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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 September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10858
HCR 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.)
ONE SEAGATE, TOLEDO, OHIO 43604-2616
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 252-5500
Registrants former name changed since last report: Health Care and Retirement
Corporation
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 October 31, 1998.
Common stock, $0.01 par value -- 110,846,981 shares
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited) Number
------
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Income -
Three months and nine months ended
September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
HCR MANOR CARE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
----------- -----------
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 100,643 $ 47,933
Receivables, less allowances for
doubtful accounts of $55,692 and $52,590 302,597 308,797
Prepaid expenses and other assets 26,399 45,627
Deferred income taxes 61,173 59,912
----------- -----------
Total current assets 490,812 462,269
Property and equipment, net of accumulated
depreciation of $564,948 and $515,814 1,722,015 1,604,913
Intangible assets, net of amortization:
Goodwill 66,112 130,915
Other 20,550 32,124
Net investment in Genesis preferred stock 293,120
Investment in discontinued pharmacy segment 184,819
Other assets 178,669 169,865
----------- -----------
Total assets $ 2,771,278 $ 2,584,905
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 103,085 $ 101,746
Employee compensation and benefits 65,329 80,137
Accrued insurance liabilities 28,511 30,010
Other accrued liabilities 147,969 81,024
Revolving loans 177,500
Long-term debt due within one year 6,487 7,106
----------- -----------
Total current liabilities 528,881 300,023
Long-term debt 690,249 751,281
Deferred income taxes 307,260 266,617
Other liabilities 86,302 100,661
Minority interest 4,692 3,294
Stockholders' equity:
Preferred stock, $.01 par value, 5 million shares authorized
Common stock, $.01 par value, 300 million shares authorized,
110.8 and 115.9 million shares issued 1,108 7,199
Capital in excess of par value 322,896 471,930
Retained earnings 829,890 850,539
----------- -----------
1,153,894 1,329,668
Less treasury stock, at cost (7.8 million shares) (166,639)
----------- -----------
Total stockholders' equity 1,153,894 1,163,029
----------- -----------
Total liabilities and stockholders' equity $ 2,771,278 $ 2,584,905
=========== ===========
See notes to consolidated financial statements.
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HCR MANOR CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands, except earnings per share)
Revenues $ 577,192 $ 551,677 $ 1,723,077 $ 1,656,994
Expenses:
Operating 439,622 445,663 1,329,918 1,311,625
General and administrative 22,100 24,231 74,518 77,279
Depreciation and amortization 32,959 28,455 93,610 82,879
Provision for restructuring charge, merger
expenses and asset impairment 240,655 254,155
----------- ----------- ----------- -----------
735,336 498,349 1,752,201 1,471,783
----------- ----------- ----------- -----------
Income (loss) from continuing operations before
other income (expenses) and income taxes (158,144) 53,328 (29,124) 185,211
Other income (expenses):
Interest expense (11,951) (13,998) (34,099) (43,420)
Minority interest (181) 9,227 (710) 10,252
Interest income and other 5,679 4,028 13,093 9,648
Gain on conversion of Vitalink stock 99,769 99,769
Interest income from advances to discontinued
lodging segment 2,604 (901) 13,668
----------- ----------- ----------- -----------
Total other income (expenses) 93,316 1,861 77,152 (9,852)
----------- ----------- ----------- -----------
Income (loss) from continuing operations before income taxes (64,828) 55,189 48,028 175,359
Income taxes 14,433 19,195 52,242 60,957
----------- ----------- ----------- -----------
Income (loss) from continuing operations (79,261) 35,994 (4,214) 114,402
Discontinued operations:
Income from discontinued pharmacy operations (net of taxes) 153 2,017 8,044 37,965
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (79,108) 38,011 3,830 152,367
Extraordinary item - loss from early extinguishment
of debt (net of taxes of $12,690) (19,036) (19,036)
----------- ----------- ----------- -----------
Net income (loss) $ (98,144) $ 38,011 $ (15,206) $ 152,367
=========== =========== =========== ===========
Earnings per share - basic
Income (loss) from continuing operations $ (.73) $ .33 $ (.04) $ 1.06
Income from discontinued pharmacy operations (net of taxes) .02 .07 .35
Extraordinary item (net of taxes) (.18) (.18)
----------- ----------- ----------- -----------
Net income (loss) $ (.90)* $ .35 $ (.14)* $ 1.41
=========== =========== =========== ===========
Earnings per share - diluted
Income (loss) from continuing operations $ (.73) $ .32 $ (.04) 1.03
Income from discontinued pharmacy operations (net of taxes) .02 .07 .34
Extraordinary item (net of taxes) (.18) (.18)
----------- ----------- ----------- -----------
Net income (loss) $ (.90)* $ .34 $ (.14)* $ 1.37
=========== =========== =========== ===========
Weighted average shares:
Basic 108,475 108,261 108,317 108,148
Diluted 108,475 111,200 108,317 111,156
*Doesn't add due to rounding
See notes to consolidated financial statements.
