Exhibit 99.1
MANORCARE
News Release
FOR IMMEDIATE RELEASE
CONTACT:
Geoffrey G. Meyers, Chief Financial Officer
419/252-5545
e-mail: gmeyers@hcr-manorcare.com
MANOR CARE DECLARES ITS FIRST QUARTERLY CASH DIVIDEND;
REPORTS SECOND-QUARTER EARNINGS
TOLEDO, Ohio, July 25, 2003 -- Manor Care, Inc. (NYSE:HCR) declared today
that it will pay a quarterly cash dividend of 12.5 cents per share of common
stock. The dividend is payable August 20, 2003 to shareholders of record on
August 7, 2003. The cash dividend payment is the first in the company's history.
Related to this announcement, the company plans to voluntarily increase the cash
coupon on its 20-year Convertible Senior Notes.
Manor Care also announced that 2003 second-quarter net income was $18.9
million, or 21 cents per share. These results include three significant items
and expenses which are described below. Revenues in the 2003 second quarter were
$751 million, an increase of $22 million compared to the prior-year quarter.
Earnings per share in the 2003 second quarter were affected by a $5.2
million after-tax reserve for a proposed settlement of a review of certain
Medicare cost reports related to the former Manor Care, Inc. dating to 1992
amounting to 6 cents per share, and a largely non-cash adjustment of $4.7
million after-tax related to employee split-dollar insurance changes resulting
in a charge of 5 cents per share.
In addition, second-quarter results include unusually high costs related
to the expense of stock appreciation rights (SARs) that resulted from the 30
percent increase in the market price of the company's stock during the quarter.
The expense related to
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Manor Care Reports Earnings, Page 2
this stock-related compensation was 4 cents per share higher than in any quarter
in the past two years.
For the six months, revenues were $1.48 billion, compared to $1.44 billion
for the first six months of 2002. Net income was $50 million, or 54 cents per
share, compared with $70 million, or 69 cents per share, a year ago.
Paul A. Ormond, Manor Care chairman, president and CEO, said, "We are
pleased with our accelerating normalized run rate driven by our continued
substantial cash generation and our operational strengths during the 2003 second
quarter. Occupancy in our skilled nursing centers is at a three-year high, with
our Medicare, private pay and managed care revenues moving up sequentially.
Revenues and earnings from our home health care and hospice business remained on
a double-digit growth path.
"During the quarter, we generated $113 million of cash flow from
operations. Our ability to generate significant operating cash flow enabled us
to reinvest in our business units and repurchase shares of our stock. During the
first six months of this year, we repurchased $126 million or nearly 7 percent
of our shares outstanding, at an average price of $20 per share, and this
followed our having repurchased 7 percent of our shares in 2002. Approximately
$110 million of board authority remains for repurchasing shares. During the
quarter, we completed four nursing center expansions, started five more, and now
have 16 expansions under way. In addition, we began construction of a new
120-bed nursing center, acquired a rehabilitation therapy clinic and three home
health/hospice businesses, and sold three nursing centers.
"The change in the tax law this year increased the attractiveness of
dividend payouts in providing investment return to shareholders similar to stock
repurchases. The strength of our operating cash flow enables us to now provide
value to shareholders both through a dividend payout and share repurchase, while
also continuing to provide us with cash to finance reinvestment in our
operations and to make acquisitions. The company currently intends to declare
and pay regular quarterly cash dividends; however, there can be no assurance
that any dividends will be declared or paid in the future.
"Cost trends continued to be favorable," Mr. Ormond said. "Wage rate
increases remained below 5 percent, and agency usage in the first six months of
2003 had a run rate of less than
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Manor Care Reports Earnings, Page 3
half of what it was last year. General liability claims activity continued
essentially stable with the activity of the past two years, but like other
health care providers, we experienced a sizable increase in insurance rates with
our second-quarter renewals. This, combined with assumptions from our semiannual
independent actuarial review of claims experience, resulted in our increasing
our future liability and insurance accruals about 20 percent above what they
were the past year, the same rate of increase we had in 2002. On the plus side
are the serious efforts under way to enact tort reform. Texas passed landmark
legislation that will more appropriately address patient liability issues, and
Florida legislators are clearly focused on implementing meaningful tort reform,
as well. Several other state legislatures are also showing they recognize the
seriousness of this issue. In addition, efforts are ongoing to enact national
tort reform."
The 2003 second quarter also was marked by Standard & Poor's reaffirming
Manor Care's investment grade debt rating and the company putting in place a new
financing package to replace its expiring credit facility. A three-year $200
million bank credit facility was negotiated with a group of banks. In addition,
Manor Care completed the sale of $200 million of 10-year Senior Notes with a
6.25% coupon and the sale of $100 million of 2.125% 20-year Convertible Senior
Notes.
