News
More bad news from Touch America
Touch America of Butte announced three pieces of bad news Friday afternoon.
The telecommunications company said it expects to restate earnings, probably back to 2000. The company said the U.S. Securities and Exchange Commission reviewed its books for 2001 and raised some questions.
By JAN FALSTAD
Of The Gazette Staff
Second, the company said it cannot file its quarterly financial report for the first three months of this year and cannot file its 2002 annual report yet.
Because these reports are late, Touch America is in violation of SEC rules.
And that means Touch America expects to be removed from the Over-The-Counter Bulletin Board next week. The OTC requires its companies to stay current with the SEC.
Fifty days ago, the New York Stock Exchange kicked Touch America off its blue-blood listing because the stock has traded below $1 since July.
When the OTC delists Touch America on Thursday, the company will trade on "pink sheets." There are few standards to be traded as a penny stock on the "Pink Sheets," and firms on the exchange are not required to report to the SEC.
So investors will have more difficulty following their stock and making trades. Investors may have to call brokers for price quotes.
Linda McGillen, director of media and investor relations, said the restatements and late reports stem from an arbitrator’s ruling March 24.
The federal arbitrator in San Francisco ruled that Touch America owed Qwest Communications nearly $60 million.
Because the ruling was preliminary and because the arbitrator still must rule on other billing disputes between the companies, McGillen said, Touch America can’t file its financial reports.
"From the beginning we made the decision it made more sense to file late and file right than to file with incorrect numbers," she said.
Touch America is claiming that Qwest owes it $100 million. McGillen said the arbitrator said he would rule by the end of June.
The billing feud dates back to June 2000. That is when Montana Power, bent on becoming a telecom company, bought the former US West long-distance business from Qwest Communications.
Since the sale, the companies have been arguing over expenses and revenues.
McGillen also said Touch America is responding to some SEC comments on its 2001 annual report.
John Heine, deputy director of the SEC’s public affairs office, said he couldn’t comment specifically on Touch America’s situation. Heine did discuss the SEC’s rules.
He said a company only gets one 15-day extension to file its quarterly or annual report.
"The rule is very clear. It says one time," Heine said. "You’re witnessing one of the consequences of not filing and that’s getting delisted."
However, he said, the SEC generally doesn’t impose penalties unless the company has a history of filing late.
For the fiscal year ending in October 2002, the SEC filed 590 actions against companies for violating securities laws.
"Only 10 involved delinquent filing actions," Heine said.
Meanwhile, Touch America investor and financial analyst Art Bechhoefer of New York state said he finds it strange the company doesn’t file incomplete, even unaudited, reports. The company could amend them later, which is a common practice, he said.
Bechhoefer, who owns 22,000 shares, said no outsider knows the company’s financial situation.
Touch America said it was down to $20.5 million in cash at the end of March. That’s one-third the amount needed to pay the Qwest settlement.
When asked how much cash is on hand now, McGillen said, "I don’t know that. That’s not something I’m privy to."
Bechhoefer said Florida race horse and tobacco magnate Brad M. Kelley continues to buy Touch America stock and now owns more than 14 percent of the company.
If he buys 15 percent of the shares, he could trigger "poison pill" language and force Touch America to issue millions more shares to protect itself from a hostile takeover.
By not filing reports and moving to the "pink sheets," Bechhoefer said, Touch America will be harder to track.
He said he believes the company wants to stay off investor radar screens.
"Then they create another little company to buy themselves out, then they convert to a private company and they don’t have to report to anybody," he said.
"Then nobody will ever know what assets were left," he concluded.
McGillen wouldn’t respond to Bechhoefer’s theory, saying, "We don’t comment on speculation."
Jan Falstad can be contacted at (406) 657-1306 or at [email protected].
Copyright © The Billings Gazette, a division of Lee Enterprises.
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