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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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10858
MANOR CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1687107
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
333 N. SUMMIT STREET, TOLEDO, OHIO 43604-2617
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 252-5500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on October 31, 2002.
Common stock, $0.01 par value -- 96,347,649 shares
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TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
September 30, 2002 and December 31, 2001 ......................................... 3
Consolidated Statements of Income -
Three months and nine months ended September 30, 2002 and 2001 ................... 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 2002 and 2001 .................................... 5
Notes to Consolidated Financial Statements ....................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ....................... 21
Item 4. Controls and Procedures .......................................................... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................................ 21
Item 2. Changes in Securities ............................................................ 23
Item 3. Defaults Upon Senior Securities .................................................. 23
Item 4. Submission of Matters to a Vote of Security Holders .............................. 23
Item 5. Other Information ................................................................ 23
Item 6. Exhibits and Reports on Form 8-K ................................................. 23
SIGNATURES ......................................................................................... 24
CERTIFICATIONS ..................................................................................... 24
EXHIBIT INDEX....................................................................................... 27
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MANOR CARE, INC.
Consolidated Balance Sheets
September 30, December 31,
2002 2001
---- ----
(Unaudited) (Note 1)
(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 20,066 $ 26,691
Receivables, less allowances for doubtful
accounts of $61,106 and $68,827, respectively 380,971 391,109
Prepaid expenses and other assets 23,332 31,630
Assets held for sale 48,305 57,735
Deferred income taxes 82,465 82,465
----------- -----------
Total current assets 555,139 589,630
Property and equipment, net of accumulated
depreciation of $736,279 and $680,811, respectively 1,497,641 1,556,910
Goodwill 82,402 80,408
Intangible assets, net of amortization of $10,258 and $9,127, respectively 10,644 17,242
Other assets 189,996 179,881
----------- -----------
Total assets $ 2,335,822 $ 2,424,071
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 90,847 $ 88,615
Employee compensation and benefits 126,240 115,533
Accrued insurance liabilities 104,521 76,450
Income tax payable 34,342
Other accrued liabilities 48,028 71,031
Long-term debt due within one year 257,437 5,388
----------- -----------
Total current liabilities 627,073 391,359
Long-term debt 374,511 715,830
Deferred income taxes 103,095 103,095
Other liabilities 196,167 167,249
Shareholders' equity:
Preferred stock, $.01 par value, 5 million shares authorized
Common stock, $.01 par value, 300 million shares authorized,
111.0 million shares issued 1,110 1,110
Capital in excess of par value 348,798 348,199
Retained earnings 985,589 878,250
Accumulated other comprehensive income 55 328
----------- -----------
1,335,552 1,227,887
Less treasury stock, at cost (13.9 and 8.7 million shares, respectively) (300,576) (181,349)
----------- -----------
Total shareholders' equity 1,034,976 1,046,538
----------- -----------
Total liabilities and shareholders' equity $ 2,335,822 $ 2,424,071
=========== ===========
See notes to consolidated financial statements.
3
MANOR CARE, INC.
Consolidated Statements Of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands, except earnings per share)
Revenues $ 732,920 $ 687,639 $ 2,177,342 $ 1,989,168
Expenses:
Operating 603,025 563,627 1,796,822 1,631,882
General and administrative 29,227 29,294 89,575 85,606
Depreciation and amortization 30,826 33,097 94,182 96,081
Asset impairment 2,745 27,621
-------- -------- ---------- ----------
665,823 626,018 2,008,200 1,813,569
-------- -------- ---------- ----------
Income before other income (expenses)
and income taxes 67,097 61,621 169,142 175,599
Other income (expenses):
Interest expense (9,436) (11,994) (28,768) (38,427)
Gain (loss) on sale of assets 150 (13) 30,403 630
Equity in earnings of affiliated companies 1,741 730 3,614 1,039
Interest income and other 228 212 1,110 703
-------- -------- ---------- ----------
Total other income (expenses), net (7,317) (11,065) 6,359 (36,055)
-------- -------- ---------- ----------
Income before income taxes 59,780 50,556 175,501 139,544
Income taxes 22,717 19,338 66,691 53,131
-------- -------- ---------- ----------
Income before cumulative effect 37,063 31,218 108,810 86,413
Cumulative effect of change in
accounting for goodwill (1,314)
-------- -------- ---------- ----------
Net income $ 37,063 $ 31,218 $ 107,496 $ 86,413
======== ======== ========== ==========
Earnings per share - basic:
Income before cumulative effect $ .38 $ .31 $ 1.10 $ .85
Cumulative effect (.01)
-------- -------- ---------- ----------
Net income $ .38 $ .31 $ 1.08(a) $ .85
======== ======== ========== ==========
Earnings per share - diluted:
Income before cumulative effect $ .38 $ .30 $ 1.08 $ .83
Cumulative effect (.01)
-------- -------- ---------- ----------
Net income $ .38 $ .30 $ 1.07 $ .83
======== ======== ========== ==========
Weighted average shares:
Basic 97,239 102,250 99,133 102,222
Diluted 98,429 104,110 100,365 103,954
(a) Doesn't add due to rounding
See notes to consolidated financial statements.
