Qwest

(Q)

says it overstated both its past results and future prospects.

Citing mistakes in its handling of controversial optical capacity swaps and other revenue recognition issues totaling $1.16 billion, the telephone company said it will restate its results for 1999, 2000 and 2001. The news comes amid a

Securities and Exchange Commission

probe of the company's accounting and at a time of investor disgust with corporate bookkeeping in the wake of scandals at

WorldCom

,

Adelphia

and

Enron

.

The decision to restate also follows the appointment in June of new management at Qwest, including CEO Richard Notebaert, who replaced Joseph Nacchio. Investors are now forced to grapple with

the question of whether the accounting steps signal a fresh start at the troubled telecom or are more evidence that the company's liquidity issues are irresolvable.

"Based on the analysis to date, the company has determined that it has in some cases applied its accounting policies incorrectly with respect to certain optical capacity asset sale transactions in 1999, 2000 and 2001," Qwest said. "Certain adjustments may be required to correct the period in which the revenue was recognized with respect to some transactions, and other adjustments may be required to reverse the recognition of revenue with respect to other transactions."

Qwest said it wasn't sure when the restatements would occur, citing the replacement of its auditors and the SEC inquiry, but said it would try to comply with SEC reporting guidelines in the meantime.

It said the amount of the eventual restatements could be "significant," depending on a review of the company's accounting in all of its optical capacity sales. "For example, if the company were to determine that certain of the policies as applied to all optical capacity sales were inappropriate, the company may be required to restate its financial statements with respect to optical capacity sales affected by such policies, which could be all optical capacity sales in the relevant periods."

Furthermore, Qwest said it was withdrawing its previous profit and revenue forecast for 2002, saying weak demand and strong competition made reaching its old forecast of $18.4 billion in revenue unlikely.