<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 29, 1996
( ) 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
---- ----
62,621,234 Common Shares were outstanding as of April 10, 1996.
This report contains 12 pages.
<PAGE> 2
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
MANOR CARE, INC. AND SUBSIDIARIES
The consolidated balance sheet as of February 29, 1996, the consolidated
statements of income for the three and nine month periods ended February 29,
1996 and February 28, 1995, and the consolidated statements of cash flows for
the nine months ended February 29, 1996 and February 28, 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
February 29, 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, 1995 annual report to shareholders,
previously filed with the Commission. The results of operations for the three
and nine month periods ended February 29, 1996 and February 28, 1995, and cash
flows for the nine months ended February 29, 1996 and February 28, 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>
February 29, 1996 May 31, 1995
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 25,600 $ 72,972
Receivables (net of allowances
of $24,783 and $18,797) 93,130 74,203
Inventories 18,445 16,849
Current deferred income tax benefit 30,227 27,371
Other 12,916 10,895
----------- -----------
Total current assets 180,318 202,924
----------- -----------
Property and equipment, at cost
Land 91,851 78,092
Building and improvements 864,203 746,961
Capitalized leases 12,747 12,747
Furniture, fixtures and equipment 202,394 163,278
Facilities in progress 44,083 23,956
----------- -----------
1,215,278 1,025,034
Less accumulated depreciation (317,219) (288,399)
----------- -----------
Net property and equipment 898,059 736,635
----------- -----------
Advances to discontinued lodging segment 225,723 198,522
----------- -----------
Net investment in discontinued operations 127,424 65,829
----------- -----------
Other assets 143,711 85,907
----------- -----------
Total assets $ 1,575,235 $ 1,289,817
=========== ===========
</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>
February 29, 1996 May 31, 1995
----------------- -----------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 13,279 $ 4,829
Accounts payable 55,427 48,172
Accrued expenses 112,659 86,366
Income taxes payable 16,202 -
----------- -----------
Total current liabilities 197,567 139,367
----------- -----------
Mortgage and other long-term debt 290,392 157,600
----------- -----------
Subordinated long-term debt 157,809 157,671
----------- -----------
Deferred Income Taxes and Other 226,810 210,306
----------- -----------
Stockholders' Equity
Capital stock 6,568 6,553
Contributed capital 171,884 168,699
Retained earnings 567,496 491,520
Cumulative translation adjustment (353) 709
Treasury stock, at cost (42,938) (42,608)
----------- -----------
Total stockholders' equity 702,657 624,873
----------- -----------
$ 1,575,235 $ 1,289,817
=========== ===========
</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 Nine Months Ended
Feb. 29 Feb. 28 Feb. 29 Feb. 28
--------------------------- --------------------------
1996 1995 1996 1995
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues $334,404 $258,255 $908,118 $748,347
Expenses
Operating expenses 261,124 196,742 699,271 568,802
Depreciation & amortization 18,086 13,690 49,685 39,527
General corporate 18,350 15,389 53,756 44,270
-------- -------- -------- --------
Total expenses 297,560 225,821 802,712 652,599
-------- -------- -------- --------
Income from operations 36,844 32,434 105,406 95,748
-------- -------- -------- --------
Other income (expenses)
Interest income from advances to 5,079 3,963 14,595 11,150
discontinued lodging subsidiary
Interest income and other 1,162 2,054 3,371 5,639
Minority interest (244) (400) (1,243) (1,588)
Interest expense (7,617) (6,131) (22,015) (16,955)
-------- -------- -------- --------
Total other (expenses), net (1,620) ( 514) (5,292) ( 1,754)
-------- -------- -------- --------
Income from continuing operations
before income taxes 35,224 31,920 100,114 93,994
Income taxes 14,313 12,693 41,034 37,654
-------- -------- -------- --------
Income from continuing
operations 20,911 19,227 59,080 56,340
-------- -------- -------- --------
Discontinued operations:
Income from discontinued
operation (net of income tax)
of $1,487, $207, $14,966,
and $9,246) 1,391 (486) 20,436 11,771
-------- -------- -------- -------
Net income 22,302 18,741 79,516 68,111
======== ======== ======== ========
Average shares outstanding 62,644 62,482 62,592 62,468
======== ======== ======== ========
Income Per Share of Common Stock
Income from continuing operations $ 0.34 $ 0.31 $ 0.94 $ 0.90
Discontinued operations (net of 0.02 (0.01) 0.33 0.19
income tax) -------- -------- -------- -------
Net income per share of common $ 0.36 $ 0.30 $ 1.27 $ 1.09
stock ======== ======== ======== =======
Dividend per share $ 0.022 $ 0.022 $ 0.066 $ 0.066
======== ======== ======== =======
</TABLE>
5
<PAGE> 6