4
MANOR CARE, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30
------------------------------
2002 2001
---- ----
(In thousands)
OPERATING ACTIVITIES
Net income $ 107,496 $ 86,413
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 94,182 96,081
Asset impairment and other non-cash charges 28,935
Provision for bad debts 30,486 32,137
Net gain on sale of assets (30,403) (630)
Equity in earnings of affiliated companies (3,614) (1,039)
Changes in assets and liabilities, excluding sold facilities and acquisitions:
Receivables (40,525) (33,605)
Prepaid expenses and other assets 24,772 2,135
Liabilities 7,173 43,676
----------- ----------
Total adjustments 111,006 138,755
----------- ----------
Net cash provided by operating activities 218,502 225,168
----------- ----------
INVESTING ACTIVITIES
Investment in property and equipment (68,773) (65,492)
Investment in systems development (2,333) (6,244)
Acquisitions (35,514) (12,597)
Acquisition of assets from development joint venture 1,183 (57,063)
Proceeds from sale of assets 88,645 5,507
----------- ----------
Net cash used in investing activities (16,792) (135,889)
----------- ----------
FINANCING ACTIVITIES
Net repayments under bank credit agreements (84,600) (237,300)
Principal payments of long-term debt (4,670) (8,192)
Proceeds from issuance of senior notes 200,000
Payment of deferred financing costs (3,397)
Proceeds from exercise of stock options 147 3,797
Purchase of common stock for treasury (119,212) (32,886)
----------- ----------
Net cash used in financing activities (208,335) (77,978)
----------- ----------
Net increase (decrease) in cash and cash equivalents (6,625) 11,301
Cash and cash equivalents at beginning of period 26,691 24,943
----------- ----------
Cash and cash equivalents at end of period $ 20,066 $ 36,244
=========== ==========
See notes to consolidated financial statements.
5
MANOR CARE, INC.
Notes To Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
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 accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management of Manor Care, Inc. (the Company), the interim data includes all
adjustments necessary for a fair statement of the results of the interim periods
and all such adjustments are of a normal recurring nature except for the asset
impairment that is discussed in Note 2. Operating results for the nine months
ended September 30, 2002 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in Manor Care,
Inc.'s annual report on Form 10-K for the year ended December 31, 2001.
At September 30, 2002, the Company operated 296 skilled nursing facilities, 72
assisted living facilities with 13 facilities held for sale, 93 outpatient
therapy clinics and 88 home health offices. The Company sold its only hospital
on April 30, 2002.
NOTE 2 - ASSET IMPAIRMENT
During the Company's quarterly review of long-lived assets in 2002, management
determined that certain assets were impaired, as summarized in the table below.
2nd Quarter 3rd Quarter Year-to-date
----------- ----------- -------------
(In thousands)
Long-term care facilities $ 12,490 $ 12,490
Land parcels 1,507 1,507
Assets held for sale 5,891 2,356 8,247
Vision business 4,988 389 5,377
-------- ------- --------
$ 24,876 $ 2,745 $ 27,621
======== ======= ========
The long-term care facilities, consisting of four skilled nursing and three
assisted living facilities, were impaired in the second quarter of 2002 based on
the carrying value exceeding the projected future undiscounted cash flows. Based
on market conditions and their history of negative cash
6
flows, management determined that the necessary profitability levels would not
occur in the near future. The Company closed or has plans to close four of the
facilities. Management is currently looking at alternatives for the other three
facilities. The Company may continue to operate the facilities, sell the
facilities for their current operations or sell the facilities for alternative
uses. The carrying values of the seven facilities were reduced by $12.5 million
to their estimated fair values of $8.7 million. The estimated fair values were
determined based on comparable sales values. The carrying values of five land
parcels exceeded their estimated fair values by $1.5 million. The fair values
were based on estimated sales values under current market conditions.
During the second quarter of 2002, the Company received offers on ten of the
assisted living facilities that are held for sale. The accepted offers, less the
cost to sell, were less than the carrying value on nine of these facilities and
required a write down of the asset values by $5.9 million to their estimated
fair values of $36.5 million. The facilities are located in Michigan, Ohio,
Pennsylvania and Texas. During the third quarter of 2002, the Company received
an offer on the three Florida assisted living facilities that are held for sale.
The accepted offer, less the cost to sell, was less than the carrying value on
these facilities and required a write down of the asset values by $2.3 million
to their estimated fair values of $8.4 million. The Company expects to close on
the sale of five of the facilities in the next 90 days and perhaps more if
satisfactory agreements can be reached. If the Company does not have
substantially finalized agreements on the remaining facilities by year end, the
Company will reclassify the facilities to property and equipment at their
current fair value. Since the write-down of the assets to fair value was in
excess of the depreciation that the Company would have recorded on these
facilities, the Company will not have to recognize a retroactive depreciation
adjustment if reclassified to property and equipment.
In the second quarter of 2002, the Company decided that the vision business was
no longer a long-term strategy. Because of this decision, the non-compete and
management contracts were impaired and written down by $5.0 million. The fair
value of the management contracts was determined based on a discounted cash flow
or a multiple of projected earnings. In the third quarter of 2002, the Company
terminated one of its management contracts requiring a write down of the
remaining fair value of $0.4 million.
NOTE 3 - ACQUISITIONS/DIVESTITURE
On April 30, 2002, the Company completed the sale of its Mesquite, Texas
acute-care hospital to Health Management Associates, Inc. (HMA) for $79.7
million in cash. Separately, the Company invested $16.0 million to acquire 20
percent of the HMA entity owning the hospital. The total gain on the sale of the
hospital was $38.8 million. The Company recorded a pretax gain of $31.1 million
and deferred $7.7 million, or 20 percent, of the gain. Simultaneously, the
Company acquired for $16.0 million a 20 percent interest in an HMA entity that
recently acquired another Mesquite hospital.
