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
For the quarterly period ended December 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-23953
OMEGA WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Maryland 38-3382537
(State of Incorporation) (IRS Employer Identification No.)
900 Victors Way, Suite 345, Ann Arbor, MI 48108
(Address of principal executive offices)
(734) 887-0300
(Telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock as of December 31, 1999
Common Stock, $.10 par value 12,276,000
(Class) (Number of shares)
<PAGE>
OMEGA WORLDWIDE, INC.
FORM 10-Q
December 31, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I Financial Information
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets
December 31, 1999 (unaudited) and September 30, 1999 ............. 2
Condensed Consolidated Statements of Operations (unaudited) -
Three-month periods ended December 31, 1999 and 1998 ............. 3
Condensed Consolidated Statements of Cash Flows (unaudited) -
Three-month periods ended December 31, 1999 and 1998 ............. 4
Notes to Condensed Consolidated Financial Statements
December 31, 1999 (unaudited) .................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 10
PART II Other Information
Item 5. Other Information .................................................. 12
Item 6. Exhibits and Reports on Form 8-K ................................... 12
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
OMEGA WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
---- ----
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments ........................................ $ 1,582 $ 5,738
Restricted cash ........................................................ 389 389
Patient receivables .................................................... 7,840 -
Other current assets ................................................... 6,377 915
------ -----
Total Current Assets ................................................ 16,188 7,042
Plant, property and equipment, net
of accumulated depreciation ........................................... 12,214 -
Investments in and advances to Principal
Healthcare Finance Limited ............................................ 50,666 48,842
Investments in Principal Healthcare Finance Trust ........................ 6,601 6,619
Long-term rent receivables ............................................... 7,777 -
Rent deposits ............................................................ 4,076 -
Other assets ............................................................. 3,472 5,909
------ -----
84,806 61,370
------ ------
Total Assets ............................................................. $ 100,994 $ 68,412
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt ........................................................ $ 15,395 $ -
Accounts payable and accrued expenses .................................. 13,772 1,177
Accrued income taxes ................................................... 2,979 1,880
Non-interest bearing deferred purchase obligation ...................... - 1,215
------ -----
Total Current Liabilities ............................................ 32,146 4,272
Long-term debt ........................................................... 3,476 -
Other long-term liabilities .............................................. 485 -
------ -----
Total Liabilities ...................................................... 36,107 4,272
------ -----
Shareholders' Equity:
Preferred Stock $1.00 par value:
Authorized 10,000 shares
Outstanding 260 Class B shares at liquidation value ................. 2,600 2,600
Common stock $.10 par value
Authorized 50,000 shares
Outstanding 12,276 shares and 12,266
at December 31, 1999 and September 30, 1999,
respectively ....................................................... 1,228 1,227
Additional paid-in capital ............................................ 52,934 52,893
Retained earnings ..................................................... 8,315 7,418
Accumulated other comprehensive income ................................ (190) 2
------ -----
Total Shareholders' Equity .......................................... 64,887 64,140
------ ------
Total Liabilities and Shareholders' Equity ............................... $ 100,994 $ 68,412
========= ========
</TABLE>
Note - The balance sheet at September 30, 1999, has been derived from
audited consolidated financial statements at the that date but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See notes to consolidated financial statements.
