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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1994
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ------------- to ---------------
Commission File Number 1-8195
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MANOR CARE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1200376
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10750 Columbia Pike, Silver Spring, Maryland 20901
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 681-9400
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Securities registered pursuant to Section l2(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
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Common Stock, Par Value $.10 per share New York Stock Exchange
Registrant's Guaranty of 4-3/4% Con-
vertible Subordinated Debentures due
September 1, 1997 issued by Cenco
Incorporated New York Stock Exchange
Registrant's Guaranty of 5% Convertible
Subordinated Debentures due November 1,
1996 issued by Cenco Incorporated New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
15-1/2% Subordinated Debentures due August 1, 2002
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(Title of Class)
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
was $1,100,091,088 as of July 13, l994 based upon a closing price of $25.50
per share.
The number of shares of Manor Care's Common Stock outstanding at May
31, 1994 was 62,358,992.
DOCUMENTS INCORPORATED BY REFERENCE:
PART I 1994 Annual Report to Stockholders
PART II 1994 Annual Report to Stockholders
PART III Proxy Statement dated August 10, l994
PART I
ITEM 1. Business.
General
Manor Care, Inc. ("Manor Care"), a Delaware corporation organized in
August 1981, is a holding company that conducts its business through the Manor
Care Hotel Division ("Hotel Division") and three principal subsidiaries, Manor
Healthcare Corp. ("Healthcare"), Vitalink Pharmacy Services, Inc. ("Vitalink")
and Choice Hotels International, Inc. ("Choice"). Healthcare and its
subsidiaries have been engaged since October 1968 in the business of
developing, owning and managing nursing centers, which provide skilled nursing
and convalescent care principally for residents over the age of 65. Healthcare
owns approximately 82.3% of Vitalink, a public company that operates
institutional pharmacies. Healthcare also owns and operates an acute care
general hospital, rehabilitation centers, assisted living centers and nursing
assistant training schools. Choice franchises the use of the "Quality,"
"Comfort," "Clarion," "Sleep," "Rodeway," "Econo Lodge" and "Friendship"
trademarks and other related trademarks and services. The Hotel Division is
engaged in the business of owning and operating hotels in the United States
under the Choice trademarks. Other subsidiaries of Manor Care are engaged in
owning, operating and franchising hotels in foreign countries.
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In fiscal year 1994, Manor Care derived approximately 32% of its total
revenues through Medicare and Medicaid programs; aside from the foregoing,
Manor Care has no few or single customers upon whom it is dependent.
Industry Segments
The Business Segment Information set forth on page 24 of the Company's
1994 Annual Report is hereby incorporated by reference.
Manor Healthcare Corp. - Healthcare Operations
Manor Care, through Healthcare and its subsidiaries, owns, operates or
manages 164 nursing centers (including 8 medical and physical rehabilitation
centers), which provide high acuity services, skilled nursing care,
intermediate nursing care, custodial care and assisted living, principally for
residents over the age of 65. Manor Care and its subsidiaries also own and
operate an acute care hospital, 17 pharmacies, 5 nursing assistant training
schools and 4 assisted living centers.
Nursing Center Operations
Healthcare's nursing centers provide, in general, five types of
services:
-- High acuity services - for persons who require complex medical
and physical rehabilitation services (patients who would otherwise be treated
in an acute care hospital setting).
-- Skilled nursing care - for persons who require 24-hour-a-day
professional services of a registered nurse or a licensed practical nurse.
-- Intermediate care - for persons needing less intensive nursing
care than that provided to those requiring skilled care.
-- Custodial care - for persons needing a minimum level of care.
-- Assisted living - for persons needing some supervision and
assistance with personal care.
Services provided to all patients include the required type of nursing
care, room and board, special diets, occupational, speech, physical and
recreational therapy and other services that may be specified by the patient's
physician, who directs the admission, treatment and discharge of that patient.
Each high acuity, skilled and intermediate nursing center is under the
direction of a state-licensed nursing center administrator supported by other
professional personnel, such as a medical director, social worker, dietitian
and recreation staff. Nursing departments in each such facility are under the
supervision of a director of nurses who is state licensed. The nursing staffs
are composed of other registered nurses and licensed
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practical nurses, as well as nursing assistants. Staff size and composition
vary depending on the size and location of each facility.
Manor Care has developed a Quality Assurance Program to ensure that
high standards of care are maintained in each center. The Quality Assurance
Department is composed of a director, registered nurses, dietitians, nutrition
specialists, an environmental services specialist and a recreational therapist.
These staff specialists set corporate standards for delivery of care, direct
the Quality Improvement Program, and provide consulting and educational
services to the centers.
Manor Care's nursing centers range in bed capacity from 60 to 240
beds, have an aggregate bed capacity of 22,252 beds, and achieved an occupancy
rate of 89% during the 1994 fiscal year. Manor Care's nursing centers are
located in 28 states: Arizona, California, Colorado, Delaware, Florida,
Georgia, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Missouri, Nevada,
New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma,
Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, Washington
and Wisconsin.
The nursing centers are modern structures generally of wall-bearing
masonry with fire resistive or protective floor and roof suspension systems.
The nursing centers have been designed generally to permit private and
semi-private patient room accommodations, although a number of rooms at some
facilities may be converted to accommodate up to four beds. Most facilities
have individually controlled heating and air-conditioning units. Each nursing
center contains a fully equipped kitchen, an isolation room, day room areas,
administrative offices and most contain a physical therapy room. Many of Manor
Care's centers have specialized wings for assisted living, Alzheimer's
patients, individuals with catastrophic injuries, and persons desiring extra
amenities and activities. Manor Care believes all of the nursing centers and
the equipment contained therein are in good condition and are well maintained.
