<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, 1996
---------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from
_______ to _______
MANOR CARE, INC.
----------------
COMMISSION FILE NUMBER 1-8195
-----------------------------
Incorporated in Delaware E.I.#52-1200376
- ------------------------- ---------------
11555 Darnestown Road, Gaithersburg, Maryland 20878
- ---------------------------------------------------
Telephone: (301) 979-4000
- ----------
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
----- -----
62,759,334 Common Shares were outstanding as of October 9, 1996.
This report contains 13 pages.
<PAGE> 2
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
MANOR CARE, INC. AND SUBSIDIARIES
---------------------------------
The consolidated balance sheet as of August 31, 1996, the consolidated
statements of income and the consolidated statements of cash flows for the three
months ended August 31, 1996 and 1995, 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, 1996 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, 1996 annual report to shareholders,
previously filed with the Commission. The results of operations and cash flows
for the three month periods ended August 31, 1996 and 1995 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, 1996 May 31, 1996
--------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 40,045 $ 62,533
Receivables (net of allowances
of $26,740 and $24,311) 106,625 107,267
Inventories 20,440 18,734
Current deferred income tax benefit 40,813 40,420
Prepaid expenses 31,389 3,885
Other current assets 2,418 2,222
--------- ---------
Total current assets 241,730 235,061
--------- ---------
Property and Equipment, at cost
Land 92,234 92,884
Buildings and improvements 906,868 887,184
Capitalized leases 12,747 12,747
Furniture, fixtures and equipment 217,275 209,035
Facilities in progress 52,083 49,067
--------- ---------
1,281,207 1,250,917
Less accumulated depreciation (347,871) (332,710)
--------- ---------
Net property and equipment 933,336 918,207
--------- ---------
Goodwill 59,655 54,646
--------- ---------
Advances to discontinued lodging segment 225,723 225,723
--------- ---------
Net investment in discontinued lodging segment 170,261 159,537
--------- ---------
Other Assets 98,733 88,666
--------- ---------
Total Assets $1,729,438 $1,681,840
========= =========
</TABLE>
NOTE: The balance sheet at May 31, 1996 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, 1996 May 31, 1996
--------------- ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 23,526 $ 23,984
Accounts payable 74,003 85,804
Accrued expenses 116,404 113,426
Income taxes payable 26,281 8,614
--------- ---------
Total current liabilities 240,214 231,828
--------- ---------
Mortgage and Other Long-Term Debt 218,574 334,781
--------- ---------
Subordinated Long-Term Debt 295,355 155,794
--------- ---------
Deferred Income Taxes and Other 238,171 251,668
--------- ---------
Stockholders' Equity
Common stock 6,596 6,581
Contributed capital 182,527 174,364
Retained earnings 594,230 571,925
Cumulative translation adjustments (4,511) (1,362)
Treasury stock, at cost (41,718) (43,739)
--------- ---------
Total stockholders' equity 737,124 707,769
--------- ---------
$1,729,438 $1,681,840
========= =========
</TABLE>
NOTE: The balance sheet at May 31, 1996 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,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues
Revenues $336,479 $273,992
-------- --------
Expenses
Operating expenses 266,072 209,490
Depreciation & amortization 18,304 15,549
General corporate 15,977 18,441
------- -------
Total expenses 300,353 243,480
------- -------
Income from operations 36,126 30,512
------- -------
Other income (expenses)
Interest income from advances
to discontinued lodging operations 5,079 4,612
Interest income and other 2,073 819
Minority interest (270) (582)
Interest expense (9,142) (5,607)
------- -------
Total other expenses, net (2,260) (758)
------- -------
Income from continuing operations
before income taxes 33,866 29,754
Income taxes 13,600 12,242
------- -------
Net income from continuing operations 20,266 17,512
Discontinued lodging operations:
Income from discontinued lodging
operations (net of income
taxes of $10,500, $7,658) 3,419 10,914
------- -------
Net income $ 23,685 $ 28,426
======= =======
Average shares outstanding 63,002 62,546
======= =======
Earnings per share:
Earnings from continuing
operations $ 0.32 $ 0.28
Earnings from discontinued lodging
operations 0.06 0.17
------- -------
Total earnings per share $ 0.38 $ 0.45
======= =======
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, August 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,685 $ 28,426
Reconciliation of net income to net cash
provided by operating activities:
Income from discontinued lodging operations (3,419) (10,914)
Depreciation and amortization 18,304 15,549
Amortization of debt discount 103 115