2
<PAGE>
OMEGA WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Revenues:
Patient services revenue ......................................... $ 24,594 $ -
Fee income - Principal Healthcare Finance Limited ................ 1,317 1,143
Fee income - Principal Healthcare Finance Trust .................. 242 -
Interest Income:
Principal Healthcare Finance Limited ........................... 1,201 1,089
Short-term investments ......................................... 51 226
Rent income ...................................................... - 1,315
Other income ..................................................... 123 151
------ ------
27,528 3,924
Expenses:
Direct cost of patient services ................................... 25,448 -
Direct costs of asset management .................................. 605 657
Allocated expenses from Omega Healthcare Investors, Inc. .......... 174 188
Imputed and other interest ........................................ 323 853
Provision for depreciation ........................................ 20 194
General and administrative ........................................ 388 365
------ ------
26,958 2,257
------ ------
Earnings before equity earnings and taxes ........................... 560 1,667
Equity in earnings of Principal Healthcare Finance Limited .......... 336 223
Equity in earnings of Principal Healthcare Finance Trust ............ 176 -
Equity in earnings (loss) of Essex Healthcare Corporation ........... 75 (66)
------ -------
Earnings before income taxes ........................................ 1,147 1,824
Provision for income taxes .......................................... (250) (533)
------ ------
Earnings before preferred stock dividends ........................... 897 1,291
Preferred stock dividends ........................................... (52) (52)
------ ------
Net earnings available to common shareholders ....................... $ 845 $ 1,239
======= =======
Earnings per common share, basic .................................... $ 0.07 $ 0.10
======= =======
Earnings per common share, diluted .................................. $ 0.07 $ 0.10
======= =======
Average shares outstanding, basic ................................... 12,269 12,258
====== ======
Average shares outstanding, diluted ................................. 12,270 12,258
====== ======
Total comprehensive income, net of taxes ............................ $ 705 $ 980
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
OMEGA WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Operating activities:
Net earnings ............................................................. $ 897 $ 1,291
Adjustments to reconcile net earnings to cash
provided by operating activities:
Equity in earnings of Principal Healthcare Finance Limited ............. (336) (223)
Equity in earnings of Principal Healthcare Finance Trust ............... (176) -
Equity in (earnings) loss of Essex Healthcare Corporation .............. (75) 66
Straight-line rent adjustment 681 -
Depreciation and amortization .......................................... 534 222
Payments of federal and foreign taxes .................................. (633) -
Imputed interest ....................................................... - 571
Net change in operating assets and liabilities ......................... (14,392) (1,141)
------- -------
Net cash provided by (used in) operating activities ......................... (13,500) 786
Cash flows from financing activities:
Proceeds from short-term borrowings ...................................... 10,220 23,500
Repayments of long-term borrowings ....................................... (394) -
Proceeds from bank revolving credit facility ............................. - 34,502
Other .................................................................... (35) (9)
------- -------
Net cash provided by financing activities ................................... 9,791 57,993
Cash flows from investing activities:
Acquisition of real estate by subsidiary ................................. - (49,288)
Temporary advances to Principal Healthcare Finance Limited ............... (1,488) (17,341)
Cash acquired in acquisition of Idun Health Care Limited
net of cash consideration ............................................... 857 -
Investment in Tamaris, plc stock ......................................... - (2,884)
Dividends from affiliate ................................................. 174 -
Other .................................................................... 10 1,063
------- -------
Net cash used in investing activities ....................................... (447) (68,450)
------- -------
Decrease in cash and short-term investments ................................. (4,156) (9,671)
Cash and short-term investments at beginning of period ...................... 5,738 10,281
------- -------
Cash and short-term investments at end of period ............................ $ 1,582 $ 610
======= ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
OMEGA WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
December 31, 1999
Note A - Organization and Significant Accounting Policies
ORGANIZATION
On April 2, 1998, the registration statement of Omega Worldwide, Inc. (the
"Company") became effective, and it offered 3,750,000 shares of common stock to
the public at $7.50 per share. The Company received $27,375,000, net of issuance
costs of $750,000. Shares offered included 500,000 shares in a primary offering
and 3,250,000 shares in a rights offering. Operations commenced upon the
effectiveness of the initial public offering. Additionally, except for $1,000
invested by Omega Healthcare Investors, Inc. ("Omega") at the date of formation
(November 1997) there were no cash flow activities of the Company from the date
of formation to the date operations commenced.
