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)

Delaware
(State of
Incorporation) 1-10858
(Commission File Number) 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
(Registrant’s 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

Item 4.02. 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 Company’s 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 Company’s prior years’ earnings per share was not deemed material at that time. In addition, the Company recorded $8.2 million ($5.2 million after tax, or 6 cents per share) of expenses for restricted stock awards made to retirement eligible employees in the first quarter of 2005.

Subsequent to the release of Manor Care’s first-quarter earnings, the Company’s independent registered public accounting firm advised Manor Care that due to the widespread practice of recognizing compensation expense over the explicit service period (i.e. up to the date of actual retirement), the SEC staff would accept continuation of that practice under Accounting Principles Board Opinion 25 (APB 25) and FASB Statement No. 123 (FAS 123). In addition, for companies that had followed that practice, Manor Care was advised that the SEC staff would require a continuation of that practice for awards granted prior to the adoption of FAS 123R. For companies such as Manor Care that had already made the accounting change in the first quarter, Manor Care was further advised that there would be no objection from the SEC staff because of the immateriality of the change.

In the third quarter of 2005, Manor Care determined that deferred tax assets related to restricted stock, previously recorded in the amount of $8.6 million ($6.9 million of which was recorded in the first quarter of 2005), would not be realized due to the limitations on the tax deductibility of executive compensation and should not have been previously recorded. The Company further determined that the previously discussed first-quarter restricted stock adjustments, including any reversal of deferred tax assets, while not material for all years prior to 2005, would be material for 2005 net income.

Consistent with the SEC staff views described above and in consultation with the Company’s independent registered public accounting firm, Manor Care has reverted to its original accounting practice of recognizing compensation cost over the explicit service period and will

amend its first- and second-quarter Form 10-Qs. The impact of the restatement for the first quarter reduces general and administrative expenses and increases income before income taxes by $17.7 million. The reversal of the deferred tax assets increases income taxes by $8.6 million. The combined effect increases net income by $9.1 million and increases diluted earnings per share (EPS) by 10 cents. The second-quarter restatement decreases general and administrative expenses, increases income before income taxes and increases net income, all by less than $200,000. There is no change to diluted EPS in the second quarter.

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 Company’s 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

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits

99.1 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

Manor Care, Inc.
By:	/s/ Geoffrey G. Meyers
	Name:	Geoffrey G. Meyers
	Title:	Executive Vice President and Chief Financial Officer

Exhibit Index

Exhibit Number	Description
99.1	Press Release dated September 27, 2005

EX-99.1

EXHIBIT 99.1

News Release

For Immediate Release

Contact:
Geoffrey G. Meyers, Chief Financial Officer
419/252-5545
e-mail gmeyers@hcr-manorcare.com

Manor Care’s 2005 First-Quarter
EPS Increased with Restatement

     TOLEDO, Ohio, September 27, 2005 — Manor Care, Inc. (NYSE:HCR) today announced that a restatement of its 2005 first-quarter results has increased first-quarter net income to $40.4 million, or 46 cents per share, from a reported $31.2 million, or 36 cents per share (see attached table).

     During the first quarter of 2005, and in anticipation of adopting the Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), “Share-Based Payment” (FAS 123R), Manor Care reviewed its accounting practices for all stock-based compensation, including restricted stock, and its method of amortizing its restricted stock compensation to the expected retirement date. Due to the first-quarter review, Manor Care determined that its restricted stock compensation should have been amortized to the retirement eligible date. As a result, the company recorded a non-cash pretax charge of $10.3 million ($6.6 million after tax, or 8 cents per share) to reflect the accelerated expense for the years 2000 through 2004. The effect on the company’s prior years’ earnings per share was not deemed material at that time. In addition, the company recorded $8.2 million ($5.2 million after tax, or 6 cents per share) of expenses for restricted stock awards made to retirement eligible employees in the first quarter of 2005.

     Subsequent to the release of Manor Care’s first-quarter earnings, the company’s independent registered public accounting firm advised Manor Care that due to the

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Manor Care Restates Earnings, Page 2

widespread practice of recognizing compensation expense over the explicit service period (i.e. up to the date of actual retirement), the SEC staff would accept continuation of that practice under Accounting Principles Board Opinion 25 (APB 25) and FASB Statement No. 123 (FAS 123). In addition, for companies that had followed that practice, Manor Care was advised that the SEC staff would require a continuation of that practice for awards granted prior to the adoption of FAS 123R. For companies such as Manor Care that had already made the accounting change in the first quarter, Manor Care was further advised that there would be no objection from the SEC staff because of the immateriality of the change.

