<PAGE>
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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 September 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 1865
Oxnard, California 93030
(Address of principal executive offices)
(805) 981-8659
(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 November 5,
1999 - 2,533,826 (excludes Treasury Shares of 802,056)
==============================================================================
<PAGE>
LTC HEALTHCARE, INC.
FORM 10-Q
SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
<S> <C> <C>
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 ...................... 9
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................................. 13
</TABLE>
2
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Real Estate Investments:
Buildings and improvements $ 61,539 $ 61,376
Land 3,806 3,806
Accumulated depreciation (5,794) (4,306)
------------- -------------
Land, buildings and improvements, net 59,551 60,876
Marketable Securities:
Equity securities 2,111 3,632
Debt securities 10,980 10,886
------------- -------------
13,091 14,518
Other Assets:
Cash and cash equivalents 387 1,012
Accounts receivable, net 724 -
Prepaid expenses and other assets 1,873 838
Notes receivable 2,011 -
------------- -------------
4,995 1,850
------------- -------------
Total Assets $ 77,637 $ 77,244
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable $ 46,104 $ 46,527
Line of credit from LTC Properties, Inc. 19,977 16,528
Accrued interest 302 308
Accrued expenses and other liabilities 1,358 633
------------- -------------
Total Liabilities 67,741 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, 1999-639,606 shares; 1998-151,050 shares (1,720) (384)
Cumulative net loss (671) (119)
Accumulated comprehensive loss (1,488) 33
------------- -------------
Total Stockholders' Equity 6,378 9,787
------------- -------------
Total Liabilities and Stockholders' Equity $ 77,637 $ 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 Nine Months Ended
September 30, September 30,
-------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,826 $ 423 $ 5,395 $ 423
Net patient revenues 996 - 996 -
Interest and other income 476 187 1,144 302
------ ------ ------- ------
Total revenues 3,298 610 7,535 725
------ ------ ------- ------
Expenses:
Interest on mortgages payable 979 144 2,936 144
Interest on line of credit from LTC Properties, Inc. 451 222 1,319 321
Depreciation 496 90 1,488 90
Minority interest 86 - 257 -
Salaries and benefits 747 - 747 -
Rent under operating leases with LTC Properties, Inc. 95 - 95 -
Other operating costs 586 191 1,245 204
------ ------ ------- ------
Total expenses 3,440 647 8,087 759
------ ------ ------- ------
Operating loss (142) (37) (552) (34)
Provision for income taxes - - - -
------ ------ ------- ------
Net loss $ (142) $ (37) $ (552) $ (34)
====== ====== ======= ======
Weighted average shares outstanding 2,689 3,323 2,744 3,323
Net Loss per Share:
Basic $(0.05) $(0.01) $ (0.20) $(0.01)
====== ====== ======= ======
Diluted $(0.05) $(0.01) $ (0.20) $(0.01)
====== ====== ======= ======
Comprehensive Loss:
Net loss $ (142) $ (37) $ (552) $ (34)
Unrealized loss on available-for-sale
equity securities (501) - (1,521) -
------ ------ ------- ------
Total comprehensive loss $ (643) $ (37) $(2,073) $ (34)
====== ====== ======= ======
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (552) $ (34)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,488 90
Other non-cash items (86) -
Net change in other assets and liabilities (118) 286
--------- ---------
Net cash provided by operating activities 732 342
CASH FLOWS USED IN FINANCING ACTIVITIES:
Stock repurchase (1,336) -
Advances under line of credit from LTC Properties, Inc. 8,123 8,635
Payments on line of credit from LTC Properties, Inc. (4,674) (17,668)
Mortgage loan borrowings - 17,400
Principal payments on mortgage loans payable (423) (21)
Issuance of common stock - 2,001
Other - 23
--------- ---------
Net cash provided in financing activities 1,690 10,370
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in debt securities - (8,500)
Investment in LTC Properties, Inc. common stock - (2,179)
Acquisition of business (450) -
Investment in notes receivable (2,011) -
Other (586) -
--------- ---------
Net cash used in investing activities (3,047) (10,679)
--------- ---------
Increase/(Decrease) in cash and cash equivalents (625) 33
Cash and cash equivalents, beginning of period 1,012 -
--------- ---------
Cash and cash equivalents, end of period $ 387 $ 33
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,753 $ 144
Non-cash investing and financing activities:
Contribution of net assets from LTC Properties, Inc. $ - $ 10,224
Purchase of mortgage loan receivable with a non-recourse note payable $ 13,691 $ -
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
LTC HEALTHCARE, 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 nine months ended September
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 nine months ended September 30, 1999 are not necessarily indicative of
the results for a full year.