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HCR MANOR CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30
------------------------------
1998 1997
---- ----
(In thousands)
OPERATING ACTIVITIES
Net income $ (15,206) $ 152,367
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued pharmacy operations (8,044) (37,965)
Depreciation and amortization 93,826 83,442
Provision for restructuring charge, merger expenses and asset impairment 254,155
Write-off of In Home Health Medicare receivables 12,951
Provision for bad debts 24,426 22,116
Deferred income taxes 42,795 33,473
Gain on conversion of Vitalink stock (99,769)
Gain on sale of assets (13,198)
Minority interest 710 (10,252)
Equity in earnings of partnership (3,787) (1,851)
Changes in assets and liabilities, excluding sold facilities and acquisitions:
Receivables (48,900) (95,147)
Prepaid expenses and other assets (23,587) (18,945)
Liabilities (26,355) 307
--------- ---------
Total adjustments 192,272 (11,871)
--------- ---------
Net cash provided by continuing operations 177,066 140,496
Net cash provided by (used in) discontinued pharmacy operations 17,836 (5,772)
--------- ---------
Net cash provided by operating activities 194,902 134,724
--------- ---------
INVESTING ACTIVITIES
Investment in property and equipment (225,241) (159,205)
Investment in systems development (22,158) (16,084)
Acquisition of skilled nursing facilities and businesses (9,841) (68,850)
Proceeds from sale of assets 22,920
Advances to discontinued pharmacy segment (2,799) (17,863)
Receipts from discontinued lodging segment 113,267
Other, net (6,071) (3,124)
--------- ---------
Net cash used in investing activities of continuing operations (243,190) (151,859)
Net cash used in investing activities of discontinued pharmacy operations (6,810) (100,865)
--------- ---------
Net cash used in investing activities (250,000) (252,724)
--------- ---------
FINANCING ACTIVITIES
Net borrowings under bank credit agreements 133,339 75,620
Principal payments of long-term debt (5,538) (47,664)
Proceeds from exercise of stock options 1,889 10,984
Purchase of common stock for treasury (4,838) (27,708)
Dividends paid by Manor Care (2,805) (4,742)
--------- ---------
Net cash provided by financing activities of continuing operations 122,047 6,490
Net cash provided by (used in ) financing activities of discontinued operations (11,026) 106,637
--------- ---------
Net cash provided by financing activities 111,021 113,127
--------- ---------
Net increase (decrease) in cash and cash equivalents 55,923 (4,873)
Cash and cash equivalents at beginning of period 44,720 52,816
--------- ---------
Cash and cash equivalents at end of period $ 100,643 $ 47,943
========= =========
See notes to consolidated financial statements.
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HCR MANOR CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Business Combination and Basis Of Presentation
- -------------------------------------------------------
On September 24, 1998, the stockholders of Health Care and Retirement
Corporation (HCR) and the stockholders of Manor Care, Inc. (Manor Care)
separately approved the merger of the companies, effective September 25, 1998.
In accordance with the Amended and Restated Agreement and Plan of Merger (the
Merger Agreement) dated June 10, 1998, each share of Manor Care common stock was
converted into one share of HCR common stock for a total of 64 million shares
and Manor Care stock options outstanding were converted into 2 million shares of
HCR common stock based on the option pricing formula defined in the Merger
Agreement. As a result of the transaction, Manor Care became a wholly owned
subsidiary of HCR and HCR changed its name to HCR Manor Care, Inc. (HCR Manor
Care or the Company).
The merger has been accounted for by the pooling-of-interests method.
Accordingly, the accompanying consolidated financial statements give retroactive
effect to the merger and include the combined operations for all periods
presented. The historical financial information of Manor Care (previously
reported on fiscal years ending May 31) has been restated as follows. As of
January 1, 1998, Manor Care's historical financial information has been restated
to conform with HCR's quarterly and annual reporting period for 1998. For 1997
Manor Care's historical financial information for the twelve months ended
November 30, 1997 will be combined with HCR's annual reporting period of
December 31, 1997. Accordingly, HCR Manor Care's consolidated results of
operations and cash flows for the quarter and nine months ended September 30,
1997 comprise HCR's results for those periods and Manor Care's results for the
quarter and nine months ended August 31, 1997. HCR Manor Care's financial
position as of December 31, 1997 consists of HCR's financial position as of
December 31, 1997 combined with Manor Care's financial position as of November
30, 1997.
Summarized results of the separate companies through September 30, 1998 follow
(dollars in thousands):
Charge (see
Manor Note 2) and
HCR Care Vitalink Gain Consolidated
--- ---- ------------- ------------
Third Quarter:
1998
Revenues $226,794 $ 350,398 $ 577,192
Income (loss) from continuing operations 20,260 29,178 $(128,699) (79,261)
Net income (loss) 20,260 29,331 (147,735) (98,144)
1997
Revenues 226,606 325,071 551,677
Income from continuing operations 18,151 17,843 35,994
Net income 18,151 19,860 38,011
Nine months:
1998
Revenues 683,072 1,040,005 1,723,077
Income (loss) from continuing operations 59,979 73,567 (137,760) (4,214)
Net income (loss) 59,979 81,611 (156,796) (15,206)
1997
Revenues 660,874 996,120 1,656,994
Income from continuing operations 51,694 62,708 114,402
Net income 51,694 100,673 152,367
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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. The consolidated financial statements should be read in
conjunction with HCR's Annual Report on Form 10-K for the year ended December
31, 1997 and Manor Care's Annual Report on Form 10-K for the year ended May 31,
1998. In the opinion of management of the Company, the interim data includes all
adjustments necessary for a fair statement of the results of the interim periods
and, except as discussed in Note 2, all such adjustments are of a normal
recurring nature. Operating results for the three months and nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
NOTE 2 - Restructuring Charge, Merger Expenses and Asset Impairment
- -------------------------------------------------------------------
Manor Care recorded a restructuring charge of $13.5 million in the second
quarter in connection with its plan to separate its skilled nursing, assisted
living and home health businesses from its skilled nursing facility management,
real estate and healthcare facility development business. As a result of the
merger with HCR, the separation of Manor Care's businesses will not occur. In
connection with the merger, HCR Manor Care developed a plan to integrate the
businesses of both companies that includes closing Manor Care's corporate office
in Gaithersburg, Maryland and realigning the operating divisions from eight to
six. The Company recorded a third quarter charge to operating expense of $130.8
million related to restructuring and merger transaction costs and asset
impairment. In addition, a charge of $109.8 million related to other asset
impairment was recorded. The liability outstanding at September 30, 1998
relating to these charges is recorded in other accrued liabilities.
