FNN Could Face Substantial Loss, Loan Default

This story moved on UPI's financial wire on Oct. 1, 1990:

r  f
bc-fnn:425ped 10-1
   FNN Could Face Substantial Loss, Loan Default
          By Ellen Wulfhorst
          UPI Business Writer
     NEW YORK (UPI) -- Financial News Network said Monday it may face "a very
substantial non-cash loss" for the fourth quarter and the year if auditors decide
its $28 million investment in a new financial information service must be charged
against current earnings.
     If FNN reports such a loss, it may be placed in default on approximately $48.5
million in bank loans, the company said in a statement.
     The cable business news company said it is beginning discussions with its
principal bank to seek appropriate waivers to prevent default.
     Saying auditors had not completed their independent examination, FNN sought
a two-week extension to file its annual report, known as a 10-K, with the
Securities and Exchange Commission. The deadline for filing was Sept. 28.
     The key accounting issue is how the approximately $28 million FNN invested
in the new FNN: Pro product should be treated -- as a charge against current earnings
or amortized over a longer period of time.
     FNN-Pro, which features financial information, news and a video service, was
introduced in July.
     If the auditors determine that FNN must take a one-time charge against fourth-
quarter results for its investment in the real-time financial news, FNN said it
would be forced to report a "very substantial non-cash loss for at least the fourth-
quarter of 1990 and the year."
     The loss and possibly default would occur "should these accounting issues
ultimately be resolved contrary to FNN's position," the company said.
     "We followed what we thought were appropriate procedures to treat the
start-up cost as an investment and in recent days auditors have taken the position
this should be written off as opposed to capitalized," said Dr. Earl Brian, chairman
of InfoTechnology Inc., which owns 47 percent of FNN.
     "If you do that, you end up with a big loss for FNN's fourth quarter and the
potential of that is to change a lot of balance sheet ratios, which in turn causes
your bank agreements to be in default, so you try to get waivers," he said.
     "The $64,000 question is, 'Will they give them?' and the answer is nobody knows
for sure," he said.
     If the FNN:Pro investment were fully written off, FNN would take a $28 million
charge against earnings, Brian said. The company and auditors have not yet discussed
a compromise write-off, he said.
     In fiscal 1989, FNN reported operating earnings of $6.5 million, or 36 cents per
share, on revenues of $44.5 million.
     InfoTech said in a separate statement it could not file its annual report with the SEC
until it obtained FNN's complete financial statements. InfoTechnology also owns United
Press International.
     FNN stock held by InfoTech serves as collateral for InfoTech's primary bank credit
agreements under which about $20.7 million is outstanding.
     Due to recent declines in FNN's stock prices, InfoTech said it has been engaged in
discussions with its bank lenders about restructuring the credit facility.
     Trading in FNN and InfoTech was delayed in opening on the over-the-counter market
      FNN stock closed down $2.50 to $2.75 a share. FNN's stock price hit a 52-week low
Thursday before edging up Friday.
     InfoTech stock finished the day off $2.75 to $3 a share.
     In seeking its extension with the SEC, FNN said it "is not able to complete its
financial statements from the fiscal year ended June 30, 1990 at this time because its
independent auditors have not yet completed their examination."
     Auditors for FNN also were reviewing the valuation of data receivers provided to
customers of of FNN:Data Broadcasting, which is FNN's stock quote and market
information service; accounting for the sale and leaseback of the receivers; and FNN's
property accounts, the company said.
     FNN said it "believes it has properly accounted for both the FNN:Pro development
costs and the data receivers."
     In addition to the bank loans, FNN said it had about $73 million in lease agreements
as of June 30.
     Its bank and lease payments are current, the company said.
     In Washington, UPI spokesman Milt Capps said: "These matters will not have a direct
impact on UPI inasmuch as UPI is itself operating profitably."
     He said UPI "has in the past two years restructured and reoriented its editorial operations,
placed tremendous emphasis on attaining profitability and at this point on Oct. 1 is overall
operating on a very self-sufficient basis."
     Brian said UPI's "well-being is tied to how well products sell at UPI, not this situation."
upi  10-02-90 02:44 ped