With a tentative $400 million settlement of a key shareholder lawsuit in hand, Qwest said Tuesday it narrowed its loss in the third quarter...

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DENVER — With a tentative $400 million settlement of a key shareholder lawsuit in hand, Qwest said Tuesday it narrowed its loss in the third quarter on the strength of sales and a $52 million government contract.

Chief Executive Richard Notebaert said he hoped the settlement would pave the way for the Denver-based company to resolve a handful of remaining lawsuits stemming from an accounting scandal that forced Qwest to restate billions of dollars in revenue.

The proposed settlement, which must be approved by the courts among other conditions, would resolve claims against the company, some former executives and its board, but not against former CEO Joseph Nacchio and former Chief Financial Officer Robert Woodruff.

It would cover tens of thousands of shareholders who purchased Qwest securities between May 24, 1999, and July 28, 2002, and is expected to take several months to be finalized.

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“I think it’s a good settlement for the class in this case in light of the economics of this company,” said Patrick Coughlin of San Diego, the lead attorney for shareholders.

He said the case would continue against Nacchio and Woodruff. “We excluded them because we wanted them to bear individual responsibility for their actions,” he said.

Nacchio denies any wrongdoing, said his attorney, Charles Stillman. Woodruff’s attorney did not immediately return a call Tuesday.

Still pending against Qwest are a Justice Department investigation, seven lawsuits filed by pension funds and a case stemming from the Employee Retirement Income Security Act of 1974.

Separately, Qwest reported it lost $144 million in the July-September quarter, or 8 cents a share, versus a loss of $569 million, or 31 cents a share, last year. Revenue increased to $3.5 billion from $3.45 billion.

“I am pleased to say that we are squarely on track with our objectives for 2005,” Notebaert told analysts during a conference call. “Now, for 2006 and beyond, we expect to drive modest revenue growth, improve our profitability.”

Notebaert said Qwest continues to look for opportunities as the telecommunications industry consolidates, but “they must make sense strategically.”

The most recent results reflected special items, including $26 million of restructuring, realignment and severance charges, which equaled 1 cent a share. Excluding that, Qwest would have reported a loss of 7 cents a share, matching the estimate of analysts surveyed by Thomson Financial.

Telecommunications analyst Donna Jaegers of Janco Partners said the results were good. “They’re continuing to show stable revenues and to reap the benefits of the cost-cutting they did last year,” she said.

Qwest shares fell 1 cent to close at $4.35 Tuesday.