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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) [X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  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.  Delaware
    
    34-1687107(State or other jurisdiction of
    
    (IRS Employerincorporation 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 29, 2004. Common stock, $0.01 par value  86,437,598 shares




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Manor Care, Inc.
Form 10-Q
Table of Contents PageNumberPart I. Financial InformationItem 1.
    
    Financial Statements (Unaudited)Consolidated Balance Sheets - September 30, 2004 and December 31, 2003
    
    
    3Consolidated Statements of Income - Three and nine months ended September 30, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows - Nine months ended September 30, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    21Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults Upon Senior Securities
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    22Signatures
    
    
    23Exhibit Index
    
    
    24EX-10.1 Agreement by and between Manor Care, Inc., Heartland Employment Services, Inc., Health Care and Retirement Corporation of American and Paul A. Ormond, effective August 20, 2004EX-10.2 Agreement by and between Manor Care, Inc., Heartland Employment Services, Inc., Health Care and Retirement Corporation of American and Trustee, effective August 20, 2004EX-10.3 Agreement by and between Manor Care, Inc. and Paul Ormond, effective August 20, 2004EX-10.4 Form of Split Dollar Assgnmt Term. Agrmt by & between Health Care & Retirement Corp of America Heartland Employment Svcs, Trustee, and Paul A. Ormond and M. Keith Weikel effective 12-16-03EX-10.5 Form of Split Dollar Assignment Termination Agrmt by/between Health Care & Retirement Corp of America, Manor Care, Heartland Employment Svcs, and remaining executive officers, effect. 12-16-03EX-31.1 Chief Executive Officer CertificationEX-31.2 Chief Financial Officer CertificationEX-32.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002EX-32.2 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
  2




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##### Table of Contents



Part I. Financial Information 
 Item 1. Financial Statements. Manor Care, Inc. 
  September 30,
    
    December 31,2004
    
    2003(Unaudited)
    
    (Note1)(In thousands, except per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    25,786
    
    
    $
    86,251Receivables, less allowances for doubtful
accounts of $52,980 and $60,652, respectively
    
    
    417,701
    
    
    
    405,213Prepaid expenses and other assets
    
    
    24,881
    
    
    
    27,484Deferred income taxes
    
    
    67,849
    
    
    
    66,451Total current assets
    
    
    536,217
    
    
    
    585,399Property and equipment, net of accumulated
depreciation of $827,198 and $755,038, respectively
    
    
    1,517,079
    
    
    
    1,514,250Goodwill
    
    
    91,997
    
    
    
    87,906Intangible assets, net of amortization of $4,577 and $4,161, respectively
    
    
    10,731
    
    
    
    9,397Other assets
    
    
    192,438
    
    
    
    199,759Total assets
    
    $
    2,348,462
    
    
    $
    2,396,711Liabilities And Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    105,509
    
    
    $
    101,481Employee compensation and benefits
    
    
    131,594
    
    
    
    125,858Accrued insurance liabilities
    
    
    101,876
    
    
    
    110,186Income tax payable
    
    
    24,019
    
    
    
    1,410Other accrued liabilities
    
    
    54,470
    
    
    
    46,560Long-term debt due within one year
    
    
    1,128
    
    
    
    2,007Total current liabilities
    
    
    418,596
    
    
    
    387,502Long-term debt
    
    
    554,599
    
    
    
    659,181Deferred income taxes
    
    
    140,446
    
    
    
    137,200Other liabilities
    
    
    265,201
    
    
    
    237,723Shareholders equity:Preferred stock, $.01 par value, 5 million shares authorizedCommon stock, $.01 par value, 300 million shares authorized,
111.0 million shares issued
    
    
    1,110
    
    
    
    1,110Capital in excess of par value
    
    
    363,203
    
    
    
    357,832Retained earnings
    
    
    1,172,682
    
    
    
    1,089,577Accumulated other comprehensive loss
    
    
    (1,170
    )
    
    
    (662
    )1,535,825
    
    
    
    1,447,857Less treasury stock, at cost (24.5 and 22.0 million shares, respectively)
    
    
    (566,205
    )
    
    
    (472,752
    )Total shareholders equity
    
    
    969,620
    
    
    
    975,105Total liabilities and shareholders equity
    
    $
    2,348,462
    
    
    $
    2,396,711
 See notes to consolidated financial statements. 3




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Manor Care, Inc. 
   Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302004
    
    2003
    
    2004
    
    2003(In thousands, except per share amounts)Revenues
    
    $
    806,818
    
    
    $
    761,279
    
    
    $
    2,403,291
    
    
    $
    2,242,385ExpensesOperating
    
    
    663,403
    
    
    
    638,235
    
    
    
    1,982,518
    
    
    
    1,882,746General and administrative
    
    
    34,045
    
    
    
    36,649
    
    
    
    101,942
    
    
    
    113,995Depreciation and amortization
    
    
    31,943
    
    
    
    32,058
    
    
    
    95,966
    
    
    
    95,595729,391
    
    
    
    706,942
    
    
    
    2,180,426
    
    
    
    2,092,336Income before other income (expenses)
and income taxes
    
    
    77,427
    
    
    
    54,337
    
    
    
    222,865
    
    
    
    150,049Other income (expenses):Interest expense
    
    
    (10,150
    )
    
    
    (10,842
    )
    
    
    (32,117
    )
    
    
    (31,034
    )Early extinguishment of debt
    
    
    (11,162
    )
    
    
    
    
    