2. NOTES RECEIVABLE
During the three months ended September 30, 1999, the Company funded $894,000
under 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 September 30, 1999 borrowings of $1,503,000 were outstanding
under the line of credit.
3. ACQUISITION OF GENERATIONS MANAGEMENT SERVICES, INC.
On August 20, 1999 the Company acquired Generations Management Services, Inc.
("Generations"), a skilled nursing facility management company for $450,000.
Generations manages the operations of ten skilled nursing facilities that are
operated by a third-party provider of long-term care. Management fees of
$114,000 are included in interest and other income in the accompanying
statement of operations for the three months ended September 30, 1999.
4. NURSING HOME OPERATIONS
On September 1, 1999 the Company entered into operating leases with LTC
Properties, Inc. ("LTC") and began operating six skilled nursing facilities
that were previously operated by Mariner Post-Acute Networks, Inc. The
facilities are located in Iowa and have a total of 448 licensed beds. Net
patient revenues and operating income generated by the operations of skilled
nursing facilities for the month of September 1999 were $996,000 and $72,000,
respectively.
Effective October 1, 1999, the Company entered into operating leases with LTC
and began operating six skilled nursing facilities which were previously
operated by a subsidiary of Sun Healthcare Group, Inc. ("Sun"). In addition,
effective October 1, 1999, the Company entered into operating leases with
LTC, on three skilled nursing facilities that were previously operated by
NewCare Health Corporation ("NewCare"). The facilities are located in six
states and have 1,119 licensed beds.
On September 30, 1999, the Company created LTC Healthcare Acquisition
Company, Inc. ("Acquisition Co."). Acquisition Co. was formed exclusively for
the purchase of the NewCare assets discussed below. Subsequently, effective
October 1, 1999 in an auction held by the Bankruptcy Court, Acquisition Co.
purchased three skilled nursing facilities and one hospital, a partnership
interest in a skilled nursing facility and leasehold interests in eight
skilled nursing facilities and one assisted living facility. All of the
properties were formerly owned and/or operated by NewCare. Acquisition Co.
acquired these assets and the related accounts receivable for a purchase
price of approximately $13 million. The purchase price was entirely financed
through a loan to Acquisition Co. by the lender who provided debtor in
possession financing to NewCare.
6
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In addition, Acquisition Co. received a $5 million working capital line of
credit from the same lender. The $13 million acquisition loan and the $5
million working capital line of credit are non-recourse to the Company and
are only secured by the assets of Acquisition Co. Three of these facilities
are leased from LTC. The 14 facilities are located in five states and have a
total of 1,192 licensed beds.
Effective October 1, 1999, the Company entered into a management agreement
with a third party operator of long-term care facilities for the operation of
the nine facilities discussed above that were formerly operated by Sun and
NewCare. Separately, Acquisition Co. entered into a management agreement with
the same third party operator for the operation of the 14 facilities
discussed above that were formerly operated by NewCare.
5. INCOME TAXES
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.
6. LTC PROPERTIES, INC.
During the three months ended September 30, 1999, the Company recorded
interest expense of $451,000 on the average outstanding principal balance
outstanding under the unsecured line of credit provided by LTC Properties,
Inc. ("LTC"). In addition, the Company paid LTC $162,000 for administrative
and management advisory services and $95,000 for facility lease payments.
At September 30, 1999, the Company held 194,100 shares of LTC common stock
which is accounted for at fair value as available-for-sale securities. As of
September 30, 1999, the LTC Properties common stock was recorded at its fair
value of approximately $2,062,000.
As of October 1, 1999, including the three facilities leased by Acquisition
Co., the Company leased 18 long-term care facilities with a total of 1,799
beds from LTC.
Subsequent to September 30, 1999, the Company sold 100% of the stock of
Missouri River Corporation ("Missouri River") to LTC for total proceeds of
$16,050,000 which equaled the Company's cost basis in the properties.
Missouri River owns two assisted living facilities that are leased under
long-term triple-net leases to a third-party operator. The proceeds of
$16,050,000 were used to repay outstanding borrowings under the revolving
line of credit provided by LTC.
7. CONCENTRATION OF CREDIT RISKS
As of September 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. As of September 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 September 30, 1999,
the Company's investment of $8,500,000 in Regent Assisted Living, Inc.
