<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 February 28, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _______ to ________
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 (l) 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
----- -----
62,422,220 Common Shares were outstanding as of April 10, 1995.
This report contains 11 pages.
<PAGE> 2
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
MANOR CARE, INC. AND SUBSIDIARIES
The consolidated balance sheet as of February 28, 1995, the consolidated
statements of income for the three and nine month periods ended February 28,
1995 and 1994, and the consolidated statements of cash flows for the nine months
ended February 28, 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 February 28, 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, 1994 annual report to shareholders,
previously filed with the Commission. The results of operations for the three
and nine month periods ended February 28, 1995 and 1994, and cash flows for the
nine months ended February 28, 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>
February 28, 1995 May 31, 1994
----------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 71,475 $ 60,487
Receivables (net of allowances
of $24,077 and $24,431) 87,897 84,766
Inventories 14,112 12,954
Current deferred income tax benefit 12,317 12,317
Prepaid expenses 13,040 10,588
Other assets 19,182 2,240
----------- -----------
Total current assets 218,023 183,352
----------- -----------
Property and equipment, at cost
Land 111,004 92,838
Building and improvements 892,887 813,131
Capitalized leases 18,991 18,991
Furniture, fixtures and equipment 209,034 187,804
Facilities in progress 30,247 19,632
----------- -----------
1,262,163 1,132,396
Less accumulated depreciation (333,605) (308,046)
----------- -----------
Net property and equipment 928,558 824,350
----------- -----------
Lodging franchise rights 62,287 64,454
----------- -----------
Other assets 103,178 114,369
----------- -----------
$ 1,312,046 $ 1,186,525
=========== ===========
</TABLE>
NOTE: The balance sheet at May 31, 1994 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>
February 28, 1995 May 31, 1994
----------------- ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 19,987 $ 5,869
Accounts payable 61,992 50,231
Accrued expenses 102,669 97,597
Income taxes payable 14,032 12,681
----------- -----------
Total current liabilities 198,680 166,378
----------- -----------
Mortgage and other long-term debt 141,760 119,333
----------- -----------
Subordinated long-term debt 157,625 157,602
----------- -----------
Deferred Income Taxes and Other 214,738 209,397
----------- -----------
Stockholders' Equity
Capital stock 6,550 6,545
Contributed capital 168,228 167,316
Retained earnings 466,517 402,520
Cumulative translation adjustment 556 (31)
Treasury stock, at cost (42,608) (42,535)
----------- -----------
Total stockholders' equity 599,243 533,815
----------- -----------
$ 1,312,046 $ 1,186,525
=========== ===========
</TABLE>
NOTE: The balance sheet at May 31, 1994 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 Nine Months Ended
February 28, February 28,
---------------------------- ----------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Healthcare, net $ 258,255 $ 231,503 $ 748,347 $ 676,878
Lodging 63,845 52,568 219,399 176,446
--------- --------- --------- ---------
Total revenues 322,100 284,071 967,746 853,324
--------- --------- --------- ---------
Expenses
Healthcare 196,742 175,488 568,802 513,665
Lodging 48,154 40,836 154,296 127,323
Depreciation & amortization 19,347 16,766 55,286 49,196
General corporate 19,431 17,658 55,647 49,202
--------- --------- --------- ---------
Total expenses 283,674 250,748 834,031 739,386
--------- --------- --------- ---------
Income from operations 38,426 33,323 133,715 113,938
--------- --------- --------- ---------
Other income (expenses)
Interest income and other 468 440 1,437 1,502
Gain on sale of property -- -- -- 7,978
Interest expense (7,253) (7,312) (20,141) (24,564)
--------- --------- --------- ---------
Total other (expenses), net (6,785) (6,872) (18,704) (15,084)
--------- --------- --------- ---------
Income before income taxes 31,641 26,451 115,011 98,854
Income taxes 12,900 10,800 46,900 43,200
--------- --------- --------- ---------
Net income $ 18,741 $ 15,651 $ 68,111 $ 55,654
========= ========= ========= =========
Average shares outstanding 62,482 62,450 62,468 59,854
========= ========= ========= =========
Net income per share of common
stock $ .30 $ .25 $ 1.09 $ .93
