<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
---------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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MANOR CARE, INC.
----------------
COMMISSION FILE NUMBER 1-8195
-----------------------------
Incorporated in Delaware E.I.#52-1200376
- ------------------------ ---------------
10750 Columbia Pike, Silver Spring, Maryland 20901
- --------------------------------------------------
Telephone: (301) 681-9400
- ----------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
62,449,827 Common Shares were outstanding as of October 12, 1995.
This report contains 12 pages.
<PAGE> 2
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
MANOR CARE, INC. AND SUBSIDIARIES
The consolidated balance sheet as of August 31, 1995, the consolidated
statements of income and the consolidated statements of cash flows for the three
months ended August 31, 1995 and 1994, have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows at August 31, 1995 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's May 31, 1995 annual report to shareholders,
previously filed with the Commission. The results of operations and cash flows
for the three month periods ended August 31, 1995 and 1994 are not necessarily
indicative of the operating results or cash flows for the full year.
2
<PAGE> 3
MANOR CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
August 31, 1995 May 31, 1995
--------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 32,850 $ 75,060
Receivables (net of allowances
of $24,261 and $22,999) 100,968 96,149
Inventories 16,910 17,138
Current deferred income tax benefit 27,371 27,371
Prepaid expenses 29,683 5,360
Other current assets 9,454 9,297
----------- -----------
Total current assets 217,236 230,375
----------- -----------
Property and Equipment, at cost
Land 119,305 113,768
Buildings and improvements 984,381 953,471
Capitalized leases 18,991 18,991
Furniture, fixtures and equipment 233,496 224,730
Facilities in progress 29,201 32,033
----------- -----------
1,385,374 1,342,993
Less accumulated depreciation (366,467) (349,202)
----------- -----------
Net property and equipment 1,018,907 993,791
----------- -----------
Lodging franchise rights, net 60,842 61,565
----------- -----------
Other Assets 136,649 130,576
----------- -----------
$ 1,433,634 $ 1,416,307
=========== ===========
</TABLE>
NOTE: The balance sheet at May 31, 1995 has been taken from the audited
financial statements at that date.
3
<PAGE> 4
MANOR CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
August 31, 1995 May 31, 1995
--------------- ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 7,031 $ 5,468
Accounts payable 81,065 94,281
Accrued expenses 95,092 101,732
Income taxes payable 14,286 --
----------- -----------
Total current liabilities 197,474 201,481
----------- -----------
Mortgage and Other Long-Term Debt 202,236 209,630
----------- -----------
Subordinated Long-Term Debt 157,717 157,671
----------- -----------
Deferred Income Taxes and Other 221,773 222,652
----------- -----------
Stockholders' Equity
Common stock 6,557 6,553
Contributed capital 170,439 168,699
Retained earnings 519,153 491,520
Cumulative translation adjustments 927 709
Treasury stock, at cost (42,642) (42,608)
----------- -----------
Total stockholders' equity 654,434 624,873
----------- -----------
$ 1,433,634 $ 1,416,307
=========== ===========
</TABLE>
NOTE: The balance sheet at May 31, 1995 has been taken from the audited
financial statements at that date.
