Manor Care earnings decline Accounting charges negate higher revenue

July 04, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

Despite higher revenues, Manor Care Inc., the Silver Spring nursing home and hotel company, yesterday reported lower earnings for the quarter and fiscal year ended May 31 after one-time accounting charges.

Without the one-time charges -- chiefly write-downs of hotel assets and health care information systems because of changes in accounting regulations -- earnings would have been up.

Manor Care reported earnings separately for its health care division and its hotel division, Choice Hotels, which will be spun off as a separate company in September.

The health segment, which operates 200 nursing homes and other facilities in 28 states, reported net income was $32.7 million before an accounting charge of $26.3 million, and $6.4 million for the quarter after the accounting charge. A year earlier, the health division earned $21.3 million for the quarter. Revenue was $340 million for the quarter, up 25.4 percent from $271.1 million in the corresponding quarter last year.

Choice Hotels reported revenues of $101 million for the quarter, up 21.5 percent from $83.1 million in the same quarter a year earlier. Including an accounting charge of $33.3 million and a capital loss of $1.1 million, Choice Hotels lost $12 million for the quarter, compared with profit of $5 million in the corresponding quarter in 1995.

D. Scott Mackesy, an analyst with Dean Witter Reynolds in New York, said discounting the one-time accounting charges, overall earnings were equivalent to 50 cents a share for the quarter, up 19 percent from 42 cents in the same quarter a year earlier. "From a fundamental operating basis, the quarter was a little better than expected," Mackesy said.

Mackesy said health earnings were diluted by investments in assisted living and home health care businesses that have not yet become profitable. Kimberly Holland, manager of investor relations for Manor Care, said that assisted living units typically take about 18 months to fill, so new units do not show profits immediately.

However, he said, investments in these areas "will reap rewards and benefits over the long term. It's a great strategy, and they should stick with it."

For the year, the health division's net earnings were $91.8 before the accounting charge and $65.5 million after, compared with $77.7 million for fiscal 1995. Revenues were $1.25 billion, up 22.4 percent from $1.02 billion a year earlier.

The lodging division showed annual income of $8.5 million after extraordinary charges, compared with $13.1 million in fiscal 1994. Revenue was $219.2 million, up 16.6 percent from $188 million in the previous year.

Choice Hotels owns, operates or franchises 3,700 hotels with 325,000 guest rooms under brand names Quality, Comfort, Clarion, Sleep, Rodeway, EconoLodge and MainStay Suites.

Pub Date: 7/04/96

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