    
    (11,162
    )Gain on sale of assets
    
    
    1,696
    
    
    
    1,731
    
    
    
    3,371
    
    
    
    4,054Equity in earnings of affiliated companies
    
    
    1,765
    
    
    
    2,090
    
    
    
    5,662
    
    
    
    5,230Interest income and other
    
    
    278
    
    
    
    307
    
    
    
    1,195
    
    
    
    1,439Total other expenses, net
    
    
    (17,573
    )
    
    
    (6,714
    )
    
    
    (33,051
    )
    
    
    (20,311
    )Income before income taxes
    
    
    59,854
    
    
    
    47,623
    
    
    
    189,814
    
    
    
    129,738Income taxes
    
    
    20,779
    
    
    
    16,584
    
    
    
    69,514
    
    
    
    48,652Net income
    
    $
    39,075
    
    
    $
    31,039
    
    
    $
    120,300
    
    
    $
    81,086Earnings per share:Basic
    
    $
    .45
    
    
    $
    .35
    
    
    $
    1.38
    
    
    $
    .90Diluted
    
    $
    .45
    
    
    $
    .35
    
    
    $
    1.35
    
    
    $
    .89Weighted-average shares:Basic
    
    
    86,158
    
    
    
    88,060
    
    
    
    87,250
    
    
    
    90,272Diluted
    
    
    87,591
    
    
    
    89,720
    
    
    
    88,848
    
    
    
    91,532Cash dividends declared per common share
    
    $
    .14
    
    
    $
    .125
    
    
    $
    .42
    
    
    $
    .125
 See notes to consolidated financial statements. 4




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Manor Care, Inc. 
   Nine Months Ended September 302004
    
    2003(In thousands)Operating ActivitiesNet income
    
    $
    120,300
    
    
    $
    81,086Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    95,966
    
    
    
    95,595Early extinguishment of debt
    
    
    11,162Provision for bad debts
    
    
    20,421
    
    
    
    23,930Deferred income taxes
    
    
    1,848
    
    
    
    46,338Net gain on sale of assets
    
    
    (3,371
    )
    
    
    (4,054
    )Equity in earnings of affiliated companies
    
    
    (5,662
    )
    
    
    (5,230
    )Changes in assets and liabilities, excluding sold facilities and acquisitions:Receivables
    
    
    (33,917
    )
    
    
    (21,564
    )Prepaid expenses and other assets
    
    
    12,461
    
    
    
    (1,633
    )Liabilities
    
    
    61,166
    
    
    
    40,081Total adjustments
    
    
    160,074
    
    
    
    173,463Net cash provided by operating activities
    
    
    280,374
    
    
    
    254,549Investing ActivitiesInvestment in property and equipment
    
    
    (122,187
    )
    
    
    (74,059
    )Investment in systems development
    
    
    (2,196
    )
    
    
    (2,728
    )Acquisitions
    
    
    (4,025
    )
    
    
    (12,556
    )Proceeds from sale of assets
    
    
    32,220
    
    
    
    16,748Proceeds from sale of minority interests in consolidated entity
    
    
    2,778Net cash used in investing activities
    
    
    (93,410
    )
    
    
    (72,595
    )Financing ActivitiesNet repayments under bank credit agreement
    
    
    
    
    
    
    (259,300
    )Principal payments of long-term debt
    
    
    (105,990
    )
    
    
    (13,896
    )Proceeds from issuance of senior notes
    
    
    
    
    
    
    299,372Payment of financing costs and debt prepayment premium
    
    
    (10,949
    )
    
    
    (7,320
    )Purchase of common stock for treasury
    
    
    (108,248
    )
    
    
    (139,277
    )Dividends paid
    
    
    (37,195
    )
    
    
    (11,150
    )Proceeds from exercise of stock options
    
    
    14,953
    
    
    
    2,694Net cash used in financing activities
    
    
    (247,429
    )
    
    
    (128,877
    )Net increase (decrease) in cash and cash equivalents
    
    
    (60,465
    )
    
    
    53,077Cash and cash equivalents at beginning of period
    
    
    86,251
    
    
    
    30,554Cash and cash equivalents at end of period
    
    $
    25,786
    
    
    $
    83,631
 See notes to consolidated financial statements. 5




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Manor Care, Inc. 
   Note 1  Accounting Policies 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), all normal recurring adjustments
considered necessary for a fair presentation are included. Operating results
for the nine months ended September 30, 2004 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2004. The balance sheet at December 31, 2003 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, 2003. At September 30, 2004, the Company operated 282 skilled nursing facilities, 66
assisted living facilities, 88 outpatient therapy clinics and 94 hospice and
home health offices. Subsequent to September 30, 2004, the Company sold five
facilities that it operated. Comprehensive Income Comprehensive income represents the sum of net income plus other comprehensive
income (loss). Comprehensive income totaled $39.1 million and $119.8 million
for the three and nine months ended September 30, 2004, respectively, and $31.5
million and $80.8 million for the three and nine months ended September 30,
2003, respectively. The other comprehensive loss in the first nine months of
2004 primarily represents the reversal of the unrealized gain on investments
sold. The other comprehensive loss in the first nine months of 2003 represents
the reversal of the unrealized gain on investments sold partially offset by the
unrealized gain on other securities held by the Company. Insurance Liabilities At September 30, 2004 and December 31, 2003, the workers compensation
liability consisted of short-term reserves of $24.1 million and $26.5 million,
respectively, which were included in accrued insurance liabilities, and
long-term reserves of $45.5 million and $40.5 million, respectively, which were
included in other long-term liabilities. The expense for workers 6