Provision for bad debts 4,512 3,724
(Decrease) increase in deferred taxes (2,626) 2,939
Changes in assets and liabilities
Change in accounts receivable (3,870) (6,492)
Change in inventories and other current assets (29,406) (18,378)
Change in current liabilities (8,823) 6,288
Change in income taxes payable 17,667 13,392
Change in other liabilities (11,264) 7,734
-------- --------
NET CASH PROVIDED BY CONTINUING OPERATIONS 4,863 42,383
NET CASH PROVIDED (UTILIZED) BY DISCONTINUED
LODGING OPERATIONS 13,929 (2,618)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,792 39,765
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of healthcare facilities -0- (7,045)
Investment in property and equipment (38,447) (22,935)
Acquisition of pharmacies (5,291) (2,325)
Other items, net (12,550) (1,179)
------- --------
NET CASH UTILIZED BY INVESTING ACTIVITIES
OF CONTINUING OPERATIONS (56,288) (33,484)
NET CASH UTILIZED BY INVESTING ACTIVITIES
OF DISCONTINUED LODGING OPERATIONS (16,577) (43,096)
-------- --------
NET CASH UTILIZED BY INVESTING ACTIVITIES (72,865) (76,580)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing of long-term debt 149,400 7,000
Principal payments of debt (116,758) (11,194)
Proceeds from exercise of stock options 9,964 374
Dividends paid (1,381) (1,373)
Retirement of bonds (9,900) -0-
-------- --------
NET CASH PROVIDED (UTILIZED) BY FINANCING
ACTIVITIES OF CONTINUING OPERATIONS 31,325 (5,193)
NET CASH PROVIDED (UTILIZED) BY FINANCING
ACTIVITIES OF DISCONTINUED LODGING OPERATIONS 260 (1,387)
-------- --------
NET CASH PROVIDED (UTILIZED) BY FINANCING
ACTIVITIES 31,585 (6,580)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (22,488) (43,395)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 62,533 72,972
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 40,045 $ 29,577
======== ========
</TABLE>
6
<PAGE> 7
MANOR CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(unaudited)
Long-Term Debt
- --------------
Long-term debt was $513.9 million at August 31, 1996 compared to $490.6 million
at May 31, 1996. 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 September 6, 2001.
Outstanding borrowings under the facility at August 31, 1996 totalled $176.4
million, including $51.4 million in foreign currency borrowings included in net
investment in discontinued lodging operations as the foreign currency borrowings
are directly attributable to the lodging segment.
In June 1996, the Company issued $150.0 million of 7.5% senior notes due 2006.
These notes are redeemable at the option of the Company at any time at a price
equal to the greater of (a) the principal amount or (b) the sum of the present
values of the remaining scheduled payments of principal and interest,
discounted with an applicable treasury rate plus 15 basis points, plus accrued
interest to the date of redemption. The proceeds of this offering were used to
repay borrowings under the Company's competitive advance and multi-currency
revolving credit facility. In July 1996, the Company repurchased 9.5% senior
notes with the face amount of $9.9 million for $10.5 million.
Acquisitions, Divestitures and Sales of Property
- ------------------------------------------------
During the first three months of fiscal year 1997, the Company transferred an
assisted living facility to the discontinued lodging operations with an
approximate net book value of $4.9 million. The Company also purchased a
pharmacy business in California for approximately $5.3 million.
During fiscal year 1996, the Company acquired four nursing centers and an
operating lease for approximately $45.4 million, of which $32.4 million was
cash and the remainder was assumed liabilities. Additionally, six assisted
living facilities, with five attached skilled nursing units, were purchased for
$74.3 million, of which $19.0 million was cash and the reminder was assumed
liabilities. The Company's pharmacy subsidiary, Vitalink Pharmacy Services,
Inc., purchased two pharmacies for $6.3 million. In October 1995, the Company
purchased 41% of the common stock of In Home Health Inc. (IHHI), a provider of
home health services, for $22.9 million. The Company paid an additional $20.0
million to IHHI for 100% of its outstanding voting convertible preferred stock
7
<PAGE> 8
MANOR CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(unaudited)
Acuisitions, divestitures and Sales of Property (Continued)
- -----------------------------------------------
and for warrants to purchase an additional 6 million shares of common stock.
As a result of this transaction, the Company currently has effective control of
approximately 63% of the voting stock of IHHI.
8
<PAGE> 9
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 $40 million as of August 31, 1996 and unused
lines of credit of $134.6 million are considered adequate to ensure
sufficient liquidity and capital resources for both the upcoming year and
the foreseeable future.
