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THE WORLDCOM SCANDAL

Qwest's Shares Plummet

June 27, 2002|From Bloomberg News

Qwest Communications International Inc.'s stock lost more than half its value Wednesday amid concern that regulators may force the telephone company to restate its financial results after rival WorldCom Inc. disclosed it hid losses.

The Wall Street Journal reported Wednesday that Qwest, operator of a fiber-optic network, is under tough scrutiny by the Securities and Exchange Commission for how it accounted for as much as $1.4 billion in sales of capacity to rivals. Citing people close to the probe, the paper said the SEC is examining whether it was proper for the company to include the revenue upfront on its books.

After the markets closed, Qwest announced that Marilyn Carlson Nelson was resigning as director of the company, adding that the move was not related to the SEC investigation.

The SEC, which began investigating Qwest in March, is looking at transactions in which the company sold network space to other carriers, then agreed to buy a similar amount from them. Investors have questioned whether Qwest used the "swaps" to improperly inflate sales. Qwest has said its accounting is proper.

Qwest shares closed at $1.79, down $2.40, on the New York Stock Exchange on Wednesday after falling as low as $1.20, the lowest since they began trading in 1997. It was the fourth most actively traded stock in the U.S. The decline in Qwest's share price, from a high of $66 in March 2000, has wiped out more than $100 billion in market value.

"Qwest is a different company [from WorldCom] and I wouldn't be here if I didn't believe that," Chief Executive Richard Notebaert said. "I don't believe that anything has changed in the way that we are working with the SEC."

A Qwest spokesman declined further comment.

WorldCom said Tuesday that it fabricated profit by misreporting $3.9 billion of costs in the last five quarters.

Denver-based Qwest has said it may have to restate financial results for the last three years. Qwest, the fourth-biggest U.S. local telephone carrier, disclosed in April it had revised 2001 revenue lower, resulting in a wider net loss. Arthur Andersen, which had been WorldCom's auditor, also audited Qwest until it was dismissed this year in favor of KPMG.

Qwest has reported eight straight quarterly losses and is trying to pay down $26.4 billion in "junk"-rated debt. It also has eliminated 13,000 jobs.

Notebaert, who replaced Joseph Nacchio this month, is trying to sell the company's directory publishing unit by year's end to avoid a loan default. Analysts value the unit at as much as $10 billion.

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