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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10858
MANOR CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1687107
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
333 N. SUMMIT STREET, TOLEDO, OHIO 43604-2617
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 252-5500
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 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on April 30, 2000.
Common stock, $0.01 par value -- 102,273,675 shares
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited) Number
------
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations-
Three months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
MANOR CARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(Unaudited) (Note 1)
(In thousands, except per share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,091 $ 12,287
Receivables, less allowances for doubtful
accounts of $60,554 and $58,975, respectively 289,943 294,449
Receivable from sale of assets 43,217 44,467
Prepaid expenses and other assets 28,475 28,409
Deferred income taxes 51,539 51,539
----------- -----------
Total current assets 423,265 431,151
Property and equipment, net of accumulated
depreciation of $624,985 and $596,391, respectively 1,547,210 1,550,507
Intangible assets, net of amortization 93,837 88,286
Net investment in Genesis preferred stock 19,000 19,000
Other assets 205,515 191,922
----------- -----------
Total assets $ 2,288,827 $ 2,280,866
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 67,847 $ 86,614
Employee compensation and benefits 56,224 52,376
Accrued insurance liabilities 45,722 35,870
Income tax payable 12,266 14,906
Other accrued liabilities 39,251 33,266
Revolving loans 176,000 179,000
Long-term debt due within one year 6,343 6,617
----------- -----------
Total current liabilities 403,653 408,649
Long-term debt 677,549 687,502
Deferred income taxes 126,754 126,754
Other liabilities 102,633 77,924
Shareholders' equity:
Preferred stock, $.01 par value, 5 million shares authorized
Common stock, $.01 par value, 300 million shares authorized,
111.0 million shares issued 1,110 1,110
Capital in excess of par value 358,821 358,958
Retained earnings 797,285 798,068
----------- -----------
1,157,216 1,158,136
Less treasury stock, at cost (8.8 and 8.7 million shares, respectively) (178,978) (178,099)
----------- -----------
Total shareholders' equity 978,238 980,037
----------- -----------
Total liabilities and shareholders' equity $ 2,288,827 $ 2,280,866
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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MANOR CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
--------- ---------
(In thousands, except earnings per share)
<S> <C> <C>
Revenues $ 545,674 $ 531,848
Expenses:
Operating 481,314 408,549
General and administrative 23,604 21,325
Depreciation and amortization 29,368 28,512
Provision for restructuring charge, merger expenses,
asset impairment and other related charges 6,891
--------- ---------
534,286 465,277
--------- ---------
Income before other income (expenses) and income taxes 11,388 66,571
Other income (expenses):
Interest expense (14,364) (12,997)
Dividend income 600 4,951
Equity in earnings of affiliated companies 671 497
Interest income and other 246 679
--------- ---------
Net other expenses (12,847) (6,870)
--------- ---------
Income (loss) before income taxes (1,459) 59,701
Income taxes (676) 18,673
--------- ---------
Net income (loss) $ (783) $ 41,028
========= =========
Earnings per share - basic and diluted $ (0.01) $ 0.37
Weighted average shares:
Basic 102,318 110,964
Diluted 102,318 112,242
</TABLE>
See notes to consolidated financial statements.
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MANOR CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (783) $ 41,028
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 29,460 28,512
Asset impairment and other non-cash charges 4,344
Provision for bad debts 8,846 3,290
Gain on sale of assets (437)
Equity in earnings of affiliated companies (671) (497)
Changes in assets and liabilities, excluding sold facilities and acquisitions:
Receivables (4,032) (38,445)
Prepaid expenses and other assets (12,128) (7,257)
Liabilities 22,523 (16,393)
-------- --------
Total adjustments 43,561 (26,446)
-------- --------
Net cash provided by operating activities 42,778 14,582
-------- --------
INVESTING ACTIVITIES
Investment in property and equipment (25,031) (50,651)
Investment in systems development (3,550) (1,128)
Acquisition of businesses (6,479) (7,052)
Proceeds from sale of assets 4,331 2,243
-------- --------
Net cash used in investing activities (30,729) (56,588)
-------- --------
FINANCING ACTIVITIES
Net borrowings (repayments) under bank credit agreements (10,500) 23,000
Principal payments of long-term debt (2,727) (1,241)
Proceeds from exercise of stock options 48 931
Purchase of common stock for treasury (1,066)
-------- --------
Net cash provided by (used in) financing activities (14,245) 22,690
-------- --------
Net decrease in cash and cash equivalents (2,196) (19,316)
Cash and cash equivalents at beginning of period 12,287 33,718
-------- --------
Cash and cash equivalents at end of period $ 10,091 $ 14,402
======== ========
</TABLE>
See notes to consolidated financial statements.