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compensation
was $6.4 million and $24.6 million for the three and nine months ended
September 30, 2004, respectively, and
$10.2 million and $34.7 million for the three and nine months ended September
30, 2003, respectively. Although management believes that the Companys
liability reserves are adequate, there can be no assurance that these reserves
will not require material adjustment in future periods. See Note 3 for
discussion of the Companys general and professional liability. Stock-Based Compensation Stock options are granted for a fixed number of shares to employees with an
exercise price equal to the fair market value of the shares at the date of
grant. The Company accounts for the stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. Accordingly, the Company recognizes no compensation expense
for the stock options. During the first quarter of 2004, employees delivered
shares to the Company to cover the payment of the option price and related tax
withholdings on the option exercises. These shares had a value of $5.4
million. The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of
Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation for options
granted since 1995. Three months ended
    
    Nine months endedSeptember 30
    
    September 302004
    
    2003
    
    2004
    
    2003(In thousands, except earnings per share)Net income  as reported
    
    $
    39,075
    
    
    $
    31,039
    
    
    $
    120,300
    
    
    $
    81,086Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects
    
    
    (898
    )
    
    
    (3,569
    )
    
    
    (3,420
    )
    
    
    (7,480
    )Net income  pro forma
    
    $
    38,177
    
    
    $
    27,470
    
    
    $
    116,880
    
    
    $
    73,606Earnings per share  as reported:Basic
    
    $
    .45
    
    
    $
    .35
    
    
    $
    1.38
    
    
    $
    .90Diluted
    
    $
    .45
    
    
    $
    .35
    
    
    $
    1.35
    
    
    $
    .89Earnings per share  pro forma:Basic
    
    $
    .44
    
    
    $
    .31
    
    
    $
    1.34
    
    
    $
    .82Diluted
    
    $
    .43
    
    
    $
    .31
    
    
    $
    1.31
    
    
    $
    .80
 7




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New Accounting Standard The Emerging Issues Task Force (EITF) of the FASB reached a consensus on Issue
No. 04-8, The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share,at its September 30, 2004 meeting that was ratified by the
FASB at its October 13, 2004 meeting. EITF Issue No.04-8 requires companies to
include the contingent convertible notes in diluted earnings per share as if
the notes were converted to common shares at the time of issuance (the
if-converted method). EITF Issue No. 04-8 should be applied to reporting
periods ending after the effective date, which is expected to be December 15,
2004. The Company has $100 million contingently Convertible Senior Notes that
were issued in April 2003 and are convertible into 3.2 million shares of common
stock when the average stock price for 20 trading days reaches or exceeds
$37.34. Companies are currently required to include these potential shares
only when the conversion triggers are reached. As of September 30, 2004,
diluted earnings per share does not include the conversion because none of the
contingencies were met. As a result of the EITF consensus, the Company is
evaluating its options prior to year end with respect to its notes in order to
reduce the number of incremental shares that would be included in diluted
earnings per share. Note 2  Revenues Revenues for certain health care services are as follows: Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302004
    
    2003
    
    2004
    
    2003(In thousands)Skilled nursing and assisted living services
    
    $
    680,902
    
    
    $
    648,705
    
    
    $
    2,032,300
    
    
    $
    1,919,189Hospice and home health services
    
    
    96,745
    
    
    
    83,168
    
    
    
    285,095
    
    
    
    239,800Rehabilitation services
(excludes intercompany revenues)
    
    
    21,192
    
    
    
    21,659
    
    
    
    63,526
    
    
    
    61,673Other services
    
    
    7,979
    
    
    
    7,747
    
    
    
    22,370
    
    
    
    21,723$
    806,818
    
    
    $
    761,279
    
    
    $
    2,403,291
    
    
    $
    2,242,385
 Note 3  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 8




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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 MCA is alleged to be a
potentially responsible party has not yet been quantified. At September 30,
2004, the Company had $4.5 million accrued in other long-term liabilities based
on its current assessment of the likely outcome of the Actions which was
reviewed with its outside advisors. At September 30, 2004, there were no
receivables related to insurance recoveries. 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, 2004 and December 31, 2003, the general and professional
liability consisted of short-term reserves of $65.6 million and $69.8 million,
respectively, which were included in accrued insurance liabilities, and
long-term reserves of $122.5 million and $107.5 million, respectively, which
were included in other long-term liabilities. The expense for general and
professional liability claims, premiums and administrative fees was $20.0
million and $60.8 million for the three and nine months ended September 30,
2004, respectively, and $25.0 million and $67.7 million for the three and nine
months ended September 30, 2003, respectively, which was included in operating
expenses. Although management believes that the Companys liability reserves
are adequate, there can be no assurance that such provision and liability will
not require material adjustment in future periods. Note 4  Debt During
August 2004, the Company purchased $50 million of the
71⁄2% Senior
Notes due 2006 issued by its wholly owned subsidiary, Manor Care of America,
Inc., and guaranteed by the Company, and $50 million of its 8% Senior Notes due
2008, pursuant to previously announced cash tender offers. The offers were
financed with cash on hand. The Company recorded costs of $11.2 million
related to these tender offers, including $10.5 million for the prepayment
premium, $0.4 million for fees and expenses, and $0.3 million for the write-off
of deferred financing costs. The Company may be required to redeem $100 million of Convertible Senior Notes
from its holders on April 15, 2005, which the Company is required to pay in
cash. The Company has the ability and intent to finance the payment of the
Convertible Senior Notes with its revolving credit facility that matures April
21, 2006. The Convertible Senior Notes are classified as long-term based on
the maturity date of the Companys revolving credit facility. 9




