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. Last Updated: 07/27/2016

Qwest to Write Down Its Assets by $34.8Bln

NEW YORK -- Qwest Communications International said late Monday that it would write down the reported value of its assets by $34.8 billion, an accounting change that wipes out the book value of shareholders' equity in the company but does not directly affect Qwest's cash reserves or current operations.

The company, which provides local phone service in 14 U.S. states and other services in the rest of the country and overseas, also warned that it would probably write down an additional $6 billion in assets when its auditors finish reviewing its books for this year.

In addition, Qwest said it would restate its accounting for cash sales of capacity on its long-distance fiber optic networks in 2000 and 2001, deducting $531 million from revenue it had reported to investors in those years.

"It's more an accounting operation than a statement about the company's financial health,'' said Tyler Gronbach, a Qwest spokesman.

While the numbers were numbingly large, Wall Street had braced itself over the last few months to hear them. Thus, it was an additional accounting change involving just $120 million that most upset analysts. That was the sum Qwest said it would subtract from reported revenue in its wireless phone business in 2000 and 2001 to more completely reflect the costs of promotional campaigns and special pricing packages for cellphone services.

"This is a new problem and it taints a business Qwest has been trying to sell,'' said Patrick Comack, an analyst at Guzman & Co. in Miami. "About the best spin you can put on this is that the new management is going after every problem."

Qwest appointed Richard Notebaert as chairman and chief executive in June, replacing Joseph Nacchio, who had been chief executive, and Philip Anschutz, a reclusive billionaire investor who had been chairman and remains Qwest's largest shareholder. Notebaert has since replaced many of the executives who worked under Nacchio.

Shares in Qwest, which is based in Denver, closed at $3.46, up 20 cents, in regular trading on Monday. After Qwest made its announcement, the shares fell as low as $3.22.

The largest of the write-downs was $24 billion to cover the reduced value of good will and other intangibles -- most of which were accumulated as part of the accounting for Qwest's merger in 2000 with US West -- under new accounting standards that took effect in January.

Qwest had previously disclosed that it would have to write down $20 billion to $30 billion under the new rules.

It said that factors like conditions in the phone industry and the low value of Qwest's stock would probably force it to write off the remaining $6 billion in good will on its books.

The more telling indicator of how troubles in the industry have affected the value of the huge investments Qwest made to build a modern fiber optic network lay in the news that its final report on the second quarter of this year will include an $8.1 billion write-down in the market value of its physical assets. Qwest said it would also reduce the book value of intangible business assets by $2.7 billion.