The company plans to provide holders of its Convertible Senior Notes with
a value adjustment to address the fact that these investors will not otherwise
participate in the common stock dividend. Manor Care plans to increase the cash
coupon on its 20-year Convertible Senior Notes by 50 basis points per annum
through 2008, from 2.125 percent to 2.625 percent, effective August 20, 2003.
Three significant items had an impact on earnings for the quarter. Manor
Care agreed in principle to resolve a review of certain Medicare cost reports
filed by facilities of the former Manor Care, Inc. prior to the implementation
of the prospective payment system. This review, which was conducted by the
Department of Justice and the Office of Inspector General of the Department of
Health and Human Services, focused primarily on nursing cost allocations made in
reliance upon instructions from the facilities' Medicare fiscal intermediary for
the period 1992-1998. While the company believes the former Manor Care
facilities were fully entitled to the reimbursement they received for these
allocations, the agreement in principle, if ultimately approved and executed by
all parties, will resolve any uncertainty over potential liability to the
Medicare program. Manor Care has established an $8.4 million reserve to cover
the amount the company has agreed to pay in the settlement. Manor
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Manor Care Reports Earnings, Page 4
Care has fully cooperated with the Department of Justice throughout the review.
No complaint has been filed, nor has any subpoena been issued to the company
related to this matter. This agreement in principle is subject to final
approvals within the Department of Justice and to negotiation of a definitive
settlement agreement. Manor Care expects the settlement to be completed in the
third quarter.
Also during the quarter, Manor Care determined that an additional charge
needed to be taken based on the restructuring of employee split-dollar insurance
arrangements as a result of the impact of the Sarbanes-Oxley Act and recent tax
law changes on the funding requirements of these arrangements. There was no
change in the associated employee benefits.
In addition, the results for the second quarter include unusually high
costs related to the expensing of stock-related compensation. During the past
three years, Manor Care has awarded stock appreciation rights (SARs) to more
than 1,500 non-executive employees annually based on the company's performance.
Each month the change in value of the SARs to employees, based on stock price
appreciation, is expensed on the income statement. During the second quarter,
the expense for these SARs was more than three times as high as any previous
quarter, approximating $7 million, or 5 cents per share, due to the more than 30
percent increase in the market price of the company's stock.
The Centers for Medicare & Medicaid Services (CMS) made several
announcements during the quarter, which should bode well for Medicare
reimbursement going forward. First, CMS said it would not implement case-mix
refinements at least until fiscal 2005, which extends about $1 billion in
reimbursement add-ons. At the same time, CMS recommended a 2.9 percent market
basket adjustment increase in Medicare payment rates for fiscal year 2004. The
increase will result in nearly $400 million more in Medicare payments to skilled
nursing centers. Then in June, CMS announced a proposal to increase nursing
center Medicare reimbursement by an additional 3.26 percent, or $450 million,
beginning on October 1.
The 2003 second-quarter impact of the reduction in Medicare reimbursement
that
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Manor Care Reports Earnings, Page 5
was effective October 1, 2002 was approximately $15 million. The corrections
proposed by CMS should add back about one-third of what was lost by most
providers last year when the new PPS rates went into effect. Medicaid rates were
up approximately 6 percent during the second quarter compared with the 2002
second quarter, but Manor Care expects that Medicaid rates in the third quarter
are likely to be up only 2 percent compared with the prior year because of the
difficult budgeting situations in most states across the country.
"The environment we work in is a challenging one, but we continue to show
that we can succeed in spite of these challenges," Mr. Ormond said. "We are
encouraged by the proposals to increase Medicare reimbursement and that there is
a growing understanding that Medicaid funding needs to be similarly addressed.
Focus needs to be maintained on enacting sensible tort reform, and the recent
actions in several key states recognize the seriousness of this issue. A wide
variety of actions are constantly at work within our company to improve quality;
hire, train and retain qualified employees; grow census; and manage costs. It is
this daily commitment by our employees in support of our growth strategies that
will keep us moving forward."
At 9:00 a.m. Eastern Time today, Manor Care will hold a conference call to
discuss the company's results and performance for the 2003 second quarter. The
toll-free number for the call is 1-888-634-8435. Callers to this number will be
able to listen to the company's discussion and have the opportunity to ask
questions. The call will also be webcast live in the Investor Information
section of Manor Care's website www.hcr-manorcare.com. For those unable to
listen to the call live, a taped rebroadcast will be available beginning two
hours after completion of the live call. To access the rebroadcast, dial
1-800-642-1687. The conference ID number is 1527233. A recording of the call
will also be available on Manor Care's website.
Manor Care, Inc., through its operating group HCR Manor Care, is the
leading owner and operator of long-term care centers in the United States. The
company's 61,000 employees provide high-quality care for patients, residents and
clients through a network of more than 500 long-term care centers, assisted
living facilities, outpatient
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rehabilitation clinics, and home health care and hospice offices. Alliances and
other ventures supply high-quality pharmaceutical products and management
services for professional organizations. The company operates primarily under
the respected Heartland, ManorCare and Arden Courts names. Manor Care is
committed to being the preeminent care provider in the industry. Shares are
traded on the New York Stock Exchange under the ticker symbol HCR.