7
NOTE 4 - GOODWILL AND INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 142, "Goodwill and Other Intangible Assets," that the Company adopted
January 1, 2002. Under this Statement, goodwill and indefinite-lived intangible
assets are no longer amortized but are reviewed annually for impairment, or more
frequently if impairment indicators arise. The Company has no indefinite-lived
intangible assets. The Company completed its initial impairment test in the
second quarter of 2002, which resulted in an impairment loss of $1.3 million
related to the Company's vision business. The impairment loss, with zero tax
effect, was recorded retroactive to January 1, 2002 as a cumulative effect of a
change in accounting principle. The Company's first-quarter 2002 restated
results are as follows:
Dollars Basic and Diluted
in Thousands Earnings Per Share
------------ ------------------
Income before cumulative effect $33,739 $ .33
Cumulative effect (1,314) (.01)
------ ----
Net income $32,425 $ .32
====== ====
The effects of adding back the goodwill amortization for the three and nine
months ended September 30, 2001 and the year ended December 31, 2001 are as
follows:
Three months ended Nine months ended
September 30 September 30 Year
------------ ------------ ----
2002 2001 2002 2001 2001
---- ---- ---- ---- ----
(In thousands, except earnings per share)
Reported income before
cumulative effect $ 37,063 $ 31,218 $ 108,810 $ 86,413 $ 68,490
Add back: goodwill amortization,
net of tax of $201, $610 and $812,
respectively 640 1,949 2,591
-------- -------- --------- -------- --------
Adjusted income before
cumulative effect $ 37,063 $ 31,858 $ 108,810 $ 88,362 $ 71,081
======== ======== ========= ======== ========
Diluted earnings per share:
Reported income before
cumulative effect $ .38 $ .30 $ 1.08 $ .83 $ .66
Goodwill amortization, net of tax .01 .02 .03
-------- -------- --------- -------- --------
Adjusted income before
cumulative effect $ .38 $ .31 $ 1.08 $ .85 $ .69
======== ======== ========= ======== ========
8
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2002 are as follows:
Long-Term
Care
Segment Other Total
------- ----- -----
(In thousands)
Balance as of January 1, 2002 $ 8,491 $ 71,917 $ 80,408
Goodwill from acquisitions 3,308 3,308
Impairment loss:
Cumulative effect of change in
accounting principle (1,314) (1,314)
------- -------- --------
Balance as of September 30, 2002 $ 8,491 $ 73,911 $ 82,402
======= ======== ========
NOTE 5 - REVENUES
Revenues for certain health care services are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands)
Skilled nursing and assisted living services $ 629,623 $ 580,412 $ 1,855,724 $ 1,683,658
Home health and hospice services 71,647 60,944 211,271 174,585
Rehabilitation services
(excludes intercompany revenues) 21,050 22,562 64,411 70,421
Hospital care 15,618 21,344 45,075
Other services (includes assets held for sale) 10,600 8,103 24,592 15,429
--------- --------- ------------ -----------
$ 732,920 $ 687,639 $ 2,177,342 $ 1,989,168
========= ========= ============ ===========
9
NOTE 6 - EARNINGS PER SHARE
The calculation of earnings per share (EPS) is as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands, except earnings per share)
Numerator:
Income before cumulative effect
[Income available to common shareholders] $ 37,063 $ 31,218 $ 108,810 $ 86,413
======== ======== ========= =========
Denominator:
Denominator for basic EPS -
weighted-average shares 97,239 102,250 99,133 102,222
Effect of dilutive securities:
Stock options 895 1,552 941 1,460
Non-vested restricted stock 295 308 291 272
-------- -------- --------- ---------
Denominator for diluted EPS -
adjusted for weighted-average
shares and assumed conversions 98,429 104,110 100,365 103,954
======== ======== ========= =========
EPS - Income before cumulative effect:
Basic $ .38 $ .31 $ 1.10 $ .85
Diluted $ .38 $ .30 $ 1.08 $ .83
Options to purchase shares of the Company's common stock that were not included
in the computation of diluted EPS because the options' exercise prices were
greater than the average market price of the common shares were: 2.1 million
shares with an average exercise price of $32 for the nine months of 2002 and 2.3
million shares with an average exercise price of $34 for the nine months of
2001.
NOTE 7 - SEGMENT INFORMATION
The Company provides a range of health care services. The Company has one
reportable operating segment, long-term care, which includes the operation of
skilled nursing and assisted living facilities. The "Other" category includes
the non-reportable segments and corporate items. The revenues in the "Other"
category include services for assisted living facilities held for sale,
rehabilitation, home health and hospice, and hospital care. The Company's
hospital was sold on April 30, 2002. Asset information, including capital
expenditures, is not reported by segment by the Company. Operating performance
represents revenues less operating expenses and does not include general and
administrative expense, depreciation and amortization, asset impairment, other
income and expense items, income taxes and cumulative effect.