Manor Care has created new divisions for specialized care. The
MedBridge Medical and Physical Rehabilitation Division, through eight centers
located in Illinois, Maryland, New Jersey and Pennsylvania, offers post-acute
care for patients who no longer need intensive care provided by hospitals. One
of these centers was constructed in 1994, and four were converted from skilled
nursing centers. MedBridge units also operate within three skilled nursing
centers. The Residential Alzheimer's Division will operate residential living
facilities under the Arden Courts name for persons with early to mid-stage
Alzheimer's who do not yet need nursing care. Three Arden Courts facilities in
Maryland and Pennsylvania are currently under construction. Manor Care also
operates four Springhouse Senior Residences in Florida, which are assisted
living facilities designed for the frail elderly. There are also two former
hotels currently being developed into Springhouse facilities and, in August,
two more facilities were purchased.
One new nursing center containing 120 beds opened during the last year
in Pennsylvania. Additions totaling 147 beds to 6 existing centers were
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completed during 1994. Manor Care currently has 5 new nursing centers with 376
beds under construction in Florida, Maryland, Ohio and Pennsylvania. Additions
totaling 137 beds to 7 existing centers also are under construction. Three
nursing centers in Pennsylvania were sold in July 1993 for $15,600,000.
In May 1994, a subsidiary of Healthcare sold its 50% interest in a
clinical laboratory in Pennsylvania for $3,500,000.
Patients seeking the services of the nursing centers come from a
variety of sources, and are principally referred by hospitals and physicians.
Most of Manor Care's nursing centers participate in state Medicaid and in the
federal Medicare program (see "Federal and State Assistance Programs").
However, Manor Care attempts to locate and operate its nursing centers in a
manner designed to attract patients who pay directly to the facilities for
services without benefit of any government assistance program ("private
patients").
As a general rule, the profit margin is higher with private patients
than with patients to whom services are rendered with government assistance
programs. The following table sets forth certain information concerning
revenues from government assistance programs for all of Manor Care's health
care operations during fiscal year 1994:
Contractual Net
Gross Revenues Adjustment* Revenues
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Medicare $223,041,000 $ 65,439,000 $157,602,000
Medicaid 309,779,000 90,044,000 219,735,000
*Represents the estimated difference between private patient billing rates and
amounts recoverable under government programs.
The following table sets forth certain information concerning
occupancy and revenues of Manor Care's nursing centers and hospital during
fiscal year 1994:
Nursing Centers Hospital
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% of % of % of % of
Occupancy Revenues Occupancy Revenues
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Private patients 55% 63% 33% 48%
Medicaid patients 35 22 16 20
Medicare patients 10 15 51 32
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100% 100% 100% 100%
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Hospital Operations
Manor Care owns and operates Mesquite Community Hospital in Mesquite,
Texas, which opened in l978. The hospital is licensed for l72 beds in
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private rooms and is a modern, fully equipped, acute care facility that
provides general medical, obstetrical and emergency services, as well as
general and specialty surgery. It also is equipped for intensive/coronary care
and ancillary diagnostic services such as nuclear medicine, sonography,
angiography and CAT scanning. Physicians and dentists representing almost
every specialty practice at the hospital, which is fully accredited by the
Joint Commission for the Accreditation of Hospitals. Patients utilize the
hospital's services primarily on the basis of referrals from doctors and
clinics. The majority of the hospital's private patients are insured under
private insurance plans, and payments under such plans (as well as Medicare and
Medicaid) provide virtually all of the hospital's revenues.
Pharmacy Operations
Healthcare owns approximately 82.3% of Vitalink Pharmacy Services,
Inc. ("Vitalink"), which owns and operates 17 pharmacies located in California,
Colorado, Florida, Illinois, Indiana, Iowa, Maryland, New Jersey, Ohio, Oregon,
Pennsylvania and Wisconsin.
In August 1993, Vitalink acquired the stock of White, Mack and Wart,
Inc., d/b/a Propac Pharmacy, which operates two institutional pharmacies
located in Santa Rosa, California and Portland, Oregon. The purchase price was
$3,769,000 plus the assumption of $2,100,000 of liabilities and a guarantee
provision on stock options totalling $656,000.
In January 1994, Vitalink acquired the institutional pharmacy business
of Apothecary Services, Inc., located in Thornton, Colorado, for $3,448,000 in
cash plus the assumption of $107,000 in liabilities and a contingent additional
purchase price up to a maximum of $1,400,000 based on the achievement of
certain future operating objectives.
On January 31, 1994, Vitalink sold its retail pharmacy operation in
Monticello, Illinois for $222,000.
Vitalink operates institutional pharmacies, which provide, in general,
three types of services:
-- Customized filling of prescription and
non-prescription medications for individual patients pursuant to physician
orders delivered to nursing facilities.
-- Consultant pharmacist services to help ensure quality
patient care through monitoring and reporting on prescription drug therapy.
-- Infusion therapy services, consisting of a product
(nutrient, antibiotic, chemotherapy or other drugs or fluids) and its
administration by tube, catheter or intravenously. Vitalink prepares and
delivers the product, which is administered by nursing center staff.
Pursuant to various master agreements, a portion of Vitalink's
business is with Manor Care. As of May 31, 1994, Vitalink had contracts to
serve
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14,300 Manor Care beds and 25,100 beds not affiliated with Manor Care,
resulting in revenues of $45,976,000 and $52,593,000, respectively, for fiscal
1994.
Training School Operations
Medical Aid Training Schools, Inc., a subsidiary of Healthcare,
operates five nursing assistant training schools located in New York. The
schools provide training for entry level nursing assistants for nursing
facilities and home health care.
Regulation
Manor Care's healthcare facilities are subject to certain federal
statutes and regulations and to regulatory licensing requirements by state and
local authorities. All of Manor Care's facilities are currently so licensed.
