<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
----------
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 June 30, 1999
OR
/ / 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 1-14151
LTC HEALTHCARE, INC.
(Exact name of Registrant as specified in its charter)
Nevada 91-1895305
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
(Address of principal executive offices)
(805) 981-8655
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports 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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes _X_ No ___
Shares of Registrant's common stock, $.01 par value, outstanding at August 6,
1999 - 2,688,852 (excludes Treasury Shares of 634,580)
<PAGE>
LTC HEALTHCARE, INC.
FORM 10-Q
JUNE 30, 1999
INDEX
PART I -- FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets................................ 3
Condensed Consolidated Statement of Operations ...................... 4
Condensed Consolidated Statement of Cash Flows ...................... 5
Notes to Condensed Consolidated Financial Statements ................ 6
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations ............8
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................11
Item 6. Exhibits and Reports on Form 8-K ...................................11
2
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Real Estate Investments:
Buildings and improvements $ 61,376 $ 61,376
Land 3,806 3,806
Accumulated depreciation (5,298) (4,306)
--------------------------------------
Land, buildings and improvements, net 59,884 60,876
Mortgage loan receivable 13,556 -
--------------------------------------
73,440 60,876
Marketable Securities:
Available-for-sale equity securities 2,612 3,632
Held-to-maturity debt securities 10,949 10,886
--------------------------------------
13,561 14,518
Other Assets:
Cash and cash equivalents 486 1,012
Prepaid expenses and other assets 1,835 838
--------------------------------------
2,321 1,850
--------------------------------------
Total Assets $ 89,322 $ 77,244
--------------------------------------
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable $ 46,246 $ 46,527
Note payable 13,056 -
Line of credit from LTC Properties, Inc. 18,515 16,528
Accrued interest 419 308
Accrued expenses and other liabilities 525 633
--------------------------------------
Total Liabilities 78,761 63,996
Minority Interest 3,518 3,461
Commitments
Stockholders' Equity:
Preferred stock $0.01 par value: 10,000,000 shares authorized;
No shares issued and outstanding - -
Common stock: $0.01 par value; 40,000,000 shares authorized;
3,335,882 shares issued 33 33
Capital in excess of par value 10,224 10,224
Treasury stock, 1999-640,954 shares; 1998-151,050 shares (1,698) (384)
Cumulative net loss (529) (119)
Accumulated comprehensive loss (987) 33
--------------------------------------
Total Stockholders' Equity 7,043 9,787
--------------------------------------
Total Liabilities and Stockholders' Equity $ 89,322 $ 77,244
--------------------------------------
--------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,797 $ 105 $ 3,569 $ 105
Interest income from mortgage loan receivable 378 - 753 -
Interest and other income 303 10 632 10
------------------------------------------------------------
Total revenues 2,478 115 4,954 115
------------------------------------------------------------
Expenses:
Interest on mortgages payable 979 - 1,957 -
Interest on line of credit from LTC Properties, Inc. 442 98 867 98
Interest on note payable 355 - 717 -
Depreciation 496 - 992 -
Minority interest 86 - 172 -
General and administrative 388 13 659 13
------------------------------------------------------------
Total expenses 2,746 111 5,364 111
------------------------------------------------------------
Operating income (loss) (268) 4 (410) 4
Provision for income taxes - (1) - (1)
------------------------------------------------------------
Net loss $ (268) $ 3 $ (410) $ 3
------------------------------------------------------------
Weighted average shares outstanding 2,696,269 - 2,771,879 -