4
<PAGE> 5
MANOR CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues
Healthcare, net $ 273,992 $ 242,974
Lodging 99,380 78,427
--------- ---------
Total revenues 373,372 321,401
--------- ---------
Expenses
Healthcare 209,490 184,728
Lodging 64,967 54,019
Depreciation & amortization 21,589 17,724
General corporate 22,450 17,466
--------- ---------
Total expenses 318,496 273,937
--------- ---------
Income from operations 54,876 47,464
--------- ---------
Other income (expenses)
Interest income and other 988 1,415
Minority interest (965) (1,061)
Interest expense (6,573) (6,655)
--------- ---------
Total other expenses, net (6,550) (6,301)
--------- ---------
Income before income taxes 48,326 41,163
Income taxes 19,900 16,800
--------- ---------
Net income $ 28,426 $ 24,363
========= =========
Average shares outstanding 62,546 62,536
========= =========
Income per share of common stock $ .45 $ .39
========= =========
Dividends per share of common stock $ .022 $ .022
========= =========
</TABLE>
5
<PAGE> 6
MANOR CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,426 $ 24,363
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 21,589 17,724
Amortization of debt discount 123 250
Provision for bad debts 4,413 2,792
Increase (decrease) in deferred taxes 291 (944)
Changes in assets and liabilities (excluding sold facilities):
Change in accounts receivable (9,373) (6,592)
Change in inventory and other current assets (24,127) (19,000)
Change in accounts payable and accrued expenses 6,388 (5,529)
Change in income taxes payable 14,286 12,293
Change in other liabilities (1,170) 15,137
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 40,846 40,494
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (33,954) (39,635)
Acquisition of operating hotels (6,922) (9,970)
Acquisition of operating pharmacy (2,325) --
Acquisition of nursing home (4,130) --
Purchase of previously leased nursing home (2,915) --
Other items, net 1,007 (2,046)
Purchase of minority interest (27,367) --
-------- --------
NET CASH UTILIZED BY INVESTING ACTIVITIES (76,606) (51,651)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 59,623 --
Principal payments of debt (65,074) (4,911)
Proceeds from exercise of stock options 374 276
Dividends paid (1,373) (1,372)
-------- --------
NET CASH UTILIZED BY FINANCING
ACTIVITIES (6,450) (6,007)
-------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (42,210) (17,164)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 75,060 60,487
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,850 $ 43,323
======== ========
</TABLE>
6
<PAGE> 7
MANOR CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1995
(unaudited)
Long-Term Debt
- --------------
Long-term debt was $360.0 million at August 31, 1995 compared to $367.3 million
at May 31, 1995. The Company has a $250 million competitive advance and
multi-currency revolving credit facility provided by a group of eighteen banks.
This facility provides that up to $75 million is available for borrowings in
foreign currencies. Borrowings under the facility are, at the option of the
Company, at one of several rates including LIBOR plus 26.25 basis points. In
addition, the Company has the option to request participating banks to bid on
loan participation at lower rates than those contractually provided by the
facility. The facility requires the Company to pay fees of 3/16 of 1% on the
entire loan commitment. The facility will terminate on November 30, 1999.
Outstanding borrowings at August 31, 1995 totalled $117 million.
Acquisitions, Divestitures and Sales of Property
- ------------------------------------------------
During the first three months of fiscal 1996, the Company acquired an operating
healthcare facility in Illinois for approximately $4.1 million, the lease on an
operating healthcare facility for $2.9 million and a pharmacy business for $2.4
million. These acquisitions were accounted for as a purchase and approximately
86% of total costs were allocated to buildings, 10% to land and the remainder to
furniture, fixtures and equipment. In addition, the company acquired two
operating hotels containing over 220 rooms for approximately $6.9 million. In
the first quarter of fiscal 1996, $27.4 million was paid for the purchase of
one-half of the 11% minority interest in a lodging subsidiary.
During fiscal year 1995, the Company acquired sixteen operating hotels
containing a total of 2,300 rooms for approximately $59.8 million. Also during
fiscal 1995, one pharmacy business, nine operating healthcare facilities and
assisted living facilities were acquired for approximately $59.2 million.
7
<PAGE> 8
MANOR CARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
Available cash balances of $33 million as of August 31, 1995 and unused lines of
credit of $146 million are considered adequate to ensure sufficient liquidity
and capital resources for both the upcoming year and the foreseeable future.
Results of Operations
- ---------------------
Net income for the three months ended August 31, 1995 was $28.4 million or $.45
per share, compared to $24.4 million or $.39 per share reported in the prior
year quarter.
Income from operations for the three months ended August 31, 1995 was $54.9
million. This compares to income from operations in the same period last year of
$47.5 million.
Gross profit for the healthcare division for the three months ended August 31,
1995 increased $6.3 million, when compared to the same period last year. For the
three months ended August 31, 1995, healthcare revenues and operating expenses
rose 13%. Higher occupancies and rate increases in the Company's nursing
facilities improved year-to-date gross profits by $1.9 million and $2.6 million,
respectively.
Gross profit for the lodging division for the three months ended August 31, 1995
increased $10.0 million, when compared to the same period last year. Lodging
revenues increased 26.7% and lodging expenses increased 20.3% for the three
month period. Significant increases in revenues and expenses are due to the
recent purchase of hotels. In fact, hotel acquisitions have contributed $10
million and $4 million to the increase in year-to-date revenues and operating
profits, respectively. Furthermore, operating profits have increased due to the
economy's gradual recovery which has stimulated demand for the Company's economy
and mid-market lodging brands. This recovery has improved the Company's hotel
franchise subsidiary year-to-date profits by $6 million over the prior year.