The components consist of the following (in thousands):
2nd Quarter 3rd Quarter Remaining
Expense Expense Liability
------- ------- ---------
Restructuring costs:
Employee benefits $ 5,300 $ 54,782 $56,182
Asset impairment 47,539
Other costs 7,887 7,887
Merger transaction costs 8,200 20,621 3,258
Asset impairment other than assets
involved in restructuring 109,826
------- -------- -------
Pretax total $13,500 $240,655 $67,327
======= ======== =======
After-tax total $ 9,061 $188,560
======= ========
The restructuring costs for the third quarter consist of three components. The
employee benefit portion relates to severance and retention bonuses for
approximately 500 corporate employees and 100 field employees of Manor Care
whose positions are being eliminated in the next six to nine months, and
deferred compensation expense of $11.9 million which is attributable to the
lapsing of restrictions on HCR's restricted stock due to the merger. HCR Manor
Care identified two groups of assets that are impaired as a result of the
merger. The Company has a plan to integrate the information systems of the
companies which resulted in the write off of the net book value ($38.2 million)
of Manor Care's computer hardware and software that was no longer being utilized
by the Company as of September 30, 1998. Certain construction development
projects, excluding the land value, are being abandoned due to a change in
strategy. The other costs pertain to various lease agreements and hardware and
software contracts that are being terminated. The merger transaction costs
primarily included financial advisory, legal, and accounting fees and expenses
and printing
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and mailing costs.
The Company also recorded a third quarter charge for impairment of certain
assets based on its quarterly review of long-lived and intangible assets. A
significant feature of the Company's evaluation is the evolving impact of the
Balanced Budget Act of 1997 (Budget Act) under which a new Medicare prospective
payment system (PPS) commenced on July 1, 1998. The new payment system becomes
applicable to different segments of the health care continuum (hospitals,
skilled nursing, home health, etc.) at different times and even commences at
different dates for different nursing facilities. Although management believes
that PPS will ultimately be a net positive for its skilled nursing business, the
same may not be true for certain other businesses and customers of the Company.
The most significant impact of PPS is expected to be on customers of MileStone
Healthcare, Inc. (MileStone) a company that was acquired by the Company in early
1997. MileStone provides management services to skilled nursing, subacute care
and acute rehabilitation programs, primarily in hospitals. Under PPS,
MileStone's customers will look for ways to provide services at a lower cost,
which includes performing services internally or demanding significant price
concessions, or exit this segment of their business. Management determined that
MileStone's intangible assets were impaired due to the loss of certain contracts
at the end of the second quarter and during the third quarter that have not been
replaced and expected contract cancellations in 1999 due to the impact of PPS on
its customers. Accordingly, management determined that the intangible assets
with a net book value of $52.5 million were impaired and reduced the book value
by $44.6 million to their estimated fair value. The fair value was determined
based on a multiple of projected annual earnings. The remaining useful life has
been adjusted from 38 years to 20 years.
The Budget Act also had an unfavorable impact on the reimbursement for home
health care companies due to an interim payment system (IPS), which was
effective October 1997 for In Home Health, Inc., and January 1998 for HCR's home
health business. PPS is scheduled to replace IPS for home health reimbursement
in October 1999. Under IPS, reimbursement rates were reduced as a result of
revised rate ceilings combined with establishing an annual payment limitation
per individual. As a result of IPS, the Company has been focusing on reducing
its costs to offset the revenue reductions. Based on the impact of IPS through
September 1998 and the anticipated effects of PPS after October 1999, management
determined that the expected future earnings cannot support the carrying value
of these assets. Therefore, the book value was reduced by $19.1 million to its
estimated fair value that was determined based on a multiple of projected
annual earnings. The remaining useful life has been adjusted from 36 years to
20 years.
During the third quarter management determined that the fixed assets for two
skilled nursing and two assisted living facilities and the intangible assets for
several rehabilitation businesses were impaired based on the carrying value
exceeding the undiscounted cash flows and the inability to return the operations
to a level of profitability that would support the carrying value of the assets.
The book value was reduced by $24.1 million to its estimated fair value.
NOTE 3 - Debt
- -------------
Concurrent with the merger, a five-year, $500 million credit agreement (5 Year
Agreement) and a 364-day, $300 million credit agreement (364 Day Agreement) were
established with a group of banks, under which both HCR Manor Care and Manor
Care are borrowers. The credit agreements were established to repay borrowings
of the two companies under prior credit arrangements, as discussed below, to
provide additional credit capacity for future developments and to provide credit
back-up for the issuance of commercial paper. The credit agreements contain
various covenants, restrictions and events of default. Among other things,
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these provisions require HCR Manor Care to maintain certain financial ratios and
impose certain limits on its ability to incur indebtedness, create liens, pay
dividends, repurchase stock, dispose of assets and make acquisitions.
Loans under the 364 Day Agreement which mature September 24, 1999, bear interest
at variable rates that reflect, at the election of the Company, either the agent
bank's base lending rate or an increment over Eurodollar indices of .175% to
.525%, depending on the quarterly performance of a key ratio. In addition, the
364 Day Agreement provides for a fee of .10% to .225% on the total amount of the
facility, depending on the performance of the same ratio.
Loans under the 5 Year Agreement which mature September 24, 2003, bear interest
at variable rates that reflect, at the election of the Company, the agent bank's
base lending rate, rates offered by any of the participating banks under bid
procedures, or an increment over Eurodollar indices of .15% to .50%, depending
on the quarterly performance of a key ratio. In addition to direct borrowings,
the 5 Year Agreement may be used to support the issuance of up to $100 million
of letters of credit. The 5 Year Agreement also provides for a fee of .125% to
.25% on the total amount of the facility, depending on the performance of the
same key ratio.
