Sunrise Bogged Down in Accounting
Monday, January 22, 2007
Theirs was a classic entrepreneurial story. In 1981, Paul and Terry Klaassen, in their 20s, bought and renovated an old nursing home in Oakton with $16,000 in savings.
Terry was motivated by personal experience: When her mother became ill, she found the level of care available at the time to be inadequate and undignified. Paul saw the business potential in developing a warmer and more personalized European model of senior care, like that in his family's native Netherlands.
The couple moved into the home and eventually turned the business, Sunrise Senior Living, into one of the nation's largest senior residential services providers, operating 436 retirement communities in the United States, Canada and Europe. The Klaassens had landed smack in the middle of a sweeping demographic shift as America's growing aging population was looking for better retirement options and willing to pay for better services.
Yet as analysts touted Sunrise's business outlook, that rosy picture began to fray.
Last week, the McLean-based company said it would again delay the filing of its financial results for all four quarters of 2006, which it had previously promised to deliver on March 1. Sunrise blamed the postponement on the complexity of an ongoing internal accounting review and a Securities and Exchange Commission inquiry into its accounting practices and allegations of insider stock sales.
"We share the disappointment of our investors and stakeholders regarding this delay," Bradley B. Rush, Sunrise's chief financial officer, said in the company's statement. "Rather than continue to predict the date of the ultimate end of the process, which depends on third parties, we will continue to provide interim updates as we proceed, as fast as possible, toward completion." Rush's office said he was unable to schedule an interview.
The troubles for Sunrise began last May, when executives announced they would implement a new way of accounting for profits and losses from certain joint ventures. The move resulted in an accounting review of past earnings reports and the reduction of $100 million in profits between 1999 and 2005.
The company's share price dropped 34 percent after the announcement, reaching the year's lowest point in late July 2006. Last week, pension funds for the United Food and Commercial Workers Union filed lawsuits against Sunrise charging the company with accounting fraud and insider stock trading. Another union pension fund, the SEIU Master Trust, has pressed the company in letters about insider stock sales and the questionable timing of stock options grants.
Sunrise has said that the SEC inquiry was prompted by the SEIU's letters. In its release last week, it accused the SEIU of writing the letters to generate media attention as part of an attempt to organize Sunrise workers. Steve Abrecht, executive director of the SEIU Master Trust, said the SEIU has no members at Sunrise and has no plans to organize a union at the company.
"We're very disappointed. They've had plenty of time to do an investigation, and why they can blame it on us is hard to imagine," Abrecht said.
The pension fund also has urged Sunrise to review the composition of the review committee the company created last December. Sunrise has not disclosed who is on the committee, and the SEIU said it suspects that it might include company directors.
"It's not appropriate to have a special committee made up of board members. It would be too conflicted; they would be investigating themselves," Abrecht said.