##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 Amendment No. 1 to Form 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2005
 OR
 o
    
    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
 þ o
 þ o
 o þ




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##### Table of Contents



Manor Care, Inc.
Form 10-Q/A
Explanatory Note
       2




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Manor Care, Inc.
Form 10-Q/A
Table of Contents
 PageNumberPart I.
    
    Financial InformationItem 1.
    
    Financial Statements (Restated)Consolidated Balance Sheets -
June 30, 2005 and December 31, 2004
    
    
    4Consolidated Statements of Income -
Three months and six months ended June 30, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows -
Six months ended June 30, 2005 and 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial
Condition
and Results of Operations (Restated)
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    26Part II.
    
    Other InformationItem 6.
    
    Exhibits
    
    
    26Signatures
    
    
    
    
    27Exhibit Index
    
    
    
    
    28EX-31.1 Chief Executive Officer CertificationEX-31.2 Chief Financial Officer CertificationEX-32.1 CEO Certification Pursuant to 18 U.S.C. Section 13EX-32.2 CFO Certification Pursuant to 18 U.S.C. Section 13
  3




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##### Table of Contents



Part I. Financial Information
 
 Financial Statements.
 Manor Care, Inc.
 
  June 30,2005
    
    
    December 31,Restated
    
    
    2004(Unaudited)
    
    
    (Note 1)(In thousands, except per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    86,663
    
    
    $
    32,915Receivables, less allowances for doubtful
accounts of $54,329 and $54,532, respectively
    
    
    465,696
    
    
    
    425,278Prepaid expenses and other assets
    
    
    28,337
    
    
    
    24,762Deferred income taxes
    
    
    59,440
    
    
    
    57,412Total current assets
    
    
    640,136
    
    
    
    540,367Property and equipment, net of accumulated
depreciation of $823,933 and $768,915, respectively
    
    
    1,493,024
    
    
    
    1,495,152Goodwill
    
    
    93,010
    
    
    
    92,672Intangible assets, net of amortization of $4,807 and $4,499, respectively
    
    
    10,768
    
    
    
    9,099Other assets
    
    
    191,609
    
    
    
    203,408Total assets
    
    $
    2,428,547
    
    
    $
    2,340,698Liabilities And Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    99,739
    
    
    $
    102,178Employee compensation and benefits
    
    
    140,626
    
    
    
    139,900Accrued insurance liabilities
    
    
    98,523
    
    
    
    102,973Income tax payable
    
    
    31,826
    
    
    
    4,710Other accrued liabilities
    
    
    66,226
    
    
    
    49,992Long-term debt due within one year
    
    
    2,483
    
    
    
    2,501Total current liabilities
    
    
    439,423
    
    
    
    402,254Long-term debt
    
    
    554,287
    
    
    
    555,275Deferred income taxes
    
    
    131,588
    
    
    
    134,518Other liabilities
    
    
    268,699
    
    
    
    264,492Shareholders 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
    
    
    374,136
    
    
    
    366,649Retained earnings
    
    
    1,261,051
    
    
    
    1,208,493Accumulated other comprehensive loss
    
    
    (1,208
    )
    
    
    (1,227
    )1,635,089
    
    
    
    1,575,025Less treasury stock, at cost (24.6 and 25.0 million shares, respectively)
    
    
    (600,539
    )
    
    
    (590,866
    )Total shareholders equity
    
    
    1,034,550
    
    
    
    984,159Total liabilities and shareholders equity
    
    $
    2,428,547
    
    
    $
    2,340,698
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Manor Care, Inc.
 