Whenever the aggregate utilization of both credit facilities exceeds $400
million, an additional fee of .05% is due on loans. At September 30, 1998,
outstanding borrowings of both companies aggregated $470 million under the 5
Year Agreement and $177.5 million under the 364 Day Agreement - a total of
$647.5 million. After consideration of usage for letters of credit, the
remaining credit availability under the combined agreements totaled $144.5
million.
On September 25,1998, the Company repaid $264 million outstanding under HCR's
prior credit agreement and $325 million on Manor Care's prior credit
arrangements. The repayment of the prior credit facilities was accounted for as
an early extinguishment of debt. In conjunction with the extinguishment of debt,
the Company terminated three interest rate swaps with a total notional amount of
$350 million that were designated as a hedge of Manor Care's debt. The loss on
terminating the swaps along with the unamortized debt issue costs was recorded
as an extraordinary item that totaled $19.0 million after taxes of $12.7
million.
NOTE 4 - Conversion of Vitalink Pharmacy Services, Inc. Stock
- -------------------------------------------------------------
A subsidiary of Manor Care owned approximately 50% of Vitalink Pharmacy
Services, Inc. (Vitalink) common stock. On April 26, 1998 Vitalink entered into
an Agreement and Plan of Merger (Vitalink Merger Agreement) with Genesis Health
Ventures, Inc. (Genesis). Pursuant to the Vitalink Merger Agreement that was
consummated on August 28, 1998, Manor Care received 586,240 shares of Genesis
Series G Cumulative Convertible Preferred Stock valued at $293.1 million as
consideration for all of its shares of Vitalink. As a result of the conversion
of stock, the Company recorded a gain of $99.8 million ($59.9 million after
tax). The preferred stock bears cash dividends at the initial annual rate of
5.9375% and is paid quarterly.
NOTE 5 - Earnings Per Share
- ---------------------------
The calculation of earnings per share (EPS) for periods prior to the merger
include the combined weighted average shares for both companies. The three
months and nine months ended September 30, 1998 resulted in a loss from
continuing operations. As a result of the loss, the effect of stock options and
nonvested restricted stock are not included in the calculation as the effect
would be antidilutive. The details of the calculation are as follows:
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Three months ended Nine months ended
September 30 September 30
---------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands, except earnings per share)
Numerator:
Income (loss) from continuing operations
(income available to common stockholders) $ (79,261) $ 35,994 $ (4,214) $ 114,402
========= ========= ========= =========
Denominator:
Denominator for basic EPS -
weighted-average shares 108,475 108,261 108,317 108,148
Effect of dilutive securities:
Stock options 2,939 3,008
--------- --------- --------- ---------
Denominator for diluted EPS -
adjusted for weighted-average
shares and assumed conversions 108,475 111,200 108,317 111,156
========= ========= ========= =========
EPS - income (loss) from continuing operations
Basic $ (.73) $ .33 $ (.04) $ 1.06
Diluted $ (.73) $ .32 $ (.04) $ 1.03
NOTE 6 - New Accounting Pronouncements
- --------------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(FAS 131), which is effective December 31, 1998, with interim disclosures
beginning in 1999. Comparative information for prior years is required to be
restated. This Statement requires public business enterprises to report certain
information about operating segments, their products and services, the
geographic areas in which they operate, and their major customers. The operating
segments should be based on the structure of the enterprise's internal
organization whose operating results are regularly reviewed by the company's
chief operating decision maker to make decisions about resources to be allocated
to the segment and assess its performance. As a result of the recent merger,
management has not determined the effect, if any, of FAS 131 on the consolidated
financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities" (SOP
98-5), which is effective January 1, 1999. This Statement requires start-up
costs to be expensed as incurred. The Company will adopt this Statement on
January 1, 1999 and the previously capitalized start-up costs will be reported
as a cumulative effect of a change in accounting principle. This amount is
estimated to be $20 million after tax.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which is effective January 1,
2000. 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 has it determined the impact of adoption.
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Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results Of Operations
---------------------
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.
RESULTS OF OPERATIONS
At September 30, 1998 HCR Manor Care had 297 skilled nursing facilities, 56
assisted living facilities, 114 medical specialty units, 76 outpatient therapy
clinics, 34 home health offices and a 50% interest in an institutional pharmacy,
Heartland Healthcare Services. Some of the Company's assisted living facilities
operate under the brand names "Arden Courts" and "Springhouse." The Arden Courts
facilities are specifically focused on providing care to persons suffering from
early to middle-stage Alzheimer's disease and related memory impairment, while
the Springhouse facilities serve the general assisted living population of frail
elderly.
Changes in Medicare reimbursement affected the Company's results during 1998.
Under the Balanced Budget Act of 1997 (Budget Act), a new Medicare prospective
payment system (PPS) commenced on July 1, 1998. The new payment system becomes
applicable to different segments of the health care continuum (hospitals,
skilled nursing, home health, etc.) at different times and even commences at
different dates for different nursing facilities. Although management believes
that PPS will ultimately be a net positive for its skilled nursing business, the
same may not be true for certain other businesses and customers of the Company.
MileStone Healthcare, Inc. (MileStone) provides management services to skilled
nursing, subacute care and acute rehabilitation programs, primarily in
hospitals. MileStone lost certain contracts at the end of the second quarter and
during the third quarter that have not been replaced and expects contract
cancellations to occur in 1999 due to the impact of PPS on its customers. Under
PPS, MileStone's customers will look for ways to provide services at a lower
cost, which includes performing services internally or demanding significant
price concessions, or exit this segment of their business. In addition, the
Budget Act also had an unfavorable impact on the reimbursement for home health
care companies due to an interim payment system (IPS), which was effective
October 1997 for In Home Health,
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Inc.(In Home Health), and January 1998 for HCR's home health business. PPS is
scheduled to replace IPS for home health reimbursement in October 1999. Under
IPS, reimbursement rates were reduced as a result of revised rate ceilings
combined with establishing an annual payment limitation per individual. As a
result of IPS, the Company has been focusing on reducing its costs to offset the
revenue reductions. Also, the Company's rehabilitation business was impacted due
to reduced reimbursement from the April 1998 implementation of Medicare
reimbursement ceilings for speech and occupational therapy salaries (salary
equivalency).
