E.S.T.

Yesterday Qwest announced it had reached an agreement to sell the assets of its application service provider unit, Qwest CyberSolutions LLC, to Corio Inc. Saddled with more than $26 billion in debt, Qwest also is in talks to sell its phone directory business, QwestDex.

Lehman Brothers analyst Blake Bath says Qwest’s management under new CEO Richard Notebaert is seeking to exit much of the company’s out-of-region businesses.

Qwest’s former CEO Joe Nacchio helped build a 190,000-mile global network. But with broadband demand failing to materialize at the rate carriers anticipated, partially resulting in the subsequent collapse of telecom startups, Qwest found itself sitting on assets that generated significantly less cash flow than the debt required to acquire them.

Qwest posted $18.44 billion in 2001 recurring revenue. Yet the company generated 80 percent of its revenue and 90 percent of its EBITDA (earnings before interest, taxes, depreciation and amortization) in its 14-state region spanning states in the Midwest and West.

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