10
Long-Term
Care Other Total
--------- ----- -----
(In thousands)
Three months ended September 30, 2002
Revenues from external customers $ 629,623 $103,297 $ 732,920
Intercompany revenues 15,469 15,469
Depreciation and amortization 28,550 2,276 30,826
Operating margin 113,545 16,350 129,895
Three months ended September 30, 2001
Revenues from external customers 580,412 107,227 687,639
Intercompany revenues 10,400 10,400
Depreciation and amortization 29,944 3,153 33,097
Operating margin 112,898 11,114 124,012
Nine months ended September 30, 2002
Revenues from external customers 1,855,724 321,618 2,177,342
Intercompany revenues 43,203 43,203
Depreciation and amortization 86,933 7,249 94,182
Operating margin 345,020 35,500 380,520
Nine months ended September 30, 2001
Revenues from external customers 1,683,658 305,510 1,989,168
Intercompany revenues 28,792 28,792
Depreciation and amortization 86,969 9,112 96,081
Operating margin 318,326 38,960 357,286
NOTE 8 - CONTINGENCIES
One or more subsidiaries or affiliates of Manor Care of America, Inc. (MCA) 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 MCA. The Actions allege that Cenco transported and/or generated
hazardous substances that came to be located at the sites in question.
Environmental proceedings such as the Actions may involve owners and/or
operators of the hazardous waste site, multiple waste generators and multiple
waste transportation disposal companies. Such proceedings involve efforts by
governmental entities and/or private parties to allocate or recover site
investigation and clean-up costs, which costs
11
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 MCA is alleged to be a
potentially responsible party has not yet been quantified. Based upon its
current assessment of the likely outcome of the Actions, the Company believes
that its future environmental liabilities will be approximately $24.0 to $28.5
million. The Company has received or expects to receive between $20.3 million
and $24.5 million of insurance proceeds, depending upon the ultimate
liabilities, which will offset most amounts due as a result of these exposures.
The Company is party to various other legal matters arising in the ordinary
course of business including patient care-related claims and litigation. At
September 30, 2002 and December 31, 2001, the general and professional liability
consisted of short-term reserves of $49.1 million and $48.0 million,
respectively, which were included in accrued insurance liabilities, and
long-term reserves of $111.5 million and $88.5 million, respectively, which were
included in other long-term liabilities. The expense for general and
professional liability claims, premiums and administrative fees was $20.5
million and $61.8 million for the three and nine months ended September 30,
2002, respectively, and $16.0 million and $44.7 million for the three and nine
months ended September 30, 2001, respectively, which was included in operating
expenses. There can be no assurance that such provision and liability will not
require material adjustment in future periods.
NOTE 9 - COMPREHENSIVE INCOME
Comprehensive income represents the sum of net income plus other comprehensive
income (loss). Comprehensive income totaled $37.0 million and $107.2 million for
the three and nine months ended September 30, 2002, respectively, and $31.2
million and $86.2 million for the three and nine months ended September 30,
2001, respectively. The other comprehensive loss of $0.1 million and $0.3
million in the three and nine months ended September 30, 2002, respectively,
primarily relates to unrealized loss on investments. The other comprehensive
loss of $0.3 million in the first quarter of 2001 represents the after tax loss
of the terminated treasury lock agreement that the Company entered into as a
hedge of interest rates on the future issuance of the Senior Notes in March
2001.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS - OVERVIEW
Federal Medicare Payment Legislation. Certain of the increases in
Medicare reimbursement for skilled nursing facilities provided for under the
Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999, or BBRA 99,
and the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of
2000, or BIPA 2000, expired on September 30, 2002. Unless Congress enacts
additional legislation in the fourth quarter, the loss of revenues associated
with this occurrence could have a material adverse effect on us. If Congress
fails to act, we estimate that our revenues in the fourth quarter of 2002 could
be reduced by approximately $15 million related to this issue. While Congress
could promptly act on this issue, no assurances can be given as to whether
Congress will take action, the timing of any action or the form of any relief
enacted.
CRITICAL ACCOUNTING POLICIES
General and Professional Liability. Our general and professional
reserves include amounts for patient care-related claims and incurred but not
reported claims. We evaluated the adequacy of our general and professional
liability reserves with our independent actuary during the second quarter of
2002 for all policy periods through May 31, 2002 and will evaluate our reserves
with our actuary again in the fourth quarter. The amount of our reserves is
determined based on an estimation process that uses information obtained from
both company-specific and industry data. The estimation process requires us to
continuously monitor and evaluate the life cycle of the claims. Using data
obtained from this monitoring and our assumptions about emerging trends, we
along with our independent actuary develop information about the size of
ultimate claims. The most significant assumptions used in the estimation process
include determining the trend in costs, the expected cost of claims incurred but
not reported and the expected costs to settle unpaid claims. Our assumptions
take into consideration our internal efforts to contain our costs by reviewing
our risk management programs, our operational and clinical initiatives, and
other industry changes affecting the long-term care market. We do see an
improving underlying trend in terms of patient liability costs and costs per
claim have decreased in comparison to last year. Although we believe our
reserves are adequate, we can give you no assurance that this liability will not
require material adjustment in future periods.
13
RESULTS OF OPERATIONS -
QUARTER AND YEAR-TO-DATE SEPTEMBER 30, 2002 COMPARED WITH SEPTEMBER 30, 2001
On April 30, 2002, we sold our only hospital. The hospital recorded revenues of
$21.3 million and operating expenses of $19.9 million for the four months ended
April 30, 2002. In the table below, we excluded our hospital's revenues and
operating expenses from all periods so that you may compare our results in a
more meaningful way.
