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Qwest reaches $400 million settlement on class-action lawsuits

DENVER — Qwest Communications International Inc., the primary local telephone provider in 14 mostly Western states, reported a smaller loss for the third quarter on Tuesday and announced a tentative $400 million settlement of shareholder lawsuits stemming from an accounting scandal that forced it to restate billions of dollars of revenue.

The proposed settlement, which is subject to court approval among other conditions, would resolve claims against the company, some former executives and its board of directors — but not former Chief Executive Joseph Nacchio and former Chief Financial Officer Robert Woodruff.

It would cover shareholders who purchased Qwest securities between May 24, 1999, and July 28, 2002.

Separately, Qwest reported it lost $144 million in the July-September quarter as revenue edged higher with the help of a big government contract while operating costs fell.

The loss amounted to 8 cents per share versus a loss of $569 million, or 31 cents per share, last year. Revenue edged up to $3.5 billion from $3.45 billion.

Qwest shares fell 7 cents, or 1.6 percent, to $4.29 in late morning trading on the New York Stock Exchange. They have traded in a 52-week range of $3.27 to $4.86.

In an interview Tuesday with The Associated Press, Qwest CEO Richard Notebaert said the settlement was fair and in line with his expectations.

"We had, I thought, good news on operations and appear to have closed another chapter in our journey with the announcement on the litigation," he said. "This has not been easy to do. This has been some heavy discussion, some very strong feelings."

Attorneys for the plaintiffs did not immediately return telephone messages.

Still pending against Qwest are a Justice Department investigation, seven lawsuits filed by pension funds and a case stemming from the Employee Retirement Income Security Act of 1974.

"We've got what I think to be a very large case reaching settlement. Does this not create momentum for the other situations?" Notebaert asked.

The company has pushed to resolve the lawsuits and pending investigations to put the scandal behind it.

Under terms of the proposed settlement, Qwest would pay $400 million in three cash payments. The company said $100 million would be paid within 30 days after the court tentatively approves the settlement; $100 million would be paid within 30 days after the settlement gets final approval and $200 million plus interest would be paid by Jan. 15, 2007.

Accounting firm Arthur Andersen, which also is a defendant, would contribute $10 million to the overall settlement.

Qwest said the settlement could be terminated under certain conditions, such as a refusal by the Securities and Exchange Commission to distribute to shareholders a $250 million fine that Qwest agreed to pay.

Last year, Qwest agreed to pay $250 million to settle SEC charges of fraud without admitting or denying wrongdoing.

The government investigation into Qwest began in February 2002. The SEC said fraud at Qwest occurred between April 1999 and March 2002, allowing it to improperly report approximately $3 billion in revenue that facilitated its 2000 merger with U S West.

Among other things, the SEC said Qwest repeatedly booked revenue from one-time sales of equipment and fiber-optic swaps while falsely claiming to investors that the income was recurring. Qwest later restated earnings from 2000 and 2001 to erase about $2.2 billion in revenue.

The shareholder lawsuits alleged that Qwest, the former officers and board members concealed information about the revenue.

Qwest has previously set aside a $750 million reserve for legal purposes.

The company's deal with the SEC did not cover former executives. The SEC earlier this year sued seven of them, including Nacchio and Woodruff, and accused them of orchestrating the fraud that led to the restated revenue. The SEC is seeking compensation from the executives and civil penalties.

The only defendant who has reached a final settlement with the SEC is former Qwest sales executive Gregory Casey, who agreed to pay $2.1 million to settle the civil charges without admitting wrongdoing. He also is cooperating in the ongoing investigation.

Former Chief Financial Officer Robin Szeliga has pleaded guilty to one criminal count of insider trading and agreed to cooperate with prosecutors. She has reached a tentative deal with the SEC but details of that settlement have not been disclosed.

Two former midlevel managers also have agreed to cooperate as part of plea agreements in related criminal cases.


On the Net:

Qwest Communications International Inc.: www.qwest.com