MANOR CARE, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 79,516 $ 68,111
Reconciliation of net income to net cash
provided by operating activities:
Income from discontinued operations (20,436) (11,771)
Depreciation and amortization 49,685 39,527
Amortization of debt discount 484 374
Provision for bad debts 12,594 9,158
Increase (decrease) in deferred taxes 24,538 (6,549)
Changes in assets and liabilities
Change in accounts receivable (21,818) (12,498)
Change in inventory and other current assets (1,089) (11,498)
Change in accounts payable and accrued expenses 15,342 16,109
Change in income taxes payable 18,063 675
Change in other liabilities (29,523) 9,243
--------- ---------
NET CASH PROVIDED BY CONTINUING OPERATIONS 127,356 100,881
--------- ---------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 36,820 16,292
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 164,176 117,173
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (81,454) (62,994)
Investment in In Home Health, Inc. (22,950) --
Acquisition of operating pharmacies (6,270) --
Acquisition of nursing homes (29,454) (2,990)
Purchase of previously leased nursing home (2,915) --
Acquisition of assisted living facilities (19,050) (22,994)
Investment in systems development (8,684) (5,153)
Other items, net (5,249) (6,565)
--------- ---------
NET CASH UTILIZED BY INVESTING ACTIVITIES (176,026) (100,696)
FROM CONTINUING OPERATIONS --------- ---------
NET CASH UTILIZED BY INVESTING ACTIVITIES (104,257) (54,159)
FROM DISCONTINUED OPERATIONS --------- ---------
NET CASH UTILIZED BY INVESTING ACTIVITIES (280,283) (154,855)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 94,300 28,000
Principal payments of debt (20,866) (2,597)
Advances to discontinued operations (27,201) (37,360)
Proceeds from exercise of stock options 1,410 532
Dividends paid (4,124) (4,114)
--------- ---------
NET CASH PROVIDED (UTILIZED) BY FINANCING
ACTIVITIES FROM CONTINUING OPERATIONS 43,519 (15,539)
--------- ---------
NET CASH PROVIDED (UTILIZED) BY FINANCING
ACTIVITIES FROM DISCONTINUED OPERATIONS 25,216 47,966
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 68,735 32,427
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS (47,372) (5,255)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,972 57,698
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,600 $ 52,443
========= =========
</TABLE>
6
<PAGE> 7
MANOR CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 1996
(unaudited)
Long-Term Debt
Long-term debt was $448 million at February 29, 1996 compared to $315 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,
which expires November 30, 1999. This facility provides that up to $75 million
is available for borrowing 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
presently contractually provided by the facility. The facility requires the
Company to pay fees of 3/16 of 1% on the entire loan commitment. Outstanding
borrowings at February 29, 1996 totalled $185 million.
Acquisitions, Divestitures and Sales of Property
During the first nine months of fiscal 1996, the Company acquired operating
healthcare facilities in Illinois, in Washington and in Pennsylvania for
approximately $42.5 million, of which $29.5 million was cash and the remainder
was assumed liabilities. The Company also purchased the lease on an operating
healthcare facility for $2.9 million and two pharmacy business for $6.3 million.
Six assisted living facilities, with five attached skilled nursing units, were
purchased for $74.3 million, of which $19 million was cash and the remainder was
assumed liabilities. The acquisitions were accounted for as a purchase and
approximately 78% of total purchase price was allocated to buildings, 10% to
land and the remainder to furniture, fixtures and equipment and other.
In October 1995, the company purchased 40% of In-Home Health, Inc.'s (IHHI), a
provider of home health services, common stock for $22.9 million. The company
paid an additional $20 million to IHHI for 100% of its outstanding voting
convertible preferred stock and for warrants to purchase an additional 6 million
shares of common stock. As a result of this transaction the Company effectively
controls 60% of the voting stock of IHHI. This transaction is accounted for as a
purchase and consolidated in the Company's financial statements.
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.
7
<PAGE> 8
DISCONTINUED OPERATIONS
On March 7, 1996 the Company announced its intention to proceed with a
separation of its lodging business from its health care business (the
"Spin-off"). The Board of Directors voted to approve in principle
the transaction subject to receipt of regulatory and other approvals and
consents and satisfactory implementation of the arrangements for the separation.
The Company anticipates that the transaction will be completed in next six to
eight months. The Company has received a ruling from the Internal Revenue
Service that subject to satisfaction of certain conditions in the ruling
request, the spin-off will be tax free.