     In the third quarter of 2005, Manor Care determined that deferred tax assets related to restricted stock, previously recorded in the amount of $8.6 million ($6.9 million of which was recorded in the first quarter of 2005), would not be realized due to the limitations on the tax deductibility of executive compensation and should not have been previously recorded. The company further determined that the previously discussed first-quarter restricted stock adjustments, including any reversal of deferred tax assets, while not material for all years prior to 2005, would be material for 2005 net income.

     Consistent with the SEC staff views described above and in consultation with the company’s independent registered public accounting firm, Manor Care has reverted to its original accounting practice of recognizing compensation cost over the explicit service period and will amend its first- and second-quarter Form 10-Qs. The impact of the restatement for the first quarter reduces general and administrative expenses and increases income before income taxes by $17.7 million. The reversal of the deferred tax assets increases income taxes by $8.6 million. The combined effect increases net income by $9.1 million and increases diluted earnings per share (EPS) by 10 cents. The second-quarter restatement decreases general and administrative expenses, increases income before income taxes and increases net income, all by less than $200,000. There is no change to diluted EPS in the second quarter.

     Manor Care, Inc., through its operating group HCR Manor Care, is the leading

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Manor Care Restates Earnings, Page 3

owner and operator of long-term care centers in the United States. The company’s nearly 60,000 employees provide high-quality care for patients and residents through a network of more than 500 skilled nursing centers, assisted living facilities, outpatient rehabilitation clinics, and hospice and home health care offices. Alliances and other ventures supply high-quality pharmaceutical products and management services for professional organizations. The company operates primarily under the respected Heartland, ManorCare and Arden Courts names. Manor Care is committed to being the preeminent care provider in the industry. Shares are traded on the New York Stock Exchange under the ticker symbol HCR.

     Statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of federal law. Such forward-looking statements reflect management’s beliefs and assumptions and are based on information currently available to management. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company to differ materially from those expressed or implied in such statements. Such factors are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in the health care industry because of political and economic influences, changes in regulations governing the industry, changes in reimbursement levels including those under the Medicare and Medicaid programs, changes in the competitive marketplace, and changes in current trends in the cost and volume of general and professional liability claims. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements.

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Manor Care Restates Earnings, Page 4

Manor Care, Inc.
The effects of the restatement on the Consolidated Statements of Income (unaudited):

	Three months ended				Three months ended
	March 31, 2005				June 30, 2005
	Previously				Previously
	Reported		Restated		Reported		Restated
	(In thousands, except per share amounts)
Expenses:
General and administrative	$	53,979	$	36,266	$	40,844	$	40,680
Income before other income (expenses) and income taxes		57,626		75,339		63,065		63,229
Income before income taxes		48,783		66,496		55,681		55,845
Income taxes		17,562		26,133		17,738		17,766
Net income		31,221		40,363		37,943		38,079
Earnings per share:
Basic	$	.36	$	.47	$	.44	$	.44
Diluted	$	.36	$	.46	$	.43	$	.43

The effects of the restatement on the Consolidated Balance Sheets (unaudited):

	March 31, 2005				June 30, 2005
	Previously				Previously
	Reported		Restated		Reported		Restated
	(In thousands)
Current liabilities:
Income tax payable	$	15,405	$	15,342	$	31,952	$	31,826
Long-term liabilities:
Deferred income taxes		127,840		136,474		122,863		131,588
Shareholders’ Equity:
Capital in excess of par value		383,600		365,887		392,013		374,136
Retained earnings		1,226,787		1,235,929		1,251,773		1,261,051
Total shareholders’ equity		1,025,555		1,016,984		1,043,149		1,034,550

The effects of the restatement on the Consolidated Statements of Cash Flows (unaudited):

	Three months ended						Six months ended
	March 31, 2005						June 30, 2005
	Previously						Previously
	Reported			Restated			Reported			Restated
	(In thousands)
Operating activities:
Net income	$	31,221		$	40,363		$	69,164		$	78,442
Restricted stock compensation		18,458			745			20,185			2,308
Deferred income taxes		(9,070	)		(436	)		(13,683	)		(4,958	)
Liabilities		71,487			71,424			46,672			46,546
Total adjustments		19,393			10,251			80,991			71,713
Cash flow from operations		50,614			50,614			150,155			150,155