Local phone company Qwest Communications International Inc. (Q), which recently said it would restate several years worth of financial results, Thursday posted a $1.1 billion loss as analysts said it could be forced to file for bankruptcy if its loan requirements are not renegotiated.

Slack demand hurt sales of Qwest's data services in the second quarter. Its net loss, including $926 million in charges, totaled $1.14 billion, or 68 cents a share, compared with a loss last year of $3.31 billion, or $1.99 a share.

Despite posting improved results versus a year-earlier, analysts still said they were leery about the company's prospects.

Denver-based Qwest said it is in talks with its bankers to renegotiate terms of its credit facility, but analysts said the company's inability to close the sale of its $9 billion QwestDex phone directory business and weak results leave them a step closer to bankruptcy.

"Qwest is clearly at the mercy of its banks and the way its debt is currently structured, it doesn't have a prayer of meeting future principal payments on debt," said Davenport & Co. analyst Drake Johnstone, who rates the stock "sell."

"They're up against the wall," he added. "If the bankers decide not to play ball, Qwest could be in bankruptcy later this year."

Chairman and Chief Executive Dick Notebaert pointed to Qwest's positive cash flow in the second quarter and said the company has sufficient resources to fund operations.

"To be perfectly clear, we are executing on our plan to address our short- and long-term liquidity needs," he told analysts on a conference call.

"Once we restructure our credit facility, we believe that cash flow from operations and available debt financing will be sufficient to satisfy our liquidity needs for at least the next 12 months," he added.

He said the company expects to begin next week getting approvals from its lenders on the facility's new terms. He also said the company expects to be able to announce something regarding the sale of all or part of QwestDex "shortly."

Qwest's stock was up 7 cents, or 7.5 percent, at $1.29 in early trading on the New York Stock Exchange.

The company also set new 2002 financial forecasts that are weaker than analysts' expectations, citing the competitive industry and weak economy.

Qwest, the nation's No. 4 long-distance carrier, said last week it would restate its financial results because it improperly booked $1.16 billion in sales and other items from 1999 to 2001. It also withdrew its forecast for up to $18.4 billion in revenue in 2002.

The company is currently the target of a Securities and Exchange Commission accounting investigation and a criminal probe by the Justice Department.

It recently ousted its former CEO, Joseph Nacchio, and replaced him with Notebaert, who headed telecom equipment maker Tellabs Inc. . Qwest also named a new chief financial officer and has put up for sale several assets.

Qwest previously said a restatement could jeopardize some of its funding agreements, which require it to maintain a certain ratio of debt-to-earnings before interest, taxes, depreciation and amortization. Qwest had $26.5 billion in debt as of March 31, according to Standard & Poor's.

Other analysts agreed the story at Qwest now is more about renegotiating its credit facility and selling QwestDex.

"This is a company that's teetering on the brink of being a going concern or filing for bankruptcy," said Tim Ghriskey of Connecticut-based investment management firm Ghriskey Capital Partners, which does not own Qwest shares.

Qwest said it is in talks with Bank of America about restructuring the financial covenants of its credit facility, including extending the maturity date and changing the financial requirements. It said it was in compliance with the covenants as of June 30.

The company said it has been consulting with its auditors, KPMG, on the scope of the restatement and what adjustments would be required. It said it cannot indicate the extent to which the results for 2000 to 2002 will be affected, or when the restatement will occur.

As a result, it said it will not be in a position to file its quarterly 10-Q report with the SEC in a "timely" manner.


Qwest's second-quarter charges included the write-down of $740 million for the rest of its investment in bankrupt KPNQwest , increased bad debt reserves of $119 million related to the WorldCom Group Inc. bankruptcy, and $59 million for asset impairments on real estate.

Revenue in the second quarter fell about 17 percent, to $4.32 billion. Excluding one-time charges, Qwest reported a loss of 13 cents a share. Wall Street analysts expected a loss of 7 cents, according to Thomson First Call.

Qwest revised its guidance for the full year. It now expects total revenue, including QwestDex, of $17.1 billion to $17.4 billion, and a loss before one-time items of 46 cents to 49 cents a share. Analysts were expecting a loss of 23 cents a share on revenue of $17.81 billion, according to First Call.

Qwest repeated that it expects a charge for the impairment of goodwill at a later date. It previously said the charge could be $20 billion to $30 billion.