Net Loss per Share:
Basic $ (0.10) - $ (0.15) -
------------------------------------------------------------
------------------------------------------------------------
Diluted $ (0.10) - $ (0.15) -
------------------------------------------------------------
------------------------------------------------------------
Comprehensive Loss:
Net loss $ (268) $ 3 $ (410) $ 3
Unrealized gain/(loss) on available-for-sale
equity securities 148 - (1,020) -
------------------------------------------------------------
Total comprehensive loss $ (120) $ 3 $ (1,430) $ 3
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (410) $ 3
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 992 -
Other non-cash items (57) -
Increase in accrued interest 111 98
Net change in other assets and liabilities (160) (5)
------------ -----------
Net cash provided by operating activities 476 96
CASH FLOWS USED IN FINANCING ACTIVITIES:
Stock repurchase (1,314) -
Advances under line of credit from LTC Properties, Inc. 5,071 4,939
Payments on line of credit from LTC Properties, Inc. (3,084) -
Principal payments on note payable (635) -
Principal payments on mortgage loans payable (281) -
Issuance of common stock - 2,002
------------ -----------
Net cash used in financing activities (243) 6,941
CASH FLOWS USED IN INVESTING ACTIVITIES:
Principal payments on mortgage loan receivable 135 -
Investment in Regent convertible subordinated debentures - (6,500)
Investment in LTC Properties common stock - (436)
Other (894) -
------------ -----------
Net cash used in investing activities (759) (6,936)
------------ -----------
Decrease in cash and cash equivalents (526) 101
Cash and cash equivalents, beginning of period 1,012 -
Cash and cash equivalents, end of period $ 486 $ 101
------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,963 $ -
Non-cash investing and financing activities:
Purchase of mortgage loan receivable with a non-recourse note payable $ 13,691 $ -
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements included herein have been
prepared by LTC Healthcare, Inc. (the "Company") without audit and in the
opinion of management, include all adjustments necessary for a fair
presentation of the results of operations for the six months ended June 30,
1999 pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying condensed consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiaries and
controlled partnerships. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations; however the Company
believes that the disclosures in the accompanying financial statements are
adequate to make the information presented not misleading. The results for
the six months ended June 30, 1999 are not necessarily indicative of the
results for a full year.
The Company was not publicly traded until September 30, 1998 therefore,
earnings per share disclosure has not been included for 1998.
2. CONCENTRATION OF CREDIT RISKS
As of June 30, 1999, Integrated Health Services, Inc. ("IHS"), Sun Healthcare
Group, Inc., through a wholly-owned subsidiary, ("Sun") and Sunrise Assisted
Living, Inc. through a wholly-owned subsidiary, ("Sunrise") were the
Company's largest operators. During the second quarter of 1999, Sunrise
Assisted Living acquired Karrington Health, Inc. As of June 30, 1999,
approximately 11%, 25% and 60% of the Company's gross real estate investments
were leased to IHS, Sun and Sunrise, respectively. In addition, as of June
30, 1999, the Company's investment of $8,500,000 in Regent Assisted Living,
Inc. ("Regent") convertible subordinated debentures represented 10% of the
Company's total assets. The Company's financial position, results of
operations and liquidity could be adversely affected by financial
difficulties experienced by IHS, Sun, Sunrise or Regent, including
bankruptcy, insolvency or general downturn in business, or in the event IHS,
Sun, or Sunrise does not renew and/or extend its leases with the Company as
they expire. IHS, Sun, Sunrise and Regent are publicly traded companies, and
as such are subject to the filing requirements of the Securities and Exchange
Commission.