Revenues for the three months ended September 30, 1998 increased $25.5 million
or 5% to $577.2 million as compared to the same period in 1997. Revenues from
skilled nursing and assisted living facilities increased $33.9 million due to
increases in rates ($18.8 million), capacity ($8.9 million) and occupancy ($6.2
million). This increase was offset by a decrease in revenues primarily due to
changes in reimbursement, as discussed above, from the Company's ancillary
businesses, such as MileStone, home health and rehabilitation.
Revenues for the nine months ended September 30, 1998 increased $66.1 million or
4% to $1.7 billion as compared to the same period in 1997. Revenues from skilled
nursing and assisted living facilities increased $78.4 million due to increases
in rates ($32.9 million), capacity ($23.4 million) and occupancy ($22.1
million). This increase was offset by a decrease in revenues primarily due to
changes in reimbursement, as discussed above, from the Company's ancillary
businesses, primarily In Home Health ($14.1 million).
The growth in bed capacity during 1998 was due to the opening of 15 Arden Court
facilities, 3 Springhouse facilities and 2 skilled nursing facilities. The
occupancy levels were 88% for the three months and nine months ended September
30, 1997 compared to 89% for the same periods in 1998. 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 the prior year. The quality mix of revenue was 72% and 73% for the three
months and nine months ended September 30, 1997, respectively compared to 70%
and 71% for the same periods in 1998.
Operating expenses for the three months ended September 30, 1998 decreased $6.0
million or 1% to $439.6 million from the comparable period in 1997. Operating
expenses for the nine months ended September 30, 1998 increased $18.3 million or
1% to $1.3 billion from the same period in 1997. Operating expenses from skilled
nursing and assisted living facilities increased $16.6 million and $49.7 million
for the quarter and year-to-date period, respectively. The increases were
primarily due to labor costs and general increases in expenses. The increase was
offset by decreases in the Company's ancillary businesses, primarily In Home
Health. In Home Health's operating expenses decreased $13.9 million and $30.0
million for the quarter and year-to-date period as a result of a plan to
restructure its field operations and reduce its cost structure.
General and administrative expense decreased $2.1 million and $2.8 million for
the three months and nine months ended September 30, 1998 as compared to the
same periods in 1997. The decreases were attributable to an adjustment of
earnings on deferred compensation during the quarter due to the decline in the
stock market, net gains of $12 million in the first half of 1998 related to the
sale of Manor Care's former corporate office buildings, and a reduction in Manor
Care employees from reengineering efforts during 1998. The increase in
depreciation and amortization of $4.5 million and $10.7 million for the three
months and nine months ended September 30, 1998 as compared to the same periods
in the prior year, related to additional depreciation for new construction and
renovations in the past year.
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During the third quarter, the Company recorded a charge of $240.7 million
consisting of restructuring costs of $130.8 million related to employee benefits
($54.8 million), asset impairment ($47.5 million), other costs ($7.9 million)
and merger expenses ($20.6 million), and other asset impairment write downs of
$109.8 million. The employee benefit portion relates to severance and retention
bonuses for approximately 500 corporate employees and 100 field employees of
Manor Care whose positions are being eliminated in the next six to nine months,
and deferred compensation expense which is attributable to the lapsing of
restrictions on HCR's restricted stock due to the merger. HCR Manor Care
identified two groups of assets that are impaired as a result of the merger: The
Company's plan for integrating the information systems of the companies resulted
in the write off of the net book value ($38.2 million) of Manor Care's computer
hardware and software that are no longer being utilized by the Company as of
September 30, 1998. Certain construction development projects, excluding the
land value, are being abandoned due to a change in strategy. The other costs
pertain to various lease agreements and hardware and software contracts that are
being terminated. The merger transaction costs primarily included financial
advisory, legal, and accounting fees and expenses and printing and mailing
costs. The Company anticipates saving $20 million in 1999 from the termination
of employees, reduced depreciation expense, reduced deferred compensation
expense and reduced contract costs, offset by compensation expense for
approximately 200 employees hired or to be hired in the Company's corporate
office in Toledo, Ohio. The Company has identified certain additional computer
hardware and software of approximately $25 million at Manor Care in use at
September 30, 1998 that will be abandoned as a result of the integration of the
information systems. The assets will be written off over the next two quarters
based on the timing of completing the restructuring plan.
The Company recorded a $109.8 million third quarter charge for impairment of
certain other assets based on its quarterly review of long-lived and intangible
assets. Management determined that MileStone's intangible assets of $52.5
million were impaired based on the effects of changes in the Medicare
reimbursement system discussed above. The carrying value of the assets was
reduced by $44.6 million to its estimated fair value that was determined based
on a multiple of projected annual earnings. The remaining useful life has been
adjusted from 38 years to 20 years.
The asset impairment of the Company's home health businesses was also related
largely to the Medicare reimbursement changes discussed above. Based on the
impact of IPS through September 1998 and the anticipated effects of PPS after
October 1999, management determined that the expected future earnings cannot
support the carrying value of the home health assets. Therefore, the book value
was reduced by $19.1 million to its estimated fair value that was determined
based on a multiple of projected annual earnings. The remaining useful life has
been adjusted from 36 years to 20 years.