========= ========= ========= =========
Dividends per share of common
stock $ .022 $ .022 $ .066 $ .066
========= ========= ========= =========
</TABLE>
5
<PAGE> 6
MANOR CARE, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
February 28, February 28,
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 68,111 $ 55,654
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 55,286 49,196
Amortization of debt discount 536 864
Provision for bad debts 10,551 9,300
Increase in deferred taxes (5,006) 5,877
Gain on sale of facilities -- (7,978)
Changes in assets and liabilities
(excluding sold facilities):
Change in accounts receivable (13,683) (11,287)
Change in inventory and other current assets (10,552) (6,874)
Change in accounts payable and accrued expenses 16,800 1,806
Change in income taxes payable 1,351 1,621
Change in other liabilities 10,347 2,893
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 133,741 121,072
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (90,928) (58,460)
Acquisition of operating pharmacies -- (7,250)
Acquisition of operating hotels (32,252) (27,250)
Acquisition of healthcare facilities (25,894) --
Investment in a healthcare business -- (10,000)
Proceeds from sale of facilities -- 15,630
Other items, net (6,106) (2,775)
--------- ---------
NET CASH UTILIZED BY INVESTING ACTIVITIES (155,180) (90,105)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loans 42,000 --
Principal payments of debt (5,991) (52,899)
Proceeds from exercise of stock options 532 1,985
Dividends paid (4,114) (4,002)
--------- ---------
NET CASH UTILIZED BY FINANCING ACTIVITIES 32,427 (54,916)
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS 10,988 (23,949)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 60,487 80,844
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 71,475 $ 56,895
========= =========
</TABLE>
6
<PAGE> 7
MANOR CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995
(unaudited)
Long-Term Debt
During the nine months ended February 28, 1995, the Company increased its
borrowings by approximately $36 million. On November 30, 1994 the Company
entered into a $250 million Competitive Advance and Multi-Currency Revolving
Credit Facility provided by a group of eighteen banks. This loan facility
replaces the $100 million Revolving Credit Facility and the $65 million
Multi-Currency Revolving Credit Facility. Outstanding borrowings under the new
facility at February 28, 1995 totalled $74.7 million. The 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.
During the nine months ended February 28, 1994, the Company repaid approximately
$53 million of debt. Included in this amount was approximately $3 million
related to the Company's redemption of the $99 million of 6-3/8% Convertible
Subordinated Debentures due 2011 on October 25, 1993. The remaining $96 million
were converted, at the election of the bondholders, into common stock at a
conversion price per share of $20.31. Pursuant to these conversions, 4,743,522
shares of common stock were issued.
Acquisitions, Divestitures and Sales of Property
In August 1993, a pharmacy business in Oregon was purchased for approximately
$5.0 million. In January 1994, a pharmacy business in Colorado was acquired for
approximately $3.5 million.
In July 1993, three nursing facilities were sold for $15.6 million with a
pre-tax gain of approximately $8.0 million. In February 1994, one hotel was
sold for $7.2 million.
During the first nine months of fiscal 1995, five operating healthcare
facilities (four of which are assisted living facilities) were acquired for
approximately $25.9 million. During fiscal year 1994, the Company acquired
thirteen operating hotels containing a total of 1,900 rooms for approximately
$44.2 million. In the first nine months of fiscal 1995, nine operating hotels
were acquired containing a total of 1,296 rooms for approximately $32.2 million.
These acquisitions were accounted for as a purchase and approximately 70% of the
total costs are allocated to buildings, 20% to land and the remainder to
furniture, fixtures and equipment.
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 $71 million as of February 28, 1995 and unused lines
of credit of $175 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 February 28, 1995 was $18.7 million or
$.30 per share as compared to $15.7 million or $.25 per share reported in the
prior year quarter. For the nine months ended February 28, 1995, net income
amounted to $68.1 million or $1.09 per share as compared to the prior year's
$55.7 million or $.93 per share.
