UTStarcom Restates to Correct China Revenue Errors

While "the revenue is real," the company's CFO says, "it needs to be recognized in the applicable period."

Revenue-recognition problems in Asia continue to plague UTStarcom. The maker of wireless network equipment and cellular phones said Tuesday that it would restate its results for the seven-year period ended December 31, 2006 to correct the way it recognized revenue generated in China.

Part of the revenue the company had garnered in China was reported earlier than it should have been, UTStarcom said in a press release. The revenue will now be deferred until the company can show that it’s met all of its obligations under the contracts in question, it added.

“Although we need to restate our financial statements, the revenue is real; however it needs to be recognized in the applicable period,” said Fran Barton, the company’s CFO. “In addition, we will continue to take the necessary steps to further augment our internal controls in order to prevent this problem from recurring.”

In a regulatory filing on Tuesday, the company warned that the results of the ongoing probe into the China sales contracts could hurt its ability to file required reports with the SEC in a timely way and to meet NASDAQ listing strictures.

On July 24, UTStarcom warned in a regulatory filing that it was conducting an independent review of historical sales contracts with some of its customers in China. The probe was conducted by the company’s audit committee, along with outside lawyers and forensic accountants.

This isn’t the first time the company has run afoul of rules because of revenue-recognition problems in Asia. In May 2006 UTStarcom said it would restate its results for nearly three years as a result of its premature recognition of revenue on a contract with a customer in India, as well as on several other transactions.

That revision cut revenue by $49.6 million and net income by $11.8 million. “Management has concluded that certain information was withheld from management and the company’s auditors at the time revenue was originally recorded, which resulted in inappropriate revenue recognition during several of the quarters from 2003 through 2005,” the company added in a press release at the time.

The company’s accounting woes have stemmed from more than just revenue-recognition problems. UTStarcom also said on July 4, for instance, that the need to record added stock-based pay was causing it to restate results by $28 million from 2000 through 2006. The announcement was made after independent reviewers found the company had backdated the measurement date for stock options.

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