During the third quarter management determined that the fixed assets for two
skilled nursing and two assisted living facilities and the intangible assets for
several rehabilitation businesses were impaired based on the carrying value
exceeding the undiscounted cash flows and the inability to return the operations
to a level of profitability that would support the carrying value of the
assets. The book value was reduced by $24.1 million to its estimated fair value.
As a result of the write down of assets and change in the estimated useful life,
depreciation and amortization is expected to decline by $2.9 million on an
annual basis.
Interest expense decreased $2.0 million and $9.3 million for the three months
and nine months ended September 30, 1998 as compared to the same periods in 1997
due to the retirement of Manor
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Care's 9 1/2% Senior Subordinated Debt in November 1997 and the increase in
capitalized interest associated with its construction projects. Interest income
and other increased $1.7 million and $3.4 million for the three months and nine
months ended September 30, 1998 as compared to the same periods in the prior
year primarily attributable to the increase in equity in earnings from HCR's
pharmacy partnership of $.5 million and $1.9 million for the quarter and
year-to-date period.
During the third quarter of 1998 the Company recorded a gain of $99.8 million
($59.9 million after tax) from the conversion of Vitalink Pharmacy Services,
Inc. (Vitalink) common stock to Genesis Health Ventures, Inc. (Genesis)
preferred stock. On April 26, 1998 Vitalink entered into an Agreement and Plan
of Merger (Vitalink Merger Agreement) with Genesis. Pursuant to the Vitalink
Merger Agreement that was consummated on August 28, 1998, Manor Care received
586,240 shares of Genesis Series G Cumulative Convertible Preferred Stock valued
at $293.1 million as consideration for all of its shares of Vitalink. The
financial results of Vitalink are recorded as income from discontinued pharmacy
operations.
The income taxes recorded for the three months and nine months ended September
30, 1998 included the tax effects of the provision for restructuring charge,
merger expenses and asset impairment, and the Vitalink gain, some of which are
not deductible for income tax purposes. The effective tax rate excluding these
items was 35% and 34% for the three months and nine months ended September 30,
1998, respectively, compared to the 35% effective tax rate for the year ended
December 31, 1997.
During the third quarter of 1998 the Company recorded an extraordinary loss from
the early extinguishment of debt totaling $31.7 million ($19.0 million after
tax). On September 25,1998 the Company repaid the outstanding debt under HCR's
and Manor Care's prior credit arrangements. In conjunction with the
extinguishment of debt, the Company terminated three interest rate swaps with a
total notional amount of $350 million that were designated as a hedge of Manor
Care's debt. The extraordinary loss primarily related to the termination of the
swaps but also included the unamortized debt issue costs.
The loss from continuing operations of $79.3 million and $4.2 million for the
three months and nine months ended September 30, 1998, respectively, included
the net of tax effects of the provision for the restructuring charge, merger
expenses and asset impairment, and the Vitalink gain. The loss from continuing
operations on a diluted per share basis was $.73 and $.04 for the three months
and nine months ended September 30, 1998, respectively, and by excluding the
effects of these items, the income from operations on a diluted per share basis
would have been $.46 and $1.23 for the same periods, respectively. The income
from continuing operations on a diluted per share basis was $.32 and $1.03 for
the three months and nine months ended September 30, 1997, respectively.
FINANCIAL CONDITION
Stockholders' equity decreased $9.1 million between December 31, 1997 and
September 30, 1998 along with changes in the components of equity due to the
merger. Common stock at September 30 represented the par value of HCR Manor
Care common stock ($.01). Prior to the merger, Manor Care's par value was $.10
and HCR's par value was $.01. Capital in excess of par value decreased $149.0
million primarily due to the merger, Manor Care's treasury stock was retired
and HCR's remaining treasury stock was exchanged for some of Manor Care's
common stock. Retained earnings decreased $20.6 million primarily due to the
net loss of %15.2 million for the nine months ended September 30, 1998 and
payment of dividends by Manor Care.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (FAS 131), which is effective December
31, 1998, with interim disclosures beginning in 1999. Comparative information
for prior years is required to be restated. This Statement requires public
business enterprises to report certain information about operating segments,
their products and services, the geographic areas in which they operate, and
their major
14
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customers. The operating segments should be based on the structure of the
enterprise's internal organization whose operating results are regularly
reviewed by the company's chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its performance. As a result
of the recent merger, management has not determined the effect, if any, of FAS
131 on the consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities" (SOP
98-5), which is effective January 1, 1999. This Statement requires start-up
costs to be expensed as incurred. The Company will adopt this Statement on
January 1, 1999 and the previously capitalized start-up costs will be reported
as a cumulative effect of a change in accounting principle. This amount is
estimated to be $20 million after tax.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which is effective January 1,
2000. 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 has it determined the impact of adoption.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1998, the Company satisfied its cash
requirements from a combination of cash generated from operating activities and
borrowings under bank credit agreements. The Company used the cash principally
for capital expenditures, systems development and merger expenses. At September
30, 1998, the Company maintained $100.6 million in cash and cash equivalents, of
which $48.2 million was invested in short-term investments. Expenditures for
property and equipment during the nine months ended September 30,1998 consisted
of $134.3 million for construction of new facilities and $90.9 million for
renovation and maintenance of existing facilities.
Concurrent with the merger, a five-year, $500 million credit agreement (5 Year
Agreement) and a 364-day, $300 million credit agreement (364 Day Agreement) were
established with a group of banks, under which both HCR Manor Care and Manor
Care are borrowers. The credit agreements were established to repay borrowings
of the two companies under prior credit arrangements, to provide additional
credit capacity for future developments and to provide credit back-up for the
issuance of commercial paper. At September 30, 1998, outstanding borrowings of
both companies aggregated $470 million under the 5 Year Agreement and $177.5
million under the 364 Day Agreement - a total of $647.5 million. After
consideration of usage for letters of credit, the remaining credit availability
under the combined agreements totaled $144.5 million.