Statements contained in this press release that 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. The forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of the company to differ
materially from those expressed or implied in such statements. Such factors are
identified in the public filings made by the company with the Securities and
Exchange Commission and include changes in the health care industry because of
political and economic influences, changes in regulations governing the
industry, changes in reimbursement levels including those under the Medicare and
Medicaid programs, changes in the competitive marketplace, changes in current
trends in the cost and volume of general and professional liability claims, and
our ability to complete the settlement with the Department of Justice. There can
be no assurance that such factors or other factors will not affect the accuracy
of such forward-looking statements.
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Manor Care Reports Earnings, page 7
Manor Care, Inc.
Consolidated Statements of Income (unaudited)
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Three months ended June 30, Six months ended June 30,
2003 2002 2003 2002
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(In thousands, except per share data)
Revenues $ 750,586 $ 728,435 $1,481,106 $1,444,422
Expenses
Operating 633,024 603,467 1,244,511 1,193,797
General and administrative 46,637 30,421 77,346 60,348
Depreciation and amortization 31,863 31,587 63,537 63,356
Asset impairment 24,876 24,876
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711,524 690,351 1,385,394 1,342,377
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Income before other income (expenses) and income taxes 39,062 38,084 95,712 102,045
Other income (expenses):
Interest expense (11,317) (9,388) (20,192) (19,332)
Gain on sale of assets 2,134 31,197 2,323 30,253
Equity in earnings of affiliated companies 1,599 1,137 3,140 1,873
Interest income and other 431 273 1,132 882
-------------- -------------- --------------- ---------------
Total other income (expenses), net (7,153) 23,219 (13,597) 13,676
-------------- -------------- --------------- ---------------
Income before income taxes 31,909 61,303 82,115 115,721
Income taxes 12,990 23,295 32,068 43,974
-------------- -------------- --------------- ---------------
Income before cumulative effect 18,919 38,008 50,047 71,747
Cumulative effect of change in accounting for goodwill (1,314)
-------------- -------------- --------------- ---------------
Net income $ 18,919 $ 38,008 $ 50,047 $ 70,433
============== ============== =============== ===============
Earnings per share -basic:
Income before cumulative effect $ .21 $ .38 $ .55 $ .72
Cumulative effect (.01)
-------------- -------------- --------------- ---------------
Net income $ .21 $ .38 $ .55 $ .70 (a)
============== ============== =============== ===============
Earnings per share - diluted:
Income before cumulative effect $ .21 $ .38 $ .54 $ .71
Cumulative effect (.01)
-------------- -------------- --------------- ---------------
Net income $ .21 $ .38 $ .54 $ .69 (a)
============== ============== =============== ===============
Weighted average shares:
Basic 89,158 99,109 91,396 100,096
Diluted 90,433 100,561 92,456 101,348
(a) Doesn't add due to rounding
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Manor Care Reports Earnings, page 8
Manor Care, Inc.
Condensed Consolidated Balance Sheets (unaudited)
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June 30, December 31,
2003 2002
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(In thousands)
Cash $ 76,503 $ 30,554
Other current assets 469,285 480,263
Property and equipment 1,524,586 1,534,339
Other 266,633 261,776
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Total assets $ 2,337,007 $ 2,306,932
================ =================
Current liabilities $ 415,278 $ 641,864
Long-term debt 664,493 373,112
Other long-term liabilities 315,807 275,909
Shareholders' equity 941,429 1,016,047
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Total liabilities and shareholders' equity $ 2,337,007 $ 2,306,932
================ =================
Shares outstanding 88,991 95,052
YTD shares repurchased $126.0 million 6,282
Selected Statistics (unaudited)
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Quarter ended June 30,
2003 2002
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Occupancy 88% 88%
Revenue allocation:
Private and other 35% 36%
Medicare 32% 32%
Medicaid 33% 32%
Quality Mix 67% 68%
Per Diems:
Private and other (excluding assisted living) $188.66 $180.60
Private and other (assisted living) $104.30 $99.97
Medicare $311.19 $334.41
Medicaid $131.29 $122.99
Number of Facilities:
Skilled nursing facilities 293 297
Assisted living facilities:
Springhouses 16 16
Arden Courts 54 54
-- --
Total 70 70
== ==
Number of Beds:
Skilled nursing facilities 40,840 41,223
Assisted living facilities 5,459 5,494
Outpatient therapy clinics 91 94
Home health offices 88 88
Skilled nursing facility wage rate increases
second quarter 2003 to 2002 4%
Cash flow from operations (in millions): $113 $29
Capital Expenditures (in millions):
Maintenance and renovations $19 $18
New construction $5 $5
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