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Note
5 - Earnings Per Share The calculation of earnings per share (EPS) is as follows: Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302004
    
    2003
    
    2004
    
    2003(In thousands, except earnings per share)Numerator:Net income
    
    $
    39,075
    
    
    $
    31,039
    
    
    $
    120,300
    
    
    $
    81,086Denominator:Denominator for basic EPS -
weighted-average shares
    
    
    86,158
    
    
    
    88,060
    
    
    
    87,250
    
    
    
    90,272Effect of dilutive securities:Stock options
    
    
    969
    
    
    
    1,253
    
    
    
    1,137
    
    
    
    910Non-vested restricted stock
    
    
    464
    
    
    
    407
    
    
    
    461
    
    
    
    350Denominator for diluted EPS -
adjusted for weighted-average
shares and assumed conversions
    
    
    87,591
    
    
    
    89,720
    
    
    
    88,848
    
    
    
    91,532EPS:Basic
    
    $
    .45
    
    
    $
    .35
    
    
    $
    1.38
    
    
    $
    .90Diluted
    
    $
    .45
    
    
    $
    .35
    
    
    $
    1.35
    
    
    $
    .89
 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: 1.2 million
shares with an average exercise price of $35 for the nine months of 2004 and
3.0 million shares with an average exercise price of $28 for the nine months of
2003. The Companys diluted EPS calculation does not include the conversion of the
Companys contingently Convertible Senior Notes because none of the
contingencies were met at September 30, 2004. For a summary description of the
contingencies, refer to the Companys debt footnote in the Form 10-K for the
year ended December 31, 2003. For a more detailed discussion of the
contingencies, refer to Form S-3 filed on July 30, 2003 (and related subsequent
amendments). These documents have been filed with the SEC and are available
through our website, www.hcr-manorcare.com. 10




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Note 6  Employee Benefit Plans The Company has two qualified and one non-qualified defined benefit pension
plans included in the table below. Two of the plans future benefits are
frozen. The components of net pension income are as follows: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(In thousands)Service cost
    
    $
    55
    
    
    $
    65
    
    
    $
    165
    
    
    $
    196Interest cost
    
    
    585
    
    
    
    646
    
    
    
    1,756
    
    
    
    1,937Expected return on plan assets
    
    
    (1,194
    )
    
    
    (1,197
    )
    
    
    (3,583
    )
    
    
    (3,591
    )Amortization of unrecognized transition asset
    
    
    (12
    )
    
    
    (12
    )
    
    
    (36
    )
    
    
    (36
    )Amortization of prior service cost
    
    
    9
    
    
    
    9
    
    
    
    28
    
    
    
    28Amortization of net loss
    
    
    178
    
    
    
    147
    
    
    
    532
    
    
    
    440Net pension income
    
    $
    (379
    )
    
    $
    (342
    )
    
    $
    (1,138
    )
    
    $
    (1,026
    )
 The Company also has a senior executive retirement plan, which is a
non-qualified plan designed to provide pension benefits and death benefits for
certain officers. The expense for this plan amounted to $1.3 million and $3.9
million for the three and nine months ended September 30, 2004, respectively,
and $0.1 million and $0.4 million for the three and nine months ended September
30, 2003, respectively. Note 7  Segment Information The Company provides a range of health care services. The Company has two
reportable operating segments, long-term care, which includes the operation of
skilled nursing and assisted living facilities, and hospice and home health.
The Other category includes the non-reportable segments and corporate items.
The revenues in the Other category are derived from rehabilitation and other
services. 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, other income and expense items, and income
taxes. The Other category is not comparative as the Company recorded $8.4
million of operating expenses in the second quarter of 2003 related to a
proposed settlement of a review of certain Medicare cost reports filed by
facilities of the former Manor Care, Inc. for the period 1992-1998. The
settlement was finalized and paid in the second quarter of 2004. See
Managements Discussion and Analysis for additional discussion of this expense. 11




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##### Table of Contents



Long-Term
    
    Hospice andCare
    
    Home Health
    
    Other
    
    Total(In thousands)Three months ended September 30, 2004Revenues from external customers
    
    $
    680,902
    
    
    $
    96,745
    
    
    $
    29,171
    
    
    $
    806,818Intercompany revenues
    
    
    
    
    
    
    
    
    
    
    17,994
    
    
    
    17,994Depreciation and amortization
    
    
    30,260
    
    
    
    732
    
    
    
    951
    
    
    
    31,943Operating margin
    
    
    123,562
    
    
    
    18,067
    
    
    
    1,786
    
    
    
    143,415Three months ended September 30, 2003Revenues from external customers
    
    $
    648,705
    
    
    $
    83,168
    
    
    $
    29,406
    
    
    $
    761,279Intercompany revenues
    
    
    
    
    
    
    
    
    
    
    14,392
    
    
    
    14,392Depreciation and amortization
    
    
    30,116
    
    
    
    988
    
    
    
    954
    
    
    
    32,058Operating margin
    
    
    102,996
    
    
    
    14,869
    
    
    
    5,179
    
    
    
    123,044Nine months ended September 30, 2004Revenues from external customers
    
    $
    2,032,300
    
    
    $
    285,095
    
    
    $
    85,896
    
    
    $
    2,403,291Intercompany revenues
    
    
    
    
    
    
    
    
    