Immediately prior to the offering of shares by the Company, Omega
contributed substantially all of its investment in Principal Healthcare Finance
Limited ("Principal-UK") to the Company. Assets contributed by Omega, which were
recorded by the Company at Omega's accounting basis, included a $23,805,000
subordinated loan to Principal-UK, 33.375% of the common stock of Principal-UK
with a carrying value of $5,297,000, 10,556,250 warrants and other net assets
totaling $150,000. Omega also assigned its interest in a management agreement
with Principal-UK in which the Company receives an annual fee of 0.9% of
Principal-UK's assets (as defined) for providing certain advisory services. In
exchange, Omega received 8,500,000 shares of common stock and 260,000 shares of
Class B preferred stock. Of the common stock received by Omega, approximately
5,200,000 shares were distributed pro rata to Omega's shareholders, and
approximately 2,300,000 were sold pursuant to the Company's registration
statement. Omega retained approximately 9.9% of the Company's common stock.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for
the Company 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, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended December 31,
1999, are not necessarily indicative of the results that may be expected for the
year ending September 30, 2000. For further information, refer to the financial
statements and footnotes thereto in the Company's annual report Form 10-K/A for
the period ended September 30, 1999.
CONSOLIDATION AND SUBSIDIARIES
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of all material intercompany
accounts and transactions. The Company's policy is to report the results of its
partially owned companies and subsidiaries on a one-month lag basis. This allows
time to produce accounts in a local GAAP and then convert to a U.S. GAAP basis.
The Company's wholly owned subsidiary, Idun, began operations on November 1,
1999. To reflect activities for a two-month period and adopt reporting on a
one-month lag basis, profit and loss results for November are included as well
as an estimated loss from operations for the month of December 31, 1999 in the
results for the quarter.
Until April 1, 1999, the Company owned 100% of Principal-Australia. As more
fully explained in Form 8-K dated April 1, 1999, newly issued shares of
Principal-Australia were issued to independent investors resulting in the
dilution of the Company's ownership to 47%. Principal-Australia's financial
results on that date are included in the Company's results on a consolidated
basis prior to April 1, 1999, and thereafter are included in the results using
the equity method of accounting.
5
<PAGE>
The Company reports the results of those subsidiaries, which it has over
20% ownership, but in which it does not hold a majority interest, using the
equity method of accounting, on a one-month lag basis. Investments in companies
over which the Company does not exercise control are recorded at fair market
value. Temporary changes in fair market value are charged to accumulated other
comprehensive income, while permanent reductions in fair market value are
charged to operations.
STRAIGHT-LINE RENT EXPENSE
Idun Health Care Limited and its subsidiaries is the lessee of several
long-term leases. Rent expense is recognized as the total rent payable over the
initial term of the related lease amortized on a straight-line basis. Such
expense includes the adjustment in the rental payments based upon predetermined
minimum formulas as defined in the master lease.
Note B - Asset Concentrations
Until April 1, 1999, Principal-Australia was reported on the consolidated
basis of accounting and 100% of the consolidated group's real estate investments
were owned by Principal-Australia. All of Principal-Australia's real estate
investments are long-term care facilities located in Australia, leased to Moran
Health Care Group (Australia) Pty Limited, the largest operator of aged care
homes in Australia.
Note C - Principal Healthcare Finance Limited (Principal-UK)
The following summarizes selected financial information of Principal-UK in
accordance with accounting principals generally accepted in the United States
(in thousands):
<TABLE>
<CAPTION>
Selected Operating Results for the three-month period ended: November 30, 1999 November 30, 1998
----------------- -----------------
<S> <C> <C>
Revenues:
Rent income ................................................... $ 14,836 $ 13,450
Interest income ............................................... 118 1,526
Other income .................................................. 1,341 39
----- ----
Total revenues .......................................... 16,295 15,015
Expenses:
Interest expense .............................................. (10,211) (9,814)
Depreciation and amortization ................................. (2,722) (2,340)
General and administrative .................................... (1,558) (1,286)
------ ------
Total expenses ........................................... (14,491) (13,440)
------- -------
Income from operations before income taxes .......................... 1,804 1,575
Provision for income taxes .......................................... (737) (863)
---- ----
Net income from operations ........................................ $ 1,067 $ 712
======= =====
Selected Balance Sheet Information as of: November 30, 1999 August 31, 1999
----------------- ---------------
Investments in real estate subject to
triple-net lease, net of depreciation ............................. $ 407,306 $ 395,533
Total assets ........................................................ 589,180 569,666
Non-recourse debt borrowings ........................................ 488,435 478,233
Total liabilities ................................................... 571,001 552,544
Total stockholders' equity .......................................... 18,179 17,122
</TABLE>
The effective tax rates are 41% and 55% for the three-month period ending
November 30, 1999 and 1998, respectively. These rates differ from the UK tax
rate primarily because the provision for depreciation and amortization is not
deductible for tax purposes in the United Kingdom. The Company's proportionate
share of Principal-UK's earnings for the three-month periods ended November 30,
1999 and 1998 are approximately $356,000 and $238,200 respectively.
