Care Enterprises Reports Modest Gain in Earnings

Saddled with mounting long-term debt, Care Enterprises said Wednesday that it posted modest earnings increases on sharply improved revenues during the third quarter and nine months ended Sept. 30.

Net earnings for the third quarter increased 9% to $1.17 million, from $1.08 million a year earlier. Revenues increased 68% to $64.2 million, compared with $38.1 million last year.

Nine-month earnings were $2.7 million, a modest increase from $2.4 million a year ago. Revenues were ahead 64% to $171.7 million, from $105 million a year ago.

Long-term debt, including mortgage and bond debt, increased to $182 million by the close of the third quarter, from $72.8 million at year-end 1984. Shareholder equity for the Laguna Hills-based nursing home operator totaled only $34 million at the end of the quarter.

Boyd Hendrickson, Care Enterprises’ president, said the debt, mostly in 10-year convertible bonds, was amassed to finance recent acquisitions. Interest payments on that debt, he said, are the key factor behind the company’s slow growth in profits.

Derwin Williams, Care Enterprises’ chief financial officer, said the improved revenues were the result of recent acquisitions by the company, including the purchase last month of Americare Corp., a Columbus, Ohio-based nursing home operator, which owns 30 facilities totaling 3,052 beds. Care paid $25.5 million in cash and stock for Americare.

Paying for the rapid growth has not been easy. Interest payments on the long-term debt totaled $14.5 million during the quarter. However, because about $82 million of it is in convertible bond debt, the company hopes that increases in stock prices will reduce the load.

“Hopefully, the stock price will go up to the point that the convertible bonds will become common stock,” Hendrickson said. “We expect that to happen within the next few years.”

Care Enterprises’ common stock, which was divided into two classes earlier this year, was selling for $6.625 a share at the close of trading Wednesday. The company went public in 1983 with an initial offering of 1.7 million shares at $16.50 each and in September it announced a 3-for-2 split of Class A common stock.

Still, one securities analyst cautioned that with a debt load that dwarfs shareholder equity, Care Enterprises will continue to face severe pressure on earnings as it services its obligations.

Care Enterprises, one of the largest publicly held nursing home operators, runs 123 facilities with 12,988 beds in seven states: California, Utah, Ohio, West Virginia, Arizona, Montana and New Mexico. It also operates 12 home health care centers and six pharmacies.