    
    51,806
    
    
    
    51,806Depreciation and amortization
    
    
    90,928
    
    
    
    2,216
    
    
    
    2,822
    
    
    
    95,966Operating margin
    
    
    357,880
    
    
    
    53,339
    
    
    
    9,554
    
    
    
    420,773Nine months ended September 30, 2003Revenues from external customers
    
    $
    1,919,189
    
    
    $
    239,800
    
    
    $
    83,396
    
    
    $
    2,242,385Intercompany revenues
    
    
    
    
    
    
    
    
    
    
    44,112
    
    
    
    44,112Depreciation and amortization
    
    
    89,347
    
    
    
    2,941
    
    
    
    3,307
    
    
    
    95,595Operating margin
    
    
    313,967
    
    
    
    43,820
    
    
    
    1,852
    
    
    
    359,639
 12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations Results of Operations - Overview Federal Medicare Payment Legislation.The Centers for Medicare & Medicaid
Services, or CMS, recently announced the annual increase in Medicare
reimbursement for the next fiscal year. Beginning October 1, 2004, our
Medicare rates will increase by 2.8 percent for our nursing home business and
3.3 percent for our hospice business. Beginning January 1, 2005, our Medicare
rates will increase by 2.3 percent for our home health business. Critical Accounting Policies General and Professional Liability.We purchase general and professional
liability insurance and have maintained an unaggregated self-insured retention
limit per occurrence ranging from $0.5 million to $12.5 million, depending on
the policy year and state. In addition, for the policy period beginning June
1, 2004, we formed a captive insurance entity to provide a coverage layer of
$12.5 million in excess of $12.5 million per claim. 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 2004 for all policy periods through May 31, 2004. 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 based on our historical
experience and other available industry information. 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. In comparing the first nine months of
2004 with the first nine months of 2003, the number of new claims is down.
Based on our semi-annual review with our independent actuary, we maintained our
accrual for current claims at $5.5 million per month. Although we believe our
liability reserves are adequate, we can give no assurance that these reserves
will not require material adjustment in future periods. Workers Compensation Liability.Our workers compensation reserves are
determined based on an estimation process that uses company-specific data. We
continuously monitor the claims and develop information about the ultimate cost
of the claims based on our historical experience. During 2003 and continuing
into 2004, we expanded and increased attention to our 13




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##### Table of Contents



safety, training and
claims management programs. The number of new claims in 2004 decreased in
comparison to the prior year period. As a result of these factors, our
workers compensation expense decreased $3.8 million for the third quarter of
2004 and $10.1 million for the first nine months of 2004 in comparison to prior
year periods. Although we believe our liability reserves are adequate, we can
give no assurance that these reserves will not require material adjustment in
future periods. Results of Operations  Quarter and Year-To-Date September 30, 2004 Compared with September 30, 2003 Revenues.Our revenues increased $45.5 million, or 6 percent, from the
third quarter of 2003 to 2004. Revenues from our long-term care segment
(skilled nursing and assisted living facilities) increased $32.2 million, or 5
percent, due to increases in rates/patient mix$59.6 million and occupancy$4.6
million that were partially offset by a decrease in capacity$32.0 million.
Our revenues from the hospice and home health segment increased $13.6 million,
or 16 percent, primarily because of an increase in hospice services provided. Our revenues in the first nine months of 2004 increased $160.9 million, or 7
percent, compared with the first nine months of 2003. Revenues from our
long-term care segment increased $113.1 million, or 6 percent, due to increases
in rates/patient mix$161.4 million and occupancy$13.4 million that were
partially offset by a decrease in capacity$61.7 million. Our revenues from
the hospice and home health care segment increased $45.3 million, or 19
percent, primarily because of an increase in hospice services provided. Our average rates per day for the long-term care segment were as follows: Third Quarter
    
    
    
    
    
    First Nine Months2004
    
    2003
    
    Increase
    
    2004
    
    2003
    
    IncreaseMedicare
    
    $
    338.60
    
    
    $
    311.98
    
    
    
    9
    %
    
    $
    335.83
    
    
    $
    311.17
    
    
    
    8
    %Medicaid
    
    $
    136.64
    
    
    $
    131.04
    
    
    
    4
    %
    
    $
    135.14
    
    
    $
    130.21
    
    
    
    4
    %Private and other (skilled only)
    
    $
    200.45
    
    
    $
    190.34
    
    
    
    5
    %
    
    $
    199.48
    
    
    $
    189.30
    
    
    
    5
    %
 Our Medicare rates increased effective October 1, 2003 as a result of a 3.0
percent inflation update and an additional 3.26 percent rate increase designed
to make up for previous forecast error underpayments by the Centers for
Medicare & Medicaid Services, or CMS. The remaining increase in the Medicare
rates was a result of higher acuity Medicare patients. We expect our Medicare
rates to increase 2.8 percent effective October 1, 2004 for the inflation
update. In the third quarter of 2004, we recorded $5.6 million of Medicaid
revenues related to Pennsylvanias retroactive rate increase for the twelve
months ended June 30, 2004. This retroactive portion is not included in the
average Medicaid rate above. We expect our Medicaid rates to continue to
increase approximately 3-4 percent in comparison to prior year periods. The
increase in overall 14




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##### Table of Contents



rates was also a result of a shift in the mix of our
patients to a higher percentage of Medicare patients. Our occupancy levels were as follows: Third Quarter
    