5
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MANOR CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management of Manor Care, Inc. (the
Company), the interim data includes all adjustments necessary for a fair
statement of the results of the interim periods and all such adjustments are of
a normal recurring nature, except as discussed in Note 2 below and in
Management's Discussion and Analysis regarding general and professional
liability expense. Operating results for the three months ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in Manor Care, Inc.'s annual
report on Form 10-K for the year ended December 31, 1999.
At March 31, 2000, the Company operated 301 skilled nursing and 45 assisted
living facilities, 82 outpatient therapy clinics, one acute care hospital and 33
home health offices.
NOTE 2 - Restructuring Charge, Merger Expenses, Asset Impairment and Other
- --------------------------------------------------------------------------
Related Charges
- ---------------
During the first quarter of 1999, the Company recorded restructuring and other
charges of $6.9 million in connection with the HCR-Manor Care transaction. The
liability related to the restructuring and other charges in 1998 and 1999
decreased from $2.0 million at December 31, 1999 to $1.1 million at March 31,
2000. The payments during the first quarter of 2000 were attributable to
employee benefit and exit costs.
NOTE 3 - Earnings Per Share
- ---------------------------
The calculation of earnings per share (EPS) is as follows for the three months
ended March 31:
<TABLE>
<CAPTION>
2000 1999
---- ----
(In thousands, except earnings per share)
<S> <C> <C>
Numerator:
Net income (loss) [income available to common shareholders] $ (783) $ 41,028
========= =========
Denominator:
Denominator for basic EPS - weighted-average shares 102,318 110,964
Effect of dilutive securities:
Stock options 1,278
--------- ---------
Denominator for diluted EPS - adjusted for weighted-
average shares and assumed conversions 102,318 112,242
========= =========
EPS - basic and diluted $ (.01) $ .37
</TABLE>
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In 2000, the dilutive effect of stock options would have been 733,000 shares.
These shares were not included in the calculation because the effect would be
anti-dilutive with a net loss.
NOTE 4 - Segment Information
- ----------------------------
The Company provides a range of health care services. The Company has one
reportable operating segment, long-term care, which includes the operation of
skilled nursing and assisted living facilities. The "Other" category includes
the non-reportable segments and corporate items not considered to be an
operating segment. The revenues in the "Other" category include services for
rehabilitation, home health and hospital care. Asset information, including
capital expenditures, is not reported by segment by the Company. Operating
performance represents revenues less operating expenses and does not include
general and administrative expense, depreciation and amortization, the provision
for restructuring and other charges, other income and expense items, and income
taxes. See Management's Discussion and Analysis for further discussion of
general and professional liability expenses recorded in the first quarter of
2000.
Long-term Care Other Total
-------------- ----- -----
(In thousands)
Three months ended March 31, 2000
Revenues from external customers $488,375 $ 57,299 $545,674
Intercompany revenues 6,408 6,408
Depreciation and amortization 26,042 3,326 29,368
Operating margin 56,809 7,551 64,360
Three months ended March 31, 1999
Revenues from external customers 473,472 58,376 531,848
Intercompany revenues 4,998 4,998
Depreciation and amortization 27,665 847 28,512
Operating margin 104,110 19,189 123,299
NOTE 5 - New Accounting Pronouncements
- --------------------------------------
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which was postponed in Statement
No. 137 and is now effective January 1, 2001. This Statement permits early
adoption as of the beginning of any fiscal quarter after its issuance. This
Statement requires the Company to recognize all derivatives on the balance sheet
at fair value. Management has not determined when it will adopt this Statement
nor the impact of adoption.