The following table contains summary information (in thousands) for IHS, Sun,
Sunrise and Regent that was extracted from public reports on file with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
Three Months Ended March 31,
March 31, December 31, ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
IHS
Total assets $ 5,340,951 $ 5,393,128 N/A N/A
Total debt 3,397,361 3,366,177 N/A N/A
Total stockholders' equity 1,302,349 1,331,965 N/A N/A
Total revenues N/A N/A $ 620,235 $ 854,880
Income/(loss) before taxes N/A N/A (4,386) 64,543
Net income/(loss) N/A N/A (6,588) 38,080
6
<PAGE>
Three Months Ended March 31,
March 31, December 31, ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SUN
Total assets $ 2,384,915 $ 2,468,038 N/A N/A
Total debt 687,790 705,653 N/A N/A
Total stockholders' equity (73,260) 33,759 N/A N/A
Total revenues N/A N/A $ 673,032 $ 741,490
Income/(loss) before taxes and extraordinary items N/A N/A (98,529) 31,977
Net income/(loss) N/A N/A (113,147) 18,387
SUNRISE
Total assets $ 725,542 $ 683,411 N/A N/A
Total debt 463,407 428,326 N/A N/A
Total stockholders' equity 236,804 227,655 N/A N/A
Total revenues N/A N/A $ 51,378 $ 34,912
Income before taxes N/A N/A 9,385 3,623
Net income N/A N/A 7,226 3,623
REGENT
Total assets $ 60,865 $66,274 N/A N/A
Total debt 44,189 49,705 N/A N/A
Total stockholders' equity 2,104 4,255 N/A N/A
Total revenues N/A N/A $11,926 $ 4,288
Loss before taxes N/A N/A (2,001) (2,395)
Net loss available to common shareholders N/A N/A (2,151) (2,545)
</TABLE>
3. OTHER ASSETS
During the three months ended June 30, 1999, the Company issued a working
capital line of credit to BMW Healthcare, Inc. The amount available under the
line of credit is $2,000,000 and bears interest at prime plus 2%. As of June 30,
1999 borrowings of $609,000 were outstanding under the line of credit.
4. LTC PROPERTIES, INC.
During the three months ended June 30, 1999, the Company recorded interest
expense of $442,000 on the average outstanding principal balance outstanding
under the unsecured line of credit provided by LTC Properties and the Company
reimbursed LTC Properties $242,000 for administrative and management advisory
services.
At June 30, 1999, the Company held 194,100 shares of LTC Properties common stock
which is accounted for at fair value as available-for-sale securities. As of
June 30, 1999, the LTC Properties common stock was recorded at its fair value of
approximately $2,523,000.
7
<PAGE>
LTC HEALTHCARE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS
The Company recorded a total of $2,478,000 in revenue for the three months
ended June 30, 1999. Revenue consisted of rental income of $1,797,000,
interest income of $378,000 from the mortgage loan receivable at an effective
rate of 11.2% and interest and other income which consisted primarily of
interest income from convertible subordinated debentures of $220,000 and
dividend income of $76,000.
Mortgage interest expense includes $317,000 on a 7.27% mortgage loan of
$17,221,000, and $662,000 on mortgage debt with a weighted average rate of
9.1%. Interest on the line of credit from LTC Properties, Inc. ("LTC") of
$442,000 for the three months ended June 30, 1999 represents interest at 10%
on average borrowings outstanding under the unsecured credit line provided by
LTC to the Company. Interest on the non-recourse note payable of $355,000
represents interest at an effective rate of 10.9% for the three months ended
June 30, 1999.
General and administrative expenses were $388,000 for the three months ended
June 30, 1999, the majority of which is reimbursement of costs and services
of $242,000 provided by LTC under the administrative services agreement.
No benefit for income taxes was recorded since the Company believes that it
is more likely than not that future taxable income will not be sufficient to
realize tax benefits associated with net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the formation and capitalization of the Company, LTC
provided the Company with a $20.0 million unsecured line of credit.
Borrowings outstanding under the unsecured line of credit bear interest at
10% and mature in 2008. As of June 30, 1999, the Company had borrowings
outstanding under the unsecured line of credit of $18,515,000.
In addition to amounts available under the unsecured line of credit, as of
June 30, 1999, the Company owns unencumbered assets consisting of
approximately $16,050,000 in real estate, $10,949,000 in convertible
subordinated debentures and $2,612,000 in marketable equity securities.