    First Nine Months2004
    
    2003
    
    2004
    
    2003Total
    
    
    89
    %
    
    
    88
    %
    
    
    88
    %
    
    
    88
    %Excluding start-up facilities
    
    
    89
    %
    
    
    89
    %
    
    
    88
    %
    
    
    88
    %Skilled nursing facilities
    
    
    89
    %
    
    
    89
    %
    
    
    89
    %
    
    
    89
    %
 The quality mix of revenues from Medicare, private pay and insured patients
that related to skilled nursing and assisted living facilities and
rehabilitation operations was 69 percent for the third quarter and first nine
months of 2004 compared to 67 percent for the third quarter and first nine
months of 2003. Our bed capacity declined between the third quarters and first nine months of
2003 and 2004 primarily because of the divestiture of facilities as a result of
sale, lease expiration or closure. We divested 3 facilities with 374 beds in
the second quarter of 2003, 5 facilities with 805 beds in the first quarter of
2004, 7 facilities with 973 beds in the second quarter of 2004 and 3 facilities
with 443 beds in the third quarter of 2004. Operating Expenses.Our operating expenses in the third quarter of 2004
increased $25.2 million, or 4 percent, compared with the third quarter of 2003. Operating expenses from our long-term care segment increased $11.6 million, or
2 percent, between the third quarters of 2003 and 2004. The largest portion of
the long-term care operating expense increase related to ancillary costs of
$10.1 million, excluding internal labor. Ancillary costs, which include
various types of therapies, medical supplies and prescription drugs, increased
as a result of our more medically complex patients. Our labor costs increased
$4.7 million that was offset by a decline in general and professional liability
expense of $4.8 million. Our average wage rates increased 5 percent compared
with the third quarter of 2003. Our operating expenses from our hospice and home health segment increased $10.4
million, or 15 percent, between the third quarters of 2003 and 2004. The
increase in our costs was directly related to the growth in our business. The
increase related to labor costs of $6.2 million, ancillary costs including
pharmaceuticals of $1.1 million and other direct nursing care costs, including
medical equipment and supplies, of $0.8 million. Our operating expenses in the first nine months of 2004 increased $99.8
million, or 5 percent, compared with the first nine months of 2003. During the
second quarter of 2003, we recorded an expense of $8.4 million for a proposed
settlement of a review of certain Medicare cost reports filed 15




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##### Table of Contents



by facilities of
the former Manor Care, Inc. prior to the implementation of the prospective
payment system. This review, which was conducted by the Department of Justice
and the Office of Inspector General of the Department of Health and Human
Services, focused primarily on nursing cost allocations made in reliance upon
instructions from the facilities Medicare fiscal intermediary for the period
1992-1998. We believe the former Manor Care facilities were fully entitled to
the
reimbursement they received for these allocations. The definitive settlement
agreement was finalized and $8.4 million paid in the second quarter of 2004. Operating expenses from our long-term care segment increased $69.2 million, or
4 percent, between the first nine months of 2003 and 2004. The largest portion
of the long-term care operating expense increase of $39.8 million related to
labor costs. Our other operating expense increase for this segment included
ancillary costs, excluding internal labor, of $24.7 million. Offsetting these
increases were decreases in our general and professional liability expense by
$6.7 million and bad debt expense by $3.5 million. Our operating expenses from our hospice and home health segment increased $35.8
million, or 18 percent, between the first nine months of 2003 and 2004. The
increase related to labor costs of $22.6 million, ancillary costs including
pharmaceuticals of $3.5 million and other direct nursing care costs, including
medical equipment and supplies, of $2.7 million. General and Administrative Expenses.Our general and administrative
expenses decreased $2.6 million and $12.1 million from the third quarters and
first nine months of 2003 to 2004, respectively. In the second quarter of
2003, we recorded a charge of $6.2 million related to restructuring
split-dollar life insurance policies for officers and key employees in order to
comply with contractual requirements and the Sarbanes-Oxley Act of 2002, as
well as to address tax law changes. Excluding this charge, the decrease in
expense primarily related to costs associated with our stock appreciation
rights and deferred compensation plans. During the third quarter of 2003, our
stock price increased 20 percent that resulted in a significant increase in
expense. During 2004, our stock price has been stable and as a result no major
fluctuations occurred in this expense. The decrease in these costs included in
general and administrative expenses was $6.2 million from the third quarters of
2003 to 2004 and $13.9 million from the first nine months of 2003 to 2004. The remaining increases related to pension plans and other inflationary costs. Depreciation and Amortization.Our depreciation expense increased $1.6
million from the first nine months of 2003 to 2004. Excluding our divested
facilities, depreciation expense increased $3.2 million because of new
construction projects and renovations to existing facilities. Our amortization
decreased $1.2 million from the first nine months of 2003 to 2004, primarily
due to a decline in software amortization. 16




