SEC Probing TDS, U.S. Cellular

Each of the phone companies has also warned that it would likely complete its restatement around mid-December, after today's deadline for late Sept...
Stephen TaubNovember 14, 2005

Telephone and Data Systems Inc. and United States Cellular Corp. said the Securities and Exchange Commission has launched an investigation in response to restatements the two companies announced last week.

The companies said they intend to cooperate fully with the SEC staff’s probe. For its part, the SEC told the companies in a letter that the investigation shouldn’t be interpreted as a sign that any legal violations have happened, nor should it be considered a reflection upon any person, entity, or security, according to the companies’ press release.

Last week TDS, one of the largest independent phone companies, and its U.S. Cellular business unit each stated in a press release that they would restate financials going back to 2000. The restatements were linked to their reviews of accounting treatment for Universal Service Fund expense, leases, contract termination fees, and income-tax accounting. Established by Congress and contributed to by corporations, the fund’s aim is to insure that consumers living in rural areas have phone connections and access to services similar to consumers in urban areas.

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The phone companies’ restatements also concern other adjustments and accruals, including the recognition of income from certain investments reported under the equity method of accounting.

Further, each company warned that it would likely complete its restatement around mid-December, after today’s deadline for late September quarterly reports. As a result, both companies will be in technical default under revolving credit agreements with certain lenders and under certain forward contracts between subsidiaries of TDS and a counterparty and between U.S. Cellular and a counterparty.

In response to the announcements, Fitch Ratings placed the debt ratings of the two companies on Ratings Watch Negative. About $1.9 billion of debt is affected by Fitch’s action.