Global Crossing to restate results
Dark days not over yet
Just when it seemed that Global Crossing's darkest days were over, the company announced that its 2003 results might have been flawed. The global telecoms firm, one of the casualties of the telecoms meltdown, said on Tuesday that it was reviewing its 2003 and 2002 financial statements in search of accounting flaws. The company said its 2003 results are expected to be restated, and for now, the firm's 2002 and 2003 numbers, as well as its 2004 forecast, should be disregarded pending the outcome of the inquiry.
The problem surrounds the firm's reported $150m accrued cost of access liability for 2003 and its reported $1.92bn cost of access operating expenses for the year. Global Crossing said that its preliminary assessment suggests that its accrued cost of access liability at year-end 2003 was understated by some $50m to $80m. If an adjustment is necessary, it will be recorded as a non-cash charge.
Cost of access includes usage-based charges paid to other carriers to originate and terminate voice services, leased line charges for dedicated facilities and local loop charges, and usage-based Internet peering charges.
The consequences of the blunder could be more damaging than a mere $80m non-cash charge. For example, Global Crossing's majority shareholder, Singapore Technologies Telemedia, has promised the telecom up to $100m in short-term financial support if it meets certain criteria. The latest accounting mess could put that deal, which Global Crossing had previously hoped to close on 30 June, in jeopardy.
The gaffe has also forced the company to postpone its earnings release for the first quarter of 2004, its June 2004 shareholders' meeting and the filing of its proxy statement.
In its explanation of the situation, Global Crossing said it spotted the problem when it began preparing its first quarter results. Management then presented its concerns to Global Crossing's audit committee and, at the direction of the Audit Committee, is continuing to examine the company's accrued cost of access liabilities and cost of access expenses and the related internal control environment, the firm said.
"The company is assessing the internal control issues presented and, in light of the expected restatement, currently believes that these issues constitute a material weakness in its internal controls. The company is undertaking steps to address these internal control issues," Global Crossing said.
In early 2002 the company filed for Chapter 11 bankruptcy protection in the US. Just days later, it became apparent that the FBI and SEC were beginning an investigation into the company and its books and accountants.
Global Crossing, prior to its bankruptcy, signed several important deals with the Irish government in 2000 and 2001 to install new telecoms links between Ireland and dozens of key European and US cities. The deals have been seen as a crucial part of Ireland's plans to remain a leader in ICT globally.