 
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    
    
    
    2005Restated
    
    
    2004
    
    
    Restated
    
    
    2004(In thousands, except per share amounts)Revenues
    
    $
    833,759
    
    
    $
    799,135
    
    
    $
    1,712,961
    
    
    $
    1,596,473Expenses:Operating
    
    
    694,221
    
    
    
    659,757
    
    
    
    1,428,371
    
    
    
    1,319,115General and administrative
    
    
    40,680
    
    
    
    33,106
    
    
    
    76,946
    
    
    
    67,897Depreciation and amortization
    
    
    35,629
    
    
    
    32,276
    
    
    
    69,076
    
    
    
    64,023770,530
    
    
    
    725,139
    
    
    
    1,574,393
    
    
    
    1,451,035Income before other income (expenses)
and income taxes
    
    
    63,229
    
    
    
    73,996
    
    
    
    138,568
    
    
    
    145,438Other income (expenses):Interest expense
    
    
    (10,216
    )
    
    
    (11,248
    )
    
    
    (20,332
    )
    
    
    (21,967
    )Gain (loss) on sale of assets
    
    
    663
    
    
    
    (730
    )
    
    
    209
    
    
    
    1,675Equity in earnings of affiliated companies
    
    
    1,455
    
    
    
    1,844
    
    
    
    2,823
    
    
    
    3,897Interest income and other
    
    
    714
    
    
    
    354
    
    
    
    1,073
    
    
    
    917Total other expenses, net
    
    
    (7,384
    )
    
    
    (9,780
    )
    
    
    (16,227
    )
    
    
    (15,478
    )Income before income taxes
    
    
    55,845
    
    
    
    64,216
    
    
    
    122,341
    
    
    
    129,960Income taxes
    
    
    17,766
    
    
    
    24,081
    
    
    
    43,899
    
    
    
    48,735Net income
    
    $
    38,079
    
    
    $
    40,135
    
    
    $
    78,442
    
    
    $
    81,225Earnings per share:Basic
    
    $
    .44
    
    
    $
    .46
    
    
    $
    .91
    
    
    $
    .93Diluted
    
    $
    .43
    
    
    $
    .45
    
    
    $
    .89
    
    
    $
    .90Weighted-average shares:Basic
    
    
    86,391
    
    
    
    87,409
    
    
    
    86,280
    
    
    
    87,802Diluted
    
    
    88,125
    
    
    
    89,339
    
    
    
    87,923
    
    
    
    89,936Cash dividends declared per common share
    
    $
    .15
    
    
    $
    .14
    
    
    $
    .30
    
    
    $
    .28
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Manor Care, Inc.
 
 
 Six Months Ended June 30,2005Restated
    
    
    2004(In thousands)Operating ActivitiesNet income
    
    $
    78,442
    
    
    $
    81,225Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    69,076
    
    
    
    64,023Restricted stock compensation
    
    
    2,308
    
    
    
    862Provision for bad debts
    
    
    14,974
    
    
    
    10,946Deferred income taxes
    
    
    (4,958
    )
    
    
    (3,427
    )Net gain on sale of assets
    
    
    (209
    )
    
    
    (1,675
    )Equity in earnings of affiliated companies
    
    
    (2,823
    )
    
    
    (3,897
    )Changes in assets and liabilities, excluding sold facilities and acquisitions:Receivables
    
    
    (59,917
    )
    
    
    (18,975
    )Prepaid expenses and other assets
    
    
    6,716
    
    
    
    4,528Liabilities
    
    
    46,546
    
    
    
    59,806Total adjustments
    
    
    71,713
    
    
    
    112,191Net cash provided by operating activities
    
    
    150,155
    
    
    
    193,416Investing ActivitiesInvestment in property and equipment
    
    
    (64,776
    )
    
    
    (89,340
    )Investment in systems development
    
    
    (883
    )
    
    
    (1,087
    )Proceeds from sale of assets
    
    
    1,403
    
    
    
    20,076Proceeds from sale of minority interests in consolidated entity
    
    
    
    
    
    
    2,778Net cash used in investing activities
    
    
    (64,256
    )
    
    
    (67,573
    )Financing ActivitiesPrincipal payments of long-term debt
    
    
    (924
    )
    
