UTStarcom (UTSI) has reported preliminary financial results for the fourth quarter of 2005. It also announced that its Audit Committee has initiated an investigation surrounding the circumstances of a specific contract in India signed in 2002.

The company's net loss for the fourth quarter was US$20.6 million, inclusive of all one-time charges and gains.

Total operating expenses for the fourth quarter were US$142.3 million. Included in this total are restructuring costs of approximately US$11 million, as well as a benefit from the reduction in the company's allowance for bad debt. Approximately US$12 million of this benefit resulted from strong collections on previously reserved accounts receivable balances, and a further benefit of US$8 million was due to updated estimates on the remaining balances outstanding.

Net sales for the fourth quarter of 2005 were US$685.5 million, above company guidance. Fourth quarter sales include US$40 million in revenue related to a Softbank BB IPTV contract.

Consolidated gross profit margin for the fourth quarter was 12.1%, at the low end of company guidance due to additional inventory and warranty reserves taken in the quarter.

The company's Audit Committee of the Board of Directors has initiated an investigation by independent counsel with regard to the circumstances surrounding the premature recognition of revenue on a contract with a customer in India, and other related issues.

UTStarcom recognized approximately US$22 million in revenue on the contract, with total gross margin of less than one million dollars. This revenue was recognized during several of the quarters from 2003 through 2005. At the conclusion of the investigation, the Audit Committee will assess the findings, and will evaluate the materiality of any adjustments to determine if previously issued financial statements need to be adjusted.

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