Results of Operations
- ---------------------
The following review of operating results includes the historical results
of operations of the Company for the three months ended August 31, 1996
and August 31, 1995 reflecting the Company's lodging business as
discontinued operations. The results of operations for the three months
ended August 31, 1995 previously reported have been restated to reflect
the Company's lodging business as discontinued operations.
Net income for the three months ended August 31, 1996 was $23.7 million
or $.38 per share as compared to $28.4 million or $.45 per share reported
in the first quarter of the prior year.
Income from operations for the three months ended August 31, 1996 was
$36.1 million. This compares to income from operations in the same
period last year of $30.5 million.
Gross profit for the three months ended August 31, 1996, increased $5.9
million, when compared to the same period last year. For the three
months ended August 31, 1996, revenues and operating expenses rose 23%
and 27% respectively. Higher occupancies and rate increases in the
Company's skilled nursing facilities improved year-to-date gross profit by $2.5
million and $0.9 million, respectively. Increased capacity and occupancies at
the Company's assisted living facilities improved year-to-date gross profit
by $1.8 million. The remaining improvement was
primarily due to added capacity in Vitalink, the Company's institutional
pharmacy subsidiary.
Depreciation and amortization increased $2.8 million for the three month period
ended August 31, 1996 from the same period last year as a result of
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, 1996,
decreased $2.5 million, when compared to the same period last year. This
decrease was primarily because of a reduction in employees related to the
discontinued operations and reengineering efforts in both organizational
and financial systems. General corporate expense represented 4.7% of
revenues during the three months ended August 31, 1996 compared to 6.7%
for the same period last year. General corporate expense includes risk
management, information systems, treasury, accounting, legal, human
resources and other administrative support functions.
9
<PAGE> 10
MANOR CARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Continued)
- ---------------------
Interest expense increased $3.5 million for the three months ended August
31, 1996 from the same period last year. The increase in interest expense
resulted primarily from the issuance of $150.0 million of 7.5% senior notes in
June 1996. Interest capitalized, in conjunction with construction
programs, amounted to $1.4 million and $.6 million in the three months
ended August 31, 1996 and 1995, respectively.
Pharmacy Subsidiary Merger Agreement
- ------------------------------------
In September 1996, the Company's 82%-owned pharmacy subsidiary Vitalink
Pharmacy Services, Inc. and GranCare, Inc. announced that they have
entered into a definitive merger agreement. The first step in the
transaction calls for GranCare to spin-off its skilled nursing operations
in a tax-free distribution to shareholders.
10
<PAGE> 11
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 30, 1996, 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. 55,157,627 125,550
Stewart Bainum 54,671,291 611,886
Regina E. Herzlinger 55,174,731 108,446
William H. Longfield 55,172,844 110,333
Frederic V. Malek 55,139,530 143,647
Jerry E. Robertson 55,153,659 129,518
Kennett L. Simmons 55,165,409 117,768
</TABLE>
The shareholders approved the Manor Care, Inc. 1996 Non-employee Director
Stock Compensation Plan, which authorizes the awarding of a maximum of
40,000 shares of Company common stock to non-employee directors. There
were 54,543,905 shares voted in favor of the proposal, 416,032 shares
voted against and 323,240 shares abstaining.
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, 1996.
11
<PAGE> 12
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: October 12, 1996 By: James A. MacCutcheon
---------------- Senior Vice President,
Chief Financial Officer
and Treasurer
Date: October 12, 1996 By: James H. Rempe
---------------- Senior Vice President,
General Counsel and Secretary
Date: October 12, 1996 By: Margarita Schoendorfer
---------------- Vice President and
Corporate Controller
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> $40,045
<SECURITIES> 0
<RECEIVABLES> 139,632<F1>
<ALLOWANCES> 26,740
<INVENTORY> 20,440
<CURRENT-ASSETS> 241,730
<PP&E> 1,281,207
<DEPRECIATION> 347,871
<TOTAL-ASSETS> 1,729,438
<CURRENT-LIABILITIES> 240,214
<BONDS> 513,929
0
0
<COMMON> 6,596
<OTHER-SE> 730,528
<TOTAL-LIABILITY-AND-EQUITY> 1,729,438
<SALES> 0
<TOTAL-REVENUES> 336,479
<CGS> 0
<TOTAL-COSTS> 279,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,512
<INTEREST-EXPENSE> 9,142
<INCOME-PRETAX> 33,866
<INCOME-TAX> 13,600
<INCOME-CONTINUING> 20,266
<DISCONTINUED> 3,419
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,685
<EPS-PRIMARY> $0.376<F2>
<EPS-DILUTED> $0.376<F2>
<FN>
<F1>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.
<F2>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>