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Item 2. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 2000 increased $13.8 million or 3
percent to $545.7 million as compared to the same period in 1999. By excluding
the facilities sold or leased in 1999, revenues increased $21.8 million or 4
percent. Revenues from skilled nursing and assisted living facilities that are
included in operations in 2000 increased $22.9 million or 5 percent due to
increases in rates ($12.5 million) and capacity ($13.7 million) partially offset
by a decrease in occupancy ($3.3 million). The increase in rates was primarily
attributable to private and Medicaid. The growth in bed capacity between the
first quarter of 1999 and 2000 was due to the opening of three skilled nursing
facilities as well as other bed additions. The occupancy levels were 87 percent
for the three months ended March 31, 1999 compared to 86 percent for the same
period in 2000. The quality mix of revenue from Medicare, private pay and
insured patients related to skilled nursing and assisted living facilities and
rehabilitation operations decreased from 68 percent for the three months ended
March 31, 1999 to 67 percent for the same period in 2000. This decrease was
primarily a result of the decline in private pay patients.
Operating expenses for the three months ended March 31, 2000 increased $72.8
million or 18 percent from the comparable period in 1999. By excluding
facilities sold or leased in 1999, operating expenses increased $82.2 million or
21 percent. Operating expenses from skilled nursing and assisted living
facilities that are included in operations in 2000 increased $71.6 million and
operating expenses from the Company's transcription business increased $3.1
million.
The major portion of the operating expense increase related to recording $38.6
million of additional general and professional liability expense in the first
quarter of 2000. Of this amount, $5.0 million was attributable to the current
period and the remainder related to prior periods, dating back to the mid-1990s.
The additional expense was determined as a result of recently concluded
independent evaluations of the Company's growing potential liability for
patient-related litigation despite a continuing good quality record and
generally low historical claims experience. The evaluations were prepared in
response to the dramatic increases in the average cost per claim and volume of
lawsuits filed with the Company and in the long-term care industry in general.
The adjustment reflects the additional litigation and settlement costs the
Company could incur if there is no change in the current environment,
particularly in the state of Florida. Independent evaluations of the industry's
experience indicate the need to increase ongoing expense accruals for renewing
policy periods and claims that could arise out of this year's experience. If
current trends continue, the Company estimates an incremental $20 million of
expense for the remainder of 2000.
General and professional liability costs for the long-term care industry,
especially in the state of Florida, have become increasingly expensive. The
average cost of a claim in Florida in 1999 was two and one-half times higher
than the rest of the country and industry providers in the state are
experiencing three times the number of claims compared to the national average.
The Company and other affected providers are actively pursuing legislative and
regulatory solutions that include tort reform. However, there can be no
assurances that legislative changes will be made, or that any such change will
have a positive impact on the current trend.
The other operating expense increases for skilled nursing and assisted living
facilities were attributable to labor costs, including temporary staffing, of
$14.5 million, as well as increases
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in ancillary costs, bad debt expense and other general expenses.
General and administrative expense increased $2.3 million for the three months
ended March 31, 2000 as compared to the same period in 1999 primarily as a
result of expenses from deferred compensation plans.
During the first quarter of 1999, the Company recorded restructuring and other
charges of $6.9 million in connection with the HCR-Manor Care transaction. The
liability related to the restructuring and other charges in 1998 and 1999
decreased from $2.0 million at December 31, 1999 to $1.1 million at March 31,
2000. The payments during the first quarter of 2000 were attributable to
employee benefit and exit costs.
Interest expense increased $1.4 million for the three months ended March 31,
2000 as compared to the same period in 1999 due to an increase in interest
rates, as the average debt outstanding has declined. Dividend income decreased
$4.4 million between the first quarter of 1999 and 2000 as a result of recording
no dividend income on the Series G Cumulative Convertible Preferred Stock of
Genesis Health Ventures, Inc. (Series G Preferred Stock) in 2000. In 1999, the
Company recorded $4.4 million of dividend income each quarter and then fully
reserved the dividends at the end of the year. As a result of the nonpayment of
the cumulative dividends for four consecutive quarters, all future dividends
beginning in 2000 are payable in additional shares of Series G Preferred Stock.
