Telephone and Data Systems Inc. (TDS), one of the largest independent phone companies, and its United States Cellular Corp. business announced that they will restate their financials going back to 2000.
TDS will restate its results for the years ended 2000 through 2004 as well as for all four quarters of 2003 and 2004 and the first and second quarters of 2005. U.S. Cellular will restate for the years ended 2000 through 2004 as well as the first and second quarters of 2005.
The two companies said in separate but similarly worded press releases that their restatements are related to their review of accounting treatment for Universal Service Fund expense, leases, contract termination fees, and income-tax accounting. The restatements also relate to other adjustments and accruals, including the recognition of income from certain investments accounted for under the equity method of accounting.
TDS and U.S. Cellular added that because of a material weakness as of December 31, 2004, they cannot conclude that their internal controls over financial reporting were effective at year-end — specifically, due to an insufficient number of qualified personnel. As a result of the accounting adjustments, the companies added that they may need to disclose additional material weaknesses.
Each of the companies added that they will likely complete their restatements around mid-December, after the November 14 deadline for a late September quarterly report. 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.
TDS and U.S. Cellular stated that they have not failed to make, nor do they expect to fail to make, any scheduled payment of principal or interest under their credit revolvers or forward contracts. They added that they expect to receive a notice of failure to satisfy listing requirements from the American Stock Exchange but expect to be in compliance when they file their quarterly reports.