In addition, the facilities are subject to various local building codes and
other ordinances. The Omnibus Budget Reconciliation Act that became effective
in October 1990 imposed stringent patient assessment and care planning
requirements. The impact of the Act on Manor Care has been minimal, because
its requirements duplicate many of Manor Care's current in-house programs as
well as various state requirements already in effect. It is anticipated that
governmental regulation of the healthcare industry will become more
comprehensive in the future. The extent of the impact of such increased
regulation on Manor Care's operations and earnings cannot be predicted.
State and local agencies survey all nursing centers on a regular basis
to determine whether such centers are in compliance with governmental operating
and health standards and conditions for participation in government medical
assistance programs. Such surveys include reviews of patient utilization of
healthcare facilities and standards for patient care. Manor Care endeavors to
maintain and operate its facilities in compliance with all such standards and
conditions. Manor Care believes that at this time, none of its facilities is
in violation of any applicable regulation which would threaten the operation of
its business or materially affect the standard of care provided.
Federal and State Assistance Programs
Substantially all Manor Care's nursing centers and the Hospital are
currently certified to receive benefits provided under the Federal Health
Insurance for the Aged Act (commonly referred to as "Medicare"), and under
programs administered by the various states to provide medical assistance to
the "medically indigent" ("Medicaid"). Both initial and continuing
qualification of a nursing center or hospital facility to participate in such
programs depend upon many factors including, among other things,
accommodations, equipment, services, patient care, safety, personnel, physical
environment, and adequate policies, procedures and controls.
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Services under Medicare consist of nursing care, room and board,
social services, physical and occupational therapies, drugs, biologicals,
supplies, surgical, ancillary diagnostic and other necessary services of the
type provided by extended care or acute care facilities. Under the Medicare
program, the federal government pays the reasonable direct and indirect
allowable costs (including depreciation and interest) of the services
furnished.
Under the various Medicaid programs, the federal government
supplements funds provided by the participating states for medical assistance
to "medically indigent" persons. The programs are ad- ministered by the
applicable state welfare or social service agencies. Although Medicaid programs
vary from state to state, typically they provide for the payment of certain
expenses, up to established limits, at rates based generally on cost
reimbursement principles.
Funds received by Manor Care under Medicare and Medicaid are subject
to audit with respect to the proper application of various payment formulas.
Such audits can result in retroactive adjustments of revenue from these
programs, resulting in either amounts due to the government agency from Manor
Care or amounts due Manor Care from the government agency. Manor Care believes
that its payment formulas have been properly applied and that any future
adjustments will not have a material adverse impact on its financial position
or results of operations.
Both the Medicare and Medicaid programs are subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of which
may materially increase or decrease the rate of program payments to healthcare
facilities. Manor Care can give no assurance that payments under such programs
will in the future remain at a level comparable to the present level or be
sufficient to cover the operating and fixed costs allocable to such patients.
Competition
Manor Care's nursing centers compete on a local and regional basis
with other long-term healthcare providers, some of which have greater financial
resources or operate on a nonprofit basis. The degree of success with which
Manor Care's nursing facilities compete varies from location to location and is
dependent on a number of factors. Manor Care believes that the quality of care
provided, reputation and physical appearance of facilities, and, in the case of
private patients, charges for services, are significant competitive factors.
Accordingly, it seeks to meet competition in each locality by establishing a
reputation within the local medical communities for competent and competitive
nursing center services. There is limited, if any, competition in price with
respect to Medicaid and Medicare patients, since revenues for services to such
patients are strictly controlled and based on fixed rates and cost
reimbursement principles.
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Manor Care's Hospital encounters competition in the Mesquite, Texas
area where it competes for community and physician acceptance with other
hospitals. Vitalink's pharmacies compete with other local distributors of
pharmaceuticals.
Hotel Division - Domestic Lodging Operations
The Hotel Division operated 32 hotels containing a total of 5,602
rooms as of May 31, 1994. During 1994, the Hotel Division purchased 13 hotels
containing over 1,900 rooms in Alabama, Arizona, Florida, Georgia, Missouri,
North Carolina, Ohio and South Carolina for an aggregate purchase price of
approximately $44,200,000.
The hotels operate under the "Clarion," "Comfort," "Quality," "Sleep,"
"Econo Lodge" and "Rodeway" trade names and are located in Alabama, Arizona,
California, Florida, Louisiana, Maryland, Missouri, North Carolina, Ohio, South
Carolina, Texas, Utah and Virginia. All of the hotels are owned by Manor Care
or its subsidiaries except two hotels located in California, which are leased.
During 1994, lodging revenues and expenses included food and beverage
sales of $5,001,000 and costs of sales of $4,335,000.
QH Europe Partnership - Foreign Lodging Operations
Quality Hotels Europe, Inc. and Choice Hotels International, Inc.
("Choice"), subsidiaries of Manor Care, formed QH Europe Partnership in 1994 to
own, operate and franchise hotels in Europe. Partnership subsidiaries own
three hotels in Germany and one in England containing 610 rooms, which operate
under the "Comfort" or "Quality" trade names.
During 1994, certain assets of Resthotel Primevere, a French hotel
chain, were acquired for approximately $10,400,000. The assets consisted
primarily of franchise rights to approximately 100 hotels, which now use the
"Comfort" trade name. Also, as part of this acquisition, two operating hotels
were acquired as well as the operating leases for six other hotels.
Choice Hotels International, Inc. - Franchise Operations
Manor Care owns 100% of the Preferred Stock and approximately 88.9% of
the Common Stock of Choice, which franchises the use of the "Quality,"
"Comfort," "Clarion," "Sleep," "Econo Lodge," "Friendship" and "Rodeway"
trademarks.
Services provided to franchisees include national and regional
meetings and periodic seminars to provide information on hotel operations and
recent developments in the industry, training programs for franchisees and
their employees, advertising and marketing, dissemination of directories of
franchised locations, participation in a national reservations system and
agreements with credit card companies.