("Regent") convertible subordinated debentures represented 11% 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
7
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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>
June 30, December 31, Six Months Ended June 30,
---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
IHS
Total assets $5,403,912 $5,393,128 N/A N/A
Total debt 3,427,913 3,366,177 N/A N/A
Total stockholders' equity 1,299,542 1,331,965 N/A N/A
Total revenues N/A N/A $1,244,486 $1,671,554
Income/(loss) before taxes N/A N/A (5,455) 134,877
Net income/(loss) N/A N/A (11,219) 79,577
SUN
Total assets $1,832,791 $2,468,038 N/A N/A
Total debt 273,976 705,653 N/A N/A
Total stockholders' equity (660,736) 33,759 N/A N/A
Total revenues N/A N/A $1,273,946 $1,637,011
Income/(loss) before taxes and extraordinary items N/A N/A (687,126) (21,670)
Net income/(loss) N/A N/A (701,745) (55,652)
SUNRISE
Total assets $1,003,897 $683,411 N/A N/A
Total debt 582,095 428,326 N/A N/A
Total stockholders' equity 319,858 227,655 N/A N/A
Total revenues N/A N/A $112,902 $75,366
Income before taxes N/A N/A 16,907 8,209
Net income N/A N/A 12,642 8,209
REGENT
Total assets $63,577 $66,274 N/A N/A
Total debt 40,200 49,705 N/A N/A
Total stockholders' equity 249 4,255 N/A N/A
Total revenues N/A N/A $24,960 $10,961
Loss before taxes N/A N/A (3,706) (4,931)
Net loss N/A N/A (3,706) (4,931)
</TABLE>
Subsequent to September 30, 1999, Sun filed for Chapter 11 bankruptcy
protection. As of November 5, 1999, Sun was current on all rent payments due
to the Company.
8
<PAGE>
LTC HEALTHCARE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
The Company was created in March 1998 and spun-off from LTC Properties, Inc.
on September 30, 1998 and commenced nursing home operations on September 1,
1999, therefore the results of operations for the three and nine months ended
September 1999 are not comparative to the same periods in 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
THREE MONTHS ENDED SEPTEMBER 30, 1999
The Company recorded a total of $3,298,000 in revenue for the three months
ended September 30, 1999. Revenue consisted of rental income of $1,826,000,
net patient revenues from nursing home operations of $996,000 and interest
and other income of $476,000 which consisted primarily of interest income
from investments in debt securities of $233,000 and nursing home management
fees of $114,000.
Mortgage interest expense includes $320,000 on a 7.27% mortgage loan of
$17,163,000, and $659,000 on the remaining mortgage debt with a weighted
average rate of 9.1%. Interest on the line of credit from LTC of $451,000 for
the three months ended September 30, 1999 represents interest at 10% on
average borrowings outstanding under the unsecured credit line provided by
LTC to the Company.
Salaries and benefits of $747,000 for the three months ended September 30,
1999 consists of salaries and benefits related to nursing home operations of
approximately $637,000 and salaries and benefits related to the nursing home
management services of approximately $110,000. Rent of $95,000 represents
rent payments to LTC under operating leases on skilled nursing facilities.
Other operating costs includes a fee of $162,000 for services provided by LTC
under the administrative services agreement and costs of $192,000 related to
nursing home operations.
THREE MONTHS ENDED SEPTEMBER 30, 1998
The Company recorded a total of $610,000 in revenue for the three months
ended September 30, 1998. Revenue consisted of rental income of $423,000 and
interest and other income of $187,000 which consisted of interest income from
convertible subordinated debentures of $137,000 and dividend income of
approximately $50,000 .
Mortgage interest expense was $144,000 on a 7.27% mortgage loan of
$17,400,000 and interest on the line of credit from LTC was $222,000 for the
three months ended September 30, 1998. Other operating costs include a fee of
$175,000 for services provided by LTC under the administrative services
agreement.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
NINE MONTHS ENDED SEPTEMBER 30, 1999
The Company recorded a total of $7,535,000 in revenue for the nine months ended
September 30, 1999. Revenue consisted of rental income of $5,395,000, net
patient revenues from nursing home operations of $996,000 and interest and other
income of $1,144,000 which consisted primarily of interest income from
investments in debt securities of $693,000 and nursing home management fees of
$114,000.
Mortgage interest expense includes $951,000 on a 7.27% mortgage loan of
$17,163,000, and $1,985,000 on the remaining mortgage debt with a weighted
average rate of 9.1%. Interest on the line of credit from LTC of $1,319,000
for the nine months ended September 30, 1999 represents interest at 10% on
average borrowings outstanding under the unsecured credit line provided by
LTC to the Company.
Salaries and benefits of $747,000 for the nine months ended September 30,
1999 consists of salaries and benefits related to nursing home operations of
approximately $637,000 and salaries and benefits related to the nursing home
management services of approximately $110,000. Rent of $95,000 represents
rent payments to LTC under operating leases on skilled nursing facilities.
