Litigation Reserve Results in Big Loss at Care Enterprises
In what could signal an unraveling of its heavily leveraged operations, Care Enterprises said Wednesday that it expects to report a $9.8-million net loss for 1986, largely because of a $7.4-million reserve for litigation with the owners of nursing facilities that it operates.
In contrast, the troubled Laguna Hills company had $3.6 million in net earnings for 1985.
Care also said it expects its auditors to qualify their opinion of the nursing home operator’s 1986 financial statements because of ongoing negotiations aimed at refinancing the company’s outstanding bank debt.
Care said in documents recently filed with the Securities and Exchange Commission that it must make a $14.2-million bank loan repayment on June 30, which in turn necessitates a refinancing of its bank debt.
“While there is no assurance that this refinancing can be concluded, Care has obtained a letter of intent and is commencing negotiation of definitive agreements for a new bank credit facility with a prospective new lender,” the company said in a statement released late Wednesday.
Care officials could not be reached for comment Wednesday.
It was not immediately clear what the nature of the litigation cited in the report is, what facilities are involved, or whether Care is a plaintiff or a defendant. Care is the nation’s fourth-largest nursing home operator.
Lee Bangerter, Care’s chairman and chief executive, said in a prepared statement Wednesday that the company is “very confident” that the nearly $7.4 million it set aside for the litigation will “cover all known contingencies” relating to the dispute.
Care said it has been attempting to settle the litigation, adding that resolution of the suits could enable it to reduce the reserve. “However,” the company added, “there is no assurance that a satisfactory resolution can be obtained.”
Of the anticipated 1986 loss, about $3.8 million stems from a debt restructuring program embarked on last year, Care said.
Despite the losses, Care expects to report an 11% increase in yearly revenue to $264.7 million from $238.5 million in 1985. A year earlier the company had net earnings of $902,000. Quarterly revenue was virtually flat at $67.6 million.
Care, whose major shareholders are Lee Bangerter, his brother Dee and their half-brother Ted Nelson, has been affected by a deepening family feud as the three brothers jockey for control of the company.
In February, Dee Bangerter’s estranged wife aligned herself with Nelson in his attempt to regain a seat on Care’s board. Nelson resigned last May in protest of a Delaware reincorporation scheme that he charged was unfair to minority shareholders.
Lee Bangerter, Care’s chairman, said in a recent interview with The Times that letting Nelson back on the board would be “like letting a fox loose in a chicken coop.”
The Bangerters and Nelson also are majority owners of troubled Winn Enterprises, which recently filed for Chapter 11 bankruptcy reorganization.