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##### Table of Contents



Interest Expense.Interest expense decreased $0.7 million from the third
quarters of 2003 and 2004, primarily due to the purchase of $100 million of
senior notes in August 2004. Interest expense increased $1.1 million from the
first nine months of 2003 to 2004, primarily because of higher interest rates
associated with our fixed-rate senior notes issued in April 2003 compared with
our variable-rate credit agreement debt that was paid off. Early Extinguishment of Debt.We incurred $11.2 million in costs related
to the early extinguishment of $50 million of 71⁄2% Senior Notes and $50
million of 8% Senior Notes, pursuant to our previously announced cash tender
offers. The costs included a prepayment premium of $10.5 million, fees and
expenses of $0.4 million and the write off of deferred financing costs of $0.3
million. Gain on Sale of Assets.Our gain on sale of assets in 2004 primarily
resulted from the sale of seven skilled nursing and two assisted living
facilities and sale of certain other assets. Our gain on sale of assets in
2003 primarily related to the sale of non-strategic land parcels, securities
and three skilled nursing facilities. Equity in Earnings of Affiliated Companies.Our equity earnings increased
in the first nine months of 2004 compared with the prior year period primarily
because of our ownership interests in two hospitals. Income Taxes.Our effective tax rate was lower in the third quarter of
2004 due to the resolution of certain tax issues during the quarter that
allowed us to adjust prior years estimated tax liability by $1.7 million. We
expect our effective tax rate to be 36 percent in the fourth quarter of 2004
because of the recent retroactive renewal of the Work Opportunity Tax Credit by
Congress. We expect our effective tax rate to be 36.5 percent for annualized
2004 and 37.5 percent for 2005. During the third quarter of 2003, our
effective tax rate was 34.8 percent as a result of a decrease in our deferred
tax rate in the third quarter of 2003. Financial Condition  September 30, 2004 and December 31, 2003 Net property and equipment increased $2.8 million primarily because of $85.5
million in new construction and renovations to existing facilities and $36.7
million to purchase four leased facilities in Ohio. These increases were
partially offset by depreciation of $91.1 million and disposal of assets of
$28.0 million. Income tax payable increased $22.6 million primarily due to deferral of tax
payments to future quarters. Long-term debt decreased because we purchased $50 million principal amount of
the 71⁄2% Senior Notes due 2006 issued by our wholly owned subsidiary, Manor
Care of America, Inc., and $50 17




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##### Table of Contents



million principal amount of our 8% Senior Notes
due 2008, pursuant to our previously announced cash tender offers. Liquidity and Capital Resources Cash Flows.During the first nine months of 2004, we satisfied our cash
requirements primarily with cash generated from operating activities. We used
the cash principally for capital
expenditures, the purchase of our common stock, the pay down of debt and the
payment of dividends. Cash flows from operating activities were $280.4 million
for the first nine months of 2004, an increase of $25.8 million from the first
nine months of 2003. The increase in cash flows resulted primarily from an
increase in net income. Investing Activities.Our expenditures for property and equipment of
$122.2 million in the first nine months of 2004 included $36.7 million to
purchase four leased facilities in Ohio and $21.6 million to construct new
facilities and expand existing facilities. The proceeds from the sale of
assets primarily related to the sale of seven skilled nursing facilities and
two assisted living facilities. Debt Agreements.As of September 30, 2004, there were no loans
outstanding under our three-year $200 million revolving credit facility. After
consideration of usage for letters of credit, there was $156.1 million
available for future borrowings. During August 2004, we purchased $50 million
principal amount of the 71⁄2% Senior Notes due 2006 issued by our wholly
owned subsidiary, Manor Care of America, Inc., and guaranteed by us, and $50
million principal amount of our 8% Senior Notes due 2008, pursuant to our
previously announced cash tender offers. The offers were financed with cash on
hand. Stock Purchase.In April 2003, our Board of Directors authorized us to
spend up to $100 million to purchase our common stock through December 31,
2004. In July 2004, our Board of Directors authorized an additional $100
million through December 31, 2005. With these authorizations, we purchased
3,362,700 shares in the first nine months of 2004 for $108.2 million and had
$84.6 million remaining authority at September 30, 2004. We may use the
shares for internal stock option and 401(k) match programs and for other uses,
such as possible acquisitions. Cash Dividends.On October 22, 2004, we announced that the Company will
pay a quarterly cash dividend of 14 cents per share to shareholders of record
on November 8, 2004. This dividend will approximate $12.1 million and is
payable November 22, 2004. We intend to declare and pay regular quarterly cash
dividends; however, there can be no assurance that any dividends will be
declared, paid or increased in the future. We believe that our cash flow from operations will be sufficient to cover
operating needs, future capital expenditure requirements, scheduled debt
payments of miscellaneous small borrowing 18




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##### Table of Contents



arrangements and capitalized leases,
cash dividends and some share repurchase. Because of our significant annual
cash flow, we believe that we will be able to refinance the major pieces of our
debt as they mature. It is likely that we will pursue growth from
acquisitions, partnerships and other ventures that we would fund from excess
cash from operations, credit available under our revolving credit facility 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 the health care industry because of political and economic
influences; 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 patient
care-related claims and workers compensation claims and in insurance costs
related to such 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 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. 19




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##### Table of Contents



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, 2003. In August 2004, we purchased $50 million principal amount
of each of our 71⁄2% Senior Notes due 2006 and 8% Senior Notes due 2008,
pursuant to our previously announced cash tender offers. The offers were
financed with cash on hand. The table below provides information about our derivative financial instruments
that are sensitive to changes in interest rates, including interest rate swaps
and debt obligations. For debt obligations, the table presents principal cash
flows and weighted-average interest rates by expected maturity dates. We
believe the holders of the Convertible Senior Notes will not require us to
redeem or convert the notes through 2009. Therefore, we have included these
notes in the Thereafter column. For interest rate swaps, the table presents
notional amounts by expected (contractual) maturity date. Notional amounts are
used to calculate the contractual payments to be exchanged under the contract. The following table provides information about our significant interest rate
risk at September 30, 2004: FairExpected Maturity Dates
    
    
    
    
    
    ValueSept. 30,2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    2004(Dollars in thousands)Long-term debt:Fixed rate debt
    