Third Quarter First Nine Months
------------- -----------------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands)
Revenues $732,920 $672,021 $2,155,998 $1,944,093
Operating expenses 603,129 549,975 1,776,996 1,592,568
Revenues. Our revenues increased $60.9 million, or 9 percent, from the
third quarter of 2001 to 2002. Revenues from our long-term care segment (skilled
nursing and assisted living facilities excluding assets held for sale) increased
$49.2 million, or 8 percent, due to increases in rates/patient mix--$45.2
million and occupancy--$7.1 million that is partially offset by a decrease in
capacity--$3.1 million. Our revenues from the home health business increased
$10.7 million, or 18 percent, primarily because of an increase in home health
visits and hospice services.
Our revenues in the first nine months of 2002 increased $211.9 million, or 11
percent, compared with the first nine months of 2001. Revenues from our
long-term care segment increased $172.1 million, or 10 percent, due to increases
in rates/patient mix--$157.2 million, occupancy--$9.3 million and capacity--$5.6
million. Our revenues from the home health care and hospice business increased
$36.7 million, or 21 percent, primarily because of an increase in home health
visits and hospice services.
Our average rates per day for the long-term care segment were as follows:
Third Quarter First Nine Months
------------- -----------------
2002 2001 Increase 2002 2001 Increase
---- ---- -------- ---- ---- --------
Medicare $335 $322 4% $334 $313 7%
Medicaid $126 $118 7% $123 $114 8%
Private and other (skilled only) $182 $173 5% $181 $172 5%
The Medicare rate increase related to the positive effect of BIPA 2000 with many
of the provisions beginning April 1, 2001, as well as our higher acuity
patients. The increase in overall rates was also a result of the shift in the
mix of our patients to a higher percentage of Medicare patients.
14
Our occupancy levels were as follows:
Third Quarter First Nine Months
------------- -----------------
2002 2001 2002 2001
---- ---- ---- ----
Total 88% 87% 87% 87%
Excluding start-up facilities 88% 87% 88% 88%
Skilled nursing facilities 89% 88% 88% 88%
Our bed capacity decreased between third quarters and increased between the
first nine months of 2001 and 2002 based on the timing of opening/acquiring and
closing/selling facilities during each period. In 2002, we opened three
facilities with 188 beds and closed/sold three facilities with 498 beds. In
2001, we opened two facilities with 180 beds, acquired/leased two facilities
with 355 beds and closed one facility with 60 beds. The quality mix of revenues
from Medicare, private pay and insured patients related to skilled nursing and
assisted living facilities and rehabilitation operations remained constant at 67
percent for the third quarters and 68 percent for the first nine months of 2001
and 2002.
Operating Expenses. Our operating expenses increased $53.2 million, or
10 percent, from the third quarter of 2001 to 2002. Operating expenses increased
$48.6 million, or 10 percent, from our long-term care segment and $6.2 million,
or 11 percent, from our home health care and hospice business because of an
increase in services.
The most significant portion ($31.5 million) of our long-term care increase in
operating expenses between the third quarters of 2001 to 2002 related to wages,
temporary staffing and payroll overhead, including workers compensation. Our
other operating expense increases for this segment included ancillary costs,
excluding internal labor, of $5.4 million and general and professional liability
expense of $4.4 million. Ancillary costs, which include various types of
therapies, medical supplies and prescription drugs, increased as a result of our
more medically complex patients. Our general and professional liability expense
increased primarily because of our increase in the monthly claims accrual from
$4.7 million in 2001 to $6.0 million in 2002.
Operating expenses for the first nine months of 2002 increased $184.4 million,
or 12 percent, from the first nine months of 2001. Operating expenses increased
$145.4 million, or 11 percent, from our long-term care segment and $27.5
million, or 18 percent, from our home health care and hospice business because
of an increase in services.
We attribute the largest portion ($90.9 million) of the long-term care operating
expense increase between the first nine months of 2001 and 2002 to wages,
temporary staffing and payroll overhead, including workers compensation. Our
other operating expense increases for this segment included ancillary costs,
excluding internal labor, of $21.3 million and general and professional
liability expense of $15.1 million. Our general and professional liability
expense increased because we recorded additional expense of $4.9 million in
the second
15
quarter of 2002 due to a court-ordered liquidation of one of our
insurers. The corresponding reserve represents our estimated costs for claims in
1993 to 1997 that may not be covered by government emergency recovery funds. Our
expense also increased because of the increase in our monthly claims accrual.
Refer to our critical accounting policies for additional discussion of our
general and professional liability costs.
Also, during the second quarter of 2002, we reversed $2.1 million of the $23.6
million charge that was recorded in 2001 related to the damage award from the
arbitration decision with NeighborCare Pharmacy Services, or NeighborCare. We
paid $21.5 million in April and the reversal was based on an amendment to the
decision and award on June 21, 2002. See discussion of the interest expense
portion of the award below.
General and Administrative Expenses. Our general and administrative
expenses, which approximated 4 percent of revenues, increased $4.0 million from
the first nine months of 2001 to 2002. The increases related to general
inflationary costs that were partially offset by decreases in deferred
compensation plans.
Depreciation and Amortization. Depreciation decreased $1.2 million from
the third quarters of 2001 to 2002 because of the sale of our hospital and write
down of asset values due to impairment, as discussed below. Depreciation
increased $0.6 million from the first nine months of 2001 to 2002 as a result of
additional depreciation for our new construction projects and renovations of
existing facilities completed in the past year that was partially offset by a
decline in depreciation from the sale of our hospital and asset impairments.