The Company anticipates that cash flow from operations will be adequate to
meet its short-term liquidity requirements. The Company expects to meet its
long term liquidity requirements such as property acquisitions and
development, the granting of high yield loans, the purchase of equity
investments and mortgage debt maturities through the most advantageous
sources of capital available to the Company at that time. This may include,
but not be limited to, the sale of common stock, or preferred stock through
public offerings or private placements, the incurrence of indebtedness
through secured or unsecured borrowings and the reinvestment of proceeds from
the disposition of assets. Currently the Company has no external source of
financing and the Company has not received any commitment with respect to any
funds needed in the future. The Company expects to be able to access capital
markets or to seek other financing, but there can be no assurance that it
will be able to do so at all or in amounts or on terms acceptable to the
Company.
As of June 30, 1999, the Company has no commitments to purchase any additional
assets. The Company intends to operate its business as described herein, and may
purchase additional assets from time to time in the future. The purchase of
additional assets will be contingent upon securing adequate funding on
8
<PAGE>
terms acceptable to the Company. The Company is not aware of any material
unfavorable trends in either capital resources or the outlook for long-term
cash generation; nor, does it expect any material changes in the availability
and relative cost of such capital resources.
YEAR 2000
Currently many computer programs assume the first two digits of a year are "19"
and simply identify a year by the last two digits. It is widely anticipated
that, beginning in the year 2000 when the first two digits of a year are "20"
rather than "19", these computer programs will incorrectly identify the year
(i.e. the year 2000 will be incorrectly identified as 1900). Such
miscalculations could result in the disruption of operations that are reliant on
these computer programs. Computer programs that identify a year by four digits
are deemed to be year 2000 compliant. The statements in this section include
year 2000 readiness disclosure within the meaning of the Year 2000 Information
and Readiness Disclosure Act of 1998.
STATUS OF THE COMPANY'S INFORMATION TECHNOLOGY SYSTEMS AND NON-INFORMATION
TECHNOLOGY SYSTEMS. The Company's primary use of information technology systems
is its internal accounting and information management software (collectively the
"Systems"). The Company has evaluated the Systems to assess whether they will
function properly with respect to dates in the year 2000 and beyond. Systems
that were determined to be non-compliant with the year 2000 and beyond have been
upgraded or replaced. Implementation of year 2000 compliant Systems and upgrades
to existing Systems have been completed. The total cost associated with
modifications required to become year 2000 compliant was not material to the
Company's financial position, results of operations or liquidity. Due to the
Company's limited reliance on complex Systems, the Company believes the year
2000 issue, as it relates to its internal Systems, will not have a material
adverse effect upon the Company's financial position, results of operations or
liquidity.
The Company will also have year 2000 exposure in non-information technology
areas as it relates to owned properties and its leased corporate offices. There
is a risk that embedded chips in elevators, security systems, electrical systems
and similar technology-driven devices may stop functioning on January 1, 2000.
All of the Company's owned properties are leased under triple-net leases and as
such, the cost to repair any of these items will be paid by the lessee. While
any disruption in services at our corporate offices due to failure of
non-information technology systems may be inconvenient and disruptive to
day-to-day activities, it is not expected to have a material adverse effect on
our financial position, results of operations or liquidity.
EXPOSURE TO THIRD PARTY YEAR 2000 ISSUES. The Company depends upon the
following third parties:
- - its tenants and other third parties in which it has made investments in
their debt and equity securities for rents and cash flows;
- - its financial institutions for availability of working capital; and
- - its transfer agent to maintain and track investor information.
If our primary tenants or other third parties in which we have made
investments are not year 2000 compliant, or if they face disruptions in their
cash flows due to year 2000 issues, we could face significant temporary
disruptions in our cash flows after that date. These disruptions could be
compounded if the commercial banks that process our cash receipts and
disbursements are not year 2000 compliant.