    
    (5,943
    )Payment of financing costs
    
    
    (500
    )
    
    
    (11
    )Purchase of common stock for treasury
    
    
    (13,394
    )
    
    
    (71,719
    )Dividends paid
    
    
    (25,884
    )
    
    
    (24,953
    )Proceeds from exercise of stock options
    
    
    8,551
    
    
    
    13,502Net cash used in financing activities
    
    
    (32,151
    )
    
    
    (89,124
    )Net increase in cash and cash equivalents
    
    
    53,748
    
    
    
    36,719Cash and cash equivalents at beginning of period
    
    
    32,915
    
    
    
    86,251Cash and cash equivalents at end of period
    
    $
    86,663
    
    
    $
    122,970
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Manor Care, Inc.
 
 
 Note 1  Accounting Policies
 Basis of Presentation
    Lease Accounting
  7




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Comprehensive Income
  Insurance Liabilities
  Restricted Stock Accounting
  Stock-Based Compensation
  8




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Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except earnings per share)Net income  as reported
    
    $
    38,079
    
    
    $
    40,135
    
    
    $
    78,442
    
    
    $
    81,225Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects
    
    
    (2,375
    )
    
    
    (899
    )
    
    
    (10,376
    )
    
    
    (2,522
    )Net income  pro forma
    
    $
    35,704
    
    
    $
    39,236
    
    
    $
    68,066
    
    
    $
    78,703Earnings per share  as reported:Basic
    
    $
    .44
    
    
    $
    .46
    
    
    $
    .91
    
    
    $
    .93Diluted
    
    $
    .43
    
    
    $
    .45
    
    
    $
    .89
    
    
    $
    .90Earnings per share  pro forma:Basic
    
    $
    .41
    
    
    $
    .45
    
    
    $
    .79
    
    
    $
    .90Diluted
    
    $
    .40
    
    
    $
    .44
    
    
    $
    .77
    
    
    $
    .87
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New Accounting Standard
   Note 2  Debt
   10




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1 2
 Note 3  Revenues
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Skilled nursing and assisted living services
    
    $
    704,021
    
    
    $
    674,836
    
    
    $
    1,453,489
    
    
    $
    1,351,398Hospice and home health services
    
    
    97,482
    
    
    
    96,257
    
    
    
    192,813
    
    
    
    188,350Rehabilitation services
(excludes intercompany revenues)
    
    
    24,576
    
    
    
    20,510
    
    
    
    49,372
    
    
    
    42,334Other services
    
    
    7,680
    
    
    
    7,532
    
    
    
    17,287
    
    
    
    14,391$
    833,759
    
    
    $
    799,135
    
    
    $
    1,712,961
    
    
    $
    1,596,473
 Note 4  Contingencies
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Note 5  Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except earnings per share)Numerator:Numerator for basic EPS  net income
    
    $
    38,079
    
    
    $
    40,135
    
    
    $
    78,442
    
    
    $
    81,225After-tax amount of interest expense on
Convertible Senior Notes (Old Notes)
    
    
    29
    
    
    
    27
    
    
    
    55
    
    
    
    54Numerator for diluted EPS
    
    $
    38,108
    
    
    $
    40,162
    
    
    $
    78,497
    
    
    $
    81,279Denominator:Denominator for basic EPS  weighted-
average shares
    
    
    86,391
    
    
    
    87,409
    
    
    
    86,280
    
    
    
    87,802Effect of dilutive securities:Stock options
    
    
    1,080
    
    
    
    1,102
    
    
    
    1,063
    
    
    
    1,220Non-vested restricted stock
    
    
    
    
    
    
    461
    
    
    
    
    
    
    
    460Convertible Senior Notes
    
    
    654
    
    
    
    367
    
    
    
    580
    
    
    
    454Denominator for diluted EPS 
adjusted for weighted-average
shares and assumed conversions
    
    
    88,125
    
    
    
    89,339
    
    
    
    87,923
    
    
    
