Attorney for Creditors Questions Accounting Methods : Report of Profit by UPI Doubted
A lawyer representing United Press International’s creditors said Friday that the beleaguered wire service may have posted no real profit at all since filing for bankruptcy protection in April, despite its testimony in court earlier this week that it had earned $1.2 million.
UPI Chairman Luis Nogales, however, said that the company already has taken into account the financial issues that the attorney was raising and that the company still is doing far better than expected.
Jules Teitelbaum, general counsel for the unsecured creditors committee, told UPI officials in an open meeting here that the wire service was “mixing apples and pears” when it told U.S. Bankruptcy Judge George F. Bason last Monday that it had earned $1.18 million since its April 29 filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Earlier, UPI President Ray Wechsler had told the gathering that roughly $700,000 of the profit that UPI reported actually was needed to pay immediate bills, reducing the profit to about $400,000.
Questioning Wechsler a few minutes later, Teitelbaum said that UPI was counting money that it had collected from old bills as profit, in effect confusing cash flow--how much money was taken in versus how much was paid out--as profit. Profit, Teitelbaum said, is revenue from the current period compared to expenses.
By that measure, Wechsler then explained, UPI billings during May would have been roughly $6 million, while expenses were about $5.5 million, leaving the company roughly $500,000.
Teitelbaum then asked: “In view of your history of bad debt, how much of the $6 million is real and collectible?”
“It’s a difficult question,” Wechsler answered, explaining that the company was still trying to overhaul its troubled collections system. “Maybe 10% of that represents amounts that perhaps are not good receivables.”
If so, that would mean roughly $600,000--or as much as the company expects in profits--might be uncollectible. Later, Teitelbaum confirmed that, by the company’s numbers offered in the meeting, UPI would be about breaking even.
Nogales, however, said that UPI is doing its accounting on “an accrued basis,” in which expenses and revenue are recorded during the period in which they are incurred or received, and that the amount of uncollectible revenues are already counted when the company reports its profit.
UPI made its financial report Monday in getting Judge Bason to extend UPI’s bankruptcy financing agreement with Los Angeles-based Foothill Capital Corp, though it is hardly clear that reporting a profit was necessary to win the financing.
By either method of accounting, UPI is doing far better than the $600,000 loss that it had originally projected for May when it entered Chapter 11.
Also during the meeting, Wechsler detailed the reasons why UPI had to file under bankruptcy laws and outlined its estimated $40 million in debts.
The company, for instance, owes $3.4 million in back taxes to the federal and various state governments and roughly $467,000 to employee benefit plans. It also owes $8.5 million to secured creditors, including Foothilll, Harris Corp., Equatorial Communications and Tifco insurance.
The biggest debt is $28 million of unsecured debt owed to hundreds of others.
On the other side, Wechsler said, UPI has assets that he estimates are worth $24 million if the company were to keep operating but probably less if the company were liquidated. Roughly $7 million of that is equipment, $3 million in UPI’s photo archives and $500,000 in cash. More than $10 million of that is in uncollected debts.