The Company has cash flow commitments related to the restructuring plan that
will require approximately $45 million in the next six months, primarily for
employee benefits. In addition, the Company expects to spend $54 million in the
fourth quarter for construction of assisted living facilities.
HCR 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 which would be funded from excess cash from operations, credit
available under the bank credit agreement and other financing
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arrangements that are normally available in the marketplace.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the year. Any of the HCR Manor Care
computer software and hardware that are date sensitive and all of our embedded
chip devices could recognize a two digit date of `00' as `1900' rather than
`2000'. This could result in system failures and miscalculations causing
disruptions to our operations.
In 1995, HCR began an evaluation and upgrade to all of its technical
infrastructure including hardware, operating systems and business applications.
With the completion of that upgrade process, we will have in place, a complete
package of technical solutions that properly utilize dates beyond December 31,
1999. The estimated costs of this package are expected to be $20 million. Most
of these costs will be capitalized and amortized over a five to twelve year
period. As of September 30, 1998 the Company has incurred $15 million ($2
million expensed and $13 million capitalized). To standardize the recently
acquired Manor Care businesses we will be transitioning those operating
entities to the package of Year 2000 technical solutions with an estimated
additional cost of $15 million. We have completed the technical solution
definition and are 60% complete with the implementation. All computer hardware,
software and operating system upgrades are expected to be in place by the end
of the third quarter of 1999. It has not been necessary to accelerate our
original implementation plan due to the Year 2000 issue.
To insure that our embedded chip devices, vendor and supplier interfaces are
also Year 2000 compliant, we have put into place an assessment, remediation,
testing, implementation and contingency plan for all products, services and
relationships that do not meet our Year 2000 compliance standards. We expect all
phases along with the contingency plan to be completed by the end of the third
quarter of 1999 with internal resources. We have queried our significant
suppliers and at this point, based on their representations, we do not believe
that Year 2000 presents a material exposure as it relates to our embedded chip
devices, system interfaces, significant suppliers or vendors. We are unable to
determine the worst case scenario; however, if the federal and state healthcare
reimbursement agencies or their intermediaries fail to implement Year 2000
compliant technologies before December 31, 1999, a significant cash flow problem
could result. Those agencies and intermediaries have Year 2000 plans in place
and we continue to monitor the status of those projects. However, all of the
governmental agencies have stated that interim payment procedures would be
implemented if their Year 2000 solutions are not in place by January 1, 2000.
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RESTATED QUARTERLY INFORMATION
HCR MANOR CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
2nd Quarter 1st Quarter 4th Quarter 2nd Quarter 1st Quarter
1998 1998 1997 1997 1997
---- ---- ---- ---- ----
(In thousands, except earnings per share)
Revenues $ 568,664 $ 577,221 $ 571,540 $ 558,774 $ 546,543
Expenses:
Operating 443,929 446,367 449,298 436,004 429,958
General and administrative 24,624 27,794 22,602 28,785 24,263
Depreciation and amortization 30,471 30,180 29,844 28,071 26,353
Provision for restructuring charge, merger
expenses and asset impairment 13,500
--------- --------- --------- --------- ---------
512,524 504,341 501,744 492,860 480,574
--------- --------- --------- --------- ---------
Income from continuing operations before
other income (expenses) and income taxes 56,140 72,880 69,796 65,914 65,969
Other income (expenses):
Interest expense (11,466) (10,682) (13,385) (14,998) (14,424)
Minority interest (309) (220) 2,993 476 549
Interest income and other 3,597 3,817 3,202 4,239 1,381
Interest income from advances to discontinued
lodging segment (901) 2,390 5,985 5,079
--------- --------- --------- --------- ---------
(8,178) (7,986) (4,800) (4,298) (7,415)
--------- --------- --------- --------- ---------
Income from continuing operations before income taxes 47,962 64,894 64,996 61,616 58,554
Income taxes 15,843 21,966 24,107 20,412 21,350
--------- --------- --------- --------- ---------
Income from continuing operations 32,119 42,928 40,889 41,204 37,204
Discontinued operations:
Income (loss) from discontinued pharmacy
operations (net of taxes) 3,521 4,370 3,244 (4,564) 40,512
--------- --------- --------- --------- ---------
Income before extraordinary item and cumulative effect 35,640 47,298 44,133 36,640 77,716
Extraordinary item (net of taxes) (3,216)
Cumulative effect of change in accounting
principle (net of taxes) (3,173)
--------- --------- --------- --------- ---------
Net income $ 35,640 $ 47,298 $ 37,744 $ 36,640 $ 77,716
========= ========= ========= ========= =========
Earnings per share - basic
Income from continuing operations $ .30 $ .40 $ .38 $ .38 $ .34
Income (loss) from discontinued pharmacy
operations (net of taxes) .03 .04 .03 (.04) .38
Extraordinary item (net of taxes) (.03)
Cumulative effect (net of taxes) (.03)
--------- --------- --------- --------- ---------
Net income $ .33 $ .44 $ .35 $ .34 $ .72
========= ========= ========= ========= =========
Earnings per share - diluted
Income from continuing operations $ .29 $ .39 $ .37 $ .37 $ .34
Income (loss) from discontinued pharmacy
operations (net of taxes) .03 .04 .03 (.04) .37
Extraordinary item (net of taxes) (.03)
Cumulative effect (net of taxes) (.03)
--------- --------- --------- --------- ---------
Net income $ .32 $ .43 $ .34 $ .33 $ .70*
========= ========= ========= ========= =========
Weighted average shares:
Basic 108,296 108,175 108,192 108,185 108,005
Diluted 111,007 111,165 111,123 110,959 110,679
*Doesn't add due to rounding
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or
operator of real property or an entity that arranges for the
disposal or treatment of hazardous or toxic substances at a
disposal site may be held jointly and severally liable for the
cost of removal or remediation of certain hazardous or toxic
substances, that could be located on, in or under such
property. Such laws and regulations often impose liability
whether or not the owner, operator or otherwise responsible
party knew of, or caused, the presence of hazardous or toxic
substances. The costs of any required remediation or removal
of these substances can be substantial and the liability of a
responsible party as to any property is generally not limited
under such laws and regulations and could exceed the
property's value and the aggregate assets of the liable party.