The revenues, income from discontinued operations before income taxes and
net income from discontinued operations for the nine months ended
February 29, 1996 and February 28, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues $273,904 $219,399
-------- --------
Income from discontinued
operations before taxes $ 35,402 $ 21,017
-------- --------
Net income from discontinued
operations $ 20,436 $ 11,771
-------- --------
</TABLE>
Included in discontinued operations is interest expense charged by the
continuing healthcare segment to the discontinued lodging segment relating to
cash advances provided to the lodging segment for the acquisition and renovation
of the lodging assets for the years ended February 29, 1996 and February 28,
1995 were $14.6 million and $11.1 million, respectively. The indebtedness
related to lodging acquisitions and renovations are reflected as advances to
discontinued lodging segment in the consolidated balance sheets totaling $225.7
million and $184.4 million at February 29, 1996 and February 28, 1995,
respectively. The indebtedness is to be repaid over a three year period from the
date of the proposed spin-off. Interest is charged at an annual rate of 9% on
the indebtedness.
General corporate expenses of $13 million and $11 million were charged to
discontinued operations for the February 29, 1996 and February 28, 1995,
respectively. General corporate charges were determined on a time allocation
basis and on expenses incurred directly by the discontinued operations.
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 $26 million as of February 29, 1996 and unused lines
of credit of $81 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 three months and nine months ended February 29,
1996 and February 28, 1995 reflecting the Company's lodging business as
discontinued operations. The results of operations for the three months and nine
months ended February 28, 1995 previously reported have been restated to reflect
the Company's lodging business as discontinued operations. On March 7, 1996 the
Company announced its intention to proceed with the separation of its lodging
business from its health care business via a spin-off of the lodging division.
The Board of Directors voted to approve in principle the transaction subject to
receipt of regulatory and other approvals and consents and satisfactory
implementation of the arrangements for the separation. The Company anticipates
the transaction will be completed in the next six to eight months. The Company
has received a ruling from the Internal Revenue Service that such spin-off will
be tax-free.
Net income for the three months ended February 29, 1996 was $22.3 million or
$.36 per share as compared to $18.7 million or $.30 per share reported in the
prior year quarter. For the nine months ended February 29, 1996, net income
amounted to $79.5 million or $1.27 per share as compared to the prior year's
$68.1 million or $1.09 per share.
Income from operations for the three and nine month periods ended February 29,
1996 was $36.8 million and $105.4 million, respectively. This compares to income
from operations in the same periods last year of $32.4 million and $95.7
million, respectively.
Gross profit for the three and nine months ended February 29, 1996, increased
$11.8 million and $29.3 million, respectively, when compared with the same
periods last year. For the three months ended February 29, 1996, revenues and
operating expenses rose 30% and 32% respectively. For the nine months ended
February 29, 1996, revenues and expenses increased 22% and 23% respectively.
Higher occupancies and rate increases in the Company's nursing facilities
improved year-to-date gross profits by $6.2 million and $2.9 million,
respectively. The remaining improvement was primarily due to added capacity in
Vitalink, the Company's institutional pharmacy subsidiary.
9
<PAGE> 10
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 $4.4 and $10.2 million for the three and
nine month periods ended February 29, 1996, 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 29, 1996
increased $3.0 million and $9.5 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 6% of revenues during the nine months ended
February 29, 1996 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 29, 1996 increased
$.4 million and $1.6 million, respectively, when compared to the same periods
last year. Interest expense for advances to discontinued operations was $5.1
million and $14.6 million for the three and nine months ended February 29,
1996.
10
<PAGE> 11
MANOR CARE, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At an 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 February
29, 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: April 10, 1996 By: James A. MacCutcheon
Senior Vice President
and Chief Financial Officer
Date: April 10, 1996 By: James H. Rempe
Senior Vice President
General Counsel and Secretary
Date: April 10, 1996 By: Margarita Schoendorfer
Vice President and
Corporate Controller
12
<PAGE> 13
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> FEB-29-1996
<CASH> 25,600
<SECURITIES> 0
<RECEIVABLES> 117,913<F1>
<ALLOWANCES> 24,783
<INVENTORY> 18,445
<CURRENT-ASSETS> 180,318
<PP&E> 1,215,278
<DEPRECIATION> 317,219
<TOTAL-ASSETS> 1,575,588
<CURRENT-LIABILITIES> 197,567
<BONDS> 448,201
0
0
<COMMON> 6,568
<OTHER-SE> 696,089
<TOTAL-LIABILITY-AND-EQUITY> 1,575,235
<SALES> 0
<TOTAL-REVENUES> 908,118
<CGS> 0
<TOTAL-COSTS> 802,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,594
<INTEREST-EXPENSE> 7,420
<INCOME-PRETAX> 100,114
<INCOME-TAX> 41,034
<INCOME-CONTINUING> 59,080
<DISCONTINUED> 20,436
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,516
<EPS-PRIMARY> 1.270<F2>
<EPS-DILUTED> 1.270<F2>
<FN>
<F1>This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statement 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 is within 97% of simple EPS. The figures
presented above are simple EPS.
</FN>
</TABLE>