Amortization decreased $1.1 million and $2.5 million from the third quarters and
first nine months of 2001 to 2002, respectively. We no longer amortize goodwill
that amounted to $0.8 million and $2.6 million in the third quarter and first
nine months of 2001. See Note 4 to the consolidated financial statements for
additional discussion of the change in accounting principle for goodwill.
Asset Impairment. During our quarterly review of long-lived assets in
2002, management determined that certain assets were impaired, as summarized in
the table below.
2nd Quarter 3rd Quarter Year-to-date
----------- ----------- ------------
(In thousands)
Long-term care facilities $ 12,490 $ 12,490
Land parcels 1,507 1,507
Assets held for sale 5,891 2,356 8,247
Vision business 4,988 389 5,377
-------- ------- --------
$ 24,876 $ 2,745 $ 27,621
======== ======= ========
We determined that our long-term care facilities, consisting of four skilled
nursing and three assisted living facilities, were impaired in the second
quarter of 2002 based on the carrying value
16
exceeding the projected future undiscounted cash flows. Based on market
conditions and their history of negative cash flows, we determined that the
necessary profitability levels would not occur in the near future. We closed or
have plans to close four of the facilities. We are currently looking at
alternatives for the other three facilities. We may continue to operate the
facilities, sell the facilities for their current operations or sell the
facilities for alternative uses. We reduced the carrying values of the seven
facilities by $12.5 million to their estimated fair values of $8.7 million. The
estimated fair values were determined based on comparable sales values. We also
determined that the carrying values of five land parcels exceeded our estimated
fair values by $1.5 million. The fair values were based on estimated sales
values under current market conditions.
During the second quarter of 2002, we received offers on ten of our assisted
living facilities that are held for sale. The accepted offers, less the cost to
sell, were less than our carrying values on nine of these facilities and
required us to write down the asset values by $5.9 million to their estimated
fair values of $36.5 million. The facilities are located in Michigan, Ohio,
Pennsylvania and Texas. During the third quarter of 2002, we received an offer
on our three Florida assisted living facilities that are held for sale. The
accepted offer, less cost to sell, was less than our carrying values on these
facilities and required us to write down the asset values by $2.3 million to
their estimated fair values of $8.4 million. We expect to close on the sale of
five of the facilities in the next 90 days and perhaps more if satisfactory
agreements can be reached. If we do not have substantially finalized agreements
on the remaining facilities by year end, we will reclassify the facilities to
property and equipment at their current fair value. Since the write-down of the
assets to fair value was in excess of the depreciation that we would have
recorded on these facilities, we will not have to recognize a retroactive
depreciation adjustment if reclassified to property and equipment.
In the second quarter of 2002, we decided that our vision business was no longer
a long-term strategy. Because of this decision, our non-compete and management
contracts were impaired and written down by $5.0 million. The fair value of the
management contracts was determined based on a discounted cash flow or a
multiple of projected earnings. In the third quarter of 2002, we terminated one
of our vision management contracts requiring a write down of the remaining fair
value of $0.4 million.
As a result of the write-down of assets, change in the intangible assets'
estimated useful life and sale of our hospital, depreciation and amortization is
expected to decrease by approximately $4.5 million on an annual basis.
Interest Expense. When excluding capitalized interest and interest from
the arbitration decision with NeighborCare, our interest expense in the third
quarter and first nine months of 2002 decreased $2.8 million and $10.7 million
compared with the same periods in 2001 because of lower interest rates and debt
levels. We accrued $1.0 million of interest expense in the fourth quarter of
2001 related to the NeighborCare arbitration and reversed $0.5 million in the
second quarter of 2002 due to an amended arbitration decision.
17
Gain (Loss) on Sale of Assets. Our gain on sale of assets in the first
nine months of 2002 primarily related to the gain of $31.1 million recognized on
the sale of our hospital to Health Management Associates, Inc. Our gain on sale
of assets in the first nine months of 2001 primarily related to the sale of a
skilled nursing facility.
Equity in Earnings of Affiliated Companies. Our equity earnings in the
third quarter and first nine months of 2002 increased $1.2 million compared with
the same periods of 2001 because of our pharmacy partnership and recent
ownership interest in two hospitals. See Note 3 to the consolidated financial
statements for further discussion of our hospital investments.
We recorded equity losses related to our development joint venture with Alterra
Healthcare Corporation on this line item during the first half of 2001 and then
began to consolidate the results of the 13 assisted living facilities in the
second half of 2001. During the first half of 2001, we recorded equity losses of
$3.1 million related to this joint venture.
We were a 50 percent owner in a partnership that sold its only nursing home in
June 2001. During the second quarter of 2001, we reversed $1.5 million of
previously recorded losses for this partnership. These losses were booked in
excess of our investment because we had guaranteed the partnership's debt, which
was paid off with the sale of the nursing home.
Cumulative Effect of Change in Accounting Principle. In July 2001, the
Financial Accounting Standards Board issued Statement No. 142, "Goodwill and
Other Intangible Assets," that we adopted January 1, 2002. Under this Statement,
goodwill and indefinite-lived intangible assets are no longer amortized but are
reviewed annually for impairment, or more frequently if impairment indicators
arise. We completed our initial impairment test in the second quarter of 2002
and determined that $1.3 million of our goodwill was impaired related to our
vision business. The impairment loss, with zero tax effect, was recorded
retroactive to January 1, 2002 as a cumulative effect of a change in accounting
principle.