Based on Genesis' inability to pay cash dividends and its current operating
performance, the Company is fully reserving the dividends in 2000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which was postponed in Statement
No. 137 and is now effective January 1, 2001. This Statement permits early
adoption as of the beginning of any fiscal quarter after its issuance. This
Statement requires the Company to recognize all derivatives on the balance sheet
at fair value. Management has not determined when it will adopt this Statement
nor the impact of adoption.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 2000, the Company satisfied its cash
requirements from cash generated from operating activities. Cash flows from
operating activities were $42.8 million for the first quarter of 2000, an
increase of $28.2 million from the same period in 1999. The increase in
liabilities was due to the additional accrual for general and professional
liability claims discussed previously. The Company used the cash principally for
capital expenditures and repayment of debt. Expenditures for property and
equipment for three months ended March 31 were $25.0 million in 2000 and $50.7
million in 1999 that included amounts for the construction of new facilities of
$9.5 million in 2000 and $29.0 million in 1999.
At March 31, 2000, outstanding borrowings aggregated $645.0 million under the
bank credit agreements. After consideration of usage for letters of credit, the
remaining credit availability under the agreements totaled $40.8 million.
The Company, Alternative Living Services (Alterra) and a development joint
venture, formed by them in 1999, have jointly and severally guaranteed a $200
million revolving line of credit agreement that was reduced to $60 million on
March 30, 2000. The reduction in the revolving
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credit agreement reflects a modification in the joint development intentions of
the partners due in part to lower development activity than originally planned.
At March 31, 2000, there was $48 million of guaranteed debt outstanding under
the $60 million revolving line of credit.
On May 4, 1999, the Board of Directors authorized the Company to purchase up to
$200 million of its common stock through December 31, 2000, and on February 8,
2000, the Board authorized an additional $100 million through December 31, 2001.
The Company purchased 90,000 shares for $1.1 million in the first quarter of
2000 and a total of 8.8 million shares for $181.4 million since May 1999. The
shares may be used for internal stock option and 401(k) match programs and for
other uses, such as possible future acquisitions.
Manor Care believes that its cash flow from operations will be sufficient to
cover debt payments, future capital expenditures and operating needs. It is
likely that the Company will pursue growth from acquisitions, partnerships and
other ventures that would be funded from excess cash from operations, credit
available under the bank credit agreement and other financing arrangements that
are normally available in the marketplace.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Statements contained in this Form 10-Q, which are not historical facts, may be
forward-looking statements within the meaning of federal law. Such
forward-looking statements reflect management's beliefs and assumptions and are
based on information currently available to management. Forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally and in the regions in which the Company operates;
industry capacity; demographic changes; existing government regulations and
changes in, or the failure to comply with, governmental regulations; legislative
proposals for health care reform; the ability to enter into managed care
provider arrangements on acceptable terms; changes in Medicare and Medicaid
reimbursement levels; liability and other claims asserted against the Company;
competition; changes in business strategy or development plans; and the ability
to attract and retain qualified personnel. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements
set forth or referred to above in this paragraph. The Company disclaims any
obligation to update such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There have been no significant changes in the Company's market risks since
December 31, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On May 7, 1999, Genesis Health Ventures, Inc. ("Genesis") filed suit in
federal district court in Delaware against the Company, its wholly
owned subsidiary,
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Manor Care of America, Inc. (formerly known as Manor Care, Inc. ("Manor
Care")), its Chief Executive Officer, Paul A. Ormond, and its Chairman,
Stewart Bainum, Jr. (collectively, the "Delaware Defendants"). The
complaint alleges that the Delaware Defendants fraudulently induced
Genesis to acquire, in August 1998, all of the outstanding stock of
Vitalink Pharmacy Services, Inc. ("Vitalink"), an approximately 50
percent owned subsidiary of Manor Care, and that such alleged conduct
constituted violations of Section 10(b) of the Securities Exchange Act
of 1934, common law fraudulent misrepresentation and negligent
misrepresentation. The suit also alleges that the Company's ownership
in a partnership known as Heartland Healthcare Services violates a
non-compete provision signed by Manor Care. The suit seeks compensatory
and punitive damages in excess of $100 million and preliminary and
permanent injunctive relief enforcing the covenant not to compete. On
June 10, 1999, Genesis filed an amended complaint that was
substantively identical to the original complaint. On June 29, 1999,
the Delaware Defendants moved to dismiss or, in the alternative, to
stay the lawsuit in its entirety. That motion is presently pending
before the court, and all matters have been stayed pending that motion.