Income from operations for the three and nine month periods ended February 28,
1995 was $38.4 million and $133.7 million, respectively. This compares to income
from operations in the same periods last year of $33.3 million and $113.9
million, respectively.
Gross profit for the healthcare division for the three and nine months ended
February 28, 1995, increased $5.5 million and $16.3 million, respectively, when
compared with the same periods last year. For the three months ended February
28, 1995, healthcare revenues and operating expenses rose 12%. For the nine
months ended February 28, 1995, healthcare revenues and expenses increased 11%.
Higher occupancies and rate increases in the Company's nursing facilities
improved year-to-date gross profits by $4.5 million and $5.6 million,
respectively. The remaining improvement was primarily due to added capacity in
Vitalink, the Company's institutional pharmacy subsidiary.
8
<PAGE> 9
MANOR CARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations (continued)
Gross profit for the lodging division for the three and nine month periods ended
February 28, 1995 increased $4.0 million and $15.9 million, respectively, when
compared to the same periods last year. Lodging revenues increased 21% and 24%
and lodging expenses increased 18% and 21% for the three and nine month periods,
respectively. Significant increases in revenues and expenses are due to the
recent purchases of hotels. In fact, hotel acquisitions have contributed $25
million and $7 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 $7 million over the prior year.
Depreciation and amortization increased $2.6 and $6.1 million for the three and
nine month periods ended February 28, 1995, respectively, due to acquisitions
and increases in property and equipment resulting from additions and renovations
to existing facilities during the past twelve months.
General Corporate expenses for the three and nine months ended February 28, 1995
increased $1.8 million and $6.4 million, respectively, when compared to the same
periods last year. These increases were primarily due to general inflation and
increased payroll and benefits costs relating to various programs. General
corporate expense represented 5.8% of revenues during the nine months ended
February 28, 1995 as well as during the same period in the prior year. General
corporate expense includes risk management, information systems, treasury,
accounting, legal, human resources and other administrative support functions.
Interest expense for the three and nine months ended February 28, 1995 decreased
$.1 million and $4.4 million, respectively, when compared to the same periods
last year. The net decrease is primarily due to the early redemption and
conversion of the $99 million of 6-3/8% debentures on October 25, 1993. Interest
capitalized, in conjunction with construction programs, amounted to $1.4 million
and $.4 million in the nine months ended February 28, 1995 and 1994,
respectively.
9
<PAGE> 10
MANOR CARE, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
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 February 28, 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.
MANOR CARE, INC.
(Registrant)
Date: April 10, 1995 By: James A. MacCutcheon
Senior Vice President
and Chief Financial Officer
Date: April 10, 1995 By: James H. Rempe
Senior Vice President
General Counsel and Secretary
Date: April 10, 1995 By: Margarita Schoendorfer
Vice President and
Corporate Controller
11
<PAGE> 12
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Income and the
Consolidated Statements of Cash Flows and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 71,475
<SECURITIES> 0
<RECEIVABLES> 111,974
<ALLOWANCES> 24,077
<INVENTORY> 14,112
<CURRENT-ASSETS> 218,023
<PP&E> 1,262,163
<DEPRECIATION> 333,605
<TOTAL-ASSETS> 1,312,046
<CURRENT-LIABILITIES> 198,680
<BONDS> 299,385
<COMMON> 6,550
0
0
<OTHER-SE> 592,693
<TOTAL-LIABILITY-AND-EQUITY> 1,312,046
<SALES> 0
<TOTAL-REVENUES> 967,746
<CGS> 0
<TOTAL-COSTS> 767,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,551
<INTEREST-EXPENSE> 20,141
<INCOME-PRETAX> 115,011
<INCOME-TAX> 46,900
<INCOME-CONTINUING> 68,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,111
<EPS-PRIMARY> 1.09<F1>
<EPS-DILUTED> 1.09<F1>
<FN>
<F1>The Company presents simple earnings per share (EPS) on the face of its income
statement as fully dilutive EPS is within 97% of simple EPS. The figures
presented above are simple EPS.
</FN>
</TABLE>
