QCOM accounting seems to be playing accounting tricks much like the tricks played to meet revenue covered in this article in the current issue of Red Herring.
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When I first phoned Qwest's chairman and CEO, Joseph Nacchio, with some questions, my call got bucked to a public relations aide, who tried to wave it all away, But when I persisted, he said, "Look, we put out an elaborate statement about all that at the time. I'll get it for you," as if it were the most routine matter imaginable. A day went by with nothing. But then I received the following two-sentence "official" response from the company: "Qwest follows generally accepted accounting practices (GAAP) rules in how it accounts for Qwest-Dex.
We discussed our activity in a 10- K filed about March 2001"
We'll get into the particulars of my inquiries in a minute, but first let's focus on the implications of the kiss-off I received. It suggests that whatever Qwest has been doing with its accounting, it's been doing it with the seal of approval of its auditors, Arthur Andersen. And that's a problem if what insiders at Qwest have been telling me is true: that the company has apparently been pumping up its revenue and earnings in its directories business as part of a drive to prettify its financials in the face of the deepening mess in the telecommunications industry.
Let me offer a bit of context. Qwest began in the '80s as a fiber-optics subsidiary of the Southern Pacific Railroad, laying fiber along the railroad's right-of-way. The man behind the business was a chap named Philip Anschutz, who had acquired the Southern Pacific through a leveraged deal with an obscure railroad that he owned named the Denver & Rio Grande Western. In January 1997, Mr. Anschutz hired Joseph Nacchio, who had previously headed AT&T's consumer and long distance business, and six months later they took the company public in an IPO at $22 per share. In the wake of the collapse, the biggest single negative in the entire company was, of course, the fiber operation, where prices of broadband services had collapsed amid the spread of stupefying overcapacity throughout the industry. This meant that the u.s. West division-with steady cash flow from telephone services and its yellow pages publishing operation became a cornerstone of financial support for the entire company.
Here's where it gets interesting. Key sources from within the company say that as 2000 drew to a close, enormous pressure was placed on "- the company's yellow pages publishing executives to meet 2001 what the sources say were "completely unattainable"
revenue and earnings numbers for the publishing group. To meet the targets, the sources say the publishing executives were instructed by higher-ups at the corporate level to engage in what the sources describe as a "manipulation of the directory publishing schedule." In the manipulation, yellow pages directories that had previously been published in January of every year were pulled forward and published a few weeks earlier, in December. As a result, the associated revenue could be declared in 2000, thereby allowing the company to meet a 10 percent revenue growth target for its publishing segment. This seems eerily similar to the eerily similar to the so-called channel-stuffing ploy used by Sunbeam-another of Arthur Andersen's erstwhile clients- which met its revenue growth targets by shipping merchandise to distributors months before the distributors needed the goods. The sources say this phone-book version of channel stuff-
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After all, it was just last January, about one week before QCOM held their CC and released their earnings for the quarter that closed at the end of December, when Globalf*rt defaulted on their bonds and QCOM, those tricky guys, went back and took a big bath on their Globalf*rt assets. Hid lots their earnings that way and then used some phony regulation to spread out other earnings over many years not very long ago. Wonder where else they are hiding earnings with phony accounting tricks designed to provide the best long term results for QCOM?
Options? Retained earnings? Yawn. |