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Choice also offers its franchisees interior design and decorating
services and purchasing services for hotel furniture, fixtures and supplies.
During 1994, the revenues and expenses of Choice included hotel supplies sales
of $15,876,000 and costs of sales of $12,067,000.
The standard franchise agreement currently offered by Choice for
Clarion Hotels (luxury), Quality Inns and Quality Suites (mid-priced), Comfort
Inns and Comfort Suites (luxury-budget) and Sleep Inns (economy hotels with
standardized design) provides for an initial fee of $300 per guest room with a
$35,000 minimum ($40,000 for Comfort and $50,000 for Suites). In addition,
franchisees are required to pay a continuing franchise fee of 4% of gross room
revenues (3% for Clarion and 5% for Comfort) and assessments for reservations
and marketing services at rates that may be changed to reflect inflation and
actual costs incurred. The agreement normally is for a 20-year term.
Choice sells Econo Lodge, Friendship Inn and Rodeway Inn franchises
(the Economy Group) on terms similar to the above, with an initial fee of $250
per guest room ($25,000 minimum) for Econo Lodge and Rodeway and $200 per guest
room ($15,000 minimum) for Friendship. Econo Lodges pay a 4% continuing
franchise fee, and Friendship and Rodeway Inns pay 3%, with additional
assessments for reservations and marketing.
Choice supplies disclosure statements containing information for
prospective franchisees in accordance with regulations of the Federal Trade
Commission ("FTC"). In addition to the FTC regulations, certain states have
requirements for registration of franchisors and disclosure requirements
similar to the FTC regulations.
In July 1993, Choice and an affiliate of Journey's End Corporation, a
Canadian lodging management company, formed a corporation to franchise Choice
brands in Canada. Choice owns 50% of the corporation. The arrangement also
included the franchising of approximately 100 existing Journey's End hotels
under the "Comfort" or "Quality" trade names.
Choice has franchised hotels in more than 25 other foreign countries,
including England, Ireland, Norway, France, Italy, Germany, India, New Zealand,
Australia, Japan, Thailand and Mexico.
As of May 31, 1994, the seven hotel chains comprised 2,605 open and
operating hotels with 229,630 rooms, as set forth below:
United States Foreign
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No. of No. of No. of No. of
Hotels Rooms Hotels Rooms
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Franchised Only 2,256 197,428 305 25,557
Owned/Managed by Manor Care 32 5,602 12 1,043
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TOTALS 2,288 203,030 317 26,600
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Competition
The above hotels compete with other hotels in nearby locations, some
of which are affiliated with chains that are more widely known or offer
different types of services. Demand for accommodations at both franchised and
company-owned hotels is affected by such factors as the availability of
accommodations in the local area and national and regional economic conditions.
The operation of hotels may be seasonal, with a large percentage of revenues
generated in the summer months.
In the sale of franchises, Choice competes with many other hotel
franchisors, some of which have greater financial resources and offer different
fee structures and franchise services. However, Choice believes that its
continued growth, innovative hotel brands and successful reservations and
marketing services enhance its competitive position.
Employees
As of May 31, 1994, Manor Care employed approximately 25,500 full and
part-time employees, 21,400 of whom were employed in healthcare operations,
3,200 of whom were employed in lodging and franchise operations, and the
remainder in Manor Care's headquarters and other operations.
From time to time, some of Manor Care's nursing centers and the
Hospital experience shortages of professional nursing help which may require
Manor Care to seek temporary employees through employment agencies ("contract
employees") at an increased cost. Manor Care does not believe that such use of
contract employees has had a material adverse effect on its financial position
to date.
A majority of the employees are covered by the federal minimum wage
laws, and a few employees are represented by labor unions. Attempts have been
made from time to time to unionize employees of certain other facilities.
Manor Care believes that it enjoys a good relationship with its employees.
Insurance
Manor Care maintains property insurance on its healthcare and lodging
facilities. Manor Care insures some of its liability exposures and self
insures, either directly or indirectly through insurance arrangements requiring
it to reimburse insurance carriers, some of its liability risks other than
catastrophic exposures. Physicians and dentists practicing at the Hospital are
responsible for their own professional liability insurance coverage. Manor
Care insures its workers' compensation risks in some states and self insures in
others.
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ITEM 2. Properties.
As of May 31, 1994, Manor Care owned, leased or managed 164 nursing
and rehabilitation centers in 28 states and one acute care general hospital in
Texas, as indicated below:
Number Number of
Property Of Units Operating Beds
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Nursing and
Rehabilitation Centers:
Owned 149 20,318
Leased 14 1,796
Managed 1 138
Acute Care Hospital 1 172
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TOTALS 165 22,424
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As of May 31, 1994, Vitalink leased 17 pharmacies in 12 states and its
corporate offices in Naperville, Illinois. As of May 31, 1994, Manor Care
owned or leased 32 hotels containing 5,602 guest rooms located in 13 states and
12 hotels containing 1,043 rooms located in foreign countries. Manor Care also
owned four assisted living centers.
Manor Care owns its three headquarters buildings in Silver Spring,
Maryland; a fourth building in Silver Spring that is used by employees and
leased to third parties; a building in Phoenix, Arizona, that serves as Western
Regional Office of Choice; and several undeveloped parcels. Manor Care also
leases office space as needed to accommodate regional employees.
Forty-eight (48) nursing centers and hotels have been pledged to
secure related mortgage and capital lease obligations.
ITEM 3. Legal Proceedings.
- On June 23, 1988, Hudson Hotels Corp. filed suit against
Choice in U.S. District Court, Western District of New York, alleging that
Choice misappropriated trade secrets and used them to develop the Sleep Inn
chain. Plaintiff sought an injunction and damages exceeding $20 million. In
April 1990, plaintiff amended its complaint and sought profits derived from the
use of "plaintiff's concept," $3 million for the concept and $5 million
punitive damages. On September 25, 1992, a jury decided in favor of plaintiff
and awarded damages of $2.5 million. Choice appealed to the U.S. Court of
Appeals for the Second Circuit, arguing that plaintiff's concept was merely a
non-novel idea not entitled to legal protection. On June 11, 1993, the Court
of Appeals agreed with Choice and reversed the District Court judgment.
