The situation facing Qwest Communications International (Q) CEO Joseph Nacchio is going from bad to worse. On Apr. 1, Qwest said that it will take a charge of $20 billion to $30 billion to write down its goodwill and that the Securities & Exchange Commission has opened a second investigation into its finances.
The first SEC inquiry, disclosed in March, focuses on the phone company's accounting for sales of fiber-optic capacity and other items. The second SEC probe focuses on a January, 2001, press release in which Qwest disclosed pro forma earnings but did not release financial data based on generally accepted accounting principles (GAAP). The SEC staff has recommended taking action against Qwest, alleging that the company should have included both pro forma and GAAP earnings.
Nacchio says that Qwest reported pro forma numbers because of its merger with US West in 2000--and investors wanted to know how the two companies would have done if they had been together for the full year. What action, if any, the SEC will take has not been determined. Crude oil prices hit their highest mark in six months, thanks to rising tension in the Middle East. On Apr. 3, crude for May delivery closed at $27.56 a barrel on the New York Mercantile Exchange on fears that the Israeli-Palestinian conflict could lead to a disruption of supplies. But most analysts dismiss the idea of an oil embargo like the one in 1973, which sent prices soaring. The Energy Dept. is estimating an average oil price of $26 a barrel this year. Still, some economists fear that rising energy prices, up more than 30% over the past month, could slow the economic recovery. Encouraged by a stellar 41.7% gain in U.S. sales in 2001, Hyundai Motor, South Korea's largest auto maker, will build a $1 billion plant in Montgomery, Ala., with annual capacity of 300,000 vehicles. Hyundai President Kim Dong Jin said the U.S. plant is part of an expansion plan to make his company the world's fifth-largest vehicle maker by 2010, up from No. 7 now. Hyundai plans to build midsize sedans and sport-utility vehicles at the Montgomery plant, due to begin production in 2005 and create some 2,000 jobs. U.S. sales last year reached 346,000 for Hyundai and 224,000 for its subsidiary Kia Motors, which reported a 39% jump. The target for 2002 is 370,000 vehicles for Hyundai and 254,000 for Kia. Kim said he hopes the plant will post a profit during its second year of operation. No fooling: On Apr. 1 Xerox (XRX) said that it will pay a record-setting fine of $10 million to settle a Securities & Exchange Commission inquiry launched in 2000. In an unusual move, the company pre-empted the SEC by announcing the expected end to the inquiry, which focused on whether the company booked more than $2 billion in revenue from leased equipment at the right time. Four years of reported financial statements will be redone--from 1997 through 2000--and the company will make changes to its 2001 numbers. "Xerox is best served by putting these issues behind us," said CEO Anne Mulcahy. Next up: concluding talks with lenders and hiring a new CFO. Can Harvey Golub turn around a struggling $1.1 billion venture fund? On Apr. 1, the former American Express (AXP) chairman became chairman of a fund co-founded in 2000 by Putnam Investments and leveraged-buyout specialist Tom Lee. But the fund is already in a deep hole. The value of the $500 million in capital invested so far has declined 38%, says InsiderVC.com. Among its failed investments: online retailer Wine.com. Golub claims the fund is in better shape after writing off several bad investments last year. He says he'll focus on financial services, retail, and consumer startups. Television station owners got a break on Apr. 2 when the D.C. Court of Appeals challenged a rule restricting their ability to merge. The FCC currently allows a merger between two local TV stations if it leaves eight independent media outlets in the market. But the court questioned why regulators do not count newspapers and cable-TV stations among those media outlets, as they do in a similar rule governing the merger of radio and TV stations. FCC Chairman Michael Powell may take this opportunity to relax the commission's rules. Nevertheless, public interest advocates are encouraged because this decision, unlike previous rulings, upholds the FCC's authority to restrict media ownership. -- Bristol-Myers (BMY) slashed profit estimates and announced the exit of Richard Lane, head of worldwide medicines.
-- WorldCom (WCOM) will cut 3,700 jobs at its data and Net business.
-- Gemstar's (GMST) stock fell 37% Apr. 2 after it revealed that it booked $80 million in revenue that it hadn't taken in as cash. PeopleSoft (PSFT) shares fell 32.7%, to $25.16, on Apr. 2, after it said first-quarter revenues would miss Wall Street expectations. PeopleSoft aims to hit earnings targets, though. The Pleasanton (Calif.) company blamed weak tech spending, but analysts worry that it is near the end of an Internet software product cycle.