Manor Care, Inc. 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report: September 23, 2005
(Date of earliest event reported)
Manor Care, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State of
Incorporation)
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1-10858
(Commission File Number)
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34-1687107
(IRS Employer
Identification No.) |
333 N. Summit Street
Toledo, Ohio 43604-2617
(Address of principal executive offices, including zip code)
(419) 252-5500
(Registrants telephone number, including area code)
Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Section 4-Matters Related to Accountants and Financial Statements
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Item 4.02. |
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Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. |
On September 23, 2005, management of the Company concluded, with the approval of the Audit
Committee of the Board of Directors of the Company (Audit Committee), that its unaudited financial
statements for the quarterly periods ended March 31, 2005 and June 30, 2005 are required to be
restated in order to reflect the adjustments of restricted stock compensation and the related
income tax effect, as discussed below. Because of the restatement, the Companys previously issued
financial statements for the quarterly periods ended March 31, 2005 and June 30, 2005, which are
included in the Quarterly Reports on Form 10-Q filed with respect to such periods, should no longer
be relied upon.
During the first quarter of 2005, and in anticipation of adopting the Financial Accounting
Standards Board (FASB) Statement No. 123 (revised 2004), Share-Based Payment (FAS 123R), Manor
Care reviewed its accounting practices for all stock-based compensation, including restricted
stock, and its method of amortizing its restricted stock compensation to the expected retirement
date. Due to the first-quarter review, Manor Care determined that its restricted stock
compensation should have been amortized to the retirement eligible date. As a result, the Company
recorded a non-cash pretax charge of $10.3 million ($6.6 million after tax, or 8 cents per share)
to reflect the accelerated expense for the years 2000 through 2004. The effect on the Companys
prior years earnings per share was not deemed material at that time. In addition, the Company
recorded $8.2 million ($5.2 million after tax, or 6 cents per share) of expenses for restricted
stock awards made to retirement eligible employees in the first quarter of 2005.
Subsequent to the release of Manor Cares first-quarter earnings, the Companys independent
registered public accounting firm advised Manor Care that due to the widespread practice of
recognizing compensation expense over the explicit service period (i.e. up to the date of actual
retirement), the SEC staff would accept continuation of that practice under Accounting Principles
Board Opinion 25 (APB 25) and FASB Statement No. 123 (FAS 123).
In addition, for companies that had
followed that practice, Manor Care was advised that the SEC staff would require a continuation of that practice for awards
granted prior to the adoption of FAS 123R. For companies such as Manor Care that had already made
the accounting change in the first quarter, Manor Care was further
advised that there would be no objection from the SEC staff because
of the immateriality of the change.
In the third quarter of 2005, Manor Care determined that deferred tax assets related to restricted
stock, previously recorded in the amount of $8.6 million ($6.9 million of which was recorded in the
first quarter of 2005), would not be realized due to the limitations on the tax deductibility of
executive compensation and should not have been previously recorded. The Company further
determined that the previously discussed first-quarter restricted stock adjustments, including any
reversal of deferred tax assets, while not material for all years prior to 2005, would be material
for 2005 net income.
Consistent with the SEC staff views described above and in consultation with the Companys
independent registered public accounting firm, Manor Care has reverted to its original accounting
practice of recognizing compensation cost over the explicit service period and will
amend its first- and second-quarter Form 10-Qs. The impact of the restatement for the first
quarter reduces general and administrative expenses and increases income before income taxes by
$17.7 million. The reversal of the deferred tax assets increases income taxes by $8.6 million.
The combined effect increases net income by $9.1 million and increases diluted earnings per share
(EPS) by 10 cents. The second-quarter restatement decreases general and administrative expenses,
increases income before income taxes and increases net income, all by less than $200,000. There is
no change to diluted EPS in the second quarter.
On September 23, 2005, the Audit Committee and management of the Company reviewed and discussed the
adjustments to restricted stock compensation and the related income tax effect that are required to
correct the error described above. Representatives of the Companys independent registered public
accounting firm, Ernst and Young LLP, also attended the meeting and discussed the matters disclosed
in the Current Report on Form 8-K with the Audit Committee.
On September 27, 2005, the Company issued a press release, attached hereto as Exhibit 99.1 and
incorporated by reference, discussing the above matters.
Section 9-Financial Statements or Exhibits
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Item 9.01. |
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Financial Statements and Exhibits. |
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99.1
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Press Release dated September 27, 2005 |
SIGNATURE
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 hereunto duly authorized.
Dated: September 27, 2005
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Manor Care, Inc.
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By: |
/s/ Geoffrey G. Meyers
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Name: |
Geoffrey G. Meyers |
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Title: |
Executive Vice President and
Chief Financial Officer |
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Exhibit Index
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Exhibit Number |
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Description |
99.1
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Press Release dated September 27, 2005 |