Additionally, the Company had recorded a charge against earnings of
approximately $20,000 and $15,000 for the three-month periods ended November 30,
1999 and 1998, respectively, representing amortization over a ten-year period of
the excess of the Company's investment in Principal-UK over its proportionate
share of Principal-UK's underlying equity.
6
<PAGE>
Note D - Acquisition of Idun Health Care Limited ("Idun")
At October 31, the Company, through its wholly owned subsidiary, Idun
Health Care ("Idun"), acquired the operating subsidiaries of Tamaris, plc, a
nursing home operating company in the United Kingdom. The 48 subsidiaries
acquired operate 119 nursing homes located throughout England, Scotland and
Northern Ireland. The fair market value of the net assets, at the date of
acquisition was $9.5 million. Fixed assets included in the $9.5 million amount
have been written down by $5.2 million to report net assets equal to the
purchase price.
Pro forma information for the Company, as if the Idun purchase had been
made as of October 1, 1998, is as follows:
<TABLE>
<CAPTION>
Pro forma operating results for the three month period ended: December 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Revenues ........................................................ $ 39,765 $ 33,402
Net earnings available to common shareholders ................... 607 1,330
Earnings per common share, basic ................................ 0.05 0.11
Earnings per common share, dilutive ............................. 0.05 0.11
</TABLE>
Note E - Principal Healthcare Finance Trust (Principal-Australia)
The following summarizes selected unaudited financial information of
Principal-Australia in accordance with United States generally accepted
accounting principles (in thousands):
<TABLE>
<CAPTION>
Selected Operating Results for the three-month period ended: November 30, 1999
-----------------
<S> <C>
Revenues:
Rent income ....................................................... $ 2,914
Interest income ................................................... 155
Other income ...................................................... 11
----
Total revenues ................................................ 3,080
Expenses:
Interest expense .................................................. (1,947)
Depreciation and amortization ..................................... (490)
Amortization of debt issue and organizational costs .............. (79)
General and administrative ........................................ (190)
----
Total expenses ................................................ (2,706)
------
Income from operations ............................................... $ 374
=====
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Information as of: November 30, 1999 August 31, 1999
----------------- ---------------
<S> <C> <C>
Investments in real estate subject to
triple-net lease, net of depreciation ............................. $ 92,834 $ 85,652
Total assets ......................................................... 131,964 96,986
Non-recourse debt borrowings ......................................... 105,287 75,815
Total liabilities .................................................... 117,234 82,215
Total unit holders' equity ........................................... 14,730 14,771
</TABLE>
On April 1 Principal-Australia sold 7,500,000 newly issued shares to Omega
and AMP Life Limited, as well as 875,000 additional shares to the Company, as
more fully described in the Form 8-K dated April 1, 1999. Prior to this date,
the Company owned 100% of Principal-Australia. Issuance of the new shares
reduced the Company's ownership to 47% of shares outstanding.
