TOLEDO, Ohio, Sept. 27 /PRNewswire-FirstCall/ -- Manor Care, Inc. today announced that a restatement of its 2005 first-quarter results has increased first-quarter net income to $40.4 million, or 46 cents per share, from a reported $31.2 million, or 36 cents per share (see table below).
During the first quarter of 2005, and in anticipation of adopting the Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), “Share-Based Payment” (FAS 123R), Manor Care reviewed its accounting practices for all stock-based compensation, including restricted stock, and its method of amortizing its restricted stock compensation to the expected retirement date. Due to the first-quarter review, Manor Care determined that its restricted stock compensation should have been amortized to the retirement eligible date. As a result, the company recorded a non-cash pretax charge of $10.3 million ($6.6 million after tax, or 8 cents per share) to reflect the accelerated expense for the years 2000 through 2004. The effect on the company’s prior years’ earnings per share was not deemed material at that time. In addition, the company recorded $8.2 million ($5.2 million after tax, or 6 cents per share) of expenses for restricted stock awards made to retirement eligible employees in the first quarter of 2005.
Subsequent to the release of Manor Care’s first-quarter earnings, the company’s independent registered public accounting firm advised Manor Care that due to the widespread practice of recognizing compensation expense over the explicit service period (i.e. up to the date of actual retirement), the SEC staff would accept continuation of that practice under Accounting Principles Board Opinion 25 (APB 25) and FASB Statement No. 123 (FAS 123). In addition, for companies that had followed that practice, Manor Care was advised that the SEC staff would require a continuation of that practice for awards granted prior to the adoption of FAS 123R. For companies such as Manor Care that had already made the accounting change in the first quarter, Manor Care was further advised that there would be no objection from the SEC staff because of the immateriality of the change.
In the third quarter of 2005, Manor Care determined that deferred tax assets related to restricted stock, previously recorded in the amount of $8.6 million ($6.9 million of which was recorded in the first quarter of 2005), would not be realized due to the limitations on the tax deductibility of executive compensation and should not have been previously recorded. The company further determined that the previously discussed first-quarter restricted stock adjustments, including any reversal of deferred tax assets, while not material for all years prior to 2005, would be material for 2005 net income.
Consistent with the SEC staff views described above and in consultation with the company’s independent registered public accounting firm, Manor Care has reverted to its original accounting practice of recognizing compensation cost over the explicit service period and will amend its first- and second- quarter Form 10-Qs. The impact of the restatement for the first quarter reduces general and administrative expenses and increases income before income taxes by $17.7 million. The reversal of the deferred tax assets increases income taxes by $8.6 million. The combined effect increases net income by $9.1 million and increases diluted earnings per share (EPS) by 10 cents. The second-quarter restatement decreases general and administrative expenses, increases income before income taxes and increases net income, all by less than $200,000. There is no change to diluted EPS in the second quarter.
Manor Care, Inc., through its operating group HCR Manor Care, is the leading owner and operator of long-term care centers in the United States. The company’s nearly 60,000 employees provide high-quality care for patients and residents through a network of more than 500 skilled nursing centers, assisted living facilities, outpatient rehabilitation clinics, and hospice and home health care offices. Alliances and other ventures supply high-quality pharmaceutical products and management services for professional organizations. The company operates primarily under the respected Heartland, ManorCare and Arden Courts names. Manor Care is committed to being the preeminent care provider in the industry. Shares are traded on the New York Stock Exchange under the ticker symbol HCR.
Statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of federal law. Such forward-looking statements reflect management’s beliefs and assumptions and are based on information currently available to management. The forward- looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company to differ materially from those expressed or implied in such statements. Such factors are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in the health care industry because of political and economic influences, changes in regulations governing the industry, changes in reimbursement levels including those under the Medicare and Medicaid programs, changes in the competitive marketplace, and changes in current trends in the cost and volume of general and professional liability claims. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements.
Manor Care, Inc. The effects of the restatement on the Consolidated Statements of Income (unaudited): -------------------------------------------------------------------------- Three months ended Three months ended March 31, 2005 June 30, 2005 ---------------------------------------- Previously Previously Reported Restated Reported Restated ---------- -------- ---------- -------- (In thousands, except per share amounts) Expenses: General and administrative $53,979 $36,266 $40,844 $40,680 Income before other income (expenses) and income taxes 57,626 75,339 63,065 63,229 Income before income taxes 48,783 66,496 55,681 55,845 Income taxes 17,562 26,133 17,738 17,766 Net income 31,221 40,363 37,943 38,079 Earnings per share: Basic $.36 $.47 $.44 $.44 Diluted $.36 $.46 $.43 $.43 ------------------------------------------------------------------------- The effects of the restatement on the Consolidated Balance Sheets (unaudited): -------------------------------------------------------------------------- March 31, 2005 June 30, 2005 ---------------- --------------- Previously Previously Reported Restated Reported Restated ------------ -------- ------------ -------- (In thousands) Current liabilities: Income tax payable $15,405 $15,342 $31,952 $31,826 Long-term liabilities: Deferred income taxes 127,840 136,474 122,863 131,588 Shareholders’ Equity: Capital in excess of par value 383,600 365,887 392,013 374,136 Retained earnings 1,226,787 1,235,929 1,251,773 1,261,051 Total shareholders’ equity 1,025,555 1,016,984 1,043,149 1,034,550 ------------------------------------------------------------------------- The effects of the restatement on the Consolidated Statements of Cash Flows (unaudited): -------------------------------------------------------------------------- Three months ended Six months ended March 31, 2005 June 30, 2005 -------------------- ------------------ Previously Previously Reported Restated Reported Restated ---------- -------- ---------- -------- (In thousands) Operating activities: Net income $31,221 $40,363 $69,164 $78,442 Restricted stock compensation 18,458 745 20,185 2,308 Deferred income taxes (9,070) (436) (13,683) (4,958) Liabilities 71,487 71,424 46,672 46,546 Total adjustments 19,393 10,251 80,991 71,713 Cash flow from operations 50,614 50,614 150,155 150,155 -------------------------------------------------------------------------
Manor Care, Inc.
CONTACT: Geoffrey G. Meyers, Chief Financial Officer of Manor Care, Inc.,+1-419-252-5545, or gmeyers@hcr-manorcare.com
Web site: http://www.hcr-manorcare.com/
