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Sat, Mar 30, 2002 - Page 19 News List

Enron's swap with Qwest raises more accounting questions

The two companies struck a deal last fall to swap fiber optic network capacity and services at inflated prices in an effort to improve each company's financial picture


The news release continued: "This customer has also agreed to purchase high-speed optical network capacity from Qwest, with approximately US$86 million or revenue recognized in the third quarter and additional future contracted revenue."

Even so, Qwest's third-quarter results were disappointing, a loss of 9 cents a share, though better than the 14-cent-a-share loss a year earlier. Revenue, considered an important barometer of how the telecommunications companies were growing, was equal to a year earlier, at about US$4.8 billion.

While the deal provided an US$86 million increase to Qwest's reported revenues in the third quarter, it reduced reported earnings by an undisclosed amount, Gronbach, the Qwest spokesman, said. He declined to reveal how much profit Qwest booked from the deal in the quarter, but said it was more than offset by the US$112 million that Qwest paid to Enron in the quarter. The deal provides for Qwest to pay Enron another US$83.5 million in two payments this year.

Tim McDonald, a telecommunications analyst at the Bank of New York, said: "Qwest has been among the most aggressive in the industry in the use of swaps. In 2001, about US$660 million of its roughly US$1 billion in network capacity sales were in the form of swaps."

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