7
<PAGE>
Note F - Essex Healthcare Corporation
On April 2, 1998, Omega contributed to the Company its holdings in the
preferred stock of Essex Healthcare Corporation ("Essex"), an Atlanta-based
private operator of skilled nursing facilities. The preferred stock was valued
at approximately $39,000. Essex's primary activities are in Ohio, where it
operates 13 long-term care and assisted living facilities (approximately 1,400
beds). It also manages 33 facilities (approximately 1,800 beds) in Indiana,
Michigan, Illinois and Texas. On July 30, 1998, the Company acquired 55,000
shares of Essex's common stock for $500,000 and converted its preferred stock
into 1,940 shares of common stock. The Company holds approximately 47% of the
outstanding common shares of Essex. The Company accounts for this investment
using the equity method.
The Company's proportionate share of Essex's earnings for the three-month
period ended November 30, 1999 is approximately $75,000 and approximately
$66,000 of loss for the three-month period ended November 30, 1998.
Note G - Net Earnings Per Share
Net earnings per share are computed based on the weighted average number of
common shares outstanding during the period. Average shares outstanding for the
basic earnings per share were 12,269,000 and 12,258,000 for the periods ending
December 31, 1999 and 1998, respectively. The assumed conversion of shares of
preferred stock is antidilutive.
Note H - Credit Facilities
<TABLE>
<CAPTION>
The Company's indebtedness consists of the following:
December 31, September 30,
1999 1999
---- ----
<S> <C> <C>
(1) Revolving credit agreement, (7.65% interest at December 31, 1999) ... $ 11,825,000 $ -
(2) Loan, (8.00% interest at December 31, 1999) ......................... 2,750,000 -
(3) Loan due February 2003, (7.86% interest at December 31, 1999) ....... 1,994,000 -
(4) Loan due February 2017, (7.86% interest at December 31, 1999) ....... 1,835,000 -
(5) Loan due April 2018, (5.00% interest at December 31, 1999) .......... 467,000 -
------- ---
18,871,000 -
Less current maturities ................................................. (15,395,000) -
----------- ---
$ 3,476,000 $ -
=========== ===
</TABLE>
1) In November 1998, the Company entered into a revolving credit agreement
with a bank for borrowings up to $25 million since reduced to $20 million
in January, 2000. Omega provided a guarantee to the banks in consideration
of a fee of 1%, plus an annual 25 basis point facility fee. The agreement
is scheduled to expire on September 30, 2000. The Company also pays to the
banks an unused facility fee of 0.40%. Borrowings under the facility bear
interest at LIBOR plus 1.350% or at the Company's option, at the prime rate
2) Idun has a loan with a bank. The loan is secured by the business and assets
of a nursing home subsidiary and carries an interest rate of 2.5% above the
bank's base lending rate.
3) Idun has a loan with a bank. The loan is secured by the business and assets
of a nursing home company and carries a floating interest rate of Libor
plus 2%. The loan is being amortized over its life and requires quarterly
payments of approximately $178,000.
4) Idun has a loan with a bank. The loan is secured by the business and assets
of a nursing home company and carries a floating interest rate of Libor
plus 2%. The loan is being amortized over its life and requires quarterly
payments of approximately $60,000.
5) At December 31, 1999, Idun has an unsecured bank loan of approximately
$467,000. Interest rate on this loan is at a bank's base rate less .5%.
None of the loans of Idun are guaranteed by the Company.
8
<PAGE>
Note I - Related Party Transactions
Pursuant to the provisions of a services agreement between Omega and the
Company, indirect costs incurred by Omega, including compensation of shared
executive officers and related support personnel, and costs incurred by Omega
for rent, insurance, telephone, utilities, supplies, maintenance and travel, are
allocated to the Company based upon the relationship of assets under the
Company's management to the combined total of those assets and Omega's assets.
Assets and costs in the formula are on a one-quarter lag basis. Allocated
expenses during the three-month periods ending December 31, 1999 and 1998 were
approximately $174,000 and $188,000, respectively. Such allocations are based on
estimates and formulas that management believes to be reasonable.