- On March 11, 1987, Choice filed suit in U.S. District Court,
Western District of New York, against Wintergarden Inn Associates and
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Edward Bevilacqua for breach of the franchise agreement. Defendants filed a
counterclaim alleging breach of contract, misrepresentation and violation of
franchise laws and sought damages of $40 million. Choice's motion for summary
judgment was granted in March 1993 and defendants' counterclaim has been
dismissed.
- On September 10, 1985, the U.S. Environmental Protection
Agency sued Healthcare and other defendants in U.S. District Court, District
of New Jersey, seeking clean-up costs at Lipari Landfill. A subsidiary that
Healthcare acquired in its 1981 acquisition of Cenco Incorporated was alleged
to have transported wastes to the landfill in the 1960's. The USEPA and the
defendants have entered into a Consent Decree requiring the defendants to
contribute approximately $52 million for certain clean-up costs. Healthcare's
share of the settlement is approximately $2.6 million, most of which is covered
by insurance. The USEPA is seeking additional funds from the defendants in
connection with a future phase of the clean-up.
- On October 30, 1989, the New Jersey Department of
Environmental Protection sued Manor Care and other defendants in U.S. District
Court, District of New Jersey, seeking clean-up costs at Kramer Landfill where
the Cenco subsidiary allegedly transported wastes. On September 10, 1990,
Transtech Industries, Inc. and other parties sued numerous defendants,
including the Cenco subsidiary, in U.S. District Court, District of New Jersey,
for contribution in connection with clean-up of Kin-Buc Landfill. The State of
New Jersey also has issued administrative directives ordering numerous parties,
including Manor Care as the alleged successor to the Cenco subsidiary, to
contribute to the clean-up of various other landfills.
- On November 19, 1990, Choice filed suit in U.S. District
Court, District of South Carolina, against Franklin and Rebecca Gay, two former
employees, for continuing to represent themselves as employees and for failing
to discontinue the "Carriage House Inn" name, which they had sold to Choice.
On January 31, 1991, defendants filed a counterclaim alleging breach of
contract, fraud and unfair trade practices and seeking damages of $37.5
million. During trial in May 1993, the fraud claim was dismissed and certain
evidentiary rulings further reduced defendants' claims. A mistrial was
declared when the judge took emergency leave. To avoid the cost of a new
trial, Choice settled with defendants in July 1993 for $135,000, which included
unpaid sales commissions.
Manor Care also is subject to other regulatory and legal actions,
investigations or claims for damages that arise from time to time in the
ordinary course of business. Manor Care is defending the claims against it and
believes that these proceedings will not have a material adverse effect on its
financial condition or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year ended May 31, 1994.
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EXECUTIVE OFFICERS OF MANOR CARE, INC.
The names, ages, titles, present principal occupation, business
addresses and other material occupations, positions, offices and employment of
each of the executive officers of Manor Care, Inc. ("Manor Care") are set
forth below. The business address of each of such executive officers is 10750
Columbia Pike, Silver Spring, Maryland 20901.
Stewart Bainum, Jr. (48) Chairman of the Board of Manor Care and Manor
Healthcare Corp. ("Healthcare") since March 1987; Chief Executive Officer of
Manor Care since March 1987 and President since June 1989; Vice Chairman of the
Board of Manor Care and subsidiaries from June 1982 to March 1987; Director of
Manor Care since August 1981, of Healthcare since 1976 and of Choice Hotels
International, Inc. and its predecessors ("Choice") since 1977; Chief Executive
Officer of Healthcare since June 1989 and President from May 1990 to May 1991;
Chairman of the Board of Choice from March 1987 to June 1990.
Stewart Bainum. (75) Vice Chairman of the Board of Manor Care and
subsidiaries since March 1987; Chairman of the Board of Manor Care from August
1981 to March 1987, Chief Executive Officer from July 1985 to March 1987,
President from May 1982 to July 1985; Chairman of the Board of Healthcare from
1968 to March 1987 and a Director since 1968; Chairman of the Board of Choice
from 1972 to March 1987 and a Director since 1963; Chairman of the Board of
Realty Investment Company, Inc. since 1965.
Donald J. Landry. (45) President of Manor Care Hotel Division since
March 1992; various executive positions with Richfield Hotel Management, Inc.
and its predecessors for more than 15 years, including President of MHM
Corporation.
Weldon Humphries. (57) Senior Vice President-Real Estate and
Development of Manor Care since August 1981, of Choice since February 1981 and
of Healthcare since December 1980.
James A. MacCutcheon. (42) Senior Vice President-Finance and
Treasurer of Manor Care since October 1987.
James H. Rempe. (64) Senior Vice President, General Counsel and
Secretary of Manor Care since August 1981, of Choice since February 1981 and of
Healthcare since December 1980.
Joseph Buckley. (46) Senior Vice President-Information Resources and
Development of Manor Care since June 1990; Vice President-Information Resources
from July 1989 to June 1990; Vice President-Real Estate from September 1983 to
July 1989.
Charles A. Shields. (50) Senior Vice President-Human Resources of
Manor Care since September 1992; Vice President-Human Resources from October
1989 to September 1992; Vice President of Human Resources for divisions of Walt
Disney Company from 1980 to October 1989.
14
15
Donald E. Feltman. (39) Vice President-Development of Manor Care
since April 1993; previously employed for five years as Director of Development
of Marriott Corporation's Senior Living Services Division.