The Company intends to vigorously defend the lawsuit. Although the
ultimate outcome of the case is uncertain, management believes that it
is not likely to have a material adverse effect on the financial
condition of the Company.
On August 27, 1999, Manor Care filed a separate action against Genesis
concerning its 1998 acquisition of Vitalink. Manor Care's lawsuit
charges Genesis with violations of Section 11 and Section 12 of the
Securities Act of 1933, based upon Genesis' misrepresentations and/or
misleading omissions in connection with Genesis' issuance of
approximately $293 million of Genesis Preferred Stock as consideration
to Manor Care for its approximately 50 percent interest in Vitalink.
Manor Care seeks, among other things, compensatory damages and
recission voiding Manor Care's purchase of the Genesis Preferred Stock
and requiring Genesis to return to Manor Care the consideration that it
paid at the time of the Vitalink sale. On November 23, 1999, Genesis
moved to dismiss the lawsuit in its entirety. That motion is presently
before the court, and all matters have been stayed pending that motion.
Additionally, on May 7, 1999, Vitalink, now known as Neighborcare
Pharmacy Services, Inc. ("Neighborcare"), instituted a lawsuit in the
Circuit Court for Baltimore City, Maryland (the "Maryland Action")
against the Company, Manor Care and ManorCare Health Services, Inc.
("MHS") (collectively, the "Maryland Defendants") seeking damages,
preliminary and permanent injunctive relief, and a declaratory judgment
related to allegations that the Maryland Defendants have improperly
sought to terminate certain Master Service Agreements ("MSAs") between
Vitalink and MHS. Neighborcare also instituted arbitration proceedings
(the "Arbitration") against the Maryland Defendants, seeking
substantially the same relief as sought in the Maryland Action with
respect to one of the MSAs at issue in the Maryland Action and also
certain additional permanent relief with respect to that contract. On
May 13, 1999, Neighborcare and the Maryland Defendants agreed: (i) to
consolidate the Maryland Action into the Arbitration; (ii) to dismiss
the Maryland Action with prejudice as to jurisdiction and without
prejudice as to the merits; and (iii) to stay termination of the
agreements at issue until a decision can be reached in
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the Arbitration. Neighborcare has since dismissed the Maryland Action
and consolidated certain of those claims into the Arbitration by filing
an Amended Demand for Arbitration. On June 15, 1999, the Respondents
answered the Amended Demand, denying the material allegations therein.
The Respondents have also asserted a counterclaim thereto. On January
14, 2000, the Respondents moved to dismiss certain claims in the
Amended Demand. That motion is presently pending. The Arbitration is
presently set for hearing commencing June 12, 2000. The Company intends
to vigorously defend the Arbitration. Although the ultimate outcome of
the Arbitration is uncertain, management believes that it is not likely
to have a material adverse effect on the financial condition of the
Company.
On July 26, 1999, Neighborcare filed an additional complaint in the
Circuit Court for Baltimore County, Maryland against Omnicare, Inc. and
Heartland Healthcare Services, Inc. (a partnership between subsidiaries
of Omnicare, Inc. and the Company) seeking injunctive relief and
compensatory and punitive damages. The complaint includes counts for
tortious interference with Vitalink's purported contractual rights
under the MSAs. On October 4, 1999, the defendants moved to dismiss or,
in the alternative, to stay the lawsuit in its entirety. On November
12, 1999, the court stayed the matter pending the Arbitration. Although
the ultimate outcome of the case is uncertain, management believes that
it is not likely to have a material adverse effect on the financial
condition of the Company.
On December 22, 1999, Manor Care filed suit in federal court in Toledo,
Ohio against Genesis; Cypress Group, L.L.C.; TPG Partners II, L.P.; and
Nazem, Inc. The complaint alleges that the issuance by Genesis of its
Series H and Series I Preferred Stock violated the terms of the Series
G Preferred Stock and the terms of a rights agreement entered into
between Genesis and Manor Care in connection with the Vitalink
transaction. On February 29, 2000, the defendants moved to dismiss the
case. That motion is presently pending.