Temporary unsecured advances to Principal-UK in the amount of $19,856,000
and $17,341,000 are outstanding at December 31, 1999 and 1998, respectively.
Interest on the temporary advances is 9.25%, paid monthly. Interest arising from
temporary advances to Principal-UK is included in interest income for the
three-month periods ended December 31, 1999 and 1998 is $417,000 and $328,000,
respectively.
A subordinated loan to Principal-UK in the amount of $23,805,000 is
outstanding at December 31, 1999 and 1998, respectively. Interest on the
subordinated loan is 12.55% at December 31, 1999 and 12.18% at December 31,
1998, paid semi-annually. Interest arising from the subordinated loan to
Principal-UK included in interest income for the three-month periods ended
December 31, 1999 and 1998 is $784,000 and $761,000, respectively.
Fees from services provided to Principal-UK for the three-month periods
ended December 31, 1999 and 1998 are $1,317,000 and $1,143,000, respectively.
Fees from services provided to Principal-Australia for the three-month period
ended December 31, 1999 are $242,000.
9
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
"Safe Harbor" Statement Under the United States Private Securities
Litigation Reform Act of 1995. Statements that are not historical facts
contained in Management's Discussion and Analysis are forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
from projected results. Some of the factors that could cause actual results to
differ materially include: the financial strength of the operators of the
facilities owned by the Company's investees as it affects their continuing
ability to meet their obligations under the terms of the lease agreements;
changes in operators or ownership of operators; government policy relating to
the healthcare industry, including changes in the reimbursement levels;
operators' continued eligibility to participate in the government sponsored
payment programs; changes in reimbursement by other third-party payors;
occupancy levels at the facilities; the availability and cost of capital of the
Company and its investees; the strength and financial resources of competitors
of the Company and investees; the ability of investees to make additional real
estate investments at attractive yields; and the ability of investees to obtain
debt and equity capital at reasonable costs.
Following is a discussion and analysis of the Company's consolidated
results of operations, financial condition and liquidity and capital resources.
The discussion should be read in conjunction with the unaudited consolidated
financial statements and accompanying footnotes.
Results of Operations
In prior years the Company generated income from three primary sources: (1)
fee income from providing investment advisory and management services; (2)
interest income from providing financing to companies in the healthcare and
healthcare financing industries; and (3) equity in earnings of companies in the
healthcare and healthcare financing industries. In its most recent quarter, the
Company acquired and operated through Idun Health Care Ltd. ("Idun") 119 nursing
homes in the United Kingdom. Company results for the quarter include two months
of operations since the date of acquisition.
Prior to April 1, 1999 Principal-Australia was reported on a consolidated
basis; currently, Principal-Australia, now 47% owned, is reported on the equity
method.
Revenues
Patient service revenue of $24.6 million represents two months nursing home
activity at an average occupancy rate of 88%. The results for the quarter were
unprofitable and the Company is directing significant resources to improving
occupancy and profitability over the coming months.
Principal-UK fee income is earned from Principal-UK and Principal-Australia
based on assets (as defined) under management. Principal-UK fee income for the
three months ended December 31, 1999 was 15% higher than the comparable period
last year. Fee income from Principal-Australia was eliminated in consolidation
in the prior year. Assets under management at quarter end were $536 million
($490 million at December 31, 1998) and $108 million for Principal-UK and
Principal-Australia, respectively.
Interest income from Principal-UK has increased from prior years based on
increased temporary advances to fund, acquisitions by Principal-UK. Rent income
in the period ending December 31, 1998 was earned by Principal-Australia.
Expenses
Cost of patient services is incurred in running the Idun subsidiary's
nursing homes in the United Kingdom. They exceed patient service revenues due
to wage pressures and seasonal occupancy reductions. Minimum wage increases
and increased costs of temporary services and overtime have pushed costs up
faster than government-determined fees. The Idun nursing homes were
unprofitable under previous management. The Company expects to streamline
operations and improve management practices in the year ahead.