    89,936EPS:Basic
    
    $
    .44
    
    
    $
    .46
    
    
    $
    .91
    
    
    $
    .93Diluted
    
    $
    .43
    
    
    $
    .45
    
    
    $
    .89
    
    
    $
    .90
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Note 6  Employee Benefit Plans
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Service cost
    
    $
    430
    
    
    $
    380
    
    
    $
    859
    
    
    $
    793Interest cost
    
    
    989
    
    
    
    934
    
    
    
    1,979
    
    
    
    1,973Expected return on plan assets
    
    
    (1,184
    )
    
    
    (1,163
    )
    
    
    (2,367
    )
    
    
    (2,389
    )Amortization of unrecognized transition asset
    
    
    (12
    )
    
    
    (12
    )
    
    
    (24
    )
    
    
    (24
    )Amortization of prior service cost
    
    
    491
    
    
    
    491
    
    
    
    981
    
    
    
    981Amortization of net loss
    
    
    235
    
    
    
    143
    
    
    
    470
    
    
    
    354Net pension cost
    
    $
    949
    
    
    $
    773
    
    
    $
    1,898
    
    
    $
    1,688
 Note 7  Segment Information
  14




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Long-Term
    
    
    Hospice andCare
    
    
    Home Health
    
    
    Other
    
    
    Total(In thousands)Three months ended June 30, 2005Revenues from external customers
    
    $
    704,021
    
    
    $
    97,482
    
    
    $
    32,256
    
    
    $
    833,759Intercompany revenues
    
    
    
    
    
    
    
    
    
    
    25,741
    
    
    
    25,741Depreciation and amortization
    
    
    32,451
    
    
    
    797
    
    
    
    2,381
    
    
    
    35,629Operating margin
    
    
    121,680
    
    
    
    14,816
    
    
    
    3,042
    
    
    
    139,538Three months ended June 30, 2004Revenues from external customers
    
    $
    674,836
    
    
    $
    96,257
    
    
    $
    28,042
    
    
    $
    799,135Intercompany revenues
    
    
    
    
    
    
    
    
    
    
    16,816
    
    
    
    16,816Depreciation and amortization
    
    
    30,629
    
    
    
    713
    
    
    
    934
    
    
    
    32,276Operating margin
    
    
    116,875
    
    
    
    19,232
    
    
    
    3,271
    
    
    
    139,378Six months ended June 30, 2005Revenues from external customers
    
    $
    1,453,489
    
    
    $
    192,813
    
    
    $
    66,659
    
    
    $
    1,712,961Intercompany revenues
    
    
    
    
    
    
    
    
    
    
    45,390
    
    
    
    45,390Depreciation and amortization
    
    
    64,160
    
    
    
    1,570
    
    
    
    3,346
    
    
    
    69,076Operating margin
    
    
    251,193
    
    
    
    27,267
    
    
    
    6,130
    
    
    
    284,590Six months ended June 30, 2004Revenues from external customers
    
    $
    1,351,398
    
    
    $
    188,350
    
    
    $
    56,725
    
    
    $
    1,596,473Intercompany revenues
    
    
    
    
    
    
    
    
    
    
    33,812
    
    
    
    33,812Depreciation and amortization
    
    
    60,668
    
    
    
    1,484
    
    
    
    1,871
    
    
    
    64,023Operating margin
    
    
    234,318
    
    
    
    35,272
    
    
    
    7,768
    
    
    
    277,358
 Note 8  Subsequent Event
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1 2
  Note 9  Restatement of Previously Issued Financial Statements
  16




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June 30, 2005PreviouslyReported
    
    
    Restated(In thousands)Current liabilities:Income tax payable
    
    $
    31,952
    
    
    $
    31,826Long-term liabilities:Deferred income taxes
    
    
    122,863
    
    
    
    131,588Shareholders Equity:Capital in excess of par value
    
    
    392,013
    
    
    
