Qwest to restate $950 million in 'swap' sales

DENVER — Qwest Communications yesterday reversed $950 million in revenue it had booked from "swaps" of capacity on its fiber-optic network and said it may have to adjust an additional $531 million in revenue from cash sales of optical-capacity assets to third parties.

The $950 million restatement is from swaps in 2000 and 2001 in which Qwest nearly simultaneously bought and sold network capacity with another telecommunications company, regulatory filings show.

The Securities and Exchange Commission is investigating whether the swaps helped to artificially boost revenues for Qwest, the biggest local phone company in Washington and 13 other states. Qwest also is the subject of a Department of Justice investigation, and a House committee plans hearings this week on deals among several telecommunications companies.

In a written release yesterday, Qwest said the revenue from capacity swaps was based on accounting policies approved by its previous auditor, Arthur Andersen.

Qwest switched from Andersen to KPMG in May after Andersen was indicted on charges of destroying records related to former energy trader Enron. Qwest decided not to recognize the swaps as revenue after analyzing its previous practices and consulting with KPMG. The company said its analysis also was influenced by discussions in July with SEC officials.

Qwest said in July it would restate results after misreporting at least $1.16 billion in revenue from 1999 to 2001. The company also admitted to improperly accounting for expenses related to buying services from other phone companies.

Qwest said its accounting for cash sales of optical-capacity assets to third parties was also based on policies approved by Andersen.

The company said it is reviewing the accounting for cash transactions totaling $531 million to decide whether a restatement is required. It is unclear when the restatements will be completed, the company said.

Qwest said it expects third-quarter operating income and future depreciation expenses will be reduced because of asset writedowns that it will take.

Two Qwest executives are to testify about the capacity swaps tomorrow before the House Energy and Commerce Committee. Former Chief Executive Joe Nacchio is expected to testify in October.

Software maker Peregrine files for bankruptcy, will sue Andersen

SAN DIEGO — Software maker Peregrine Systems filed for bankruptcy yesterday and said it planned a $250 million lawsuit against its former auditor, Arthur Andersen, blaming the accounting firm for its dire financial condition.

Peregrine began a downward spiral in May with the disclosure of irregularities in financial statements audited by Andersen. An internal investigation found revenue inflated by as much as $250 million from April 1999 to the end of 2001. The company said it improperly booked the sale of accounts receivables as revenue.

A cash and credit crunch, an investigation by the Securities and Exchange Commission and shareholder lawsuits followed the disclosures. Peregrine's stock, which trades for pennies, was removed last month from the Nasdaq Stock Market.

The Chapter 11 petition, filed in U.S. Bankruptcy Court in Delaware, listed company assets of $1.7 billion and more than $607 million in liabilities.

The San Diego company fired Andersen as its auditor April 2 and fired its replacement auditor, KPMG, at the end of May.

KPMG then informed the Securities and Exchange Commission of possible financial fraud at the company.

In June, Peregrine slashed half its work force, or 1,400 jobs, and closed some offices.