10
<PAGE>
Despite the increase in levels of assets managed, the total of direct cost
of investment services provided, allocated expenses and general and
administrative costs has declined by $43,000 from the comparable period last
year due to spending controls in place. Principal-Australia incurred most of the
interest and depreciation expense in the prior year. Interest expense in the
current year arose from financing required to fund the operations of the nursing
home businesses acquired.
Other
Equity in earnings of Principal-UK increased from $223,000 in the prior
year to $336,000 in the current year. The Company's ownership percentage in
Principal-UK has remained constant at 33.375%. The increase in income is due to
improved performance of Principal-UK as its leased assets and their rents have
increased. Equity in earnings of Principal-Australia were relatively constant
during the period reflecting stable investment levels, fixed rental levels and
fixed long-term interest rates.
The change in the Medicare payment structure enacted last year resulted in
the prior year loss of $66,000 for Essex Healthcare Corporation. Essex
management continues to make progress in structuring operations to be profitable
under this payment structure and in improving performance at the several skilled
nursing facilities that were acquired when they were unprofitable. Essex has
recorded profits in three most recent quarters, including a profit of $75,000 in
the most recent quarter.
The Company's effective tax rate varies from the federal statutory rate of
34% due to the benefit of available foreign tax credits.
Liquidity and Capital Resources
During the quarter the Company borrowed funds to pay liabilities assumed
with the purchase of the Idun subsidiaries. As of quarter end, the Company had
cash and short-term investments of $1.6 million and availability of $8.2 million
under the Company's bank revolving credit facility. These funds are in excess of
short-term operating requirements of the Company and are available for further
investments or expansion of the Company's operations into other geographical
areas.
Market Risk
The Company is exposed to various market risks. Market risk is the
potential loss arising from adverse changes in market interest rates and prices,
such as short-term borrowing and foreign currency exchange rates. The Company
does not enter into derivatives or other financial instruments for trading or
speculative purposes. The Company enters into forward foreign currency contracts
principally to hedge currency fluctuations in its investments denominated in
foreign currencies, thereby limiting the Company's risk that would otherwise
result from changes in exchange rates. At December 31, 1999, the Company had
outstanding a ten-year British pound sterling forward currency swap to exchange
(pound)20,000,000 for $31,740,000 to mature on October 15, 2007, and a five-year
Australian dollar forward currency swap to exchange A$11.0 million Australian
dollars for $6,749,000 to mature on July 3, 2003. From time to time, the Company
may also obtain hedges for its foreign currency exposure relative to temporary
loans to Principal and the Trust. Because of the Company's foreign exchange
contracts, its sensitivity to foreign exchange currency exposure is considered
low.
Year 2000 Implications
The Company is not aware of any significant adverse effects of year 2000 on
its systems and operations.
11
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits - the following exhibits are filed herewith:
Exhibit Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K:
The following report on Form 8-K was filed since September 30, 1999:
Current report on Form 8-K dated November 12, 1999 with the following
exhibits:
Share Acquisition Agreement between Tamaris, plc and the Company
Current report on Form 8-K/A filed January 11, 2000
12
<PAGE>
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 hereunto duly authorized.
OMEGA WORLDWIDE, INC.
Registrant
By /s/ ESSEL W. BAILEY, Jr.
------------------------------
Essel W. Bailey, Jr.
February 14, 2000 President and Chief
Executive Officer
By /s/ EDWARD C. NOBLE
-------------------------------
Edward C. Noble
February 14, 2000 Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-2000
<PERIOD-START> Oct-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 1,971
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,188
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,994
<CURRENT-LIABILITIES> 32,146
<BONDS> 0
0
2,600
<COMMON> 1,228
<OTHER-SE> 61,059
<TOTAL-LIABILITY-AND-EQUITY> 100,994
<SALES> 0
<TOTAL-REVENUES> 27,528
<CGS> 25,448
<TOTAL-COSTS> 25,448
<OTHER-EXPENSES> 1,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,147
<INCOME-TAX> 250
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 845
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