One or more subsidiaries or affiliates of Manor Care have been
identified as potentially responsible parties (PRPs) in a variety of
actions (the Actions) relating to waste disposal sites which allegedly
are subject to remedial action under the Comprehensive Environmental
Response Compensation Liability Act, as amended, 42 U.S.C. Sections
9601 et seq. (CERCLA) and similar state laws. CERCLA imposes
retroactive, strict joint and several liability on PRPs for the costs
of hazardous waste clean-up. The Actions arise out of the alleged
activities of Cenco, Incorporated and its subsidiary and affiliated
companies (Cenco). Cenco was acquired in 1981 by a wholly owned
subsidiary of Manor Care. The Actions allege that Cenco transported
and/or generated hazardous substances that came to be located at the
sites in question. Environmental proceedings such as the Actions may
involve owners and/or operators of the hazardous waste site, multiple
waste generators and multiple waste transportation disposal companies.
Such proceedings involve efforts by governmental entities and/or
private parties to allocate or recover site investigation and clean-up
costs, which costs may be substantial. The potential liability exposure
for currently pending environmental claims and litigation, without
regard to insurance coverage, cannot be quantified with precision
because of the inherent uncertainties of litigation in the Actions and
the fact that the ultimate cost of
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the remedial actions for some of the waste disposal sites where Manor
Care is alleged to be a potentially responsible party has not yet been
quantified. Based upon its current assessment of the likely outcome of
the Actions, the Company believes that the potential environmental
liability exposure, after consideration of insurance coverage, is
approximately $4.5 million.
The Company is party to various other legal matters arising in the
ordinary course of business including patient care-related claims and
litigation. The Company believes that the resolution of such matters
will not result in liability materially in excess of accounting
accruals established with respect to such matters.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's Annual Meeting of Shareholders held on May 2, 2000 the
shareholders approved the following items: a) elect Frederic V. Malek
as a director, b) elect Robert G. Siefers as a director, c) elect M.
Keith Weikel as a director, d) elect Thomas L. Young as a director, e)
approve the Company's Performance Award Plan and f) ratify the
selection of Ernst & Young LLP as independent public accountants for
the year ending December 31, 2000. The items were approved by a vote as
follows:
Item For Against Withheld Abstain
---- --- ------- -------- -------
a 86,980,295 779,799
b 87,075,153 684,941
c 86,913,492 846,602
d 87,003,523 756,571
e 81,848,960 5,300,387 610,746
f 87,436,604 94,623 228,867
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
S-K Item
601 No.
-------
27 Financial Data Schedule for the three months ended March 31,
2000
(b) Reports on Form 8-K
On March 14, 2000, the Company filed a Form 8-K for the Third
Amendment to the Rights Agreement.
13
<PAGE> 14
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 May 12, 2000 By /s/ Geoffrey G. Meyers
------------------- ----------------------
Geoffrey G. Meyers, Executive Vice-President
and Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
Exhibit
- -------
27 Financial Data Schedule for the three months ended March 31, 2000
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,091
<SECURITIES> 0
<RECEIVABLES> 393,714
<ALLOWANCES> 60,554
<INVENTORY> 0
<CURRENT-ASSETS> 423,265
<PP&E> 2,172,195
<DEPRECIATION> 624,985
<TOTAL-ASSETS> 2,288,827
<CURRENT-LIABILITIES> 403,653
<BONDS> 677,549
0
0
<COMMON> 1,110
<OTHER-SE> 977,128
<TOTAL-LIABILITY-AND-EQUITY> 2,288,827
<SALES> 0
<TOTAL-REVENUES> 545,674
<CGS> 0
<TOTAL-COSTS> 481,314
<OTHER-EXPENSES> 29,368
<LOSS-PROVISION> 8,846
<INTEREST-EXPENSE> 14,364
<INCOME-PRETAX> (1,459)
<INCOME-TAX> (676)
<INCOME-CONTINUING> (783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (783)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