Neither we nor our lessees can be assured that the federal and state
governments, upon which our lessees rely for Medicare and Medicaid revenue, will
be in compliance in a timely manner. The General Accounting Office has reported
that the Health Care Financing Administration, which runs Medicare, is behind
schedule in taking steps to deal with the year 2000 issue and that it is highly
unlikely that all of
9
<PAGE>
the Medicare systems will be compliant in time to ensure the delivery of
uninterrupted benefits and services into the year 2000. The General
Accounting Office has also reported that, based upon its survey of the
states, the District of Columbia and three territories, less than 16% of the
automated systems used by state and local government to administer Medicaid
are reported to be year 2000 compliant. Due to the general uncertainty
surrounding the readiness of third-party tenants and other third-parties,
including the federal and state governments, with which the Company and its
lessees does business, the Company is unable at this time to determine
whether non-compliance with the year 2000 issue by third-parties will have a
material impact on the Company's financial position, results of operations or
liquidity.
CONTINGENCY PLAN. In the event we experience a significant disruption in cash
receipts due to a delay in Medicare or Medicaid receipts by our tenants or due
to other year 2000 non-compliance issues, we would seek additional liquidity
from our lenders and slow our investment activity.
Readers are cautioned that forward-looking statements contained in the above
discussion regarding year 2000 compliance should be read in conjunction with the
disclosure under the heading -Statement Regarding Forward Looking Disclosure.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain information contained in this report includes forward looking
statements, which can be identified by the use of forward looking terminology
such as "may", "will", "expect", "should" or comparable terms or negatives
thereof. These statements involve risks and uncertainties that could cause
actual results to differ materially from those described in the statements.
These risks and uncertainties include (without limitation) the following: the
effect of economic and market conditions and changes in interest rates,
government policy relating to the health care industry including changes in
reimbursement levels under the Medicare and Medicaid programs, changes in
reimbursement by other third party payors, the financial strength of the
operators of the Company's facilities as it affects the continuing ability of
such operators to meet their obligations to the Company under the terms of the
Company's agreements with its borrowers and operators, the amount and the timing
of additional investments, access to capital markets and changes in tax laws and
regulations.
10
<PAGE>
PART II
LTC HEALTHCARE, INC.
OTHER INFORMATION
JUNE 30, 1999
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
LTC Healthcare, Inc. held its Annual Meeting of Stockholders (the "Meeting") on
May 25, 1999, at which the Company's stockholders voted to elect the nominated
board of five directors for the ensuing year or until the election and
qualification of their respective successors.
Holders of record of the Company's common stock as of the close of business on
March 31, 1999 were entitled to vote at the Meeting. As of the close of business
on March 31, 1999, there were 2,709,382 shares of common stock outstanding and
entitled to vote and 2,625,906 of such shares were represented at the Meeting.
Each of the directors received 99% of the shares cast in favor of his or her
election.
The shares cast for each director were as follows: Andre C. Dimitriadis:
2,609,105 for and 16,801 withheld; James J. Pieczynski: 2,609,115 for and 16,791
withheld; Steven Stuart: 2,608,954 for and 16,952 withheld; Bary G. Bailey;
2,609,044 for and 16,862.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
six months ended June 30, 1999.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LTC HEALTHCARE, INC.
Registrant
Dated: August 16, 1999 By: /s/ JAMES J. PIECZYNSKI
---------------------------------
James J. Pieczynski
President and Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LTC
HEALTHCARE, INC.'S ANNUAL REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1999 FILED HEREWITH AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001059186
<NAME> LTC HEALTHCARE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 486
<SECURITIES> 13,561
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 65,182
<DEPRECIATION> 5,298
<TOTAL-ASSETS> 89,322
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 33
<OTHER-SE> 7,010
<TOTAL-LIABILITY-AND-EQUITY> 89,322
<SALES> 0
<TOTAL-REVENUES> 2,478
<CGS> 0
<TOTAL-COSTS> 2,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,776
<INCOME-PRETAX> (268)
<INCOME-TAX> 0
<INCOME-CONTINUING> (268)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (268)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