    
    

    

    
    $
    100,000
    
    
    
    
    
    
    $
    150,000
    
    
    
    
    
    
    $
    300,000
    
    
    $
    550,000
    
    
    $
    605,319Average interest rate
    
    
    
    
    
    
    7.5
    %
    
    
    
    
    
    
    8.0
    %
    
    
    
    
    
    
    5.0
    %
    
    
    6.3
    %Interest rate swaps 
fixed tovariable:Notional amount
    
    
    
    
    
    $
    100,000
    
    
    
    
    
    
    $
    100,000
    
    
    
    
    
    
    
    
    
    
    $
    200,000
    
    
    $
    4,312Pay variable rate
    
    
    
    
    
    
    L+ 5.1
    %
    
    
    
    
    
    
    L+ 5.0
    %
    
    
    
    
    
    
    
    
    
    
    L+ 5.1
    %Receive fixed rate
    
    
    
    
    
    
    7.5
    %
    
    
    
    
    
    
    8.0
    %
    
    
    
    
    
    
    
    
    
    
    7.8
    %
 L= six-month LIBOR (approximately 2.2 % at September 30, 2004) 
 Item 4. Controls and Procedures 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, 2004. There were no significant changes in our
internal control over financial reporting in the third quarter of 2004 that
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. 20




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##### Table of Contents



Part II. Other Information 
 Item 1. Legal Proceedings. See Note 3  Contingencies in the notes to the consolidated financial
statements for a discussion of litigation related to environmental matters and
patient care-related claims. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The following table provides information with respect to stock repurchased by
the Company during the third quarter of 2004: Total Number of
    
    Approximate DollarAverage
    
    Shares Purchased
    
    Value of Shares thatTotal Number
    
    Price
    
    as Part of Publicly
    
    May Yet Beof Shares
    
    Paid per
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Purchased
    
    Share
    
    Programs (1)
    
    Plans or Programs (1)7/1/04-7/31/04
    
    
    225,000
    
    
    $
    31.47
    
    
    
    225,000
    
    
    $
    114,038,3488/1/04-8/31/04
    
    
    444,500
    
    
    $
    30.41
    
    
    
    444,500
    
    
    $
    100,521,5519/1/04-9/30/04
    
    
    525,000
    
    
    $
    30.35
    
    
    
    525,000
    
    
    $
    84,589,346Total
    
    
    1,194,500
    
    
    $
    30.58
    
    
    
    1,194,500
  (1)
    
    On April 9, 2003, the Company announced that its Board of Directors
authorized management to spend $100 million to purchase common stock
through December 31, 2004, but this authorization was utilized by
September 2004.On July 23, 2004, the Company announced that its Board of Directors
authorized management to spend an additional $100 million to
purchase common stock through December 31, 2005. 
 Item 3. Defaults Upon Senior Securities. None 
 Item 4. Submission of Matters to a Vote of Security Holders. None 
 Item 5. Other Information. None 21




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##### Table of Contents



Item 6. Exhibits. S-K Item601 No.10.1*
    
    Agreement by and between Manor Care, Inc., Heartland Employment
Services, Inc., Health Care and Retirement Corporation of America and Paul
A. Ormond, effective August 20, 200410.2*
    
    Agreement by and between Manor Care, Inc., Heartland Employment
Services, Inc., Health Care and Retirement Corporation of America and
Trustee, effective August 20, 200410.3*
    
    Agreement by and between Manor Care, Inc. and Paul A. Ormond, effective
August 20, 200410.4*
    
    Form of Split Dollar Assignment Termination Agreement by and between Health Care
and Retirement Corporation of America, Manor Care, Inc., Heartland
Employment Services, Inc., Trustee, and Paul A. Ormond and M. Keith
Weikel, effective December 16, 200310.5*
    
    Form of Split Dollar Assignment Termination Agreement by and between
Health Care and Retirement Corporation of America, Manor Care, Inc.,
Heartland Employment Services, Inc., and remaining executive officers,
effective December 16, 200331.1*
    
    Chief Executive Officer Certification31.2*
    
    Chief Financial Officer Certification32.1*
    
    Chief Executive Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*
    
    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
 * Filed herewith. 22




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##### Table of Contents



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 2, 2004
    By
    /s/ Geoffrey G. MeyersGeoffrey G. Meyers, Executive Vice Presidentand Chief Financial Officer 23




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##### Table of Contents



Exhibit Index Exhibit10.1
    
    Agreement by and between Manor Care, Inc., Heartland Employment Services,
Inc., Health Care and Retirement Corporation of America and Paul A.
Ormond, effective August 20, 200410.2
    
    Agreement by and between Manor Care, Inc., Heartland Employment Services,
Inc., Health Care and Retirement Corporation of America and Trustee, effective August 20, 200410.3
    
    Agreement by and between Manor Care, Inc. and Paul A. Ormond, effective
August 20, 200410.4
    
    Form of Split Dollar Assignment Termination Agreement by and between Health Care
and Retirement Corporation of America, Manor Care, Inc., Heartland
Employment Services, Inc., Trustee, and Paul A. Ormond and M. Keith
Weikel, effective December 16, 200310.5
    
    Form of Split Dollar Assignment Termination Agreement by and between
Health Care and Retirement Corporation of America, Manor Care, Inc.,
Heartland Employment Services, Inc., and remaining executive officers,
effective December 16, 200331.1
    
    Chief Executive Officer Certification31.2
    
    Chief Financial Officer Certification32.1
    
    Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    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
 24