Larry R. Godla. (37) Vice President-Construction of Manor Care since
March 1993; Director of Construction from January 1990 to March 1993;
previously employed for more than five years by Spaulding and Slye Company,
including as Vice President- Construction.
Gary L. Henson. (40) Vice President-Information Resources since
September 1993; Director of Information Resources from April 1993 to September
1993; Director of Data Processing Operations from April 1991 to April 1993;
Director of Corporate Information Systems from December 1988 to April 1991;
various other data processing positions from June 1982 to December 1988.
Alan Marsh. (46) Vice President-Risk Management of Manor Care since
September 1986; Vice President-Administration from November 1984 to September
1986.
Charles A. Militana. (45) Vice President-Compensation and Benefits
since September 1993; previously employed in various compensation and benefits
positions by Arthur Andersen & Co. (1990-1993) and The Racal Corporation
(1978-1990).
Gregory D. Miller. (40) Vice President-Strategic Planning since May
1992; various planning and marketing positions at Marriott Corporation for more
than five years, including Vice President-Planning and Business Development for
Courtyard by Marriott.
John M. Sabin. (39) Vice President-Finance and Assistant Treasurer
since December 1993; Vice President, Corporate Mergers and Acquisitions at
Marriott Corporation for more than five years.
Margarita Schoendorfer. (45) Vice President-Controller of Manor Care
since November 1990; Corporate Controller from April 1986 to November 1990;
Assistant Corporate Controller from August 1981 to April 1986.
Donald C. Tomasso. (49) President and Chief Operating Officer of
Healthcare since May 1991 and Director of Healthcare since June 1991;
previously employed by Marriott Corporation for more than five years, including
as Executive Vice President/General Manager of the Roy Rogers Division.
Robert C. Hazard, Jr. (59) Chairman of Choice since June 1990 and
Chief Executive Officer and Director since December 1980; President from
December 1980 to June 1990.
Gerald W. Petitt. (48) President of Choice since June 1990 and Chief
Operating Officer and Director since December 1980; Executive Vice President
from December 1980 to June 1990.
15
16
PART II
ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
The shares of Manor Care's Common Stock are listed and traded on the
New York Stock Exchange. Information on the high and low sales prices of Manor
Care's Common Stock during the past two years is included on page 24 of the
1994 Annual Report and is incorporated herein by reference.
As of July 13, 1994, there were 3,174 record holders of Manor Care
Common Stock.
Information required on the frequency and amount of any dividends
declared during the past two years with respect to such Common Stock is
included on page 24 of the 1994 Annual Report and is incorporated herein by
reference.
Pages
-----
ITEM 6. Selected Financial Data.
The required information is included in the
specified pages of the 1994 Annual Report and
is incorporated herein by reference. 1
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The required information is included in the
specified pages of the 1994 Annual Report
and is incorporated herein by reference. 15,19
ITEM 8. Financial Statements and Supplementary Data.
The required information is included in the
specified pages of the 1994 Annual Report
and is incorporated herein by reference. See 14,
Item 14 for index to financial statements 16-18,
and schedules. 20-24
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not applicable.
16
17
PART III
ITEM 10. Directors and Executive Officers of the
Registrant.
The required information on directors is
included in the specified pages of the Proxy
Statement dated August 10, 1994 and is
incorporated herein by reference. 3,5
The required information on executive officers
is set forth in Part I of this Form 10-K under
an unnumbered item captioned "Executive Officers
of Manor Care, Inc."
ITEM 11. Executive Compensation.
The required information is included in the
specified pages of the Proxy Statement dated
August 10, 1994 and is incorporated herein by
reference. 7-13
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management.
The required information is included in the
specified pages of the Proxy Statement dated
August 10, 1994 and is incorporated herein by
reference. 3-4
ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
17
18
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) 1. Financial Statements
Included on the following pages of the 1994 Annual Report:
Consolidated Statements of Income . . . . . . . . . . 14
Consolidated Balance Sheets . . . . . . . . . . . . . 16
Consolidated Statements of Stockholders' Equity . . . 17
Consolidated Statements of Cash Flows . . . . . . . . 18
Management's Report and Report of
Independent Public Accountants . . . . . . . . . . 20
Notes to Consolidated Financial Statements. . . . . . 21-24
2. Financial Statement Schedules
The following Report and Schedules are filed herewith on the
pages indicated:
Report of Independent Public Accountants
on Schedules - Arthur Andersen & Co. 22
Schedules
V - Property, Plant and Equipment 23
VI - Accumulated Depreciation and Amortization
of Property, Plant and Equipment 24
VIII - Valuation and Qualifying Accounts 25
X - Supplementary Income Statement Information 26
18
19
3. Exhibits
3.1 - Articles of Incorporation, as amended. Exhibit 3.1 to Form 10-K for the year ended May 31, 1987
is incorporated herein by reference.
3.2 - By-Laws, as amended. Exhibit 3.2 to Form 10-K for the year ended May 31, 1988 is incorporated
herein by reference.
4.1 - Indenture dated as of November 15, 1992 covering 9-1/2% Senior Subordinated Notes due 2002 between
Manor Care, Inc. and Chemical Bank. Exhibit 4.1 to Registration Statement No. 33-52734 is
incorporated herein by reference.
10.1 - Supplemental Executive Retirement Plan. Exhibit l0.2 to Form l0-K for the year ended May 31, 1986
is incorporated herein by reference.
10.2 - Form of Executive Cash Incentive Plan.
10.3 - Employment Agreement dated November 12, 1980, as amended, between Quality Inns International, Inc.
and Robert C. Hazard, Jr. Exhibit 10.4 to Form 10-K for the year ended May 31, 1986 is
incorporated herein by reference.
10.4 - Employment Agreement dated November 12, 1980, as amended, between Quality Inns International, Inc.
and Gerald W. Petitt. Exhibit 10.5 to Form 10-K for the year ended May 31, 1986 is incorporated
herein by reference.