    374,136Retained earnings
    
    
    1,251,773
    
    
    
    1,261,051Total shareholders equity
    
    
    1,043,149
    
    
    
    1,034,550
  Three months ended
    
    
    Six months endedJune 30, 2005
    
    
    June 30, 2005Previously
    
    
    
    
    
    
    PreviouslyReported
    
    
    Restated
    
    
    Reported
    
    
    Restated(In thousands, except per share amounts)Expenses:General and administrative
    
    $
    40,844
    
    
    $
    40,680
    
    
    $
    94,823
    
    
    $
    76,946Income before other income
(expenses) and income taxes
    
    
    63,065
    
    
    
    63,229
    
    
    
    120,691
    
    
    
    138,568Income before income taxes
    
    
    55,681
    
    
    
    55,845
    
    
    
    104,464
    
    
    
    122,341Income taxes
    
    
    17,738
    
    
    
    17,766
    
    
    
    35,300
    
    
    
    43,899Net income
    
    
    37,943
    
    
    
    38,079
    
    
    
    69,164
    
    
    
    78,442Earnings per share:Basic
    
    $
    .44
    
    
    $
    .44
    
    
    $
    .80
    
    
    $
    .91Diluted
    
    $
    .43
    
    
    $
    .43
    
    
    $
    .79
    
    
    $
    .89
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Six months endedJune 30, 2005PreviouslyReported
    
    
    Restated(In thousands)Operating activities:Net income
    
    $
    69,164
    
    
    $
    78,442Restricted stock compensation
    
    
    20,185
    
    
    
    2,308Deferred income taxes
    
    
    (13,683
    )
    
    
    (4,958
    )Liabilities
    
    
    46,672
    
    
    
    46,546Total adjustments
    
    
    80,991
    
    
    
    71,713
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Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations  Overview
 Federal Medicare Payment Legislation.
 Second Quarter 2005 Results Compared with First Quarter 2005.
  Critical Accounting Policies
 General and Professional Liability.
 19




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Workers Compensation Liability.
 Results of Operations 
Quarter and Year-To-Date June 30, 2005 Compared with June 30, 2004
 Revenues.
  20




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Second Quarter
    
    
    
    
    
    
    First Half2005
    
    
    2004
    
    
    Increase
    
    
    2005
    
    
    2004
    
    
    IncreaseMedicare
    
    $
    355.26
    
    
    $
    335.64
    
    
    
    6
    %
    
    $
    353.87
    
    
    $
    334.48
    
    
    
    6
    %Medicaid
    
    $
    146.97
    
    
    $
    135.58
    
    
    
    8
    %
    
    $
    146.53
    
    
    $
    134.38
    
    
    
    9
    %Private and other (skilled only)
    
    $
    213.17
    
    
    $
    200.94
    
    
    
    6
    %
    
    $
    212.38
    
    
    $
    198.99
    
    
    
    7
    %
    Operating Expenses  Quarter.
  21




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Operating Expenses  First Half.
   General and Administrative Expenses.
 Depreciation and Amortization.
 Interest Expense.
 22




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Gain on Sale of Assets.
 Equity in Earnings of Affiliated Companies.
 Income Taxes.
 Liquidity and Capital Resources
 Cash Flows.
 Investing Activities.
 Debt Agreements.
  23




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1 2
  Stock Purchase.
 Cash Dividends.
  24




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Cautionary Statement Concerning Forward-Looking Statements
    25




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##### Table of Contents



Controls and Procedures
  
 Part II. Other Information
 
 Exhibits.
 S-K Item601 No.31.1
    
    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
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##### Table of Contents



Signatures
  Manor Care, Inc.(Registrant)Date September 27, 2005
    
    By
    
    /s/ Geoffrey G. MeyersGeoffrey G. Meyers, Executive Vice Presidentand Chief Financial Officer
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##### Table of Contents



Exhibit Index
 Exhibit31.1
    
    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
 28