8
<PAGE> 9
MANOR CARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Continued)
- ---------------------------------
Depreciation and amortization increased $3.9 million for the three month period
ended August 31, 1995 due to acquisitions and increases in property and
equipment resulting from additions and renovations to existing facilities during
the past twelve months.
General corporate expense for the three months ended August 31, 1995, increased
$5.0 million, when compared to the same period last year. This increase was
primarily due to general inflation and reengineering efforts in both
organizational and financial systems which will facilitate future growth.
General corporate expense represented 6.0% of revenues during the three months
ended August 31, 1995 compared to 5.4% for the same period last year. General
corporate expense includes risk management, information systems, treasury,
accounting, legal, human resources and other administrative support functions.
Interest expense for the three months ended August 31, 1995 was consistent with
the same period last year. Interest capitalized, in conjunction with
construction programs, amounted to $.6 million and $.3 million in the three
months ended August 31, 1995 and 1994, respectively.
9
<PAGE> 10
MANOR CARE, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual shareholders meeting on September 28, 1995, the shareholders
elected the directors who had been nominated by the Company. The number of votes
cast was as follows:
<TABLE>
<CAPTION>
For Against/Withheld
--- ----------------
<S> <C> <C>
Stewart Bainum, Jr. 49,378,818 114,001
Stewart Bainum 49,337,472 155,347
Jack R. Anderson 49,381,667 111,152
Regina E. Herzlinger 49,393,168 99,651
William H. Longfield 49,395,219 97,600
Frederic V. Malek 49,381,445 111,374
Jerry E. Robertson 49,395,742 97,077
</TABLE>
The shareholders approved the Manor Care, Inc. 1995 Long-Term Incentive Plan,
under which 1,110,122 shares of Company common stock will be reserved for
issuance upon exercise of options or grants to key employees and for other
grants to such individuals. There were 41,042,071 shares voted in favor of the
proposal, 7,762,498 shares voted against, 138,166 shares abstaining and
550,084 broker non-votes.
The shareholders also approved the Manor Care, Inc. 1995 Employee Stock Purchase
Plan, under which eligible employees may purchase up to 1,000,000 shares. There
were 48,166,465 shares voted in favor of the proposal, 636,558 shares voted
against, 139,712 shares abstaining and 550,084 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial Data Schedule
(b) There were no reports filed on Form 8-K for the three months ended August
31, 1995.
10
<PAGE> 11
MANOR CARE, INC. AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant) MANOR CARE, INC.
----------------
Date:October 12, 1995 By: James A. MacCutcheon
- --------------------- Senior Vice President,
Chief Financial Officer
and Treasurer
Date:October 12, 1995 By: James H. Rempe
- --------------------- Senior Vice President,
General Counsel and Secretary
Date:October 12, 1995 By: Margarita Schoendorfer
- --------------------- Vice President and
Corporate Controller
11
<PAGE> 12
EXHIBIT INDEX
27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONOLIDATED STATEMENTS OF INCOME AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-1-1995
<PERIOD-END> AUG-31-1995
<CASH> 32,850
<SECURITIES> 0
<RECEIVABLES> 133,826
<ALLOWANCES> 24,261
<INVENTORY> 16,910
<CURRENT-ASSETS> 217,236
<PP&E> 1,385,374
<DEPRECIATION> 366,467
<TOTAL-ASSETS> 1,433,634
<CURRENT-LIABILITIES> 197,474
<BONDS> 202,236
<COMMON> 0
0
6,557
<OTHER-SE> 647,877
<TOTAL-LIABILITY-AND-EQUITY> 1,433,634
<SALES> 0
<TOTAL-REVENUES> 373,372
<CGS> 0
<TOTAL-COSTS> 291,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,413
<INTEREST-EXPENSE> 6,573
<INCOME-PRETAX> 48,326
<INCOME-TAX> 19,900
<INCOME-CONTINUING> 28,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,426
<EPS-PRIMARY> 0.454
<EPS-DILUTED> 0.454<F1>
<FN>
<F1>The Company presents simple earnings per share (EPS) on the face of its income
statement as fully dilutive EPS. The fully dilutive EPS is within 97% of
simple EPS. The figures presented above are simple EPS.
</FN>
</TABLE>