Certain federal and state laws govern the handling and
disposal of medical, infectious and hazardous waste. Failure
to comply with such laws or the regulations promulgated
thereunder could subject an entity covered by these laws to
fines, criminal penalties and other enforcement actions. The
Company has developed policies with respect to the handling
and disposal of medical, infectious and hazardous waste to
ensure compliance with those laws and regulations. The Company
believes that it is in material compliance with applicable
laws and regulations governing medical, infectious and
hazardous waste.
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. The Company believes the
waste disposal activities at issue occurred prior to the Manor
Care subsidiary's acquisition of Cenco. 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 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. The Company believes that the potential
environmental liability exposure, after consideration of
insurance coverage, is approximately $5 million. Future
liabilities for the pending environmental claims and
litigation, without regard to insurance, currently are not
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expected to exceed approximately $32 million.
The Company is party to various other legal proceedings
arising in the ordinary course of business. The Company does
not believe the results of such proceedings, even if
unfavorable to the Company, would have a material adverse
effect on its financial position.
Item 2. Changes in Securities.
----------------------
Manor Care, Inc.'s 7 1/2% Senior Notes due 2006 have been
guaranteed by HCR Manor Care and certain HCR and Manor Care
subsidiaries.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
At HCR's Special Meeting of Stockholders held on September 24,
1998 the stockholders approved the following items: a)
issuance up to 70,000,000 shares of HCR common stock to
holders of Manor Care common stock and amend certain sections
of HCR's By-laws , b) an increase in the number of authorized
shares of HCR common stock, c) an increase in the number of
shares of HCR common stock authorized for issuance pursuant to
the Amended Stock Option Plan for Key Employees, d) an
increase in the number of shares of HCR common stock
authorized for issuance pursuant to the Option Plan for
Outside Directors, and e) an increase in the number of shares
of HCR common stock authorized for issuance pursuant to the
Amended Restricted Stock Plan. The items were approved by a
vote as follows:
Item For Against Abstain Not Voted
---- --- ------- ------- ---------
a 34,685,631 240,952 677,706
b 33,536,859 1,401,299 666,131
c 18,398,357 16,464,413 741,519
d 32,234,261 2,626,105 743,923
e 32,604,617 2,243,909 755,763
At Manor Care's Special Meeting of Stockholders held on
September 24, 1998 the stockholders approved the merger with
HCR and the transactions contemplated by the Merger Agreement
by a vote as follows:
For Against Abstain Not Voted
--- ------- ------- ---------
53,727,551 257,510 83,497
Item 5. Other Information.
------------------
None
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Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a)Exhibits
S-K Item
601 NO.
-------
4 Credit Agreement dated as of September 25,
1998 among HCR Manor Care, Inc., Manor Care,
Inc., Bank of America National Trust and
Savings Association, The Chase Manhattan
Bank, TD Securities (USA) Inc., and the
Other Financial Institutions Party Hereto
4.1 364 Day Credit Agreement dated as of
September 25, 1998 among HCR Manor Care,
Inc., Manor Care, Inc., Bank of America
National Trust and Savings Association, The
Chase Manhattan Bank, TD Securities (USA)
Inc., and the Other Financial Institutions
Party Hereto
27 Financial Data Schedule for the nine months
ended September 30, 1998
27.1 Financial Data Schedules that are being
restated for the three months ended March
31, 1998 and the six months ended June 30,
1998
27.2 Financial Data Schedules that are being
restated for the three months ended March
31, 1997, the six months ended June 30,
1997, the nine months ended September 30,
1997 and the year ended December 31, 1997
27.3 Financial Data Schedule that is being
restated for the year ended December 31,
1996
The Financial Data Schedules are being
restated due to the merger with Manor Care.
(b) Reports on Form 8-K
There were no Form 8-K's filed during the third quarter of
1998. On October 1, 1998, HCR Manor Care filed a Form 8-K
announcing the consummation of the merger between HCR and
Manor Care.
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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.
HCR Manor Care, Inc.
(Registrant)
Date November 16, 1998 By /s/ Geoffrey G. Meyers
--------------------- ------------------------------------------
Geoffrey G. Meyers, Executive Vice-President
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit
- -------
4 Credit Agreement dated as of September 25, 1998 among HCR
Manor Care, Inc., Manor Care, Inc., Bank of America National
Trust and Savings Association, The Chase Manhattan Bank, TD
Securities (USA) Inc., and the Other Financial Institutions
Party Hereto
4.1 364 Day Credit Agreement dated as of September 25, 1998 among
HCR Manor Care, Inc., Manor Care, Inc., Bank of America
National Trust and Savings Association, The Chase Manhattan
Bank, TD Securities (USA) Inc., and the Other Financial
Institutions Party Hereto
27 Financial Data Schedule for the nine months ended September
30, 1998
27.1 Financial Data Schedules that are being restated for the three
months ended March 31, 1998 and the six months ended June 30,
1998
27.2 Financial Data Schedules that are being restated for the three
months ended March 31, 1997, the six months ended June 30,
1997, the nine months ended September 30, 1997 and the year
ended December 31, 1997
27.3 Financial Data Schedule that is being restated for the year
ended December 31, 1996
22