FINANCIAL CONDITION - SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
Our receivables decrease of $10.1 million included the reduction of $19.8
million from the sale of our hospital in Mesquite, Texas.
Assets held for sale decreased $9.4 million because of the write-down of the
assets by $8.2 million to their estimated fair values and the receipt of cash in
2002 of $1.2 million from a 2001 settlement with Alterra Healthcare Corporation
and the third-party equity investors.
Property and equipment decreased $59.3 million primarily because of depreciation
of $86.7 million, disposal of our hospital's assets of $20.4 million and
impairment of our long-term care
18
assets of $12.5 million. These decreases were partially offset by $68.8 million
in new construction and renovations to existing facilities.
Accrued insurance liabilities increased $28.1 million primarily due to the
reclassification of an $18.8 million environmental liability from other
long-term liabilities. The payment is due in January 2003. Most of this payment
will be offset by insurance proceeds that are due in January 2003. As a result,
we also reclassified $9.5 million from other long-term assets to receivables.
Other long-term liabilities increased $47.7 million, after excluding the
reclassification of the environmental liability, because of additional accruals
for insurance liabilities.
Income taxes payable decreased $34.3 million primarily because of our $35.3
million payment to the Internal Revenue Service (IRS) related to the settlement
agreement for corporate-owned life insurance, or COLI, for the years 1993
through 1997.
Other accrued liabilities decreased $23.0 million primarily because of our $22.0
million payment to NeighborCare in the second quarter of 2002 related to the
arbitration decision.
Long-term debt due within one year increased $252.0 million primarily due to the
reclassification of our credit agreement debt of $249.4 million from long-term
debt as it matures in September 2003.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. During the first nine months of 2002, we satisfied our cash
requirements from cash generated from operating activities and proceeds from
sale of assets. We used the cash principally for capital expenditures,
acquisitions, to repay debt and to purchase our common stock. Cash flows from
operating activities were $218.5 million for the first nine months of 2002. Our
operating cash flows decreased $6.7 million from the first nine months of 2001
because we had two significant unusual operating cash outflows in the second
quarter of 2002. The payments included $22.0 million to NeighborCare related to
the arbitration decision and $35.3 million to the IRS related to the settlement
agreement for COLI.
Investing Activities. Our expenditures for property and equipment of
$68.8 million in the first nine months of 2002 included $13.1 million to
construct new facilities and expand existing facilities. On April 30, 2002, we
completed the sale of our hospital for $79.7 million. Separately, we acquired 20
percent interests in two separate entities, including one that owns our former
hospital, for a total of $32.0 million.
Debt Agreement. At September 30, 2002, outstanding borrowings totaled
$249.4 million under a five-year, $500 million revolving credit agreement. The
loans under this agreement were reclassified to a current liability this quarter
since the agreement matures on
19
September 24, 2003. We plan on refinancing a major portion of this credit
facility with bank debt or public debt prior to its scheduled maturity. After
consideration of usage for letters of credit, the remaining credit availability
under the five-year agreement totaled $215.2 million at September 30, 2002.
Stock Purchase. On December 4, 2001, our board of directors authorized
us to spend up to $100 million to purchase our common stock from January 1, 2002
through December 31, 2003. On July 16, 2002, our board authorized an additional
$100 million through December 31, 2003. We purchased 5,205,700 shares for $119.2
million in the first nine months of 2002 and an additional 750,000 shares for
$15.2 million in October 2002. We may use the shares for internal stock option
and 401(k) match programs and for other uses, such as possible future
acquisitions.
Senior Executive Retirement Plan. Our senior executive retirement
plan, or SERP, is funded by collateral assignment split-dollar life insurance
policies which may be impacted by the Sarbanes-Oxley Act of 2002 and recently
proposed IRS regulations. The Sarbanes-Oxley Act may prohibit future premium
payments by the Company as disallowed loans to executive officers. In addition,
the proposed IRS regulations may require changes to the treatment of
split-dollar arrangements so that the arrangments will come within certain
"safe harbor" provisions under the regulations. Since clarification on
Sarbanes-Oxley and the IRS regulations may not be immediately forthcoming, the
policies may need to be restructured. As a result, we are evaluating various
options regarding our SERP.
We believe that our cash flow from operations will be sufficient to cover debt
payments, future capital expenditures and operating needs. It is likely that we
will pursue growth from acquisitions, partnerships and other ventures that would
be funded from excess cash from operations, credit available under the bank
credit agreement and other financing arrangements that are normally available in
the marketplace.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report may include forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. We identify forward-looking statements in this report by using
words or phrases such as "anticipate," "believe," "estimate," "expect,"
"intend," "may be," "objective," "plan," "predict," "project," and "will be" and
similar words or phrases, or the negative thereof.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those statements include, among
others: changes in Medicare, Medicaid and certain private payors' reimbursement
levels; existing government regulations, including applicable health care, tax
and health and safety regulations, and changes in, or the failure to comply
with, governmental regulations or the interpretations thereof; legislative
proposals for health care reform; competition and general economic and business
conditions; the ability to attract and retain qualified personnel; changes in
current trends in the cost and volume of general and professional liability
claims and other litigation.
Although we believe the expectations reflected in our forward-looking statements
are based upon reasonable assumptions, we can give no assurance that we will
attain these expectations or that any deviations will not be material. Except as
otherwise required by the federal securities laws, we disclaim any obligations
or undertaking to publicly release any updates or
20
revisions to any forward-looking statement contained in this report to reflect
any change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See the discussion of our market risk in our Form 10-K for the year ended
December 31, 2001. At September 30, 2002, the fair value of our 7 1/2% and 8%
Senior Notes exceeded the carrying value by approximately $13.9 million, which
represented a decline in fair value since year end.
