Manor Care Reports Third-Quarter Earnings

TOLEDO, Ohio, Oct. 26 /PRNewswire-FirstCall/ -- Manor Care, Inc. today announced third-quarter earnings per share of 60 cents per diluted share on net income of $47 million. This compares to 60 cents per diluted share in the 2005 third quarter, which included the positive impact of certain unusual items that produced a net gain of about 8 cents per share. Revenues of $916 million were up 9 percent from $840 million in the prior-year quarter.

For the nine months, revenues were $2.68 billion, and net income was $117 million, or $1.48 per diluted share, which includes some unusual items in the first quarter.

Manor Care's Board of Directors declared a quarterly cash dividend on the company's common stock of 16 cents per share. The dividend is payable on November 20, 2006 to shareholders of record on November 6, 2006.

"Our excellent earnings performance this quarter was driven by continuing strong operating fundamentals and solid cost controls," said Paul A. Ormond, Manor Care chairman, president and CEO. "By expanding our capabilities to care for those with complex medical and rehabilitation needs and helping them return home, we have driven census in our skilled nursing centers in 2006 to its highest level in more than a decade. We have focused on meeting the needs of our patients and their families and have achieved an enviable record of success in meeting patients' outcome goals, in a very cost-effective setting. This focus has gained us an increasing mix of Medicare and managed care/insurance revenues. During the 2006 third quarter, our census remained near its historical high, as did our quality mix of Medicare, managed care/insurance and private pay revenues. Census and quality mix were both approximately 100 basis points higher than in the 2005 third quarter.

"Our hospice and home care business continued on a strong growth path, building on the respected foundation of our skilled nursing business. Revenues rose 29 percent over the previous-year quarter, and now have an annual run rate of more than $500 million. We have parlayed a balance of organic growth and selective acquisitions into an organization comprising 114 offices in 25 states, making us the third largest provider of hospice care in the U.S. and one of the top 10 providers of home care."

During the third quarter, the federal government withheld industry providers' Medicare reimbursement payments for the last nine days of September, which limited Manor Care's operating cash flow in the quarter to $6 million. But reimbursement of approximately $65 million related to this time period was made by the government in the first week of October. This made the normalized operating cash flow for the quarter consistent with the levels recorded in the first two quarters of 2006, which totaled approximately $150 million for the six months.

During the third quarter, Manor Care also completed the expansion of nine skilled nursing centers. Thirty nursing center expansions, including 18 related to expanding physical rehabilitation space and capabilities, are ongoing. Four new skilled nursing centers are under construction.

"Emphasizing fundamentals has led to increased census and a higher-revenue patient mix in 2006," Mr. Ormond said. "It has enabled us to generate the cash to finance our growth, reinvest in our assets, buy back shares of our stock, pay a significant dividend and generally enhance shareholder value. At the same time, we have managed our costs so that annual percentage increases have remained in a targeted range. We are pleased that our results in the 2006 third quarter maintained the trend of strong census, and we look forward to continuing to benefit from our strong operating fundamentals."

At 9:00 a.m. Eastern Time today, Manor Care will hold a conference call to discuss the company's results and performance for the 2006 third quarter. The toll-free number for the call is 1-888-634-8435. Callers to this number will be able to listen to the company's discussion and have the opportunity to ask questions. The call will also be webcast live in the Investor Information section of Manor Care's website http://www.hcr-manorcare.com/. For those unable to listen to the call live, a taped rebroadcast will be available beginning two hours after completion of the live call. To access the rebroadcast, dial 1-800-642-1687. The conference ID number is 7669413. This rebroadcast will be available until midnight, October 31. A recording of the call will also be available on Manor Care's website for 90 days.

Manor Care, Inc., through its operating group HCR Manor Care, is a leading provider of short-term post-acute and long-term care. 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 Health Services 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. Consolidated Statements of Income (unaudited) Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 (In thousands, except per share amounts) Revenues $915,515 $840,279 $2,679,024 $2,553,240 Expenses: Operating 752,495 688,154 2,211,511 2,116,525 General and administrative 45,437 39,673 141,334 116,619 Depreciation and amortization 36,732 34,592 108,820 103,668 Asset impairment 2,451 11,082 2,451 -------- -------- --------- --------- 834,664 764,870 2,472,747 2,339,263 -------- -------- --------- --------- Income before other income (expenses) and income taxes 80,851 75,409 206,277 213,977 Other income (expenses): Interest expense (8,749) (11,026) (23,668) (31,358) Early extinguishment of debt (4,053) (4,053) Gain (loss) on sale of assets (125) 17,296 (284) 17,505 Equity in earnings of affiliated companies 971 1,276 4,558 4,099 Interest income and other 203 1,635 1,431 2,708 -------- -------- --------- --------- Total other income (expenses), net (7,700) 5,128 (17,963) (11,099) -------- -------- --------- --------- Income before income taxes 73,151 80,537 188,314 202,878 Income taxes 26,649 30,350 69,256 74,249 -------- -------- --------- --------- Income before cumulative effect 46,502 50,187 119,058 128,629 Cumulative effect of change in accounting principle, net of tax (2,476) -------- -------- --------- --------- Net income $46,502 $50,187 $116,582 $128,629 ======== ======== ========= ========= Earnings per share - basic: Income before cumulative effect $.63 $.61 $1.56 $1.52 Cumulative effect (.03) -------- -------- --------- --------- Net income $.63 $.61 $1.53 $1.52 ======== ======== ========= ========= Earnings per share - diluted: Income before cumulative effect $.60 $.60 $1.51 $1.49 Cumulative effect (.03) -------- -------- --------- --------- Net income $.60 $.60 $1.48 $1.49 ======== ======== ========= ========= Weighted-average shares: Basic 73,833 81,699 76,326 84,737 Diluted 77,386 83,651 78,887 86,482 Cash dividends declared per common share $.16 $.15 $.48 $.45 Manor Care, Inc. Condensed Consolidated Balance Sheets (unaudited) September 30, December 31, 2006 2005 (In thousands) Cash $15,299 $12,293 Other current assets 627,942 519,036 Property and equipment 1,483,989 1,484,475 Other 347,343 323,430 ---------- ---------- Total assets $2,474,573 $2,339,234 ========== ========== Current liabilities $474,955 $449,736 Current portion of long-term debt 44,220 25,435 Long-term debt 956,209 707,666 Other long-term liabilities 383,082 382,674 Shareholders' equity 616,107 773,723 ---------- ---------- Total liabilities and shareholders' equity $2,474,573 $2,339,234 ========== ========== Shares outstanding 73,944 78,729 YTD shares repurchased $270.6 million 5,818 Selected Statistics (unaudited) Quarter ended September 30, 2006 2005 Occupancy 89% 88% Revenue allocation: Private and other 33% 33% Medicare 39% 38% Medicaid 28% 29% Quality Mix 72% 71% Per Diems: Private and other (excluding assisted living) $227.02 $213.70 Private and other (assisted living) $123.05 $118.08 Medicare $383.16 $361.13 Medicaid $153.13 $146.49 Number of Facilities: Skilled nursing facilities 276 276 Assisted living facilities: Springhouses 11 11 Arden Courts 54 54 -- -- Total 65 65 == == Number of Beds: Skilled nursing facilities 37,941 37,942 Assisted living facilities 5,080 5,080 Outpatient therapy clinics 91 91 Hospice and home health offices 114 99 Skilled nursing facility wage rate increase third quarter 2006 to 2005 4% Cash flow from operations (in millions) $6 $140 Capital Expenditures (in millions): Maintenance and renovations $24 $25 New construction $14 $8