Other operating costs includes a fee of $577,000 for services provided by LTC
under the administrative services agreement and costs of $192,000 related to
nursing home operations.
NINE MONTHS ENDED SEPTEMBER 30, 1998
The Company recorded a total of $725,000 in revenue for the nine months ended
September 30, 1998. Revenue consisted of rental income of $423,000 and
interest and other income of $302,000 which consisted primarily of interest
income from convertible subordinated debentures of $242,000 and dividend
income of approximately $50,000.
9
<PAGE>
Mortgage interest expense was $144,000 on a 7.27% mortgage loan of
$17,400,000, and interest on the line of credit from LTC was $321,000 for the
nine months ended September 30, 1998. Other operating costs include a fee of
$175,000 for services provided by LTC under the administrative services
agreement.
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 September 30, 1999, the Company had borrowings
outstanding under the unsecured line of credit of $19,977,000. Subsequent to
September 30, 1999, the Company sold 100% of the stock of Missouri River
Corporation ("Missouri River") to LTC for total proceeds of $16,050,000 which
equaled the Company's cost basis in the properties. Missouri River owns two
assisted living facilities that are leased under long-term triple-net leases
to a third-party operator. The proceeds of $16,050,000 were used to repay
outstanding borrowings under the revolving line of credit provided by LTC.
Borrowing capacity of $16,073,000 was available under the unsecured line of
credit after the payment with the proceeds from the sale of Missouri River.
In addition to amounts available under the unsecured line of credit, as of
September 30, 1999, the Company owns unencumbered assets consisting of
$10,980,000 in convertible subordinated debentures and $2,111,000 in
marketable equity securities.
On September 30, 1999, the Company created LTC Healthcare Acquisition
Company, Inc. ("Acquisition Co."). Acquisition Co. was formed exclusively for
the purchase of the NewCare assets discussed below. Subsequently, effective
October 1, 1999 in an auction held by the Bankruptcy Court, Acquisition Co.
purchased three skilled nursing facilities and one hospital, a partnership
interest in a skilled nursing facility and leasehold interests in eight
skilled nursing facilities and one assisted living facility. Acquisition Co.
acquired these assets and the related accounts receivable for a purchase
price of approximately $13 million. The purchase price was entirely financed
through a loan to Acquisition Co. by the lender who provided debtor in
possession financing to NewCare. In addition, Acquisition Co. received a $5
million working capital line of credit from the same lender. The $13 million
acquisition loan and the $5 million working capital line of credit are
non-recourse to the Company and are only secured by the assets of Acquisition
Co.
The Company anticipates that cash flow from operations and amounts available
under its lines of credit 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 September 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 terms acceptable to the Company.
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
10
<PAGE>
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"). With the exception of the systems in place at
the recently acquired nursing home operations, 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
is currently in the process of evaluating the systems in place at the
recently acquired nursing home operations to determine if such systems are
year 2000 compliant. Systems related to the operation of nursing homes that
are non-compliant with the year 2000 and beyond could have a material adverse
impact on the Company's financial position, results of operations of
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 we and 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 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.
11
<PAGE>
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.
12
<PAGE>
PART II
LTC HEALTHCARE, INC.
OTHER INFORMATION
SEPTEMBER 30, 1999
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On October 15, 1999, the Company filed a Current Report on Form
8-K dated October 1, 1999 reporting that the Company had
commenced nursing home operations through a series of
transactions that included entering into operating leases for
long-term care properties and the leveraged acquisition of
long-term care properties.
On November 2, 1999, the Company filed a Current Report on Form
8-K dated October 18, 1999 reporting that the Company sold 100%
of the stock of Missouri River Corporation to LTC Properties,
Inc. for total proceeds of $16,050,000 and the use of the
proceeds to repay outstanding borrowings under the unsecured line
of credit provided by LTC Properties, Inc.
13
<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: November 15, 1999 By: /s/ JAMES J. PIECZYNSKI
------------------------
James J. Pieczynski
President and Chief Financial Officer
14
<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 SEPTEMBER
30, 1999 FILED HEREWITH AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0001059186
<NAME> LTC HEALTHCARE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 387
<SECURITIES> 13,091
<RECEIVABLES> 724
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 65,345
<DEPRECIATION> 5,794
<TOTAL-ASSETS> 77,637
<CURRENT-LIABILITIES> 1,660
<BONDS> 0
0
0
<COMMON> 33
<OTHER-SE> 6,345
<TOTAL-LIABILITY-AND-EQUITY> 77,637
<SALES> 0
<TOTAL-REVENUES> 3,298
<CGS> 0
<TOTAL-COSTS> 3,440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,430
<INCOME-PRETAX> (142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