10.5 - Second Amendment to Employment Agreement dated as of May 30, 1990 between Quality Inns
International, Inc. and Robert C. Hazard, Jr. Exhibit 10.11 to Form 10-K for the year ended May
31, 1990 is incorporated herein by reference.
10.6 - Second Amendment to Employment Agreement dated as of May 30, 1990 between Quality Inns
International, Inc. and Gerald W. Petitt. Exhibit 10.12 to Form 10-K for the year ended May 31,
1990 is incorporated herein by reference.
10.7 - Shareholders Agreement dated as of November 12, 1980, as amended, among Manor Care, Inc., Robert
C. Hazard, Jr. and Gerald W. Petitt. Exhibit 10.13 to Form 10-K for the year ended May 31, 1990
is incorporated herein by reference.
19
20
10.8 - Agreement dated as of February 11, 1994 between Choice Hotels International, Inc. and Frederick W.
Mosser. Exhibit 10.1 to Form 10-Q for the quarter ended February 28, 1994 is incorporated herein
by reference.
10.9 - Employment Agreement dated February 17, 1992 between Manor Care, Inc. and Donald J. Landry.
Exhibit 10.15 to Form 10-K for the year ended May 31, 1992 is incorporated herein by reference.
10.10 - Directors Retirement Plan. Exhibit 10.16 to Form 10-K for the year ended May 31, 1992 is
incorporated herein by reference.
10.11 - Key Executive Stock Option Plan of 1993. Annex A to the Proxy Statement dated August 20, 1993 is
incorporated herein by reference.
l3 - 1994 Annual Report to Stockholders (information incorporated by reference).
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Public Accountants.
99 - Proxy Statement dated August 10, 1994.
(b) No report on Form 8-K was filed during the last quarter of the fiscal
year ended May 31, 1994.
20
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 26, 1994 MANOR CARE, INC.
By:/s/ James A. MacCutcheon
-----------------------------------
James A. MacCutcheon
Senior Vice President-
Finance and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stewart Bainum, Jr. Chairman, Director, August 26, 1994
- - ------------------------------ President and Chief
Stewart Bainum, Jr. Executive Officer
/s/ Stewart Bainum Vice Chairman August 26, 1994
- - ------------------------------ and Director
Stewart Bainum
/s/ Jack R. Anderson Director August 26, 1994
- - ------------------------------
Jack R. Anderson
/s/ Regina E. Herzlinger Director August 26, 1994
- - ------------------------------
Regina E. Herzlinger
/s/ William H. Longfield Director August 26, 1994
- - ------------------------------
William H. Longfield
/s/ Frederic V. Malek Director August 26, 1994
- - ------------------------------
Frederic V. Malek
/s/ Jerry E. Robertson Director August 26, 1994
- - ------------------------------
Jerry E. Robertson
/s/ Margarita Schoendorfer Vice President- August 26, 1994
- - ------------------------------ Corporate Controller
Margarita Schoendorfer
21
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO MANOR CARE, INC.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Manor Care, Inc.'s annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated June 22, 1994. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the index in Item 14(a)2 are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen & Co.
Washington, D.C.,
June 22, 1994
22
23
SCHEDULE V
MANOR CARE, INC.
PROPERTY, PLANT AND EQUIPMENT
OTHER
BALANCE AT CHANGES BALANCE AT
BEGINNING ADDITIONS RETIREMENTS DEBIT CLOSE OF
CLASSIFICATION OF PERIOD AT COST OR SALES (CREDIT)(A) PERIOD
- - -------------- ---------- -------- ----------- -------- ----------
(IN THOUSANDS OF DOLLARS)
Year ended May 31, 1994
Land $ 80,944 $ 13,669 $ (2,118) $ 343 $ 92,838
Buildings and improvements 749,261 53,582 (18,717) 29,005 813,131
Capitalized leases 18,991 - - - 18,991
Furniture, fixtures and
equipment 168,321 29,977 (15,730) 5,236 187,804
Facilities in progress 11,762 42,942 - (35,072) 19,632
--------- ------- ------- ------- ---------
Total $1,029,279 $140,170 $(36,565) $ (488) $1,132,396
========= ======= ======= ======= =========
Year ended May 31, 1993
Land $ 75,291 $ 3,750 $ (158) $ 2,061 $ 80,944
Buildings and improvements 678,956 34,378 (13,304) 49,231 749,261
Capitalized leases 18,991 - - - 18,991
Furniture, fixtures and
equipment 156,069 25,908 (19,817) 6,161 168,321
Facilities in progress 22,025 52,536 - (62,799) 11,762
--------- ------- ------- ------- ---------
Total $ 951,332 $116,572 $(33,279) $ (5,346) $1,029,279
========= ======= ======= ======= =========
Year ended May 31, 1992
Land $ 75,506 $ 351 $ (307) $ (259) $ 75,291
Buildings and improvements 653,175 16,683 (3,788) 12,886 678,956
Capitalized leases 18,991 - - - 18,991
Furniture, fixtures and
equipment 142,746 17 833 (6,117) 1,607 156,069
Facilities in progress 10,735 28,630 - (17,340) 22,025
--------- ------- ------- ------- ---------
Total $ 901,153 $ 63,497 $(10,212) $ (3,106) $ 951,332
========= ======= ======= ======= =========
(A) Other changes are primarily transfers from facilities in
progress to land, buildings and improvements and furniture,
fixtures and equipment.
23
24
SCHEDULE VI
MANOR CARE, INC.
