An NME subsidiary twice disconnected.

An NME subsidiary twice disconnected

According to one estimate by an insider, National Medical Enterprises took a $60 million bath on a phone-answering machine subsidiary named Fortel Corp. in 1989, but shareholders never knew about it.

NME Chairman and Chief Executive Richard K. Eamer certainly heard about it: NME Treasurer Maris Andersons wrote him a memo Aug. 5, 1988 that contained This paragraph on Fortel: "An in-depth analysis revealed a problem much worse than originally anticipated. Fortel was a company totally out of control, with serious problems in virtually every department and no realistic plan for recovery."

Andersons was also chairman of the Fortel board, and is currently listed with the California Secretary-of State's Office as the Fortel president.

Fortel was a distributor of phone-answering machines manufactured in the Far East and sold in the United States under the "Record-A-Call" brand. Such chains as K-Mart, Zayre, Sears, Montgomery Ward and Price Club bought the brand, and Record-A-Call accounted for 10 percent of the domestic market in 1987.

But in 1988, Fortel was quickly losing market share. Andersons informed Eamer that Fortel was running an operating deficit of between $400,000 to $600,000 a month, had too many employees, had $4 million of worthless inventory, and had already bled millions in losses. Additionally, buyers were returning bad product and demanding refunds.

A report by the local office of KMPG Peat Marwick to NME showed Fortel had an adjusted net loss of $9.8 million in 1987, which did not include inventory losses. Peat also reported losses of $3.88 million in 1986 and $1.44 million in 1985, and that Fortel's total liabilities exceeded assets by $17.7 million.

One former officer of Fortel said last week, "All told, NME lost about $60 million on Fortel. But a $3 billion company can bury $60 million on the balance sheet in so many ways."

What was NME doing in the phone business anyway? NME officials have declined interviews for weeks, and did not respond to a written set of questions last week.

What is known is that NME bought Fortel in 1978 from a Dr. F. A. Foresta, sold it back to him in 1984, then "re-acquired" it in 1986. NME "divested" itself of Fortel, a wholly owned subsidiary, in June 1989. According to a former Fortel officer, Foresta and Eamer were friends.

All through the Fortel fiasco, NME shareholders have never had the slightest inkling NME was in the phone business, or getting out of it.

According to NME spokesman Paul Russell, the only disclosure of NME's sale and losses of Fortel occured in notes to NME's 1987 annual report, long before it it was divested in 1989.

Additionally, the 1987 annual report disclosure does not refer to Fortel by name, nor does it specify that NME is in the phone-answering machine business. The 1987 disclosure only notes that NME lost $77 million on the disposal of several hospitals, a health plan and certain, unidentifed "minor" businesses. In 1987, NME reported a total net of $140 million.