Item 4. Controls and Procedures
Within 90 days of filing this quarterly report, an evaluation was performed
under the supervision and with the participation of our management, including
the chief executive officer, or CEO, and chief financial officer, or CFO, of the
effectiveness of the design and operation of our disclosure procedures. Based on
that evaluation, our management, including the CEO and CFO, concluded that our
disclosure controls and procedures were effective as of September 30, 2002 and
the evaluation date. There have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Prior to August 21, 2002, when all of the legal proceedings described below were
dismissed with prejudice in their entirety, Manor Care and certain related
persons and entities were parties to five actions by or against Genesis Health
Ventures, Inc. or its subsidiary, NeighborCare Pharmacy Services, Inc. Each of
the five actions was commenced in 1999.
In the first action, NeighborCare instituted an arbitration proceeding and filed
a lawsuit in the Circuit Court for Baltimore City, Maryland against us and
certain related entities, seeking damages and other relief arising from the
allegation that the defendants had improperly sought to terminate certain
long-term Master Service Agreements with Vitalink Pharmacy Services, Inc., now
known as NeighborCare. NeighborCare subsequently dismissed the Maryland action
and consolidated certain of those claims into the arbitration.
In the second action, NeighborCare filed a complaint in the Circuit Court for
Baltimore County, Maryland against OmniCare, Inc. and Heartland Healthcare
Services seeking damages and other relief. Heartland Healthcare Services is a
partnership between us and a subsidiary of
21
OmniCare. The complaint included counts for tortious interference with
Vitalink's purported contractual rights under the Master Service Agreements.
In the third action, Genesis filed suit in federal district court in Delaware
against us and certain related entities and persons. The complaint alleged that
the defendants fraudulently induced Genesis to acquire, in August 1998, all of
the outstanding stock of Vitalink Pharmacy Services, Inc. without advising
Genesis of the defendants' alleged intent to terminate the Master Service
Agreements. The suit also alleged that our ownership in the Heartland Healthcare
Services partnership violated a non-compete agreement. The suit sought damages
and injunctive relief enforcing the covenant not to compete.
In the fourth action, our wholly-owned subsidiary, Manor Care of America, or
MCA, filed a separate action in federal district court in Delaware seeking
damages and other relief against Genesis arising from Genesis' 1998 acquisition
of Vitalink. MCA's lawsuit alleged that Genesis violated Section 11 and Section
12 of the Securities Act of 1933, when Genesis issued approximately $293 million
of Genesis Preferred Stock to MCA for MCA's interest in Vitalink.
In the fifth action, MCA filed suit in federal court in Toledo, Ohio against
Genesis and certain other entities. The complaint alleged Genesis violated the
terms of a rights agreement between Genesis and MCA in connection with the
Vitalink transaction.
On August 16, 2002, Manor Care and Genesis announced that they were withdrawing
all outstanding legal actions against each other and their related entities,
including all pending litigation relating to the Master Service Agreements or
arising from Genesis's 1998 acquisition of MCA's subsidiary, Vitalink Pharmacy
Services, Inc. On August 21, 2002, the parties to the actions filed Stipulations
of Dismissal with Prejudice in each of the four court cases discussed above. On
the same date, pursuant to the parties' agreement, the Arbitrator entered an
Order vacating all prior orders and dismissing the case with prejudice. The
August 21, 2002 Stipulations of Dismissal with Prejudice and Order by the
Arbitrator fully resolve the five legal disputes.
See Note 8 - Contingencies in the notes to the consolidated financial statements
for a discussion of litigation related to environmental matters and patient-care
related claims.
22
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
S-K Item
601 No.
- -------
99.1 Chief Executive Officer Certification Pursuant To 18 U.S.C. Section
1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act
Of 2002
99.2 Chief Financial Officer Certification Pursuant To 18 U.S.C. Section
1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act
Of 2002
(b) Reports on Form 8-K
On August 13, 2002, Manor Care, Inc. filed a Form 8-K and under Item 9 included
the Statements under Oath of its Principal Executive Officer and its Principal
Financial Officer.
On August 19, 2002, Manor Care, Inc. filed a Form 8-K and under Item 5 included
the August 16, 2002 press release announcing that Manor Care and Genesis Health
Ventures, Inc. are withdrawing all outstanding legal actions against each other
and have executed a new pharmacy agreement.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Manor Care, Inc.
(Registrant)
Date November 11, 2002 By /s/ Geoffrey G. Meyers
--------------------------------------------
Geoffrey G. Meyers, Executive Vice President
and Chief Financial Officer
CERTIFICATIONS
I, Paul A. Ormond, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Manor Care, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
24
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 11, 2002
/s/ Paul A. Ormond
Chairman, President and Chief Executive Officer
I, Geoffrey G. Meyers, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Manor Care, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial
25
condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 11, 2002
/s/ Geoffrey G. Meyers
Executive Vice President and Chief Financial Officer
26
EXHIBIT INDEX
Exhibit
- -------
99.1 Chief Executive Officer Certification Pursuant To 18 U.S.C. Section
1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of
2002
99.2 Chief Financial Officer Certification Pursuant To 18 U.S.C. Section
1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of
2002
27