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
ADDITIONS OTHER
BALANCE AT CHARGED TO CHANGES BALANCE AT
BEGINNING PROFIT RETIREMENTS (DEBIT) CLOSE OF
CLASSIFICATION OF PERIOD AND LOSS OR SALES CREDIT PERIOD
- - -------------- ---------- ---------- ----------- ------- ----------
(IN THOUSANDS OF DOLLARS)
Year ended May 31, 1994
Buildings and improvements $189,515 $ 33,552 $ (9,240) $ - $213,827
Furniture, fixtures and
equipment 78,425 21,997 (14,434) - 85,988
Capitalized leases 7,593 638 - - 8,231
------- ------- ------- ------ -------
Total $275,533 $ 56,187 $(23,674) $ - $308,046
======= ======= ======= ====== =======
Year ended May 31, 1993
Buildings and improvements $168,226 $ 30,935 $ (9,646) $ - $189,515
Furniture, fixtures and
equipment 77,187 19,984 (18,746) - 78,425
Capitalized leases 6,958 635 - - 7,593
------- ------- ------- ------ -------
Total $252,371 $ 51,554 $(28,392) $ - $275,533
======= ======= ======= ====== =======
Year ended May 31, 1992
Buildings and improvements $143,099 $ 28,818 $ (3,691) $ - $168,226
Furniture, fixtures and
equipment 65,489 17,754 (6,056) - 77,187
Capitalized leases 6,364 594 - - 6,958
------- ------- ------- ------ -------
Total $214,952 $ 47,166 $ (9,747) $ - $252,371
======= ======= ======= ====== =======
24
25
SCHEDULE VIII
MANOR CARE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING PROFIT END
DESCRIPTION OF PERIOD AND LOSS OTHER WRITE-OFFS OF PERIOD
- - ----------- ---------- ---------- ------- ---------- ----------
Year ended May 31, 1994
Allowance for doubtful accounts $16,501 $13,923 $3,434 (A) $ (9,427) $24,431
====== ====== ===== ======= ======
Allowance for doubtful long-
term notes receivable $ 315 $ - $ - $ (315) $ 0
====== ====== ===== ======= ======
Year ended May 31, 1993
Allowance for doubtful accounts $18,349 $ 9,394 $ - $(11,242) $16,501
====== ====== ===== ======= ======
Allowance for doubtful long-
term notes receivable $ 315 $ - $ - $ - $ 315
====== ====== ===== ======= ======
Year ended May 31, 1992
Allowance for doubtful accounts $15,016 $ 9,967 $2,249 (A) $ (8,883) $18,349
====== ====== ===== ======= ======
Allowance for doubtful long-
term notes receivable $ 315 $ - $ - $ - $ 315
====== ====== ===== ======= ======
(A) Represents reserves of acquired companies and certain balance sheet
reclassifications.
25
26
SCHEDULE X
MANOR CARE, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
1994 1993 1992
------- ------- -------
(in thousands of dollars)
Maintenance and repairs $10,230 $ 8,757 $ 7,437
Taxes, other than payroll and income
taxes (primarily property taxes) $16,991 $15,086 $14,257
Advertising $37,332 $29,515 $31,206
26
27
EXHIBIT INDEX
3.1 - Articles of Incorporation, as amended. Exhibit 3.1 to Form
10-K for the year ended May 31, 1987 is incorporated herein
by reference.
3.2 - By-Laws, as amended. Exhibit 3.2 to Form 10-K for the year
ended May 31, 1988 is incorporated herein by reference.
4.1 - Indenture dated as of November 15, 1992 covering 9-1/2%
Senior Subordinated Notes due 2002 between Manor Care, Inc.
and Chemical Bank. Exhibit 4.1 to Registration Statement
No. 33-52734 is incorporated herein by reference.
10.1 - Supplemental Executive Retirement Plan. Exhibit 10.2 to
Form 10-K for the year ended May 31, 1986 is incorporated
herein by reference.
10.2 - Form of Executive Cash Incentive Plan.
10.3 - Employment Agreement dated November 12, 1980, as amended,
between Quality Inns International, Inc. and Robert C.
Hazard, Jr. Exhibit 10.4 to Form 10-K for the year ended
May 31, 1986 is incorporated herein by reference.
10.4 - Employment Agreement dated November 12, 1980, as amended,
between Quality Inns International, Inc. and Gerald W.
Petitt. Exhibit 10.5 to Form 10-K for the year ended May
31, 1986 is incorporated herein by reference.
10.5 - Second Amendment to Employment Agreement dated as of May 30,
1990 between Quality Inns International, Inc. and Robert C.
Hazard, Jr. Exhibit 10.11 to Form 10-K for the year ended
May 31, 1990 is incorporated herein by reference.
10.6 - Second Amendment to Employment Agreement dated as of May 30,
1990 between Quality Inns International, Inc. and Gerald W.
Petitt. Exhibit 10.12 to Form 10-K for the year ended May
31, 1990 is incorporated herein by reference.
10.7 - Shareholders Agreement dated as of November 12, 1980, as
amended, among Manor Care, Inc., Robert C. Hazard, Jr. and
Gerald W. Petitt. Exhibit 10.13 to Form 10-K for the year
ended May 31, 1990 is incorporated herein by reference.
28
EXHIBIT INDEX Continued
10.8 - Agreement dated as of February 11, 1994 between Choice
Hotels International, Inc. and Frederick W. Mosser. Exhibit
10.1 to Form 10-Q for the quarter ended February 28, 1994 is
incorporated herein by reference.
10.9 - Employment Agreement dated February 17, 1992 between Manor
Care, Inc. and Donald J. Landry. Exhibit 10.15 to Form 10-K
for the year ended May 31, 1992 is incorporated herein by
reference.
10.10 - Directors Retirement Plan. Exhibit 10.16 to Form 10-K for
the year ended May 31, 1992 is incorporated herein by
reference.
10.11 - Key Executive Stock Option Plan of 1993. Annex A to the
Proxy Statement dated August 20, 1993 is incorporated herein
by reference.
13 - 1994 Annual Report to Stockholders (information incorporated
by reference).
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Public Accountants.
99 - Proxy Statement dated August 10, 1994.